Environmental Enforcement Policy Developments: The Trump Administration and Congress Make Their Mark

by Beveridge & Diamond PC

Beveridge & Diamond PC

During the past year, numerous developments have signaled a change in approach to environmental enforcement as it is being conducted by the Trump Administration.  Enforcement continues, in several cases on high profile matters, but there are differences in scope and approach when compared to the prior administration.  Several of these developments are discussed below, followed by a list of key takeaways.

Limiting the Use of Agency Guidance

In a memorandum dated November 2017, Attorney General Jeff Sessions declared that DOJ would no longer issue guidance documents “that effectively bind private parties without undergoing the rulemaking process.”[1]  The Attorney General stated, in very direct language, that the Department of Justice (“DOJ”) would not use guidance to coerce private parties into taking or refraining from action beyond what is required by statute or regulation.  He explained that DOJ guidance documents should not use mandatory language to direct private parties to take or refrain from action “except when restating – with citations to statutes, regulations, or binding judicial precedent - clear mandates contained in a statute or regulation”.

With these statements, the Attorney General essentially stated his expectation that DOJ would not exercise authority to interpret statutory or regulatory requirements beyond their clearly discernable meaning, absent a formal notice and comment rulemaking process.

By memorandum of January 25, 2018, Associate Attorney General Rachel Brand issued a companion memorandum to the heads of all civil litigation components at DOJ, seeking to apply the limitations on the use of guidance as established by the Attorney General to policy documents that have been issued by other federal agencies.  In her memorandum, the Associate Attorney General directed DOJ’s civil litigators that in affirmative civil enforcement cases they were to limit their use of other agencies’ guidance documents to ensure that such guidance was not being used to create binding requirements that do not already exist in statutes or regulations. The Associate Attorney General stated two guiding principles: that DOJ “may not use its enforcement authority to effectively convert agency guidance documents into binding rules”[2], and that DOJ may not “use noncompliance with guidance documents as the basis for proving violations of applicable law”.

While Associate Attorney General Brand announced her resignation just two weeks after issuing her memorandum, it remains in force and is presumed to have the full support of the Attorney General as a logical extension of his earlier guidance.

Tax Act Deductibility of Certain Costs of Restitution and Return to Compliance

The Tax Cuts and Jobs Act of 2017, Public Law 115-97 (the “Tax Act”),included a section addressing the treatment of certain costs of enforcement settlement and injunctive relief under the Tax Code. The Tax Act revised 26 U.S.C. § 162(f) by adding language that specifically allows deductions for projects where a taxpayer can establish that an expenditure either “constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation or potential violation of any law, or is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry...”.[3]

For such expenses to be deductible under this section, a court order or settlement document must identify a payment as “restitution or an amount paid to come into compliance” with a law, and the Internal Revenue Service (“IRS”) must agree that the expense is deductible.

The Tax Act also created a new requirement under 26 U.S.C. § 6050X for government agencies to file an informational report with the IRS at the time an agreement is entered into, stating the amount required to be paid for restitution or remediation of property, or for purposes of coming into compliance with any law that was violated or involved in an investigation or inquiry. 

On March 27, 2018, the IRS issued a transitional guidance document, Notice 2018-23, indicating that IRS anticipates issuing draft regulations jointly with the Treasury Department addressing the new deduction exemption and reporting provisions, and stating that until the draft regulations are published no agency reporting would be required under Section 6050X. The transitional guidance also stated that, until draft regulations are issued, the requirement that a qualifying restitution or compliance project must be identified in a court order or settlement document will be treated as satisfied for an amount if the settlement agreement or court order specifically states on its face that the amount is to be paid for restitution, remediation, or for coming into compliance with the law.

Emphasis on State-Federal Cooperation

Building on the goal of cooperative federalism in EPA’s fiscal year 2018-2022 strategic plan, a January 22, 2018 EPA memorandum from Susan Bodine, Assistant Administrator of the Office of Enforcement and Compliance Assurance (“OECA”), provided direction to EPA’s regions to “immediately begin the movement toward a more collaborative partnership between the EPA and authorized States.”[4]

The memorandum established two mechanisms for building this partnership. First, each region was tasked with periodically meeting senior state leadership to ensure that EPA keeps state political leaders informed of planned compliance assurance work, such as high profile inspections and enforcement actions, and to share information on a variety of topics including facilities to be inspected, why facilities have been selected for inspection, and how to use resources to meet national inspection expectations.

Second, EPA regions were directed to generally defer to authorized States to be the “primary day-to-day implementer” for authorized and delegated programs. Exceptions to this deferral are to be identified through close communication and management discussions. Several examples are provided of situations that could warrant EPA involvement, including emergency situations, significant noncompliance that a state has not timely addressed, actions to address widespread noncompliance in a sector or program (such as EPA’s National Enforcement Initiatives), and serious violations that warrant investigation by EPA’s criminal enforcement program.

Environment and Natural Resources Division’s Enforcement Principles and Priorities

On March 12, 2018, Jeffrey Wood, Acting Assistant Attorney General of the Environment and Natural Resources Division of the Department of Justice (“ENRD”), issued a memorandum laying out the enforcement principles and priorities that would guide the work of ENRD.[5]  The memorandum described seven enforcement principles and five enforcement priorities, as follows:

Enforcement Principles

  • Adhere to the impartial rule of law
  • Enhance cooperative federalism
  • Exercise pragmatic decision making
  • Employ the full range of enforcement tools
  • Coordinate with agencies
  • Collaborate with U.S. Attorneys’ offices
  • Protect taxpayers and the public fisc.

Enforcement Priorities

  • “Back to Basics” focus on clean water, clean air and clean land
  • Maintain the integrity of environmental laws and programs
  • Fight fraud and recover taxpayers funds
  • Fight violent and/or organized crime
  • Protect American’s workers, competitiveness and infrastructure.

End of Sue-And-Settle

On October 16, 2017, EPA Administrator Scott Pruitt released a memorandum and directive regarding what the Administrator viewed was EPA’s prior policy of settling litigation challenging agency actions or failures to act by agreeing in a judicially binding settlement document to take actions with a certain end in mind.[6]

In Administrator Pruitt’s view, this “sue and settle” phenomenon undermined the agency’s processes, threatened the rule of law and violated the principles of cooperative federalism.  In particular, Administrator Pruitt argued that the “sue and settle” approach bypassed important procedural safeguards in the Administrative Procedure Act, upset the Constitution’s balance of powers by ceding to the judiciary the ability to dictate executive branch priorities and depriving the Congress of its ability to exercise oversight responsibility, and undermined the principle of cooperative federalism by excluding states from meaningful participation in procedural and substantive agency actions. 

The directive that the Administrator released establishes procedures that EPA will follow when it is sued in federal court to ensure there is public transparency, and prohibits EPA from entering into any consent decree that converts a discretionary agency duty into a mandatory duty to issue, revise or amend regulations.  The directive also requires EPA to post online for review and public comment any proposed consent decree or draft settlement agreement that would resolve claims against the Agency.

Early Notice of Regional EPA Referrals to DOJ

In an effort to promote a more centralized understanding of EPA enforcement cases, in a March 23, 2018 memorandum Assistant Administrator Bodine of OECA instructed EPA regional offices that they should provide her office with early notice of civil enforcement cases recommended for referral to DOJ.

The memorandum indicated that cases led by regions should be briefed to the relevant Regional Administrator before action is taken, and that the requested early notices to OECA should include a statement of the Regional Administrator’s position on the matter. For cases led by headquarters, the briefing would be conducted directly for the Assistant Administrator.[7]

The memorandum states that the early notice to OECA will help to ensure the smooth management of judicial cases, in furtherance of EPA’s interest in reducing the average time from the identification of a violation to correction.

Withdrawal of NextGen Memo

By memorandum of April 3, 2018, Assistant Administrator Bodine withdrew EPA’s 2015 policy on the incorporation of “Next Generation” compliance tools into enforcement settlements. The 2015 policy had favored innovative enforcement settlements that expanded compliance activities to require settling defendants to install infrastructure and equipment that went beyond what was required for compliance with existing laws or regulations, and called for these arrangements to be routinely used in agency settlements (“NextGen Policy”).[8]

Assistant Administrator Bodine’s memorandum stated that the withdrawal of the NextGen Policy is intended to “make clear that there is no default expectation that ‘innovative enforcement’ provisions will routinely be sought as injunctive relief, where such activities are not required by the applicable statute or regulation.”  Instead, the memorandum explains, the identification of appropriate injunctive relief should be left to the wise exercise of enforcement and prosecutorial discretion, which will be informed by the particular facts and circumstances of individual cases.

These collected enforcement announcements share some common themes that are putting a unique stamp on the environmental enforcement activities of the Trump Administration:

  • The Administration is focused on the central theme of promoting the rule of law, a concept that is explained as ensuring that the government’s enforcement activity is based upon statutory and regulatory provisions, and not policies or interpretations that arise from agency guidance documents.
  • EPA and DOJ officials have committed to implementing cooperative federalism, an approach which provides states with an enhanced role in administering environmental requirements. Consequently, we can expect that states will be allowed to implement their environmental enforcement programs with a higher degree of individuality than might have previously been tolerated.
  • The EPA Administrator has signaled that he expects EPA to stop settling challenges to agency actions through a “sue and settle” process and that he will either defend agency actions or offer opportunities for notice and public comment before committing to judicially enforceable commitments to resolve such challenges. This may result in fewer challenges, or it may result in longer periods of litigation and therefore slower progress towards final binding agency decisions.
  • EPA’s enforcement office is playing an enhanced coordination role for enforcement matters that may be referred to DOJ for civil prosecution, and DOJ’s ENRD has announced the principles and priorities that will govern its activities and the cases that it expects to pursue.
  • Congress has offered tax advantages to entities that enter into judicial decrees or settlement agreements to resolve damage or harm caused by a violation of law, or that have expenditures necessary to come into compliance with law.

[1] Memorandum, Attorney General, U.S. DOJ, Prohibition on Improper Guidance Documents (Nov. 16, 2017).

[2] Memorandum, Associate Attorney General, U.S. DOJ, Limiting the Use of Agency Guidance in Affirmative Civil Enforcement Cases (Jan. 25, 2018).

[3] U.S.C. § 162(f)(2)(A).

[4] Memorandum, Susan Bodine, U.S. EPA, Interim OECA Guidance on Enhancing Regional-State Planning and Communication on Compliance Assurance Work in Authorized States (Jan. 22, 2018).

[5] Memorandum, Jeffrey Wood, U.S. DOJ, Enforcement Principles and Priorities (Mar. 12, 2018).

[6] Memorandum, Scott Pruitt, U.S. EPA, Adhering to the Fundamental Principles of Due Process, Rule of Law, and Cooperative Federalism in Consent Decrees and Settlement Agreements (Oct. 16, 2017); Directive, Scott Pruitt, U.S. EPA, Directive Promoting Transparency and Public Participation in Consent Decrees and Settlement Agreements (Oct. 16, 2017).

[7] Memorandum, Susan Bodine, U.S. EPA, Interim Procedures for Providing Early Notice of Civil Judicial Referrals (Mar. 23, 2018).

[8] Memorandum, Susan Bodine, U.S. EPA, The Appropriate Use of Compliance Tools in Civil Enforcement Settlements (Apr. 3, 2018).

[View source.]

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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