Post Authored By: Molly Snittjer
For decades prior to the Trump administration, Supplemental Environmental Projects (SEPs), have been incorporated into environmental enforcement settlements by the U.S. Department of Justice (“DOJ”) as an efficient way to achieve environmental progress following an environmental violation, and mitigate civil penalties. However, starting in June 2017, the legality of SEPs began to be questioned by DOJ and its Environment and Natural Resources Division (“ENRD”). After a series of memorandums issued by DOJ and ENRD that followed, the use of SEPs in federal settlements was gradually restricted, and ultimately prohibited in March 2020.
Now just days before the transition to the Biden administration, ENRD issued two final memorandums on January 12 and 13, 2021 to present its position on the legality of SEPs, and provide the new administration with an alternative to SEPs that it asserts is legally defensible. Though this issue will continue to unfold during the transition, the addition of these two memorandums provides a complete picture of the impacts to the SEP policy over the past four years, and the explains where the SEP policy stands at the conclusion of the Trump administration.
- ENRD attorneys are prohibited from including SEPs in federal settlements because DOJ considers them to be unlawful third-party payments and diversions of penalty funds.
In June 2017, DOJ issued a general prohibition on entering into settlements that require defendants to make a payment to third parties, and stated that third party payments were only acceptable if they directly mitigate the harm caused.[i] SEPs were not explicitly targeted in the memo, and initially, ENRD’s response was to simply clarify the circumstances under which SEPs may be permissible. In November 2018, another general DOJ memorandum was issued stating that a consent decree “must not be used to achieve general policy goals or to extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgment.”[ii] ENRD issued an interpretation of DOJ’s memorandum in August 2019 that included a prohibition on SEPs in settlements where states and municipalities are defendants.[iii] That prohibition was expanded to private parties in March 2020 when ENRD attorneys were directed that SEPs were not to be used in settlements unless specifically authorized by statute.
The January 13th memorandum, titled “Guidance Regarding Newly Promulgated Rule Restricting Third Party Payments, 28 C.F.R. § 50.28” addresses a December 2020 revision to DOJ regulations, titled “Prohibition on settlement payments to non-governmental third parties” 85 Fed. Reg. 81,409 (Dec. 16, 2020); 28 C.F.R. § 50.28. The new regulation formalizes and clarifies the requirements of the June 2017 memorandum which began the series of restrictions on using SEPs in federal settlements by prohibiting any settlement that “directs or provides for a payment or loan, in cash or in kind, to any non-governmental person or entity that is not a party to the dispute,” with limited exceptions. 28 C.F.R. § 50.28(b). One such exception explicitly states that SEPs are not to be interpretated as an exception:
“When the otherwise lawful payment or loan, in cash or in kind, provides restitution or compensation to a victim, though in no case shall any such agreements require defendants in environmental cases, in lieu of payment to the Federal Government, to expend funds to provide goods or services to third parties for Supplemental Environmental Projects” 28 C.F.R. § 50.28(c)(1)(emphasis added).
The new memorandum explains that the regulation is mostly a restatement of previous policies, and “does not impose any drastic new requirements on this Division.” Rather, it serves to emphasize that the regulation is a new, separate legal basis for the prohibition of SEPs and provide a final summary of ENRD’s position on the unlawfulness of SEPs.
- SEPs are explicitly permitted in federal settlements in two limited circumstances.
Part of DOJ and ENRD’s reasoning for prohibiting SEPs is that congress has never authorized them by statute, and therefore they cannot be lawfully ordered by a court. However, SEPs are authorized in one discrete part of the Clean Air Act – a 2008 amendment that expressly allows SEPs related to diesel fuel emissions. 42 U.S.C. § 16138.[iv] ENRD recognizes that SEPs are not prohibited in this context.
SEPs are also not prohibited in federal environmental settlements with an intervening party. In an opinion issued December 3, 2020, a judge in the Eastern District of Michigan found that in a DOJ enforcement action where an environmental organization intervened with a citizen suit for separate relief, DOJ did not have authority to withhold approval of the intervening party’s settlement containing a SEP. (U.S. v. DTE Energy Co., 10-CV-13101). The intervening party was permitted to include a SEP in its separate settlement agreement because, even though DOJ was a party to the case, DOJ had its own consent decree and the separate agreement did not in any way infringe upon DOJ’s authority to settle with the defendant.
- Federal environmental settlements may include mitigation projects instead of SEPs.
In the January 12th memorandum titled “Equitable Mitigation in Civil Enforcement Cases” ENRD concludes that a court would be authorized to order mitigation projects, thus ENRD attorneys may include mitigation projects in settlements. Mitigation is strongly distinguished as a lawful alternative to SEPs. ENRD’s reasoning is that most federal environmental statues include general, discretionary statutory authority to restrain violations, require compliance, assess civil penalties, or award other appropriate relief, which includes the ability to require a party to remedy past harms. However, the memorandum emphasizes that this is not a “blank check”— injunctive relief remains a “drastic and extraordinary remedy,” and any mitigation relief must be narrowly tailored. Therefore, ENRD attorneys must justify that such measures could be legally ordered by a court, and that they directly address the harm caused by the violations at issue.
The January 12th memorandum leaves many loose ends. For instance, it is unclear which party is to propose the project, whether the project would be voluntary or required, or how such projects would be “valued” in a settlement negotiation. However, it leaves the incoming Biden Administration with a compromised approach that is legally defensible and therefore has a greater chance of surviving the transition.
The Trump Administration has left a carefully crafted legal justification for its policy prohibiting SEPs and for the equitable mitigation approach, but these are still almost entirely reversible. The Biden administration will now have the opportunity to either return to a policy of permitting SEPs in federal settlements, or to proceed with filling in the details of the Trump Administration’s compromised mitigation approach. Either way, there is certain to be more to come from DOJ and ENRD on this issue in the coming months.
On February 4, 2021, ENRD withdrew the memorandum representing the Trump Administration’s position on SEPs. ENRD states that the withdrawal is appropriate because the referenced memorandums are “inconsistent with longstanding Division policy and practice and because they may impede the full exercise of enforcement discretion in the Division’s cases.”
The legal authority for the February 4th Memorandum is based on Executive Order 13,990, “Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis” which President Biden signed on the day of his inauguration. The Executive Order directs agencies to “immediately review and, as appropriate and consistent with applicable law, take action to address” regulations or agency actions “that conflict with these important national objectives.”
The February 4th memorandum does not automatically reinstate SEPs because it only withdraws the ENRD policy memorandums. The DOJ regulation prohibiting third party payments that is described by the January 13th Memorandum is still in effect, therefore the “separate, legal basis” for the prohibition on SEPs still exists and would need to be addressed by DOJ. Instead, this is a first step towards forming a new SEP or mitigation policy for which additional ENRD guidance is expected.
[i] Press Release, Department of Justice, Attorney General Jeff Sessions Ends Third Party Settlement Practice (June 7, 2017) (https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-ends-third-party-settlement-practice).
[ii] Memorandum from Jeffrey Bossert Clark, Assistant Attorney General to ENRD Deputy Assistant Attorney Generals and Chiefs of Environmental Enforcement, Environmental Defense, Environmental Crimes, Natural Resources, and Wildlife & Marine Resources Sections (Aug. 21, 2019) (https://www.justice.gov/enrd/page/file/1197056/download).
[iv] Memorandum from Jeffrey Bossert Clark, Assistant Attorney General to ENRD Deputy Assistant Attorney Generals and Section Chiefs (March 12, 2020) (https://www.justice.gov/enrd/page/file/1257901/download).
About the Author:
Molly Snittjer is an associate in the environmental law firm of Nijman Franzetti LLP in Chicago. Molly represents clients across a wide range of industries on environmental issues in federal and state enforcement actions and provides counsel on regulatory compliance matters. Prior to joining Nijman Franzetti, Molly was an Assistant Attorney General in the Environmental Bureau of the Illinois Attorney General’s Office.