U.S. Justice Department Moves to Reinstitute Supplemental Environmental Projects as Part of Environmental Enforcement Settlements | Insights

Under President Donald Trump, DOJ broke from longtime practice and precedent by prohibiting SEPs, nominally because of concerns about constitutional and statutory limits on maintaining congressional authority over appropriations. Those ostensible concerns overlay a deeper fear that SEPs would be used as slush funds for environmental groups to pursue their own agendas. Despite preexisting safeguards such as the Environmental Protection Agency (EPA) 2015 SEP policy and judicial oversight, DOJ proceeded to limit and then prohibit use of SEPs and then codify that prohibition in a midnight interim final rule issued at the end of the Trump administration.

Through yesterday’s reversal, Attorney General Garland is now directing DOJ to codify use of SEPs into its formal policy (DOJ’s Justice Manual at Sections 1-17.000, 5-11.105, and 9-16.325) and contemporaneously to issue an interim final rule to rescind the prior administration’s prohibition on the use of SEPs found at 28 C.F.R. § 50.28. A draft of the interim final rule here is set to be published in the Federal Register on May 10, 2022, and rescinds this regulation in its entirety. Rather than modify the regulation, DOJ has stated that the policies surrounding DOJ’s use of settlements to compensate victims, redress alleged harms, and punish and deter unlawful conduct has traditionally been addressed through memoranda from department leadership.

Limiting Principles for SEPs

The memorandum and the draft interim final rule do not contain detailed information about what specific types of SEPs may be acceptable in any given circumstances, nor the dollar value of any offsets against fines or penalties; instead, they merely state general principles. The department’s current view is that SEPs can be properly structured to fully redress alleged violations of environmental laws by compensating victims, redressing alleged harm, and punishing and deterring unlawful conduct without providing undue benefit to third parties that were neither direct victims of the alleged environmental harm nor parties to the underlying enforcement action. These views do not limit SEPs to civil cases only.

DOJ’s memorandum reinstating SEPs announced a series of conditions, which seem largely consistent with prior SEP policies and practice:

  1. Settlement agreements “shall define with particularity” the nature and scope of the SEPs a defendant has agreed to fund.
  2. SEPs must have a “strong connection to the underlying violation” of federal law at issue and “advance at least one of the objectives” of the law.
  3. DOJ may not propose any particular third party to receive SEP benefits but may disapprove of any defendant-proposed third party based on objective criteria for beneficiary selection outlined in a settlement agreement.
  4. DOJ may not retain post settlement control over the execution of SEPs.
  5. DOJ may not use SEPs in place of satisfying any statutory obligations of the federal government.
  6. DOJ may not use SEPs to provide funding solely for general public educational or awareness projects, generalized research, or unrestricted cash donations. 

With a SEP approved, a defendant can expect a reduction in its overall penalties, but the amount is unclear. Under EPA’s 2015 SEP policy, the amount of penalty mitigation given for a SEP in administrative and civil settlements was generally limited to 80% of the cost to implement the SEP provided that the final civil penalty awarded is greater than 10% of the economic benefit of a defendant’s noncompliance or 25% of the gravity of the environmental harm (whichever is larger). How SEPs may be used in the criminal context is even murkier, as prior DOJ guidance was far more restrictive than EPA’s civil analogue.

While the basic principles are relatively well worn in SEP practice, DOJ’s announcement raises two concerns. First, the Attorney General’s memorandum may make it difficult to obtain SEP approvals for projects providing payment (in cash or in kind) to nongovernmental entities due to the approval hurdles imposed. For decades SEPs largely lay within the approval of ENRD and EPA, but the new memorandum requires approval by the Deputy Attorney General or the Associate Attorney General. That is a high ladder to climb within the bureaucracy of DOJ, making it unlikely that SEPs will be routinely used for the benefit of nongovernmental entities. Second, the approval process gauntlet and delay around rescinding the SEP ban signal a substantial degree of risk aversion within DOJ about SEPs. To be sure, interested parties may challenge SEPs in individual settlements, but judges are loathe to upset resolutions, and the legal case for SEPs is bipartisan, at least until the last administration — enjoying support from a DOJ Office of Legal Counsel opinion from the administration of President George W. Bush, as an example.

While DOJ clearly intends to rely on SEPs to mitigate effects on environmental justice communities — and possibly to a greater extent than prior to former Attorney General William Barr’s recission of the SEP policy in 2017 — it remains to be seen how quickly SEPs will be introduced into ongoing settlement negotiations and whether SEPs for the benefit of nongovernmental entities will be uncommon due to the procedural hurdles discussed above. Until a final rulemaking is completed, DOJ’s reliance on an interim final rule to rescind the existing SEP prohibition in 28 C.F.R. § 50.28 may be challenged or revised based on public comments solicited through the interim final rule.

Note that nothing in Attorney General Garland’s announcement limits EPA’s ability to use SEPs in administrative settlements (or to set its own policy as to what SEPs it, as the “client agency,” is willing to endorse in judicial settlements where DOJ is representing EPA), nor does it affect DOJ’s use of “mitigation” measures in environmental settlements. The latter, in particular, have become an increasing focus of settlements involving allegations of past excess pollution and are seen as a form of injunctive relief, not as an offset to civil penalties per se. Finally, it does not affect SEPs in state or local environmental settlements.

Stay tuned for more updates as DOJ’s policy materializes.

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