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Environmental Settlement Tool’s Reboot Leaves Target on its Back

March 2, 2021, 11:01 AM

A popular tool brought back by the Biden administration is expected to fuel future legal challenges for the Justice Department and the Environmental Protection Agency in their shared enforcement of anti-pollution laws.

Supplemental environmental projects, or SEPs, are theoretically back on the negotiating table after the acting head of the Justice Department’s Environment and Natural Resources Division last month tossed a stack of 2020 memos that narrowed options for resolving cases.

But government lawyers have reported internal hesitance about using SEPs, and at least one conservative legal group already has them in its crosshairs. Many attorneys think such challenges would be doomed to fail but acknowledge that by sidelining SEPs, the Trump administration complicated the use of what had become a settled practice.

“That would be the concern, that they’ve now raised this issue that I think everyone thought was resolved for decades, and that might encourage somebody to challenge action taken,” said former EPA enforcement lawyer Steve Chester, now at the law firm Miller Canfield.

Some outside lawyers say federal agencies should shrug off criticism and carry on with SEPs; others want DOJ and the EPA to be more proactive and issue a robust new analysis affirming their legality.

The Justice Department declined to comment on whether it’s formally authorized agency lawyers to resume the use of SEPs and whether it plans to issue any follow-up guidance. EPA spokeswoman Enesta Jones said the agency is “following DOJ’s lead on this, and therefore we also have no comment at this time.”

Decades of Use

SEPs are environmentally beneficial projects that companies can volunteer to do as a component of some settlements for alleged violations—sometimes as a bargaining chip for lower penalties. They’re popular among government lawyers, industry, and environmentalists alike because they can help resolve cases, burnish a company’s image, and ensure on-the-ground benefits for communities affected by pollution.

But criticism has simmered in some circles for decades, even sparking interagency tension in the early 1990s. The EPA has since revised its SEPs policy several times and given government lawyers strict criteria to ensure they aren’t abused.

Former Assistant Attorney General Jeffrey Bossert Clark, the Trump-appointed head of DOJ’s environment division, last year decided the guardrails were insufficient. He prohibited almost all uses of SEPs in consent decrees, concluding they illegally funneled money away from the U.S. Treasury, in violation of the Miscellaneous Receipts Act.

The Justice Department reversed the prohibition in a Feb. 4 memo, saying the policy and related Trump-era moves were “inconsistent with longstanding Division policy and practice.”

‘Gadfly’ Challenges?

Some conservative critics are now looking for an opening to challenge SEPs. Ted Frank, the Hamilton Lincoln Law Institute’s litigation director known for his objections to legal settlements in the context of class actions, told Bloomberg Law his group will consider bringing a challenge “if we can find the right test case and we have the attorneys.”

A Justice Department regulation finalized at the end of the Trump administration gives critics more fuel by bolstering a 2017 prohibition broadly targeting third-party payments in settlements throughout the agency, and leaving ambiguity about whether any SEPs are in the clear. The Biden administration is reviewing the rule.

“My sense is that there will be challenges to SEPs filed,” said Sidley Austin LLP lawyer Justin A. Savage, a former DOJ enforcement lawyer. “But generally those challenges are doomed to fail.”

That’s in part because it would be hard for any outside critic to show “the type of concrete, particularized, and imminent harm” necessary to establish standing to sue over SEPs, said Georgetown Law’s Sara Colangelo, another former DOJ enforcement attorney.

And the industry defendants and environmental intervenors directly involved in enforcement cases continue to favor the projects, Nova Southeastern University law professor Joel Mintz said.

A SEPs foe could instead file comments on a proposed consent decree, and hope a federal judge overseeing the enforcement case is receptive. But judges would likely find DOJ’s 30-year practice of using the tool more compelling than “gadfly” comments from ideological detractors, Savage said.

University of Texas law environmental professor Thomas O. McGarity agreed, stressing that judges generally favor settlements. “Of course,” he added, “we now have a number of Trump judges who prior to becoming judges were ideologues, so if you’ve got the right judge, I suppose the judge might object.”

‘Not There Yet’

SEPs supporters are eager to see the projects return to regular use in environmental settlements. Despite the Biden administration’s Feb. 4 memo, hurdles remain—with some government lawyers expressing frustration that they haven’t gotten a green light to move ahead with any SEPs this year.

Two staffers in the EPA’s Region 3 office in Philadelphia—who asked that they not be identified in order to speak candidly—said they’re awaiting guidance from DOJ and EPA headquarters before they can move forward. “I’m seeing messages coming down to attorneys saying, ‘We’re not there yet. We don’t know how to interpret this,’” one said. “Without that guidance, it just puts people in a holding pattern.”

Chester, the former EPA enforcement lawyer, said he hasn’t seen that apparent hesitation trickle down to regulated parties, but considers it a future risk. “At some point I do think DOJ will probably have to address that memo because it will potentially have an adverse impact on the willingness for folks to enter into SEPs,” he said of the Trump-era policy.

SEPs supporters say they’re confident both agencies will return to regular use once they have Senate-confirmed political leaders in place who can put to rest any lingering concerns.

“Folks are going to want clarity on the policy,” said National Wildlife Federation vice president Mustafa Santiago Ali, a former environmental justice official at the EPA. “Once they have folks in place, there will be a memo that comes out that gives that clarity, and whatever conversations to address any of the other questions will happen. I’m very confident that that will happen.”

—With assistance from Stephen Lee.

To contact the reporter on this story: Ellen M. Gilmer in Washington at egilmer@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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