Three Steps Back – DOJ Restrictions on Use of SEPs Are Misguided and Counter-Productive

Posted on September 10, 2019 by Zach C. Miller

The U.S. Department of Justice (DOJ) has taken three steps since June 2017 through August 2019 that severely limit the use of Supplemental Environmental Projects (SEPs) in civil environmental settlements.  Those actions are legally unsound, are generally not sought or supported by the business community or state or local governments, and are counter-productive to the effective enforcement of federal environmental law.  Such actions, and the recent DOJ threat to completely ban use of SEPs in the future, should be revisited and reversed.

A SEP is a consensual, environmentally beneficial project related to an underlying environmental law violation, but not necessary to achieve compliance, that generally results in a reduction in the party’s monetary civil penalty.  SEPs have been widely used in settlements with both businesses and state and local governments since the 1980s and have historically been supported by both parties.  Their use has been governed by a series of EPA policies, most recently updated in 2015.  For example, the 2015 SEP Policy requires that a qualified SEP cannot be a cash payment to a third party, must voluntarily go beyond what is required to comply with law, and must meet one or more specified categories of public environmental benefits.  EPA estimates that, from 1998 through 2012, it negotiated SEPs worth over a billion dollars.

Since 2017, DOJ has unwisely taken several steps that curtail the use of SEPs.  On June 5, 2017, then-Attorney General Sessions issued a one-page Memorandum to DOJ attorneys that broadly prohibited any settlement “that directs or provides for a payment or loan to any non-governmental entity that is not a party to the dispute.”

Questions about whether this new policy prohibited SEPs generally or allowed their continued use with governmental entities were answered by DOJ’s next two steps.  On November 7, 2018, DOJ issued a policy directive that prohibited DOJ from agreeing to any settlements with a state or local government that “extract greater or different relief from the defendant than could be obtained through agency enforcement authority or by litigating the matter to judgment.”

Then, in a memo dated August 21, 2019, political appointee Assistant AG Jeff Clark made clear that the 2017 and 2018 policies are considered by DOJ to prohibit the use of SEPs in all settlements with state and local governments.  However, in recognition of the strong support for SEPs by many governmental entities, the memo temporarily allows the extremely limited use of SEPs with such entities (“only as a matter of last resort” … and only as “a small component of the overall settlement”) during an unspecified “interim period … pending my [AAG Clark’s] broader review of the SEP policy.”  In other words, the referenced impending “broader review” could and, under the reasoning of the August 2019 memo, likely will conclude that any and all use of SEPs is unlawful and prohibited.

But that reasoning is circular and unsound.  The August 2019 Memo acknowledges that the AG’s June 2017 policy “largely tracks” and in effect implements the 2017 “Stop Settlement Slush Funds Act,” which prohibited settlements allowing payments to parties other than the U.S., and was passed on a partisan vote in the House but was rejected by the Senate.  H.R. 732, 115th Cong., 1st Sess. (2017).  Among other problems, that rejected bill failed to recognize that the 2015 SEP Policy already expressly prohibits cash payments to third parties, and some environmental statutes (not consensual settlements) provide for assessment of attorneys’ fees to prevailing parties, so the perceived “settlement slush fund” problem was illusory.  The November 2018 DOJ Memo then purported to implement that initial 2017 policy, and the August 2019 Memo thereafter concludes that the preceding 2017 and 2018 DOJ policies together mandate that SEPs must be banned.  The 2019 Memo also analyzes at length the narrow 2018 infrastructure-related amendments to the Clean Water Act and concludes they do not expressly authorize the use of SEPs.  But it does not analyze the long-standing, bi-partisan legal conclusions that nothing in federal law prohibits the use of SEPs and that doing so is within DOJ’s and EPA’s broad enforcement discretion.  Rather, DOJ’s conclusions, in a house-of-cards fashion, are based solely on “enforcement” of its own novel policies based in turn on a piece of rejected partisan legislation.  Space does not permit a detailed response here to the August 2019 Memo’s other high-minded but tenuous allegations about SEPs infringing on Congress’ “power of the purse” and on “local democratic processes,” except to say, please see the Administration’s own contrary positions on those points for White House Border Wall funding and restricting State vehicle emission limits.

Sometimes, it’s been said, it’s necessary to take a step back to take two steps forward.  DOJ’s actions restricting SEPs, however, are three huge steps backwards, with a threat of a fourth misstep and disastrous total ban.  Such a ban would preclude consensual, beneficial projects long favored by business and local governments and would unduly hinder and delay resolution of federal environmental enforcement actions.  Those serious missteps should be revisited and reversed.

A SEP in the Right Direction: The Path Toward Win-Win Scenarios

Posted on August 23, 2016 by Scott Fulton

One of the interesting questions that emerged in the strategic planning process for the Environmental Law Institute is whether ELI could offer more support in the development and/or administration of supplemental environmental projects, or “SEPs”. 

Having played a role in the birthing of the original SEP framework in the early 1990s while at EPA, and through my own experience as a practitioner, I am convinced that penalty mitigation through the performance of SEPs can come as close to a win-win as is possible in the enforcement context.  Rather than having penalties, payable as they are only to the U.S. Treasury, lose their site-specific identify and value, SEPs allow diversion of some of those resources to projects geared toward environmental or process improvements that not only achieve compliance, but also provide discrete and measurable environmental benefits. 

Development and implementation of a suitable SEP can at times be challenging.  For these reasons, companies sometimes opt in favor of paying a large penalty rather than a reduced penalty with a SEP.  Meanwhile, the government appears to be keener than ever about utilizing this tool.  EPA’s draft Environmental Justice Plan 2020 Action Agenda, for example, observes that “when these types of projects are feasible, they can play an important role in cases that raise environmental justice concerns. Thus, EPA is setting the goal of increasing the number of SEPs and mitigation projects affecting overburdened communities.” 

So here’s the thought.  Perhaps to lighten the SEP load for defendants and government alike, an entity like ELI could help in the conceptualization and, in appropriate cases, the administration of SEPs.  As it happens, ELI already has experience in this area.  For example, in the context of settlement negotiations between a state environmental regulatory agency and a defendant (I’ll not disclose identities here), ELI was brought in to help shape and then implement a SEP to develop a training module on the regulations at issue in the case.  Under the SEP, in addition to developing the training materials, ELI is to deliver at least two in-person classes to targeted audiences comprised of manufacturers and/or consumers, and to make these informational briefings more broadly available online (via, e.g., webinars, and audio-video recordings suitable for posting, including on the ELI website).

And this SEP is not a one-off.  As a research and education institute, a convener experienced in community outreach and engagement, and a non-partisan presence having affinities with both regulators and the business community, ELI is well-suited to work with companies and their representatives to craft and execute approvable SEPs.  These range from education of stakeholders about regulatory requirements and measures that go beyond compliance; to research, analysis, and publication of information on best practices for compliance and beyond; to monitoring and evaluating the success of on-the-ground SEPs undertaken by other organizations.  Also, it probably goes without saying, but because we’re a non-profit, we can and must do our work on a cost-basis.  In other words, we’re cheap. 

Just a thought to tuck away for the next time a SEP enters your or your client’s equation.