Featured Expert Contributor—Environmental Law and Policy
Jim Wedeking is Counsel to Sidley Austin LLP in the firm’s Washington, DC office.
Ed. Note: This is Jim’s debut column as our new Featured Expert Contributor on Environmental Law and Policy. He is taking over for his colleague, Sam Boxerman, who occupied this Featured Contributor spot since February 2014. THANK YOU SAM!
A two page February 4, 2021 memorandum, issued by Environment and Natural Resources Division Deputy Assistant Attorney General Jean E. Williams, withdrew the U.S. Department of Justice (“DOJ”) policy on Supplemental Environmental Projects (“SEPs”). The short-lived SEP policy, formally titled, “Supplemental Environmental Projects (‘SEPs’) in Civil Settlements with Private Defendants” (Mar. 12, 2020) (“SEP Memo”) engendered a surprising amount of controversy given its relatively obscure subject: an enforcement settlement device that was frequently added as a sweetener on top of civil penalties and injunctive relief.
The U.S. Environmental Protection Agency (“EPA”) defines a SEP as “an environmentally beneficial project or activity that is not required by law” to, among other things, “obtain environmental and public health protection and benefits that may not otherwise have occurred in the settlement of an enforcement action.” EPA, Supplemental Environmental Projects Policy (2015) at 1. SEPs typically involve a settling defendant implementing a project that mitigates the environmental effects of the alleged violation or that otherwise has some nexus to the alleged violation. For instance, if a large industrial facility is settling claims that it violated air pollution permit limits, it may install air quality monitoring systems in a nearby neighborhood and install energy efficient lightbulbs for the local school district. Or, if a defendant’s alleged violation stems from the unpermitted chemical release, the defendant might pay for new equipment and training for the local fire department as the fire department responds to chemical releases.
SEPs are popular with all parties involved. Clearly, they are popular with the beneficiaries of these projects, such as local governments and environmental groups. EPA and DOJ attorneys have discretion over how a substantial corpus of cash, often hundreds of thousands of dollars, is spent. And settling companies appreciate SEPs as they can point to a tangible contribution to their communities. Thus, it came as a shock when DOJ barred the use of SEPs.
The SEP Memo focused on the fact that civil penalties, which would otherwise be wired to the United States treasury, are diminished to pay for SEPs. The off-set was never one-to-one but EPA’s 2015 SEP policy typically allowed a direct mitigation of civil penalties up to 80%. The SEP Memo saw the conversion of moneys that would otherwise be civil penalties into discretionary SEP funds as circumventing the Miscellaneous Receipts Act, 31 U.S.C. § 3302, which obligates federal officers receiving funds on behalf of the United States to deposit them in the U.S. treasury. Further, it allowed executive officials (prosecutors) to effectively fill the role of Congress in appropriating funds for environmental and public health projects. This clash between constitutional branches was not entirely academic. After the Deepwater Horizon explosion, and as DOJ was pursuing cases against the companies involved, Congress was debating how the billions of dollars recovered in settlements or judgements would be spent through the RESTORE Act. These debates spilled into open discussions about how DOJ attorneys might siphon off as much money as possible for environmental restoration SEPs to leave Congress with less to appropriate for non-environmental economic development projects.
The reaction against the SEP Memo, however, was immediate and universally critical. Some argued that, without SEPs, settlements would take more time to negotiate or would be scuttled altogether. Others said that the SEP Memo deprived communities hit hardest by pollution, often low-income and minority, of important public health projects. One environmental group sued, claiming that the SEP Memo was illegal. The February 4, 2021 memorandum withdrawing the SEP Memo did not address any of the legal or pragmatic disputes raised in the debate. It merely stated that the SEP Memo was “inconsistent with longstanding Division policy and practice and … may impede the full exercise of enforcement discretion in the Division’s cases.” Thus, at least for the duration of the Biden Administration, SEPs are back on the menu of enforcement settlement options.