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On August 21, 2019, the Department of Justice issue a new memorandum reducing state and local governments’ ability to enter into settlement agreements that require the completion of supplemental environmental projects (SEPs) as compensation for alleged environmental violations. While impactful in its own right, the DOJ memo can be viewed as a continuation of an over two-year long effort by the DOJ to reduce the general availability of SEPs in the settlement of civil environmental cases.
As defined by the EPA, “SEPs are projects or activities that go beyond what could legally be required in order for the defendant to return to compliance, and secure environmental and/or public health benefits in addition to those achieved by compliance with applicable laws.” Private parties or municipalities may offer to complete SEPs as part of a settlement with EPA or other environmental regulators. By doing so, the alleged violator effectively replaces a part or all of the penalty owed for an environmental violation with the commitment to develop an environmentally beneficial project.
Despite the widespread and longstanding use of SEPs in settlement agreements, recent actions by the DOJ demonstrate a clear effort by the Department to reduce the use of SEPs in the settlement of alleged environmental violations.
The trend started with a June 8, 2017 policy directive issued by then Attorney General Jeff Sessions which broadly prohibited settlement agreements from “directing or providing” payment to any third-parties that are neither victims nor parties to the lawsuits. The directive had the immediate effect of prohibiting SEPs that require violators to fund environmental project performed by third parties.
The 2017 directive was then followed by a second memorandum on November 11, 2018, which barred the use of consent decrees 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.”
Finally, in its most recent move, the August 21st DOJ memorandum issued from the Department’s Environmental and Natural Resource Division details the DOJ’s determination that environmental SEPs are prohibited under the November 2018 directive. Specifically, the memo provides that “[t]he use of SEPs in consent decrees with state and local governments contravenes the prohibition on using consent decrees to ‘extract greater or different relief from [a state or local government] than could be obtained through agency enforcement authority or by litigating the matter to judgment.’” While the memorandum notes several conditions where SEPs may still be permitted, it cautions that exemptions to the general prohibition “are meant to be rare.”
With the DOJ’s most recent actions, it appears that environmental regulators will no longer be permitted to agree to SEPs in most, if not all, settlement agreements. However, open questions remains whether regulators will be able to fashion future SEPs that comply with the recent DOJ directives.