Who Will Justice Let Cash in on Environmental Settlements?

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By Amena H. Saiyid

The National Fish and Wildlife Foundation received a check for $7 million from Princess Cruise Line in April, but not as a typical act of charity. Rather, the payment was part of a $40 million settlement the cruise line made with the federal government to resolve allegations that it violated the Clean Water Act by illegally dumping oil waste and falsifying oil spill records.

The foundation also received $2.554 billion as part of the settlement in criminal cases against BP for its Macondo well that blew out on April 20, 2010, spewing an estimated 4.9 million barrels of oil into the Gulf as the largest U.S. offshore spill.

Payments to organizations that are not parties in enforcement actions involving violations of environmental laws are not uncommon.

Tonawanda Coke Corp. agreed to pay $357,000 to Ducks Unlimited in May 2015 for wetlands acquisition and preservation as part of a $12 million settlement in a civil case alleging air and water pollution violations at its plant near Buffalo, N.Y. In all, the company paid $42 million to resolve enforcement actions that included a landmark criminal prosecution.

These types of penalties may be coming to an end because of a June 7 Justice Department memo prohibiting settlement payments to nongovernmental entities that are not a party to the litigation.

The problem for some, however, is the memo, signed by Attorney General Jeff Sessions, didn’t define nongovernmental organization, whether it is a public or private entity. It also wasn’t clear if it applied to publicly owned wastewater utilities.

Ambiguous Language

“There’s a lot of ambiguity in the memo,” Neil McAliley, a shareholder attorney with the Miami office of Carlton Fields Jorden Burt P.A., told Bloomberg BNA June 8.

The memo is based largely on language in the Republican-sponsored Stop Settlement Slush Funds Act of 2017 (H.R. 732) that attempts to bar the federal government from making payments to groups, individuals, or institutions that aren’t party to litigation. The bill awaits full House consideration as the House Judiciary Committee reported it out March 30.

“I think this memo is really focused on whom the defendant is paying money as opposed to whether this defendant is a public or private entity,” McAliley said. The memo states that payments are not to be made to any nongovernmental entity that is not a party to the dispute.

“This language does suggest that a defendant could be required to send money to a governmental entity that is not a party to the case,” McAliley said, but “exactly how one defines a ‘governmental entity’ may not be as obvious as one might think, and we will need to see how this policy is applied.”

McAliley gave as an example nonprofit corporations created by acts of Congress that are designed to accept money for donation to government agencies, such as the National Fish and Wildlife Foundation, which received the Princess Cruise Lines and BP money, and the National Park Foundation.

“It clearly is broad language, but what we don’t know is how is it being explained by the Justice Department,” John Cruden, the former acting assistant attorney general for environment and natural resources under President Barack Obama, told Bloomberg BNA in a June 8 telephone interview.

In other words, “Who is making the decision that a certain organization falls within the memo or outside the memo,” said Cruden, who now is the president-elect of the American College of Environmental Lawyers.

Exception to the Prohibition

The foundation wasn’t a party to the lawsuit, but groups such as these could receive payments under the exception the memo lays out for a payment that “directly remedies … harm to the environment,” McAliley said.

“Did the new policy intend to capture those types of entities or not?” he asked.

Other attorneys don’t necessarily agree.

At a June 7 webinar discussing Clean Water Act enforcement trends in the Trump administration, Nathan Vassar, an attorney with Lloyd Gosselink Rochelle & Townsend, P.C., said the Department of Justice memo likely will not apply to settlements involving publicly owned wastewater utilities that may be defendants in a Clean Water Act lawsuit. The webinar was organized by the National Association of Clean Water Agencies (NACWA), which represents many of those utilities.

“I am not aware of any payments to third parties in the context of municipal discharger settlements,” Vassar said in response to a question posed about the impact of the Justice Department memo on Clean Water Act enforcement.

Erica Spitzig, the association’s deputy general counsel, agreed with Vassar that the department’s memo will not likely have a significant impact on publicly owned wastewater utilities.

“We are not aware of any settlements requiring publicly owned treatment works to make donations or other cash payments to third parties who are neither impacted by nor involved in the litigation,” Spitzig said in a June 8 email to Bloomberg BNA on what she called the association’s initial impressions.

Cruden also agreed, saying the government usually settles Clean Water Act violations by requiring money to be spent either upgrading or repairing the part of the system that caused the problem.

“That can get quite expensive, as much as a billion dollars as we saw in the DC Water case,” he said.

Nuanced Reading

Also on the NACWA webinar was Andrew Stewart, who until late 2015 served as the acting director of the special litigation and projects division in EPA’s Office of Enforcement and Compliance Assurance. His remarks a day after the webinar were more nuanced about the memo’s impact on settlements involving public wastewater utilities.

“I agree the memo didn’t seem to be focused on publicly owned treatment works (POTWs), but it didn’t explicitly carve out POTWs,” Stewart, who now serves as a counsel with Vinson & Elkins LLP, told Bloomberg BNA in a June 8 email.

Stewart said the memo broadly applied to payments to third parties under settlements, but Vassar said he thought it applied more to settlements involving private sector defendants, such as Volkswagen, which was referenced by Rep. Bob Goodlatte (R-Va.), the chief sponsor of H.R. 732, as an example of third-party payments.

Goodlatte has repeatedly highlighted the $2 billion included in the Volkswagen diesel emissions settlement to pay for electric vehicle infrastructure, as an example of third-party payments. This funding wasn’t justified as “mitigation” spending because the settlement had explicitly set aside a separate $2.7 billion mitigation trust fund, Goodlatte told former Attorney General Loretta Lynch in a Jan 10 letter when requesting a preservation of all documents pertaining to the Justice Department settlements.

Sessions didn’t mention the Volkswagen settlement or any other settlement in the memo. Instead, he said, “It has come to my attention that certain previous settlement agreements involving the Department included payments to various nongovernmental. third-party organizations as a condition of settlement with the United States. These third parties were neither victims nor parties the lawsuit.”

No Payments for Supplemental Projects

Stewart, unlike a number of attorneys representing environmental groups, said the memo applies to payments made to third parties, but doesn’t “explicitly address” supplemental environmental projects. More important, SEPs don’t involve cash donations to third parties, he said. Spitzig, of NACWA, and Cruden agreed with him.

“The goal of DOJ memo is to compensate victims of noncompliance,” Stewart said. “The fact that the SEPs are designed to benefit the environment impacted by the alleged violation makes these projects consistent with the DOJ memo.”

To contact the reporter on this story: Amena H. Saiyid in Washington at asaiyid@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

The Justice Department's memo on third-party payments is available at http://src.bna.com/pDT.

Rep. Goodlatte's Letter Regarding Payments is available at http://src.bna.com/pFE.

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