Justice Memo Leaves Environmental Settlement Projects In Peril

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By Rachel Leven

A June 7 Justice Department policy memo that prohibits including payments for third-party, not-for-profit groups in settlements could limit the inclusion of certain environmental projects, reversing a decades-long practice, attorneys told Bloomberg BNA.

The move may address concerns by the U.S. Chamber of Commerce and others that the government is inappropriately making policy decisions through settlements, an allegation former EPA official Eric Schaeffer and others dispute. Schaeffer said the move could tie prosecutors’ hands, leave the environment less protected, and nix an option some companies appreciate in settlement negotiations.

“A business will often be willing to commit something to environmental projects,” in part because these actions can help repair the company’s reputation, Schaeffer, who served as director of EPA’s Office of Civil Enforcement from 1997 to 2002, told Bloomberg BNA. “A penalty means guilt. Environmental projects mean, well, you’re trying to make it up to the public.”

The extent to which these types of voluntary environmental projects—supplemental environmental projects under civil suits and similar projects under criminal actions—will be limited in new settlements is unclear. The Justice Department didn’t respond to Bloomberg BNA’s message requesting clarification.

U.S. Attorney General Jeff Sessions’ memo strikes at the heart of a bill congressional Republicans are currently attempting to make law. The bill, Stop Settlement Slush Funds Act (H.R. 732), would bar payments to third party groups across the entire federal government. One of the examples of “overreach” the 2017 bill sponsor, Rep. Bob Goodlatte (R-Va.), has mentioned is a project in a Volkswagen emissions settlement.

What Environmental Projects?

The Sessions memo could specifically affect use of the Environmental Protection Agency policy known as supplemental environmental projects (SEP), Steve Solow, former chief of the Justice Department’s Environmental Crimes Section, told Bloomberg BNA.

According to the EPA, an SEP is “an environmentally beneficial project or activity that is not required by law, but that a defendant agrees to undertake as part of the settlement” in addition to a civil penalty. For example, if a facility exceeded the pollution requirements of its permits and harms a nearby waterway, a company could restore a wetland in the same ecosystem as its facility, the EPA said in 2015.

These projects have typically been used even when the Justice Department has been involved in the civil settlements with the EPA. In criminal environmental cases, similar projects have also been used although they were not called SEPs. These projects are commonly executed by not-for-profit groups.

“The very reason why SEPs came into being was that if someone violated their permit and put too many pollutants into a river, it was basically impossible to quantify the exact harm,” Solow, who is now partner at Katten Muchin Rosenman LLP, said. “Instead, the thought was that as long as it relates to that kind of harm, then that was acceptable.”

Put another way, the Environmental Integrity Project says these projects allowed prosecutors to help the environment get a little bit cleaner in an area that was affected by difficult to quantify pollution on behalf of hard to identify victims. And companies often prefer to delegate these projects to reputable third-party groups rather than take on the projects themselves, Schaeffer said.

Congressional Authority

There is another view on these kinds of projects—one Goodlatte shares—that while paying a third party to remediate specific environmental harms caused by the violation may be acceptable, going further than that goes into policymaking or congressional territory.

Matt Webb, senior vice president of legal reform policy at the U.S. Chamber’s Institute for Legal Reform, told Bloomberg BNA that the settlements allow a given administration to use these funds for policy purposes rather than negotiating the maximum penalty and putting that money into the U.S. Treasury for Congress to decide how to use. It is important from a good governance perspective, he said.

The recent Volkswagen emissions settlement, for example, included $2 billion for zero-emissions vehicles infrastructure and promotion. That money, Webb says, should have gone to the U.S. Treasury and then Congress could have decided whether to invest that money in those vehicles.

However, Schaeffer said in practice that isn’t how these negotiations work. Sometimes companies are willing to pay more to do voluntary environmental projects because of the reputation boost that goes along with it. Prosecutors wouldn’t be able to just add those project funds to the general penalty pot in negotiations, he said.

Bloomberg BNA reached out to Volkswagen and BP Plc asking why they chose to include voluntary environmental projects in their settlements and what they thought about the policy memo. Neither responded.

Coming Up Next

It isn’t clear how this will work out in practice. The language in the memo does include exemptions that would allow third-party, non-governmental organizations to be written in to fix certain direct environmental harms, for example.

But attorneys were unsure or disagreed on how the language in the memo would ultimately be interpreted and what would constitute an exemption. Webb said these issues may be looked at on a case-by-case basis.

Schaeffer said tracking the Justice Department’s actions in the latest lawsuit against Fiat-Chrysler for faulty pollution controls in more than 100,000 diesel-powered vehicles could give us a clue as to what the memo means.

To contact the reporter on this story: Rachel Leven in Washington at rleven@bna.com

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

For More Information

Attorney General Jeff Sessions' June 7 memo is available at http://src.bna.com/pDT

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