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07.22.2021 Legal News

Last Minute Trump Administration Regulation Limits Environmental Justice Settlements

A regulation adopted by the Department of Justice (“DOJ”) late in the Trump administration prohibiting settlement payments to third parties continues to be an impediment to possible environmental justice consent decrees in actions brought by the federal government.

The regulation “Prohibition on Settlement Payments to Non-Governmental Third Parties,” 85 Fed. Reg. 81409, adopted on December 16, 2020 and codified at 28 CFR 50.28, was adopted without notice or comment in the waning weeks of the Trump administration.  The streamlined regulatory process was possible as many of the procedural requirements for rulemaking in the Administrative Procedure Act and other federal statutes and directives can be streamlined for rules relating to a matter of agency management and is a rule of agency organization, procedure, or practice.

The rule codified and expanded a prior internal DOJ policy directive.  On June 5, 2017, then-Attorney General Sessions issued a Memorandum to the Heads of all Department of Justice Components and to all United States Attorneys titled, “Prohibition on Settlement Payments to Third Parties.”  That policy generally prohibited settlements that required payments to third parties as part of the settlement.  One of the exceptions to the policy prohibition was restitution payments to victims.  The December regulation retains this exception, but with a significant change, as it expressly prohibits third party payments in environmental cases for Supplemental Environmental Projects (“SEPs”). 

While around the time the regulation was adopted the Environment and Natural Resources Division at DOJ was adopting a policy that prohibited SEPs, that policy was quickly overturned by the incoming Biden Administration.  See Williams Mullen Environmental Notes, March 2021 “Biden DOJ Quickly Rescinds Trump Environmental Enforcement Policies.”  Thus, SEPs have been reinstated as an enforcement settlement tool by DOJ.  The regulatory prohibition on third party payments, however, remains.

This prohibition on SEPs requiring third party payments means that, unless the regulation is withdrawn or amended, SEPs are unlikely to be a mechanism to address environmental justice concerns in environmental enforcement cases, since providing payments, goods, or services to third parties is almost inherent in any environmental justice SEP.  While SEPs that provide for additional pollutant reductions can possibly be couched as having an environmental justice component, SEPs that more directly benefit environmental justice communities will likely be limited due to the third-party payment prohibition, and DOJ officials have recently confirmed this in reports in the trade press.

There are two ways this issue may be addressed by the Biden administration.  The first, and most obvious, would be to rescind the regulation prohibiting third party payments, and indeed this regulation was identified by the White House as one of the regulations slated for review under Executive Order: “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”, January 20, 2021.  Since the original regulation was adopted without notice and comment as it involved agency management, a modification of the regulation could similarly be adopted using an abbreviated rulemaking process.  To date, however, no effort appears to have been undertaken to modify the regulation.

The other possible approach to incorporate environmental justice concerns into environmental settlements would be to couch the environmental justice component as mitigation for the harm caused.  Mitigation relief, while often facially similar to a SEP, had very different legal underpinnings.  While a SEP is a project that is not legally required and is undertaken in return for a reduction in penalty, a mitigation project is a remedy that is secured to mitigate the harm caused by the violation and is seen as another form of equitable relief.  While SEPs are creatures of settlement and could not be ordered by a court absent agreement by the defendant, mitigation is seen as a remedy that could be imposed unilaterally, although most mitigation remedies in practice are a product of settlements.  An indication of the legal difference is that, while the Trump DOJ prohibited SEPs, it issued a policy on use of mitigation that embraced that remedy in the proper circumstances.  That the Trump DOJ mitigation policy was withdrawn by the Biden DOJ should not be seen as a rejection of mitigation as a remedy; rather it is a rejection of the limitations on its use that the Trump-era policy imposed.

The use of mitigation as an environmental justice tool is not without impediments.  First, it will still have to meet the strictures of the regulation on third party payments, as long as that regulation is in effect.  Thus, an environmental justice mitigation project would have to be fashioned as restitution or compensation to a victim.  Second, and closely related, an environmental justice project would have to be designed to mitigate the harm caused by the applicable environmental violation.  As EPA has noted in its policy on mitigation, a mitigation remedy should have a closer relationship to the underlying harm than the broader nexus requirement that is applied to SEPs.  Therefore, mitigation projects may be as broad in their scope as SEPs due to these limitations.

The Biden administration has stated that environmental justice is a key goal.  How it will address the limitations imposed by the DOJ rule on third party payments remains to be seen and bears watching by the regulated community.

85 Fed. Reg. 81409 (December 16, 2020)