Traditional SEPs and Mitigation Projects May Still Pass Muster under US DOJ’s New Settlement Policy
US Attorney General Jeff Sessions recently issued a new policy barring payments to non-governmental third parties as part of most civil and criminal settlements. The memorandum does not detail how the US Department of Justice (DOJ) will implement the policy, leaving much to departmental interpretation. The language is broad enough to have significant impacts on environmental settlements. For those parties seeking agreement on traditional Supplemental Environmental Projects (SEPs) or mitigation projects, however, there is reason to support the DOJ’s continued acceptance of these projects even under the new policy.
The Attorney General’s memorandum, issued June 5, 2017, states DOJ’s goal in any settlement is “first and foremost, to compensate victims, redress harm, or punish and deter unlawful conduct.” The memorandum refers to, but does not name, past settlements that required payments to non-governmental third parties as a condition of settlement with the US and provides that “[t]he Department will no longer engage in this practice.” The memorandum directs that, “[e]ffective immediately, Department attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges, including agreements settling civil litigation, accepting plea agreements, or deferring or declining prosecution in a criminal matter, that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.”
The memorandum provides three exceptions, which it describes as “limited”:
“an otherwise lawful payment or loan that provides restitution to a victim or that otherwise directly remedies the harm that is sought to be redressed, including for example, harm to the environment or from official corruption”;
“payments for legal or other professional services rendered in connection with the case”; and
“payments expressly authorized by statute, including restitution and forfeiture.”
The memorandum leaves open many interpretive issues, particularly in the environmental context, where harms can be diffuse, there are usually many ways to redress the harm, either in whole or in part, and there is statutory recognition of at least some authority to require mitigation. For example, the Clean Air Act at 42 U.S.C. § 7604(g)(2) authorizes courts to order that a certain amount of civil penalties be used in “beneficial mitigation projects.”
While the DOJ will have the opportunity to answer these questions through implementation of the new policy, in the meantime, there may be helpful guidance in the legislative history of the Stop Settlement Slush Funds Act of 2017, recently reported out of the House Judiciary Committee (H.R. 732) and still in committee in the Senate (S.333). While this proposed legislation is not mentioned in the Attorney General’s memorandum, the operative language is nearly identical, and the committee report accompanying the House bill provides a detailed explanation of the legal issues the bill is intended to address and the types of payments and loans the proposed language is intended to bar, offering a better starting point for negotiations with the DOJ than the memorandum alone provides. One notable exception is that, while the proposed bill would allow payments to remedy only the harm “done by defendants’ wrongful activity,” the Attorney General’s memorandum contains no similar limitation.
With respect to environmental SEPs, for example, the Attorney General’s memorandum expressly permits payments that “directly remed[y] the harm that is sought to be redressed.” US EPA’s SEP Policy, in turn, requires a “nexus” between the proposed project and the violations alleged, such that the project will reduce: (a) the likelihood that similar violations will occur in the future; (b) the adverse impact to public health and/or the environment to which the violation at issue contributes; or (c) the overall risk to public health and/or the environment potentially affected by the violation at issue. US EPA’s mitigation guidance, in turn, requires an even “closer connection” between the proposed project and the harm alleged “than the nexus required by the SEP Policy.”
Is a project that passes muster under US EPA’s SEP Policy, then, a sufficiently “direct remedy” to be permissible under the DOJ’s new settlement policy? It is worth noting that the committee report to the Stop Settlement Slush Funds Act expressly recognizes US EPA’s SEP Policy and notes that it was designed to address many of the same issues as the bill itself, including preventing US EPA from running afoul of the Miscellaneous Receipts Act and improperly augmenting the funds authorized for US EPA’s use by Congress. The committee report further attempts to counter criticism that the language in the bill will bar environmental remediation projects by noting that language similar to that in the Attorney General’s memorandum explicitly provides for direct redress of environmental harms, which would include “diffuse” harms where “there may be no identifiable victims,” though in situations where “direct remediation of the harm is impossible or impractical,” Congress should decide “what is the next best thing to do with the money.”
The committee report may also shed some light on the “previous settlement agreements” alluded to in the Attorney General’s memorandum, providing a basis for comparing a proposed SEP or mitigation project with the types of payments the committee report finds objectionable and those the report does not. In particular, the committee report identifies a handful of settlements that, in addition to more tradition remedial measures, required payments that the committee majority brings into question. Most are from recent banking and mortgage fund settlements, in which, in addition to mitigation funds, the settling parties were permitted or directed to fund projects with a far more tenuous connection to the violations alleged. One specific environmental example is given from the recent Volkswagen multidistrict litigation. The committee report notes that this settlement provides for a $2.7 billion mitigation trust, which is not criticized as an improper payment to non-governmental third parties in the report. The committee report also discusses, however, a required $2 billion investment in infrastructure for so-called zero emission vehicles (ZEVs), which it describes as an “initiative for which Congress had twice refused to pay” and that could not be justified as a mitigation payment because “the settlement states explicitly” that the separate mitigation trust “would fully mitigate the pollution that Volkswagen caused.”
The DOJ’s new policy applies broadly to “all civil and criminal cases litigated under the direction of the Attorney General and includes civil settlement agreements, cy pres agreements or provisions, plea agreements, non-prosecution agreements, and deferred prosecution agreements.” As a result, the new policy has the potential to significantly impact the range of options the federal government can agree to in settlement of an environmental claim. In the absence of a more definitive statement from the DOJ, however, the history of the Stop Settlement Slush Funds Act provides a potential starting point for the continued acceptance of most SEPs and mitigation projects that parties have typically agreed to in settlements with US EPA.