On June 7, 2017, Attorney General Jeff Sessions issued a memorandum prohibiting the U.S. Department of Justice (DOJ) from directing any settlement payments to third-party, non-governmental organizations (NGOs) that were not directly harmed by a defendant’s actions. If strictly implemented, this new policy may impose significant limits on the availability of certain types of relief available in civil and criminal environmental enforcement cases.  The memorandum also raises significant questions about how the U.S. Environmental Protection Agency (EPA) will handle environmental settlements under the Trump Administration, as well as how DOJ will approach settlements resolving citizen suits.

Limiting SEPs and Organizational Community Service

On its face, the memorandum signals that DOJ intends to curtail the availability of Supplemental Environmental Projects (SEPs) and organizational community service projects involving payments to third parties. The new policy permits only payments to NGOs that “directly remed[y] … harm to the environment ….”  This standard is more stringently worded than the nexus requirement for SEPs and community service projects that EPA and DOJ have used to date.  Environmental settlements containing third-party payments will likely face greater scrutiny and higher hurdles in order to be approved.  The greater burden, coupled with the difficulties of establishing direct relationships between cause and effect in environmental cases, stands to limit certain types of relief in settlements.

Although the new DOJ policy has been hailed by some, reducing the availability of SEPs or organizational community service may negatively impact the regulated community. These alternative forms of relief—already tightly governed by existing EPA and DOJ policies—offer defendants and the government flexibility in crafting settlements.  In civil cases in particular, SEPs provide settling defendants an avenue for mitigating civil penalties and creating concrete benefits for the environment.  Certain projects are also more readily implemented by NGOs that regularly engage in habitat restoration or similar environmentally beneficial projects.

Administrative and Citizen Suit Settlements

The prohibition on third-party payments does not impact administrative settlements entered by EPA. The guidance only reaches cases that have been referred to DOJ, leaving—for the time being—some uncertainty over how EPA will evaluate SEPs requiring third-party payments. If the Sessions memorandum reflects a broader Trump Administration policy, one would expect EPA to revise its SEPs policy after a new Assistant Administrator is confirmed to run the Office of Enforcement and Compliance Assurance.

The Sessions memorandum raises further questions about whether DOJ will change its position on SEP payments in settlements of citizen suits. The policy only covers cases in which the United States is a settling party, not private enforcement actions.  However, one rationale underlying DOJ’s new position is that payments to third parties improperly divert money that should go to the Treasury.  If this concern carries over into the review of consent decrees resolving citizen suits, DOJ may begin objecting to settlements.  This risk is another reason to pay close attention to how DOJ’s new policy is implemented and elaborated upon in the coming months.

The authors gratefully acknowledge the assistance of Jeffrey Clare in the preparation of this alert.