Trump Track: The Other Shoe Drops on SEPs

On July 8, 2020, the U.S. Department of Justice (DOJ) filed a brief opposing a settlement entered into between the Sierra Club and DTE Energy that would resolve long-running litigation over Clean Air Act (CAA) compliance in the operation of a DTE powerplant. DOJ and the Sierra Club had also earlier entered a separate consent decree resolving decades of litigation between them and DTE.

DOJ's objections centered on a separate private agreement between Sierra Club and DTE calling for additional steps by DTE to reduce emissions, and for two separate efforts to implement environmentally beneficial projects. The private agreement was not technically before the court, but was referenced in a separate order of dismissal between Sierra Club and DTE. That approach was taken in an effort to avoid running afoul of DOJ’s recent disavowal of the use of supplemental environmental projects (SEPs) as a part of environmental settlements.

DOJ at the time of filing made clear that this is only the beginning of its efforts to stop the use of SEPs, not just in EPA/DOJ settlements, but also in citizen suit litigation.

What Are SEPs?

The use of SEPs has been a common practice for decades, both in suits by the U.S. government and in private actions (citizen suits) under federal statutes. Money paid as penalties is required to go into the U.S. Treasury, absent other legislative direction. Private plaintiffs, defendants, and in most cases the government regulators have preferred that monetary payments go into some visible project related to the alleged violations, rather than just be dumped into the general Treasury funds.

Concerns have been raised in the past about how this practice complies with the Miscellaneous Receipts Act (MRA), which requires that federal money be placed in the Treasury and spent only for purposes authorized by Congress. DOJ has worked through that issue more than once under both Republican and Democratic administrations, and developed specific guidelines permitting SEPs in EPA settlements. Courts addressing challenges to SEPs in citizen suit settlements have held that an SEP is akin to damages, not to a penalty, and outside the purview of the MRA.

Trump Administration Pushback

The Trump Administration has been hostile from the outset to settlements that allow non-federal government groups to obtain funds for what those private groups perceived as environmentally beneficial projects. Initially, it ended the use of SEPs in EPA settlements with state and local governments. This was troubling enough, since in many cases, the violation resulted from inadequate funding, and payment of a substantial penalty instead of investment in beneficial infrastructure would do nothing to mitigate the harm from the violation, and in fact was more likely to force the defendant to fully litigate in hopes of obtaining penalty relief from the court.

DOJ then extended the ban on use of SEPs, directing that none of its settlements include SEPs. That left citizen suit litigation as the only arena for SEPs. The DOJ action in the DTE case is now the other shoe dropping, as DOJ, which receives 45 days’ notice of all CWA and CAA settlements, appears ready to object to any settlement including SEPs in lieu of penalties.

What This Could Mean

This is not the end of the game, however. Without SEPs, the most likely outcome would be longer, more expensive litigation. However, most states have enforcement authority that allows for SEPs, so environmental groups may simply opt for a different forum.

Further, DOJ’s attempt to block agreements like that with DTE may not succeed in the courts. Even if it does, many of the arguments in the DOJ brief rely on language unique to the CAA, and not present in the Clean Water Act. And, of course, there is an election coming, which may result in a return to practices hundreds of attorneys and dozens of courts had found lawful and useful for forty years.