The Return of Supplemental Environmental Projects
On May 5, the United States Department of Justice (DOJ) announced a new “Comprehensive Environmental Justice Strategy.” One piece of this new strategy was an Interim Final Rule reintroducing the use of Supplemental Environmental Projects (SEPs) in environmental enforcement action settlements.
As defined by the Biden administration, SEPs are “local projects that defendants can agree to undertake as part of an enforcement case settlement to help rectify environmental violations.” These projects were outlawed under the Trump DOJ due to concerns that their use expands DOJ discretionary authority beyond its statutory limits. The Biden administration, however, argues that “SEPs help to fulfill the goals of the underlying statutes being enforced and can provide important environmental and public health benefits to communities that have been harmed by environmental violations.”
On June 15, 2022, three executive branch veterans with a range of views on the issue joined us for a virtual discussion on the return of SEPs.
Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.
[Music and Narration]
Jack Derwin: Hello, and welcome to the Regulatory Transparency Project virtual event. My name is Jack Derwin, and I’m Associate Director of The Federalist Society’s Regulatory Transparency Project. Today, we’re very excited to host the panel discussion titled “The Return of Supplemental Environmental Projects.” To discuss this topic, we have a stellar, three-person panel joining us. In the interest of time, we’ll keep these intros brief now, but you can visit regproject.org to view our speakers’ full bios. After opening statements and discussion between our panelists, we’ll go to audience Q&A if time allows, so please enter any questions into the Q&A function at the bottom of your Zoom window. Finally, I’ll note that as always, all expressions of opinion are those of the guest speakers joining us today.
In a moment here, I’ll get out of the way and turn things over to our moderator, Annie Donaldson Talley. Annie is partner at Luther Strange and Associates, and formerly she worked in the White House as Deputy Assistant to the President and Deputy Counsel to the President, where her portfolio had a particular focus on regulatory reform and executive nominations. Without further ado, Annie, the virtual floor is yours.
Annie Donaldson Talley: Thank you so much for that kind introduction, and thank you all for joining us today for the webinar. On May 5, the Attorney General issued a memorandum announcing “actions to advance environmental justice,” among which was the issuance of an interim final rule restoring the use of supplemental environmental projects. And because there were so many big, nasty phrases there, we’re going to for the rest of this webinar call them SEPs, much less of a mouthful. The IFR took effect a few days later upon its publishing in the Federal Register on May 10, though the agency is accepting comments until July 11.
This action was far from surprising. As Attorney General Garland had noted, the DOJ and EPA had employed SEPs in environmental enforcement actions “for decades” before 2017, 2017 being when Attorney General Sessions issued his own memo later adopted into the Justice Manual and DOJ regulations which prohibited the use of third-party payments aside from certain specific exceptions. The Biden administration had marked the third-party payments regulations enacted under Trump as priority for removal during the transition. One law firm in its client alert regarding the revival of the policy called SEPs “an old friend to those subject to environmental enforcement actions.” Others decried the prospect of the return of SEPs, which leads us to today’s webinar.
We are joined today by two distinguished former DOJ attorneys, among their many other qualifications and accolades. Michael Buschbacher is counsel at Boyden Gray and Associates, where he focuses on litigating complex and novel issues of environmental administrative and constitutional law—again, big mouthfuls. Before joining the firm, Michael served as counsel to the Assistant Attorney General in the Environment and Natural Resources Division of the Department of Justice where he worked on policy the most, among other things, about the legality of SEPs and the Trump administration’s regulation prohibiting SEPs. Prior to that, Michael was an attorney at Sidley Austin, and he clerked on the Sixth Circuit and is a graduate of the Notre Dame Law School.
Justin Savage is global co-leader of Sidley Austin’s Environmental Practice group, where he represents executives, companies, and boards in civil and criminal environmental enforcement matters. It was not his law firm that called SEPs an old friend. Although maybe he has, I don’t know. He will be sharing his perspective from working with both industry clients and from his service for nearly a decade in the Environmental Enforcement Section of the U.S. Department of Justice.
Gentlemen, thank you both for being with us today. I’ll go ahead and turn it over to you first for initial remarks. Like Jack said, we’ll have some questions and discussion among the panelists, and then I’ll make sure to incorporate questions received in the Q&A window. Michael, I believe we’ve agreed to start with you, so I’ll turn the floor over to you.
Michael Buschbacher: Well, thank you, Annie. I am delighted to be here to discuss this important topic, especially with my friend and former colleague, Justin Savage. I want to advance what may sound like a bold thesis and that is that SEPs are a lawless outrage and that the return is inconsistent with the rule of law, undermines the integrity of the Department of Justice and EPA, and creates bad incentives. I also think they’re bad environmental policy. These are serious charges, and they demand some serious evidence to back them up.
So let me start with a definition. SEPs arise in enforcement settlements where prosecutors or civil enforcement attorneys agree to reduce the penalties that are owed by a defendant to be paid to the U.S. Treasury in exchange for that defendant voluntarily agreeing to pay a proportional sum to fund an environmental project that prosecutors like but that Congress has not authorized. SEPs are by definition not a form of relief that any court can enter if the case is litigated to judgment. And that’s an important distinction that separates SEPs from things like restitution and mitigation, which are a form of equitable relief that courts can grant. The First Circuit has a good representative definition that makes the distinction clear. Mitigation in the First Circuit is authorized only “in so far as the court is remedying the harm caused by the defendant’s past violations.” SEPs go further, though they do have to have some nexus or, as the Attorney General’s new memo said, a strong connection with the underlying violation.
So what SEPs are, at bottom, is a penalty that is redirected away from the Treasury into private hands or in some cases into the hands of state and local governments and subject to certain conditions on the use of that money that the prosecutors find acceptable. This is, I think, not that different from a store cashier offering to sell a product at a lower price than what the owner authorized if the customer agrees to give some of that purchase price to the cashier’s buddy to do some good deed, let’s say a sensibly beneficent skimming from the register. And that’s illegal. The Constitution gives Congress, and Congress alone, the power of the purse. That’s the power over taxation, over spending, and over appropriation.
Congress has protected this power with two laws in particular. The first, the Miscellaneous Receipts Act, requires everyone who gets money for the government or public money to deposit it into the Treasury and not to use or exchange it for any other purpose. And the second law is kind of the mirror image of that. It’s called the Antideficiency Act, which prohibits government officials from expending funds or incurring obligations in excess of Congressional appropriations. So the violations of these laws carry pretty significant penalties. If you’re a government official, you can be removed from office. And if you violate the Antideficiency Act willfully, you can even be subject to federal felony and liability.
The illegality of SEPs is easy to see, I think, if you ask simply, “What kind of money are we talking about?” Even according to SEPs defenders, the money needs to serve a public purpose, not a private purpose. And I think that proves pretty clearly that we’re talking about public money. And if it’s public money, the very text of the statute, the Miscellaneous Receipts Act, says that you can’t spend it on anything else. It’s got to go to the U.S. Treasury. There’s a 1980 OLC, a DOJ memo, that explains it, I think, quite eloquently, where it says, “Money available to the United States and directed to another recipient is constructively received.” Thus the fact that no cash actually touches the palm of a federal official is irrelevant if a federal agency could have accepted possession and retains discretion to us—excuse me—to direct the use of the money.
So in addition to the plain terms of these two laws, I’d also point you to the fact that Congress has authorized SEPs in one narrow circumstance, and that’s in 42 USC Section 16138, which is a part of the Clean Air Act, a fairly recent addition. And it provides “that the administrator of the Environmental Protection Agency may accept, notwithstanding Sections 3302 and 1301 of Title 31, diesel emission reduction supplemental environmental projects under certain conditions.” Now, what do you think Sections 3302 and 1301 of Title 31 are? They are respectively the Miscellaneous Receipts Act and the Antideficiency Act.
The clear implication of this statutory text is that, without Congressional authorizations, SEPs do violate the Miscellaneous Receipts Act and Antideficiency Act. And if you think that SEPs are okay without congressional authorization, then that whole statue is completely meaningless. It’s an ink blot signifying nothing. That’s not how I think we should approach congressional statutes. Perhaps unsurprisingly, the Attorney General’s memo bringing back SEPs and the IFR announcement don’t deal with these arguments. In fact, they outsource the legal argument to a secret memo that as far as I know has never been published but is with OLC. I think I actually filed a FOIArequest for that memo and never got a response, and I haven’t gotten around to suing. Maybe I will someday.
So I think that we can expect much better from Justin, and I suspect we’re going to see something like the following three points. And the first is that there are two cases from the 1990s that held that money for a SEP, in those cases SEPs that arose in private citizen enforcement suits, that that money was not subject to the Miscellaneous Receipts Act so long as the defendant hadn’t admitted to wrongdoing. The second is that it’s been said that the Office of Legal Counsel after that 1980 opinion actually blessed SEPs so long as there’s a significant nexus to the underlying wrongdoing and that there’s no post settlement control. And I think the third point that I’ve heard folks make in defense of SEPs is that they have to go into consent decrees that get judicial review and even public comment.
So I’ll take these three points in order. The first, the cases are Powell-Duffryn Terminals, Inc., a Third Circuit case from 1990, and Sierra Club v. Electronic Controls Design. I just think those cases are wrong. And I’ve never seen anyone defend them on their merits. I just think they’re bad, which is not an unknown phenomenon even in the courts of appeals. So instead of asking whether the money was public money, which is what the text of the Miscellaneous Receipts Act says, those cases ask whether the money is a penalty. And it’s just the wrong question, so it doesn’t really matter what the answer is because it’s not relevant to the text of the statute.
And in any event, there’s no question, certainly in light of more recent Supreme Court opinions, that SEPs are a form of penalty. I’d point you for this to the Supreme Court’s recent opinion in a case called Kokesh v. SEC, a decision by Justice Sotomayor. And the case there was about whether an order of disgorgement of ill-gotten money was a penalty. And the Court held that, in fact, it was. While disgorgement served some remedial purpose, it is primarily designed to “redress a wrong to the public rather than a wrong to the individual,” and disgorgement, the Court continued, serves to punish the wrongdoer and deter future violations. I think the same thing goes for SEPs. In fact, the interim final rule explicitly says that SEPs should serve the purposes of punishing and deterring unlawful conduct. If it’s doing that in significant part, it means it’s a penalty.
So what about the OLC opinion? Two problems with it. The first is it’s actually not a case about SEPs. It arose from a rather different situation, a strange intranational dispute about the importation of softwood lumber products from Canada. And the question to OLC was whether import duties that had been collected but that couldn’t be accepted by the government could in the settlement be transferred to some private party to perform meritorious initiatives. The question was, what are we going to do with this pot of money if the government can’t accept it? Well, that’s not a SEP. And with SEPs, the government absolutely can accept the money in the form of a civil penalty, and in fact, the longstanding policy of SEPs is that it is a form of exchange of civil penalty money for SEP money.
Second more fundamentally, why should we care — why should an OLC opinion settle the matter? It’s certainly persuasive authority. But remember the OLC office exists to defend the prerogatives of the executive branch and, like all OLC opinions, it’s subject to change. I think it’s rather simple minded to say, “Well, if OLC said it’s okay, that settles it.” The persuasiveness, I think, has to rest on the quality of the legal reasoning. And as I explained, I think the fact that it’s public money clearly brings SEP projects within the scope of the Miscellaneous Receipts Act.
Finally, what about judicial oversight? Judicial review has historically been very minimal, and that’s pretty easy to see why. Courts want to see cases go away. They’re busy. They have very little incentive to review complicated consent decrees absent very serious problems. And even when there are serious problems, it’s amazing what kind of things many judges have been willing to approve. Probably the worst example that I’m aware of is from the VW diesel defeat device case. There, VW funded a program for recharging, electric vehicle recharging infrastructure, that the Obama administration had repeatedly and unsuccessfully asked Congress for. And despite this, the district court rubber stamped the SEP and ignored objections saying that this was a problem. District courts, after all, rely on adversarial presentations, and they’re not going to get that when you’re talking about a consent decree which by definition is agreed upon by the parties. And courts are also not particularly well qualified to do their own sort of ex parte investigations, especially when you’re talking about something big and complicated like a major consent decree.
I do think it’s only a matter of time however before judges do take a closer look. The Tenth Circuit has a nice explanation of this in an opinion from 2004 by then Judge Michael McConnel, who’s now professor at Stanford. He for a majority wrote, “A settlement agreement or consent decree designed to enforce statutory directives is not merely a private contract. It implicates the courts, and it is the statute—and only incidentally the parties—to which the courts owe their allegiance. The primary function of a settlement agreement or consent decree, like that of a litigated judgment, is to enforce the congressional will as reflected in the statute.”
So I think sometimes the response to all this is something like, well, it’s kind of a mountain out of a molehill, isn’t it? SEPs are a win-win policy wise. They help facilitate settlements. They benefit the environment. Even businesses and other defendants love them. Basically, who cares about technical legality? They’re good policy. Everyone likes them, and no one’s being harmed. I find those arguments unpersuasive. I mean, for one thing, that’s a pretty cheap price to put on the rule of law and democratic accountability. If SEPs are so wonderful and so popular, why can’t you just get approval from Congress? Also, why in the world do we think it’s a good thing that polluters and lawbreakers like SEPs? I mean, that’s the reason in my mind to be skeptical. The reason defendants like SEPs is obvious, because they can exchange penalties and the ignominy and shame that comes with that for projects that give them good PR, an aspect of corporate decision making that’s been aptly described as greenwashing.
And I think that points to a larger problem, which is that SEPs are bad policy because they undermine deterrents. When you’re talking about pollution regulation policy, it’s very true that almost every case a penny of prevention is worth a pound of cure. And that’s how these statutes are written. Clean Air Act, Clean Water Act, those statutes authorize truly enormous penalties for violations. I think the reason they do that is because the best way to improve environmental quality is to prevent pollution in the first place. Electric school buses, solar panels on municipal buildings, those are great stories, and they may be good ideas. But the focus on enforcement should always be on finding the fairest and most cost-effective way to reduce pollution in the aggregate consistent with Congress’s directives.
And the programs that have worked best have taken this approach. I mean, think about the acid rain program from the 1990 amendments to the Clean Air Act. When was the last time that you heard about acid rain? The reason you haven’t heard about it is because the combination of the statutes market-based regulatory system and the threat of truly crippling liability for violations solved the problem in just a few years and at a very low cost. I, for one, want more of those kind of solutions. SEPs are by definition ad hoc, and they’re almost never the most cost-effective solution for improving environmental quality.
Now, of course, they do facilitate settlements, and that’s not in itself a bad thing. But I think perhaps we incentivize settling a little too much. There’s a lot to be said for taking defendants to trial and having a judge or jury decide whether they broke the law. With greasing the skids that lead to settlements, we often fail to learn whether a company or a person actually did something wrong. And law enforcement becomes a transactional revolving door affair in exchange of cash without any conclusive adjudication of right or wrong. I think the law needs clear lines to work properly however, and a policy of settling on almost everything undermines that.
And last, but definitely not least, there’s the perverse incentives towards corruption. Under the Obama administration, for example, DOJ entered into hundreds of settlements with SEPs and SEP-like agreements diverting funds from the Treasury to very progressive organizations that were the administration’s friends and supporters, I mean, Sierra Club, National Community Reinvestment Coalition, the National Council of La Raza. And political leadership under Obama was explicit about making sure that the money didn’t go to conservative groups.
In one email, for instance, the DOJ attorney said that it was important for a proposed settlement to be drafted in such a way as to “not allow the defendant to pick a statewide intermediary like the Pacific Legal Foundation does conservative property rights free legal services.” I mean, look, I don’t want — I don’t want DOJ picking winners and losers like that for either side. I think that’s just wrong. And of course, not every SEP is like this, but there is sort of a general bias towards this. And when parties are left without a check and judges aren’t really incentivized to pay close attention, it’s inevitable that people will behave badly. And that’s a process that is subject to abuse and I think doesn’t qualify as a win-win.
And even with less overtly partisan stuff, I mean, there’s just the fact that the kind of things that career and political leaders at EPA or companies want to do are not necessarily reflective of what the general U.S. population as represented in Congress would want. I think there’s a delta between that. And I think that’s important if we’re going to live in a representative democracy. I think we should try to focus as much of our allocation decisions on the folks who are actually democratically accountable. So to conclude, I think SEPs are bad, illegal, and create perverse incentives. The Justice Department should not have brought them back. They should stay where they belong in the dust bin.
Annie Donaldson Talley: Great. Justin, I’m not going to preempt your comments here, but when was the last time you heard about acid rain?
Justin A. Savage: Pardon?
Annie Donaldson Talley: I was just going to ask when you did last hear about acid rain. But please proceed with your opening statements, and we’ll get into that later.
Justin A. Savage: Okay. Well, Michael, tell us how you really feel. Look, I understand that it’s popular now to have law as theater and politic as theater . I am old and boring, so I’m going to stick with the law. I think Michael is referring to really three sets of restraints on the government’s ability to use money on SEPs, the Appropriations Clause of the U.S. Constitution, the Antideficiency Act, and the Miscellaneous Receipts Act. I think for 40 years, 50 years, the U.S. Environmental Protection Agency, U.S. Department of Justice were able to interpret and make that work.
And in the context of citizen suits where this issue has not just come up in the two cases that Michael mentioned, the Powell-Duffryn case and the Sierra Club v. Electric Controls Design Case in the Ninth Circuit, the courts rejected challenges to SEPs. And Michael says those were wrong. Those are two circuit level decisions. There’s also at least three district court judges that have looked at this and said this makes sense. This should be allowed. I know Michael doesn’t like the Office of Legal Counsel. I, myself, think it’s dangerous for the Environment and Natural Resource Division, which has an important but limited role, to opine on broader legal issues. I think reading the newspaper, you kind of see that as well.
And this is a good example where folks came in and said we have concerns. They really got rid of SEPs. Then, if you look at the history of this, the law I’ve laid out, and then look at this OLC opinion which Michael calls strange. I would call it important. Unlike ENRD, which has a limited agreement, OLC offers opinions that bind the executive branch. And in that case, the issue had to deal with, well, could the U.S. Trade representative divert monies away toward other purposes in the soft lumber trade dispute. And the OLC said, yes, they could if there had not been a receipt of the money and the government did not oversee the disbursement of the money. That’s been relied on internally in the government. I think that’s been cited in the case law, and I think it makes sense.
Now, this is not just the executive branch self-aggrandizing to take appropriations authority away from Congress or circumvent laws. I mean, there are also opinions from the GAO, the General Accounting Office, which oversees Congress’s appropriations, and from the Congressional Research Service saying that these types of payments, SEPs, can be appropriate subject to the safeguards I just mentioned and some of them that are mentioned in Attorney General Garland’s memo.
I know that Michael also does not — besides these authorities—and these are quite robust—Michael is also not believing that judicial review in the context of a settlement provides sufficient safeguards. And to that, I would say there are many issues with our federal judiciary, but these are professionals. These are for the most part people at the top of our profession. They know what they’re doing, and I think they deserve a presumption of good faith. And I’ve been involved in both sides of challenging settlements and defending them, and I have confidence in the federal judiciary. They have looked at this.
When this policy came out, there was some discussion—and Michael alluded to this—that perhaps it might be challenged, the reinstatement of SEPs. And what’s going on now is there’s a memo that came out that revoked the prior provisions of the justice manual that prohibited SEPs, and there’s an interim final rule that rescinded the regulatory prohibition on SEPs and requested comment. I think the chance of anyone having standing to challenge those actions as a generalized policy are zero. It’s going to be difficult to trace an injury back that you’ll be able to redress.
Now, in the context of a particular settlement, I think again it’s going to be very, very challenging for someone to come in and attack one of these for a couple different reasons, one I’ve mentioned, which is standing. How are you injured if a project goes forward? And then, the second, there are—I know Michael does not like them and thinks the judges are rubberstamps—but there are legal standards for review of consent decrees and settlements. It’s reviewed for fairness, for compliance with law. Is it in the public interest? Does it further the objectives of the statute? So there is a process for that. It tends, yes, to defer to settlements. But as the good book said, “Blessed are the peacemakers.” And judges do take it seriously, and there are occasions I’ve had—rarely—where judges have said, “You need to go back and look at a settlement.” So I think all of those protections really make these overwrought statements about cashiers stealing money, lawless outrages, it’s just a parade of horribles that springs from Michael’s mind and the minds of others who don’t like this.
And so, my appeal is to this, to tradition. If you’re concerned about abuses of SEPs, there are ways in the margins to increase oversight, to increase targeting of how these are used. It does not mean you throw out the baby with the bathwater. To take an example Michael used, if it’s a large settlement project that you do not like, then you can tweak the DOJ policy so that it can only be used up to a certain amount or it could only be used for X or Y. The idea and the last administration did, which was to prohibit them altogether, I think was not conservative. It was completely radical based on concerns that some of the projects, the scale was too large or ideologically—I think Michael mentioned it—was afraid they’d go to left-wing groups. There is institutional oversight in the Justice Department for decades. There’s judicial oversight, and then there’s the set of authorities at OLC, CRS, GAO that have looked at these.
The idea that this is, I think, a cashier stealing money, this is corruption, I mean frankly I think it’s insulting to the good women and men at the Justice Department and the judges who are professionals. I’ve never—I’ve been involved in SEPs on both sides—I was never corrupt or giving money out to this person or that person or calling somebody to say, “Oh, you should do this.” I’ll give you an — let’s get away from the academic discussion of our fears of SEPs. I’ll give you a real-world example of a SEP that — I think I did the last SEP before they were prohibited. It was for a facility in Ohio that had allegations of air pollution. And this particular type of air pollutant can make paint peel, and so the SEP was to do a lead paint SEP to take homes that had older, pre-1978 paint and clean them up and take the lead paint out. I just got the final report for that. They did it in churches, in old people’s homes, in elementary schools, in people’s houses.
That’s not corruption. That’s not harming the environment. That’s not doing some esoteric thing that Michael’s afraid of. That’s helping the people who are in that community in a way that’s appropriate instead of sending the money to the black hole of the Treasury. And I think if you look at this, there are other times in the last administration, like the wall, where they took a narrow interpretation of the Appropriations Clause and some of these other limitations. To me, maybe I’m an old timey conservative and boring, but you need to have a neutral principle there. And I think the principles here have worked time and time again due to the case law that’s out there and the institutional constraints that are both within the Justice Department and Congress. Is there an opportunity for abuse or waste? Of course. There always is, and that’s not limited to government. That’s any time you have a large organization. But the way to address that is to put process checks in place. It’s not to get rid of it altogether.
So in closing, I’ll just say this. This is a modest reinstatement of the government’s ability to have discretion in the appropriate case with safeguards to do a SEP. It’s not going to open the gates of hell and let loose all kinds of horrible things that are going to make the world a terrible place. It’s actually just going to reinstate how it was going back to President Reagan, President George H.W. Bush, President Clinton, George W. Bush, President Obama, and that’s a good thing. Thank you.
Annie Donaldson Talley: Great. Thank you for your opening remarks. I will let you all — if there’s anything you want to bring up before I ask questions, I’ll let you do that. Before I turn it back over to you, we’ve had some questions in the chat. But I will remind the folks out in the audience, please, if you have any questions, go ahead and submit those through the chat function. I will read as many of these off as I can in the next half hour before we have to wind up. Do you all have anything that you want to — Michael, we’ll give you a couple minutes if you want, and we will continue from there.
Michael Buschbacher: So yeah. Just a couple responses. One, I think the phrase black hole of the Treasury kind of gives up the game, right? There is this distrust that Congress can do its job in allocating money for things that we should allocate money towards and that, really, we should trust unelected bureaucrats and companies to come up with something a lot better and wiser than Congress can. Look, maybe, but that’s not our system of government. I think if we’re talking about contempt of people that are serving the public interest, I think that takes a rather jaundiced eye look at Congress’s role in — and frankly, Congress is not so good at passing laws these days, but they still do appropriations because the government needs money to function. The notion that this is just like ENRD is not factually correct. I mean, this was a — the regulation that was rescinded by Attorney General Garland was put in place by Attorney General Barr. This was not something that just originated in one part of the Justice Department.
I’ll also point out that if this is not some parade of horribles of things that could never happen or have never happened. I mean, the diesel defeat device VW stuff, it really happened. The Obama administration tried to get money from Congress. It couldn’t, and then it got it out of VW to do what it wanted to do. The email I read about the Pacific Legal Foundation was really sent. Listen, I know many of the folks at ENRD and EPA, and they are wonderful, hardworking, earnest people who want to follow the law. I don’t think that that means that we can’t discount things that have actually happened when we’re thinking about this. I guess the last thing I’ll say is that when it comes to challenging this, I think there’s sort of a tension to what Justin’s saying, which one is like it’s basically impossible to challenge. And two, there’s plenty of oversight already. But we live in an adversarial legal system, so there should be some way of challenging this. We can get into the thoughts about how that might happen later.
I will say also that most judges are very hardworking professional folks in the federal judiciary. But there are many instances where judges have not lived up to that requirement. Shortly before I joined the Department of Justice, there were a handful of lawsuits brought, I think in California, by a citizen group where they were getting direct money payments as part of the settlement to the named plaintiff, basically damages. It’s illegal. And it’s not like just me saying it’s illegal. You could get any of my friends from Sierra Club or Earthjustice on here, and they’d say, “Yeah, you can’t get damages in citizen suits.” And the Department of Justice intervened and said this is a problem. You can’t do this. It should be done differently. And the judge still rubberstamped it. So the notion that this is just like don’t worry, everything’s going to be fine without an adversarial process is, I just think, simple minded and incorrect.
Justin A. Savage: Yeah, and may I respond briefly? I think the overwhelming weight of precedent supports the legality of SEPs. Michael may not like them. He may have a couple of examples he doesn’t like out of the hundreds of SEPs done in the last 40 years. And yes, I did say the black of the Treasury, not because I distrust Congress or don’t like them, but because in a SEP, you’re dealing with an individual case where there ought to be, consistent with the rule of law, some prosecutorial discretion to further the objectives of the underlying statute and those that may have been affected by an alleged violation. So not only do I think it’s appropriate to have SEPs, but this is a unanimous view of companies, maybe some sponsors of FedSoc who also believe it’s better to help communities that may have been affected or that may be involved in a case.
To me, this is outrage in search of a problem. I understand. There have been a few things where people were upset, but that doesn’t mean you get rid of the entire system. It means you could have some limits, and I think early on there were some limits. It sort of boggles my mind, but I’m an old man now. I’m in my fifties, so my mind is constantly boggled. One final thing to think about is we’re all presuming that third parties would carry out SEPs. There are defendants themselves, companies can do these projects. They could buy land or do other things. So the notion that we’re just going to shovel money either as defendants or in the government to third parties is not necessarily true. There can be a lot of SEPs where there’s just direct work done by a defendant. But thank you, Annie and Michael.
Annie Donaldson Talley: Great. I’m going to just take down the temperature a degree and a half, which in Alabama in this heat wave is necessary anyway, and just ask a couple of kind of factual questions that may or may not be pointed but I think are good to clear up both for the audience and for the discussion. The first one is whether SEPs are deductible as charitable contributions, if they go to C3s or otherwise deductible under tax law or as a business expense rather than penalties, which are not tax deductible. And if so, does that counsel one way or the other as far as whether they should be used.
Michael Buschbacher: Well, they used to be. And some of those Obama era ones did have some serious tax advantages for the companies. But the Trump tax break in—what was it—2017, 2018 changed that. So now if it’s at the request — I can’t remember what the exact phrase is, but if it’s money that’s being — if the government’s involved in directing how the money’s going to be spent, that is not tax deductible.
Annie Donaldson Talley: Great. The next factual question I have from the audience is, “Does DOJ invite all public interest groups to solicit SEP funds for their causes?” I will add a little embellishment to that and ask should they or also to just discuss with you all how these SEPs come about. I know one of the biggest problems that people have with SEPs is they have some appearance of corruption every now and then, maybe not in Justin’s case with the lead paint, but in other pretty famous examples. So do you all want to discuss kind of how those come about, whether there’s opportunities there for playing games or potential corruption or anything else you want to add on that front?
Justin A. Savage: A typical settlement instrument would allow the defendant the option of having a third party implement a SEP. And it’s silent on who the third party should be. There’s some notable exceptions which I think lead to the prohibition on SEPs, some concerns about abuse. But typically, the typical instruments say have a third party do it, and then it would be up to the defendant to propose a third party. The U.S. government would say yes or no, and then you would proceed. If there was no agreement on the third party, then it would go to dispute resolution and ultimately the court. I’ve not seen that happen.
Annie Donaldson Talley: In your experience on the defense side, do companies know which ones are going to be favored by certain folks at the DOJ, or is it more truly something that they want to and invest in anyway? Or is it something that they’re actually tying back to the enforcement action?
Justin A. Savage: I mean, the way Michael describes it, it sounds like a lot more interesting, like we’re all greasing each other’s hands in the defense bar or handing out money to our buddies. It’s actually quite boring, and there’s a reason for that. Companies, when they settle—or you could have a settlement with an individual—there’s usually a stipulated penalty attached for the failure to perform. So a company is highly incented to go out and find an organization or another company or do it itself so that there’s timely performance and the avoidance of stipulated penalties. It’d be pretty cool if my practice involved going to smokey rooms and drinking bourbon and kind of winking at my friends and, “Hey, we’ll give you some money.” But that’s not how it is because corporate America, whether it’s a private entity or a public company, has a duty to its shareholders to minimize costs and get the job done.
Annie Donaldson Talley: I was just giving Michael a second. One final kind of factual/baseline matter, could or should the direction of these funds qualify as procurement under the FARs? I’ll ask this in a separate way. Should the Volkswagen one have been a procurement given that Congress had been asked for the money?
Michael Buschbacher: I mean, this is the kind of problem I think you run into. It’s this sort of strange, uncanny valley between private and public actions is where these things fall. And so, it’s neither fish nor fowl is sort of how the argument has to go, and I think you run in — I mean, I haven’t thought about that particular question, so I don’t have a strong view on it. But I think that’s exactly the kind of Twilight Zone problem you get when you have this sort of kabuki dance of, “I’m going to present this thing voluntarily that then DOJ can approve. Then, if it’s consistent with the policies of the administration, then we’ll approve it.”
One thing on approval, the new memo does require—this is an interesting I think kind of a troubling change over previous practice—SEPs now have to go to very senior political leadership. If it’s criminal, it has to go to the number two in the Department of Justice, the Deputy Attorney General. If it’s civil, it has to go the number three in DOJ, the Assistant Attorney General, Vanita Gupta, who was of course involved in many of these troubling SEPs under the Obama administration. It’s going to the folks who have already, in the case of the Assistant Attorney General, folks who have already been involved in some of these problems. And I think it means that whatever is proposed is going to be pitched to pass their approval. I mean, that’s inevitable, I think.
Justin A. Savage: Yeah. So on the question of whether it’s procurement, I mean, part of our practice is we do work on suspension and debarment and the federal acquisition regulations. I mean, it’s an interesting question. It seems like it would be a stretch, since under the SEP policy and your standard SEP terms in the consent decree the defendant, typically a company, selects the third party to perform. So it’s much different than a contract. On the political approval—I’m glad Michael mentioned that—I actually have a completely opposite view of it, which is I think, look, Michael, some folks, some other folks—I see in the chat—are really concerned about this. And look, I know they are acting in good faith and are worried about it. I think it’s overblown, but that’s a whole other thing. But because of that, I think this administration on a lot of things has been incredibly timid.
And so, the way I looked at that wasn’t, oh, they’re going to send it up to their political buddies to sort of direct the SEPs to some political favorite. I looked at it as they’re going to do this pretty rarely. Because if you’ve ever been at the justice Department at the bottom of the rung, sending something up to the number two in the entire organization takes months. So I viewed it actually as this DOJ is pretty risk adverse, and they don’t really want to do a lot of these. And so, in some ways, this debate is moot. Michael and others like them—I see in the chat—had these concerns I think from a discretion perspective. The Department has now moved away to having more safeguards. And I’d say it’s not a political lovefest to send it up. It’s basically a message to the line attorneys, “You’d better have a really buttoned-up SEP because it’s got to go all the way to the top of the house.”
Annie Donaldson Talley: There’s some really great questions in the chat, and we’ll get back to those in a second. Assuming there is another Republican administration in the future which again takes steps to end SEPs or maybe to restrict them pretty seriously, is there any effects of these flip-flops on enforcement on how companies, how some of your clients act in the aggregate? Does that make a difference? Is it good or bad if there’s flip-flopping every four, eight years, whatever it is?
Michael Buschbacher: Go ahead, Justin.
Justin A. Savage: I think it’s bad. I mean, I think we should be consistent. And I don’t think there’s — I know ENRD was sued to try to compel them to do SEPs. But that’s completely discretionary, and I know the person who filed that lawsuit.
Michael Buschbacher: I defended that one, and I said it’s completely discretionary in my motion to dismiss.
Justin A. Savage: Right. I mean, Heckler v. Chenay says there’s substantial enforcement discretion unless there’s a clear statute compelling it. And Michael mentioned DERA, the Diesel Emission Reduction Act, and that’s really to allow more SEP money when there’s already an appropriation. But there’s not anything saying in any case that DOJ has to do a SEP. It’s completely discretionary. I don’t think it’s good to flip back and forth, but I don’t think there’s a mechanism. If I was upset – the Republican state-backed White House and I was upset about it—correct me if I’m wrong—I don’t see a viable claim to compel them to use SEPs.
Michael Buschbacher: I mean, it obviously complicates the settlement process and delays things. When I was at DOJ, there was kind of a grandfathering-in process, where things that were basically baked were allowed through. I kind of suspect that wouldn’t happen again just because I think the sort of people are on notice of the view of at least a lot of folks who would, assuming that the future Republican administration would be basically aligned to past ones. The diesel reduction stuff, Justin, those get me to one question I’ve been wanting to ask you, which is the — what’s the point of that law if you can do this anyway?
Justin A. Savage: The point of it is there are grants to buy cleaner diesel engines. And under EPA SEP policy, those would otherwise be disqualified as an eligible project. So the point of that and if you look at the legislative history—and I’ve worked on some of these—is to allow those to continue.
Michael Buschbacher: Interesting. I mean, you’ve already heard my view about the fact that it talks about the Miscellaneous Receipts Act and the Antideficiency Act in the text. Anyway.
Annie Donaldson Talley: Justin, I have a question for you maybe specifically to lead this off. But it does seem like and there’s a question in the chat that there might be some levels of difference between mitigation, injunctive relief, and SEPs and then maybe some of these SEPs that Michael and others would classify as especially problematic. I think Michael would say all of SEPs are problematic, but there’s a certain level above and beyond just the run of the mill ones, like the ones you were talking about. Would you recognize a potential difference between different types of these projects, mitigation funds, mitigation — I know there’s some kind of mitigation slush funds, some people call them, versus kind of targeted mitigation. Do you want to talk about that and if you’ve got any resolution to how to stop things that are “especially problematic”?
Justin A. Savage: Look, I think there are — the idea behind mitigation is it’s almost like restitution. So you have something go into the air, the water, the ground, and the defendant takes some action above and beyond law in an enforceable way to clean that up or make it better. So if you have — I think one of the first mitigation cases was a water discharge case where the defendant was discharging into the river sediment. So the court denied a motion to dismiss the government’s request that there be some remediation of that sediment as mitigation. And it comes up more frequently in the Clean Air Act phrases where the government says, “Well, your factory is violating the law. Don’t just put emission controls on your factory. Actually do some additional things to reduce emission,” whether that’s retiring credits or doing some other things. That’s the idea there is you actually have some emission reduction.
Now, where it gets fuzzy is SEPs can do that, but it’s much broader. So a good example would be there’s a lot of SEPs, I think, for solar projects or parks, and there is some tangible environmental or public health benefit. But it’s not necessarily taking out some type of pollutant from the environment in a measurable way. But I think your question really gets at, and we’ve kind of talked about this before the panel, there is some fuzziness behind this, and I think it’s something that people have struggled with. But SEPs are much, I think, broader. That’s my view.
Michael Buschbacher: Fuzziness is kind of inherent in equity. Equity is about getting complete relief where you can’t have a clear rule in advance about how to do it. And so, that’s just kind of baked into how equity works. I’m actually a little skeptical of the scope of mitigation, particularly under the Clean Air Act and Clean Water Act because the injunctive relief authorized by those laws is all forward looking. Sidley actually did—it’s probably before your time, Justin—but there’s a case in Indiana, Cinergy I think, where there’s a really great argument that—I wasn’t on it, so I’m not claiming any credit—but a great argument that Sidley made about the limitations on mitigation being essentially to ensure compliance under the Clean Water Act. And I think the same argument would be obtained in the Clean Air Act context. And there are specific statutes that have real processes for how to do remedial work, like natural resource damages claims under Clean Water Act or CERCLA. Yeah. That’s a different topic. It’s initially one I’d love to get into some time. But I think the fuzziness stands to the question. I think the fuzziness is just kind of inherent in equity.
Justin A. Savage: Yeah. I agree with that, and I’m familiar with the Cinergy case. Yeah. Sidley were defense lawyers. That was my case.
Michael Buschbacher: Oh, nice. I didn’t know you were on that. That’s a great case. Your brief is awesome. It’s a very good brief.
Justin A. Savage: I wish I could take credit. It was Tom Benson’s idea. Look, I think it’s separate in the sense that I think—I’m not going to speak for Michael or others—but I think SEPs, the concerns really boil down to two things. One, scale. Are you going to use a settlement to essentially hack something so big that it should go through Congress? So there’s been some settlements mentioned where there was concern. And then, the other one is—Michael put it right out in the room, but that is his concern—are you going to bias or corrupt the process by steering the money? I think with mitigation, you just don’t have those because mitigation, the government cannot request more than sort of the X amount of excess pollution. So there’s naturally some cap. Then in terms of third parties, typically for mitigation, that’s not at issue. So it’s a really interesting equity question, and there’s some recent Supreme Court case law on the authority of the FTC and other agencies to obtain injunctive relief. But to me, it is wholly a part in terms of the concerns, which I think are animating the series of debates we’ve had.
Annie Donaldson Talley: Great. We’ve got time for a couple more quick questions. I’m going to kind of fuse a couple of audience questions together to try to get as much addressed as possible. There’s a couple of questions about recourse. Assuming SEPs are indeed a problem under the law, what is the recourse? Again, we’re just assuming for the sake of argument. If there’s no standing, the parties in the settlement process are not adversarial, is there a recourse for challenging or otherwise stopping it if it were to be found a problem?
Michael Buschbacher: Well, the statute has some remedies built in. Like the Miscellaneous Receipts Act and the Antideficiency Act have remedies built in, which is removal from office. There might be some other things in there, like I said. But the idea there’s even felony criminal liability though, that’s cabined only to willful violation. So you have to know you’re going to break the law and do it anyway. I’m not entirely sure that no one has standing to challenge these in particular cases especially. I mean, if you think about it’s very common for environmental groups to intervene in government enforcement action and say—it happens less nowadays; it happened a lot more 15, 20 years ago—and say, “Hey, look, this settlement doesn’t go far enough. It doesn’t do this. It doesn’t do that.” I don’t know why the shoe couldn’t be on the other foot.
Justin A. Savage: Yeah. I think it’s going to be tough. I mean, look, we can’t hypothetically imagine every circumstance that could arise, but I think it’s going to be difficult. There is, and Michael knows this since he worked for the AAG for ENRD, there is an ENRD regulation that allows folks to comment. I think there’s typically a 30-day public comment period on consent decrees. Most settlements with a SEP would fall under that bucket. So you can write a letter to ENRD expressing your concerns. There’s opportunity, as Michael indicated, to intervene and challenge a settlement. I think the problem is going to be if you don’t like these ideologically, where are you injured? And is it just an inherent function of prosecutorial discretion? I mean, to me, it makes logical sense that this is — just as you cannot sue to force someone to do a SEP, I think it’s going to be difficult to bring a suit to halt a SEP on a particular case or categorically for the executive branch.
Michael Buschbacher: In the Friends of the Earth v. Laidlaw case—which I think is wrongly decided and I have my questions about citizen suit stuff, as Justin well knows—but in Laidlaw, the Court said that the potential deterrents from penalties is sufficient to give enough remedial relief, at least potential remedial relief, to keep a case from becoming moot. So I think that principle probably suggests that the desire for more penalties could meet the requirements of Article III when it comes to intervening. But I haven’t thought it fully through by any means.
Justin A. Savage: I mean, to me, it seems more like general taxpayer standings. There’s a lot —
Michael Buschbacher: That’s all citizen suits as far as I’m concerned.
Justin A. Savage: Well, there’s a judge in Detroit who disagrees.
Michael Buschbacher: I know.
Annie Donaldson Talley: Let me ask one final question in the four minutes I see that we have left. I assumed for the sake of argument in one direction in the last question. I’ll assume for the sake of argument in the other for this one. Assuming SEPs are here to stay or should be on the table—obviously a future administration can obviously take them off the table as prosecutors—but is there something that we should do to put limits on them to try to make sure they fall more into the lead paint category? I’ll disclaim I don’t know the particulars. I’m just accepting Justin’s characterization of them and probably most of our feelings about, oh, that sounds better than some. Are there some guide rails that maybe Congress or DOJ should enact a little bit more permanently on that?
Justin A. Savage: Absolutely. And there’s some in the 2015 EPA SEP policy. Garland’s memo has some, but they’re pretty vague. They seem to attract policy. I’m a hundred percent in favor of that. I think whether we have a big company, a big government bureaucracy, anytime you gather people together like this, there is always the risk of abuse, corruption. It just is inherent in our nature. Whether you’re religious or not, if you’re reading the Bible or other texts, the Torah, we literally haven’t changed in thousands of years. So I’m a hundred percent in favor.
My only point is don’t get rid of them altogether. They do a lot of good. Whether it’s a daycare where kids were eating lead paint chips or some other place, there is some good in them. And the concerns I think that people have and Michael has in good faith I think can be addressed through additional oversight and transparency. To your point, if a SEP is awarded to somebody, I think the public ought to be able to know, where did it go? It wasn’t just to buy some guy a pickup truck who happens to belong to an NGO that is a favorite of the regional administrative of EPA. That’s appropriate.
Michael Buschbacher: I would say something Congress could do is something like what the 1990 amendments to the Clean Air Act did for citizen suit relief. So the 1990 amendments say that up to a $100,000 of the penalty can be redirected to what the statute calls beneficial mitigation project, which is a SEP—it’s not mitigation in the equity sense—and that there has to be input from EPA and that there has to be a judicial decision. I don’t even know if the statute’s ever been used because basically everyone settles their citizen suits. But the idea is not a bad one. I mean, if you’re going to — if you think that there should be — I think if you want to do that, you should also think, “Is this a cost-effective measure for improving environmental quality?”
I think a lot of these programs – they sound great, and maybe they are good. But if you’re going to make decisions about policy, you should have some kind of study. And I think something Congress can do now and GAO could do now is look at what’s the best way to spend money on improving environmental quality and especially in a way that’s sort of– is tied to communities where pollution’s been happening. I don’t have a great answer about what that’s going to look like because I don’t know. But I think if you’re going to be spending money like this, you should be thinking first, “Is this a wise allocation of those funds? Is this cost effective?”
Justin A. Savage: And one thing I’ll say—and look, I’m not going to disagree that there could be examples out there of some things that were abuses—but the typical, the standard case with the government when you’re negotiating is the defendant, the company, proposes a SEP typically within a certain radius of a facility if when dealing with a facility. And I think that, to me, gives me a little bit more comfort. I think the way, when people hear what Michael said, they may think, ah, some clerk back in D.C. says, “I’d like to do this SEP,” or some political. That’s not really the reality of it. Typically, it’s a company that says, “Hey we think a SEP for the community would be good,” and they’ll put some proposals on the table. And at least in my experience—I’ve only done this for 25 years; I see people in the chat have done it longer—I’ve not had political interference where someone said, “Hey, let’s give the money to La Raza,” as an example instead.
Annie Donaldson Talley: Fantastic. Well, I promised to keep it within the hour, and my clock says 59 minutes. We thank you both for a lively and spirited debate. We hope everybody in the audience enjoyed and got something out of it in this lunch hour, and we appreciate everyone for being here. I think Jack has just rejoined us to wrap us up.
Jack Derwin: Yeah. Thanks so much, Annie. And I’ll echo your thanks to Michael and Justin. I thought the back and forth was fantastic. And thank you to our audience for tuning in to today’s virtual event. You can check out our website at regproject.org or follow us on all the major social media platforms @fedsocrtp to stay up to date. Thank you.
Justin A. Savage: Thanks.