DOJ Policy Restores Settlement Agreements Involving Payments to Non-Governmental Third Parties

Settlement agreements regarding payments to non-governmental third parties were sharply curtailed by the Trump administration. See “Last Minute Trump Administration Regulation Limits Environmental Justice Settlements,” Williams Mullen Environmental Notes July 2021. A recent DOJ policy and rulemaking restores the authority for DOJ to enter into settlements involving third parties, including Supplemental Environmental Projects (SEPs).

As discussed in the previous article, the Trump Administration regulation on third-party settlement payments had specific prohibitions on SEPs. While the Biden administration restored the ability to enter into settlements that included SEPs, the regulatory prohibition on third-party payments remained. This was viewed as a significant limitation on environmental justice settlements, as those settlements frequently entail payments to third parties.

The Biden administration has now taken steps to address this issue. A May 5, 2022 Memorandum from the Attorney General sets forth Guidelines and Limitations for Settlement Agreements Involving Payments to Non-Governmental Third Parties. While the policy is of general applicability, the policy discusses environmental violations as ones that may be particularly susceptible to redress through payments to third parties and was announced in conjunction with the announcement of the administration’s overall environmental justice enforcement policy, also issued on May 5. See Memorandum from the Associate Attorney General on Comprehensive Environmental Justice Enforcement Strategy. A new Office of Environmental Justice was announced in conjunction with these two policy pronouncements.

The third-party payment policy has the following guidelines and limitations:

• Any such settlement agreement shall define with particularity the nature and scope of the specific project or projects that the defendant has agreed to fund.
• All such projects must have a strong connection to the underlying violation or violations of federal law at issue in the enforcement action. In meeting this requirement, the project must be consistent with the underlying statute being enforced and advance at least one of the objectives of that statute. The project should also be designed to reduce the detrimental effects of the underlying violation or violations at issue to the extent feasible and reduce the likelihood of similar violations in the future.
• The Justice Department and its client agencies shall not propose the selection of any particular third party to receive payments to implement any project carried out under any such settlement. Similarly, the Justice Department and its client agencies shall not propose a specific entity to be the beneficiary of any projects carried out under any such settlement, although the Department and its client agencies may specify the type of entity. The Department and its client agencies may also disapprove of any third-party implementer or beneficiary that the defendant proposes for consideration, provided that the disapproval is based upon objective criteria for assessing qualifications and fitness outlined in the settlement agreement.
• Any such settlement must be executed before an admission or finding of liability in favor of the United States, and the Justice Department and its client agencies must not retain post-settlement control over the disposition or management of the funds or any projects carried out under any such settlement, except for ensuring that the parties comply with the settlement.
• No such settlement shall be used to satisfy the statutory obligation of the Justice Department or any other federal agency to perform a particular activity. Nor shall any such settlement provide the Justice Department or any other federal agency with additional resources to perform a particular activity for which the Justice Department or any other federal agency, respectively, receives a specific appropriation.
• No such settlement shall require payments to non-governmental third parties solely for general public educational or awareness projects; solely in the form of contributions to generalized research, including at a college or university; or in the form of unrestricted cash donations.

In addition to the policy announcement, the memorandum also directed that the Trump DOJ regulation limiting third-party settlement payments and specifically prohibiting payments as part of SEP projects be revoked. That was accomplished on May 10, 2022. 87 Fed. Reg. 27936. Although not required, the revocation requests public comment on the revocation of the regulation as well as the overall policy. Any comments are due by July 11, 2022.

Guidelines and Limitations for Settlement Agreements Involving Payments to Non-Governmental Third Parties, 87 Fed. Reg. 27936 (May 10, 2022).