Volume 110
Issue
5
Date
2022

The Best and Worst Form of Environmental Enforcement: Third-Party Payments and Executive Settlement Policy

by Michael J. Amato

Environmental law is no longer “suddenly ablaze” Footnote #1 content: In the seminal Environmental Decisionmaking and the Role of the Courts, Judge Harold Leventhal, sitting in 1974, described environmental law as “suddenly ablaze, a development which has taken place essentially within the last five years.” 122 U. PA. L. REV. 509, 509 (1974).  —even if the planet is. The “legislative burst” that channeled the major environmental statutes of the 1970s and 1980s Footnote #2 content: See id. at 510; Richard J. Lazarus, Congressional Descent: The Demise of Deliberative Democracy in Environmental Law, 94 GEO. L.J. 619, 623–29 (2006).   has withered to a pause. Footnote #3 content: See Lazarus, supra note 2, at 629–32.   Citizen suits have been stymied by a judicial nihilism in the inability of courts to address large-scale environmental harms with indirect victims and redressability problems. Footnote #4 content: See Scott Novak, Note, The Role of Courts in Remedying Climate Chaos: Transcending Judicial Nihilism and Taking Survival Seriously, 32 GEO. ENV’T L. REV. 743, 746–47 (2020).   At the same time, recent Presidents have faced flat or declining Environmental Protection Agency (EPA) budgets, Footnote #5 content: See infra note 268 and accompanying text; OFF. OF INSPECTOR GEN., EPA, REPORT NO. 20-P-0131, EPA’S COMPLIANCE MONITORING ACTIVITIES, ENFORCEMENT ACTIONS, AND ENFORCEMENT RESULTS GENERALLY DECLINED FROM FISCAL YEARS 2006 THROUGH 2018, at 23–24 (2020), https://www.epa.gov/sites/ default/files/2020-04/documents/_epaoig_20200331_20-p-0131_0.pdf [https://perma.cc/BLE8-WAK8].   congressional abandonment on new legislation, Footnote #6 content: See infra Section II.A.2; Lazarus, supra note 2, at 619.   and wavering public faith in the need for environmental law itself. Footnote #7 content: See Hari M. Osofsky & Jacqueline Peel, The Grass Is Not Always Greener: Congressional Dysfunction, Executive Action, and Climate Change in Comparative Perspective, 91 CHI.-KENT L. REV. 139, 144 (2016) (reviewing climate change politics and public support).   Yet the specter of distant and not- so-distant environmental harms remains: the “super wicked” problem of climate change, Footnote #8 content: Richard J. Lazarus, Super Wicked Problems and Climate Change: Restraining the Present to Liberate the Future, 94 CORNELL L. REV. 1153, 1153 (2009).   the “unequal distribution of environmental harms” across marginalized communities, Footnote #9 content: Wyatt G. Sassman, Critical Questions in Environmental Law, 97 U. DET. MERCY L. REV. 487, 493 (2020).   and the age-old problem of compensating dispersed victims for in-tangible harms that cannot be undone Footnote #10 content: Seema Kakade, Remedial Payments in Agency Enforcement, 44 HARV. ENV’T L. REV. 117, 118 (2020).  —just to name three.

This Note describes a tool of Executive Branch backlash to the stagnation in the improvement of substantive law and a battleground between the Legislative and Executive Branches over who may wield environmental enforcement power. This tool is third-party payments: government enforcement settlement agreements that require defendants pay for environmental projects benefiting third parties. For example, in 2016—following an international “dieselgate” scandal where Volkswagen equipped diesel cars with defeat device software used to cheat emissions tests Footnote #11 content: Guilbert Gates, Jack Ewing, Karl Russell & Derek Watkins, How Volkswagen’s ‘Defeat Devices’ Worked, N.Y. TIMES (Mar. 16, 2017), https://www.nytimes.com/interactive/2015/business/international/ vw-diesel-emissions-scandal-explained.html.  —Volkswagen settled with the Department of Justice (DOJ) for $14.7 billion. Footnote #12 content: Hiroko Tabuchi & Jack Ewing, Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S., N.Y. TIMES (June 27, 2016), https://www.nytimes.com/2016/06/28/business/volkswagen-settlement- diesel-scandal.html.   Alongside a stipulation that the car manufacturer would buy back affected cars, the consent decree required Volkswagen to invest $2 billion in charging infrastructure for zero-emission electric vehicles and $2.7 billion in a mitigation trust aimed at reducing diesel emissions more broadly. Footnote #13 content: John C. Cruden, Bethany Engel, Nigel Cooney & Joshua Van Eaton, Dieselgate: How the Investigation, Prosecution, and Settlement of Volkswagen’s Emissions Cheating Scandal Illustrates the Need for Robust Environmental Enforcement, 36 VA. ENV’T L.J. 118, 153–55 (2018); Kakade, supra note 10, at 135.   These investments aimed to increase public education surrounding electric vehicles. Footnote #14 content: Cruden et al., supra note 13.   Notably, at the time of the settlement, legislation explicitly addressing zero-emissions electric vehicles did not exist—though the Obama Administration did raise fuel-efficiency standards through regulation Footnote #15 content: Press Release, Off. of Press Sec’y, White House, Obama Administration Finalizes Historic 54.5 MPG Fuel Efficiency Standards (Aug. 28, 2012), https://obamawhitehouse.archives.gov/the-press-office/2012/08/28/ obama-administration-finalizes-historic-545-mpg-fuel-efficiency-standard/ [https://perma.cc/BZ8B-N5AT].   and announce the development of electric vehicle charging infrastructure through executive action. Footnote #16 content: Press Release, Off. of Press Sec’y, White House, Obama Administration Announces New Actions to Accelerate the Deployment of Electrical Vehicles and Charging Infrastructure (Nov. 3, 2016), https:// obamawhitehouse.archives.gov/the-press-office/2016/11/03/obama-administration-announces-new-actions- accelerate-deployment [https://perma.cc/7YAW-TXC3].   Finally, the two investment projects sought to offset the environmental harms caused by the higher polluting vehicles and purchases made by consumers tricked into buying what they thought were Volkswagen’s environmentally friendly cars. Footnote #17 content: See Kakade, supra note 10, at 135.   The idea here is the basis for many environmental remedies: while Volkswagen could buy back the cars in violation, one cannot simply pull back the excess noxious emissions in the air. And, if the defendant pays a penalty, the funds going to the U.S. Treasury do not compensate the victims of the offense. Footnote #18 content: For example, criminal penalties that go to the U.S. Treasury’s Crime Victims Fund are limited to victims of violent crimes. Environmental prosecutors view third-party payments as “essentially the only way” that funds go toward remedying the harm caused by the violation. See Deborah L. Harris, Section Chief of Env’t Crimes, DOJ, The Future of Environmental Criminal Enforcement, Dialogue with Steven P. Solow (June 3, 2021), in 51 ENV’T L. REP. 10823, 10830 (2021).   Some other scheme— such as a third-party payment—is needed to actually remedy the environmental and human harms. 

The Volkswagen consent decree was just one of multiple settlements during the last decade where defendants, as part of their settlement agreement, Footnote #19 content: These agreements are present in both consent decrees and settlements, as well as plea deals and other enforcement agreements. Though all different in substance, the nuances are not important for the purpose of this Note, which will refer to them all as settlements unless the distinction is important. One distinction that is important—though outside the scope set here—is that judges must approve consent decrees. See Dustin Plotnick, Note, Agency Settlement Reviewability, 82 FORDHAM L. REV. 1367, 1377 (2013).   were required to pay money toward outside projects that benefitted the environment. Footnote #20 content: Tatiana Schlossberg & Hiroko Tabuchi, Settlements for Company Sins Can No Longer Aid Other Projects, Sessions Says, N.Y. TIMES (June 9, 2017), https://www.nytimes.com/2017/06/09/us/politics/ settlements-sessions-attorney-general.html.   Some defendants, like Volkswagen, spent money on projects in line with executive policy initiatives. Other defendants agreed to complete projects that specifically benefitted local communities. For example, in the same year as the Volkswagen settlement, the motorcycle manufacturer Harley-Davidson was also charged for selling defeat devices that allowed riders to modify the emissions control system on their bikes. Footnote #21 content: Press Release, DOJ, Harley-Davidson to Stop Sales of Illegal Devices That Increased Air Pollution from the Company’s Motorcycles (Aug. 18, 2016), https://www.justice.gov/opa/pr/harley- davidson-stop-sales-illegal-devices-increased-air-pollution-company-s-motorcycles [https://perma.cc/ 6G67-JDY2]; Kakade, supra note 10, at 148.   These “super tuners” helped riders increase engine performance but also increased air pollutants in violation of Clean Air Act emissions standards. Footnote #22 content: Press Release, supra note 21.   Harley-Davidson paid a $12 million penalty and agreed to stop selling and to buy back the super tuners. Footnote #23 content: Id.   To address the environmental damage and serious health effects caused by the excess emissions, the EPA included a settlement provision requiring Harley-Davidson pay $3 million to implement a project that would replace conventional woodstoves with cleaner- burning woodstoves in local communities. Footnote #24 content: Id.   These woodstoves emit similar air pollutants and cause similar health effects, and the project aimed to remediate the air quality caused by the super tuners. Footnote #25 content: See id.; Radu, infra note 207 (describing how mitigation projects like the woodstove project remediate damage done to the environment and public health).   

Unlike restitution, where defendants pay money to compensate direct harms, Footnote #26 content: See Basic Information on Enforcement, ENV’T PROT. AGENCY, https://www.epa.gov/enforce ment/basic-information-enforcement [https://perma.cc/C5Q-25AM] (Feb. 22, 2022); Kakade, supra note 10, at 138–40.   third-party payments seek to remediate more disperse environmental harms related to defendants’ misconduct. They are particularly suited for environmental settlements because the damage caused by environmental violations—whether noxious emissions or groundwater contamination—cannot be “un-emitted.” Thus, third-party payments seek to remedy and offset harms that are similar to the violation at issue, such as by reducing the same harmful air emissions in another form. These projects by necessity benefit certain third-party recipients— often local communities—as well as third-party organizations that are regularly hired by corporate defendants to implement the project when the defendants do not have the expertise to do so on their own. 

This aspect—that a third-party recipient or implementer, unrelated to the litigation, stands to benefit—has made third-party payments the focal point of intense debate. Academics and politicians have disputed their legality Footnote #27 content: See, e.g., Thomas O. McGarity, Supplemental Environmental Projects in Complex Environmental Litigation, 98 TEX. L. REV. 1405 (2020).   and illegality, Footnote #28 content: See, e.g., Todd David Peterson, Protecting the Appropriations Power: Why Congress Should Care About Settlements at the Department of Justice, 2009 BYU L. REV. 327.   and advanced various normative policy arguments. Some laud environmental projects for their ability to direct remedial relief to nameless environmental victims and restore environmental justice, Footnote #29 content: See Douglas Rubin, Comment, How Supplemental Environmental Projects Can and Should Be Used to Advance Environmental Justice, 10 U. MD. L.J. RACE, RELIGION, GENDER & CLASS 179, 179 (2010).   while others, such as one congressperson, have described them as “the Justice Department’s …penchant for directing millions of dollars to special interest groups.” Footnote #30 content: Doug Collins, Stop Settlement Slush Funds Act Helps Restore Checks and Balances, HILL (Feb. 9, 2017, 11:05 AM), https://thehill.com/blogs/congress-blog/the-administration/318682-stop-settlement-slush- funds-act-helps-restore-checks [https://perma.cc/ZYU8-WWND].   At the executive level, the Bush Administration was generally supportive of third-party payments and the Obama Administration settled cases with some of the largest payment agreements, while the Trump Administration was highly critical and went as far as to completely prohibit third-party payments in DOJ settlement policy. Footnote #31 content: See infra Section I.D.   And though the Biden Administration has indicated a repeal of almost all of the Trump prohibitions, the debate over these payments will remain. Footnote #32 content: The Biden Administration has withdrawn the Trump Administration memoranda prohibiting third-party payment practices. However, a DOJ regulation from the Trump Administration, codified in the federal register and the Justice Manual, remains. See Harris, supra note 18, at 10833; 28 C.F.R. § 50.28 (2021); DOJ, Just. Manual § 1-17.000 (2022). This regulation is under review. See infra Section I.D.   

Academics have typically structured the foregoing debate in terms of a similar debate surrounding Supplemental Environmental Projects (SEPs), an EPA settlement project policy. A SEP is an agreement in an EPA enforcement settlement where the defendant “propose[s] to undertake a project to provide tangible environmental or public health benefits to the affected community or environment.” Footnote #33 content: Supplemental Environmental Projects (SEPs), ENV’T PROT. AGENCY, https://www.epa.gov/ enforcement/supplemental-environmental-projects-seps [https://perma.cc/9Z88-C3JE] (July 27, 2021).   The debate over SEPs mirrors that over third-party payments because, in many instances, third-party payments can be SEPs: they are projects aimed at benefiting an affected community. However, third-party payments can also be much broader than SEPs—which impose limits on third-party involvement—and can occur outside EPA action and in a broader array of civil enforcement suits, citizen suits, and criminal plea agreements. Despite this breadth, academics have historically focused on SEPs, with limited focus outside of their typical civil enforcement strictures. Footnote #34 content: One helpful definition is advanced by Professor Kakade, who includes third-party payments as a type of “remedial” payment—or “payments for projects as remedies in regulatory enforcement cases.” Kakade, supra note 10, at 119. These could include third-party payments, as defined here, as well as a larger set of settlement provisions outside a purely environmental context. Professor Kakade’s formulation may be one of the best, but this Note uses the term “third-party payments” because that is what the government tends to use and for the reasons expressed in the introduction.   And in doing so, various scholars have proliferated a wide range of names for the enforcement provisions that include third-party payment agreements, including “Supplemental Environmental Projects,” “Beneficial Environmental Projects,” and “Environmentally Beneficial Expenditures.” Footnote #35 content: See, e.g., Leslie J. Kaschak, Note, Supplemental Environmental Projects: Evolution of a Policy, 2 ENV’T LAW. 465, 467 n.15 (1996) (describing, in 1996, how “many different terms have been used to explain what is captured in part by the current term supplemental environmental projects (e.g., supplemental enforcement projects, alternative payments, mitigation projects, environmentally beneficial expenditures, and environmental improvement projects).”); Kenneth T. Kristl, Making a Good Idea Even Better: Rethinking the Limits on Supplemental Environmental Projects, 31 VT. L. REV. 217, 222 n.20 (2007).   Nomenclature is not important Footnote #36 content: Admittedly, the categorization of “third-party payments” versus other environmental project settlement provisions can be semantic and adds to the academic struggle to properly name something. For example, a Clean Air Act settlement with Toyota included a settlement provision requiring that the car company spend $20 million helping local communities by retrofitting 3,000 diesel vehicles—mostly school and municipal buses that were not manufactured by Toyota—that lacked pollution control equipment. Press Release, EPA, Toyota Motor Corporation Settlement (Mar. 7, 2003), https://www.epa. gov/enforcement/toyota-motor-corporation-settlement [https://perma.cc/AD3W-Q654]. Toyota was also required to accelerate by one year their compliance with new emissions regulations, which was expected to cost the company around $11 million. Id. Although the first settlement provision is a third- party payment because it benefits local communities as third parties, the primary beneficiary of the accelerated compliance is Toyota itself, or maybe the government and every taxpayer. This Note does not intend to draw a clear line. Rather, it accepts the artificial distinction and uses third-party payments as a tool for analysis for the reasons given in the following paragraph.  —but this Note proposes that there are practical reasons for analyzing third-party payments as a standalone category of civil and criminal settlements in their own right because of the way these settlement payments crystallize larger problems of executive prosecution, prosecutorial discretion, and separation of power disputes. Footnote #37 content: One unfortunate effect of taking this position is that little analytical data exists on third-party payments as a standalone category. Thus, when yearly data is used in this Note, it often involves SEPs or other settlement forms that have been categorized.   

The practical benefits of standalone analysis are as follows. First, third-party payments are often themselves treated differently by the enforcement community. The EPA’s SEP Policy and the DOJ Environmental Crimes Section’s community service policy both explicitly distinguish third-party payments as their own form of settlement agreement—as a type of a SEP and as community service, respectively Footnote #38 content: See EPA, SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY 2015 UPDATE 26–28 (2015); Memorandum from Ronald J. Tenpas, Assistant Att’y Gen., DOJ, to Env’t Crimes Section Att’ys, DOJ 11 (Jan. 16, 2009), https://www.justice.gov/file/1046141/download [https://perma.cc/ST3C-5Q45].  and private law firms mirror this distinction. Footnote #39 content: See, e.g., Conrad Bolston, Corinne Snow, Ronald Tenpas, Patrick Traylor & George Wilkinson Jr., Biden Administration DOJ Signals Shift in Environmental Enforcement Revoking Prior Policies, JD SUPRA (Feb. 12, 2021), https://www.jdsupra.com/legalnews/biden-administration-doj-signals-shift- 3147112/ [https://perma.cc/9SHR-W6KP]; see also Raymond Ludwiszewski, EPA in the Trump Era: The DOJ’s 3rd-Party Payment Policy, LAW360 (Feb. 23, 2018, 1:55 PM), https://www.law360.com/ articles/1013148/epa-in-the-trump-era-the-doj-s-3rd-party-payment-policy (describing Jeff Sessions’s memorandum curtailing SEP payments, and indicating “[i]t is too early to know how this policy . . . will impact future environmental settlements.”). There may be some advantage to private firms creating a distinction without a difference, especially if third-party payments are removed from DOJ policy, because of the advantages for their client in preserving environmental project settlement provisions as a part of settlement negotiations.   Second, the longstanding criticism against settlements containing environmental projects is often targeted at the third-party component of the agreement rather than the impact on defendants. There is far more criticism aimed at the idea of the DOJ directing checks to favored environmental groups than at settlements where the defendant agrees to undergo a project at their own facility or accelerate their compliance in return for a penalty mitigation. While all remedial actions suffer from similar criticisms, Footnote #40 content: See, e.g., Peterson, supra note 28, at 351.   third-party payments are particularly critiqued because of the public relations behind unelected prosecutors directing settlement funds to parties that are not direct victims, or behind a president enforcing environmental initiatives after being blocked by Congress. Footnote #41 content: See Schlossberg & Tabuchi, supra note 20.   

Finally, third-party payments are a better diagnostic tool for understanding how recent Administrations, especially under Obama, have tried to fill a vacuum in environmental lawmaking with policymaking-by-prosecution as another form of expanding executive authority. Prosecution policy is applicable outside the environmental enforcement context, Footnote #42 content: See infra Section II.B.   but the policy behind using third-party payments as a way of rectifying harms that produce indirect injury is a hallmark of environmental enforcement. Obama-Era settlements demonstrate that third- party payment provisions have the ability to enact new policy initiatives and then pay for them using settlement proceeds, all outside congressional barriers. As congressional lawmaking has withered in the last few decades, executive “lawmaking” through executive orders, regulatory rulemaking, and regulatory enforcement has expanded to fill the vacuum. Footnote #43 content: Edward G. Carmines & Matthew Fowler, The Temptation of Executive Authority: How Increased Polarization and the Decline in Legislative Capacity Have Contributed to the Expansion of Presidential Power, 24 IND. J. GLOB. LEGAL STUD. 369, 388 (2017) (describing how “Obama has taken unilateral actions to fill the policy vacuum created by a deadlocked Congress” in the area of climate change through executive orders). See generally Robert L. Glicksman, The Constitution, the Environment, and the Prospect of Enhanced Executive Power, 40 ENV’T L. REP. NEWS & ANALYSIS 11002 (2010) (discussing the potential expansion of executive power in the implementation of environmental legislation through the Take Care Clause and the “unitary executive” theory).   Third-party payments represent the latest chapter in how enforcement serves executive policy goals beyond deterrence and fines for the U.S. Treasury. 

This Note examines third-party payments and their role in executive policy-making in three Parts. Part I describes the historical background of third-party payments, their current forms in civil and criminal enforcement, evergreen legal and policy concerns, and their use—or non-use—by recent Administrations. Part II proposes a view of the role of third-party payments within executive power dynamics and their use as a tool of executive prosecutorial discretion. It describes the emergence of third-party payments as a consequence of tightened standing requirements and barriers to citizen suits, congressional obstruction and inaction against environmental legislation, and overall expansion in executive power as a theoretical construct. Lastly, Part III provides observations about the role of third-party payments moving forward. Ultimately, this Note presents third- party payments as a lens for executive prosecutorial discretion and as another form of executive policymaking, alongside tools like regulatory lawmaking or executive orders. It does not present third-party payments as a panacea to environmental enforcement, nor does it toss them out as an unconstitutional breach of congressional authority. As they say in Washington, “elections have consequences.” Footnote #44 content: Courtney R. McVean & Justin R. Pidot, Environmental Settlements and Administrative Law, 39 HARV. ENV’T L. REV. 191, 195 (2015) (citing BOB WOODWARD, THE PRICE OF POLITICS 14 (2012))   Settlements that direct funds to third parties may just be another consequence. 

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Amato, Note