Court Rejects DOJ’s Efforts to Block Private Parties’ Use of SEPs in Clean Air Act Case

Earlier in the year, Preti Flaherty’s Environmental Law Blog highlighted that DOJ’s Environment & Natural Resource Division (ENRD) announced a significant policy change that severely limited the use of Supplemental Environmental Projects (SEPs) in federal environmental settlements. The policy was formalized in a March 12, 2020 memorandum issued by Assistant Attorney General (AAG) Jeffrey Clark.   

After AAG Clark’s new policy was issued, we noted that one of the open questions was the fate of environmental projects in citizen suit settlements. Would the United States now object to private party settlements if they included SEP-like projects?

We did not have to wait long for an answer. Last summer, DOJ did just that when it opposed a settlement between the Sierra Club and Detroit Edison (DTE) in a long-running Clean Air Act case. United States and Sierra Club v. DTE Energy Company and Detroit Edison Company, 10-cv-13101 (E.D. MI). Under the agreement, lodged separately from the consent decree with the U.S. in the same case, DTE agreed to perform environmental projects to benefit communities in Southeast Michigan. DOJ challenged the settlement, arguing that the side deal was illegal because it would override its enforcement discretion on the appropriate relief in the case—i.e., its decision not to include these environmental projects in its own settlement with DTE. 

On December 3, the district court in Michigan finally issued its long-awaited ruling on the Sierra Club-DTE settlement. Noting that DTE and Sierra Club were simply parties to a “private contract,” the Court squarely rejected DOJ’s argument that the side deal encroached on its enforcement discretion or otherwise undercut the federal settlement. And significantly, the Court shot down the underpinning of Clark’s SEP prohibition, finding that the projects at issue would achieve “an enormous environmental benefit that is fully consistent with the goals of the CAA.” 

As a practical matter, the Court’s ruling is perhaps not surprising in light of the fact that DTE said it would abide by the side deal regardless of what happened—and noted that the projects would provide “significant benefits to a valued local community.” But it was a significant ruling nonetheless, especially coming just two weeks after DOJ was in front of another court—in Conservation Law Foundation v. Barr, Case 1:20-cv-11827-ADB (D. Mass.)—defending the rationale behind Clark’s SEP policy and arguing that private parties had no Article III standing to challenge it in a brief before a district court in Massachusetts.  U.S. Brief

Whether or not the Massachusetts plaintiff prevails in invalidating the policy ultimately may be a moot point. The reality is that the policy is probably already on its last legs, as the Biden administration is almost certain to undo it. So, to answer the last question posed by our earlier blog: the Clark SEP policy looks destined to be a short blip rather than a long-term change in the use of a settlement tool that had been popular among federal enforcers, states, NGOs and businesses alike for more than 40 years.

PretiFlaherty attorneys James Beers and Jeff Talbert contributed to this article (assistance from William Donaldson).