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).

Issues in CERCLA Mediations Involving Many Parties

CERCLA cases often include mediations, either court-sponsored or party-initiated, as a mechanism to achieve allocation of liability for the costs of environmental cleanup at the subject Superfund site.  Because these cases often include many potentially responsible parties (“PRPs”) numbering in the scores or hundreds or more, the mediation process can be complex, lengthy and expensive.  Careful attention to the structure and sequence of the mediation process components is critical for achievement of a timely, successful, and cost-effective mediation outcome.

The impetus driving the timing of the mediation is often a critical determinant of what can be accomplished in a many-party CERCLA mediation.  Typically, the driving event is either an impending negotiation with EPA or the state environmental agency over performance of a response action at the site or a court deadline such as a pending trial date.  The particular deadline is likely to determine the extent to which a cash-out settlement, a pay-as-you-go settlement, or an interim allocation is to be available as a mediation outcome.  These deadlines are, of course, subject to varying degrees of strictness.  However, as with most other mediations, the ability to successfully conclude many-party CERCLA mediations depends heavily upon the notion that opportunities to achieve favorable outcomes will expire with the mediation deadline.  

The presence or absence of prior motions practice on liability-related issues is typically an important factor in these mediations.  The mediating parties benefiting from earlier court decisions press the “law of the case” argument in their party-specific mediations.  Of course, the mediating parties disadvantaged by prior decisions distinguish their facts from the prior decisions and assert their likelihood of achieving a more favorable decision when their motions are decided.  These issues, either addressed or unaddressed in prior motions practice, provide a large portion of the subject matter of individual party mediations in the overall mediation process. 

In cases involving mediations between PRP Settling Party Participating Groups (“PRP Group”) and not-yet-settled PRPs, the forcing mechanism may be a “most-favored nation” provision that promises that no subsequent settling parties will receive more favorable settlement terms than those achieved by parties settling during the mediation.  In practice, these provisions can be a two-edged sword, because members of the PRP Group may have received such provisions when they settled before the mediation.  This can have the effect of drastically limiting the ability of the PRP Group to compromise on issues that it has previously addressed in settlements with its members.  

As a result, the not-yet-settled PRPs often experience considerable frustration in attempting to reach compromises on these “previously settled” issues that differ from the resolution reached in the intra-PRP Group negotiations.  For example, a not-yet-settled PRP may experience fierce resistance from the PRP Group in seeking differing terms of the allocation between classes of PRPs such as waste generators and transporters.  The PRP Group would be reluctant to re-negotiate those terms internally (to match the terms sought by the mediating party) among its members who had previously come to resolution on them and had incorporated the result into the existing most-favored-nation provisions applicable to Group members.  The mediator must insist in such negotiations that the PRP Group is transparent about the terms of its most-favored-nation provisions in order to provide the mediating parties with a clear assessment of the difficulties in addressing these terms. 

The sequence of mediation activities is also a critical determinant of success and efficiency in many-party CERCLA mediations.  Most CERCLA mediations include PRPs from several or all of the CERCLA classes of PRPs – owners, operators, generators and transporters.  In order to achieve an overall resolution in which each party knows its specific share, either in absolute or relative terms, of the overall allocation, it is necessary for each class of PRPs to receive a collective allocation for that class and it is necessary for each class of PRPs to be able to negotiate its relative share with the other classes of PRPs. 

Accomplishing PRP class allocations is likely to require the mediator to conduct subordinate mediations to establish the class allocation of the respective PRP classes to determine the remaining shares to be allocated among the other PRP classes.  Of particular note, the owner and operator shares are essential and often quite controversial.  There is commonly considerable antipathy between the other PRP classes and the owners and operators, due to disaffection with owners’ and operators’ management of wastes at the facility.  This disaffection may require a comprehensive airing of the facility operations in the context of the mediation to establish a basis for agreement on the owner-operator shares.  This, in turn, may depend upon prior discovery and disclosure of information about facility operations.  Similarly, negotiations between the generator and transporter classes on issues such as which party selected the disposal site may require prior discovery and disclosure about transactional details.  Again, the mediator must endeavor to assure transparency of available information to facilitate these inter-class mediations.  It is also necessary for the mediator to develop a critical path of issue resolution to determine the most efficient sequence for the subordinate mediations.  This can be a tricky determination given that negotiating leverage may accrue to PRP classes whose issues are resolved early in the process.

Finally, the cost-effectiveness, and apparent cost-effectiveness, of the mediation process is heavily influenced by the sequence of subordinate mediations.  As in most mediations, each party desires to have the opportunity to fully air its case and its issues directly with the mediator.  In many-party CERCLA mediations absent subordinate mediations addressing issues common to PRP classes, these individual mediations could become very repetitive and parties with later mediation sessions could conclude that their issues were not subject to full airing if they had been resolved in prior party-specific mediations.  In particular, later-mediating parties whose time with the mediator is limited due to prior resolution of their respective issues may feel cheated of their opportunity to mediate and may feel that they did not get their moneys’ worth from the mediation.  It is important for the mediator to communicate the results and the contents of prior subordinate mediations to all of the parties so that they can be confident that their individual issues were fully represented and heard in the prior mediations.  Mediating parties in individual mediations can thereby be aware of the considerable resources already expended on resolution of their specific issues.

                                     

Preti Flaherty attorneys E. Michael Thomas and Jeff Talbert contributed to this article.

Massachusetts Establishes a Drinking Water Standard for PFAS

Per- and Polyfluoroalkyl Substances, “PFAS,” are man-made chemicals that have been used since the 1940s in a variety of industrial and consumer products ranging from fire-fighting foam, to food-related non-stick coatings, to dental floss and ski wax. Because PFAS are so common, the Agency for Toxic Substances and Disease Registry (ATSDR) reports that most people in the United States have PFAS in their blood. In recent years, concerns have arisen regarding a range of possible health effects resulting from exposure to PFAS including adverse fetal and neonatal development, liver and thyroid damage and endocrine disruption.

While research into possible health effects continues, on October 2, 2020, the Massachusetts Department of Environmental Protection published regulations establishing a drinking water standard (a Massachusetts Maximum Contaminant Level or “MMCL”) of 20 parts per trillion for the sum of six specific PFAS (referred to in the regulations as “PFAS6”). The regulations can be accessed here.

The regulations, 310 CMR 22.07G, not only establish an MMCL but also create new monitoring and reporting obligations for all Public Water Systems even when the MMCL is not exceeded. Public Water Systems in Massachusetts are classified as Community Water Systems (such as municipalities, trailer parks, apartments, condominiums, and prisons that serve residential customers year-round), Non-Transient, Non-Community Water Systems (NTNCs) (such as schools, daycares, and larger businesses serving 25 or more of the same non-residential people each day), and Transient, Non-Community Water Systems (TNCs) (such as recreational areas, campgrounds, hotels and motels, and small businesses). As of September 25, 2020, thirty Public Water Suppliers have detected PFAS in excess of 20 ppt in finished water.

The deadlines for commencing testing depend on the type and size of the system. Systems supplying water to more than 50,000 individuals must begin initial monitoring on January 1, 2021, with subsequent deadlines of April 1, 2021 for systems supplying to fewer than 50,000 but more than 10,000 individuals, and October 1, 2021 for systems supplying to 10,000 or fewer individuals. Transient, Non-Community Water Systems will not be subject to the full set of requirements set out in the regulations but are required to perform more limited sampling no later than September 30, 2022

Although the MMCL will apply to the sum of the concentrations of the PFAS6, the regulations require Public Water Systems to report all analytical results for all PFAS. Depending on the analytical method, that will mean analyzing for 14 or 18 specific compounds. And monitoring frequency will depend not simply on whether the MMCL is exceeded. The regulations set out thresholds and schedules for initial monitoring, routine monitoring, and more frequent monitoring if any PFAS are detected.

The regulations also include requirements for public education to all persons served by the affected Public Water System when the average of a sample and a second confirmatory sample exceeds the MMCL.

Compliance with the regulations will be a challenge because PFAS are ubiquitous and the MMCL is set at a concentration of parts per trillion. (By comparison, the standard for benzene is 5 parts per billion which is equal to 5000 ppt). Sampling will entail special procedures, specially prepared sample containers, and securing a qualified laboratory. Laboratory fees can run in the range of $275-$300 per sample and in-state laboratory options are limited. To offset this challenge, $8.4 million has been appropriated for PFAS testing of water supplies, and $20 million has been appropriated to the Commonwealth’s Clean Water Trust, which makes financing available to communities to address contamination issues if they are detected. A Public Water System cannot assume that its usual analytical laboratory will be approved to perform the analysis, and particular care will need to be taken during sampling to avoid cross-contamination. Illustrating how much of a departure PFAS sampling will be from past practices, DEP’s Field Sampling Guide for PFAS includes a comprehensive list of do’s and don’ts relating to field clothing, personal protective equipment and field equipment (e.g., no clothing or boots containing Gore-Tex®, no Teflon® (aka PTFE) or LDPE materials, no waterproof field books, no Sharpies or permanent markers).

And what about water systems requiring treatment? The regulations focus primarily on sampling and reporting, but the potential for treatment of PFAS-impacted water is real. According to DEP, “Granular activated carbon (GAC), ion-exchange resin, and reverse osmosis (RO) filters have been shown to be effective in removing PFAS. The type of treatment technology you will need depends on the specific PFAS compounds and their levels in the source water. A pilot study will be required prior to installing treatment.”

Finally, reflecting the evolving understanding of the impact of PFAS on human health and the environment, the regulations mandate that Mass. DEP periodically consider whether to amend the regulations “in light of any advancements in analytical or treatment technology, toxicology and/or relevant information.” The first such review must be completed no later than December 31, 2023, with subsequent reviews being performed every three years thereafter. 

 

For more information:

An overview of PFAS chemistry, potential health effects and sources of PFAS in the environment can be found in Mass. DEP’s “Interim Guidance on Sampling and Analysis for PFAS at Disposal Sites Regulated under the Massachusetts Contingency Plan.”

Information for Public Water Suppliers can be found here.

Achieving Bona Fide Prospective Purchaser Status: Yes, the Details Matter

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) provides a defense to liability to “bona fide prospective purchasers” (BFPPs), who, among other things, obtain Phase I Environmental Site Assessments (ESAs) that are timely (issued within 180 days prior to acquisition of the subject property) and conducted by a qualified environmental professional. Phase I ESAs that are more than 180 days old are “stale” and must be updated or they are considered expired and therefore ineffective for the purpose of establishing BFPP status. 

In Von Duprin LLC v. Moran Elec. Serv. (S.D. Ind., March 30, 2020), the federal district court for the Southern District of Indiana held that the defendants were not BFPPs with respect to two parcels, one that was acquired based on a 10-month old Phase I ESA and another that was first leased for 99 years based on a 14-month old Phase I ESA, but was subsequently acquired following a timely Phase I ESA. The court held that the second, fresh Phase I ESA did not cure the expiration of the pre-lease Phase I. 

The court also found that the stale Phase I ESA for the directly acquired parcel was deficient in any case because it did not observe all of the requirements for the CERCLA standards contained in 40 C.F.R. Parts 312.21 and 312.22. Specifically, the Phase I ESA was prepared for a related party that was not the nominal owner of the parcel in question and it did not include the required inquiries of the owner of the parcel regarding environmental conditions or the environmental professional’s certification of qualifications. 

The court entered a $510,000 award against the defendants, plus a declaratory judgment requiring them to pay 20% of all future cleanup costs. 

Lessons Learned

• Get a Phase I ESA before leasing or taking title to commercial/industrial property.
• Make sure the Phase I ESA is still fresh or get it updated.
• Check that every aspect of the Phase I ESA meets each of the CERCLA regulatory requirements. 

It is not uncommon for Phase I ESAs to be considered a low priority “check-the-box” exercise during a real estate transaction. The Von Duprin case is a cautionary tale. Details matter and ignoring them can be costly.

EPA Decisions to Delay Field Work at Environmental Clean Up Sites Due to COVID-19 Will Be Made on a Case-by-Case Basis

On April 10, 2020, the U.S. Environmental Protection Agency (EPA) issued Interim Guidance on Site Field Work Decisions Due to Impacts of COVID-19, which applies to response action related to cleanup and emergency response sites where EPA is the lead agency or has direct oversight of or responsibility for the work being performed. The interim guidance is available here. The interim guidance outlines certain factors EPA Regional Offices should consider when evaluating whether to pause, continue, or reduce on-site response actions in light of challenges posed by the COVID-19 situation. It provides, however, that none of the factors should be “considered in a manner that would override protection against unnecessary potential exposure to COVID-19.” The interim guidance makes clear that EPA has made and will continue to make decisions regarding pausing, continuing, or delaying response actions on a case-by case basis. Regional Offices will balance the health of workers and the risk of COVID-19 exposure against the imminent and substantial endangerment to human health or the environment that may be caused if the response action is slowed or paused. Regional Offices are unlikely to delay or suspend a response action where doing so would pose an imminent and substantial endangerment to human health and the environment and it is practical to continue the response action. In addition, the interim guidance provides that Regional Offices will decide whether to delay on-site work in accordance with the terms of the applicable enforcement instrument and will determine whether COVID-19 constitutes a force majeure based on site-specific circumstances. 

The interim guidance directs parties who believe COVID-19 will impact their ability to perform response actions to communicate with EPA project managers about the status of their field work and any anticipated challenges and mitigation measures. The interim guidance also advises parties to consult the applicable enforcement instrument, including provisions allowing schedule adjustments at the discretion of EPA’s project manager and/or force majeure provisions, for directions on providing the requisite notice and for other information described in the provisions.

Read more about the interim guidance here.

DOJ Says Goodbye to Federal SEPs. What’s Next?

With news rightfully dominated these days by Covid-19, it would have been easy to miss the significant policy change enacted a few weeks ago by DOJ’s Assistant Attorney General for the Environment & Natural Resource Division (ENRD), Jeffrey Clark. On March 12, Clark issued a lengthy memo that prohibits ENRD attorneys from using Supplemental Environmental Projects (SEPs) in environmental settlements.

While’s Clark’s policy change is the final nail in the coffin for federal SEPs, it should come as no surprise. The AAG made clear his view of SEPs in a previous memo that prohibited their use when resolving claims against state and local governments. The new memo expands that prohibition to include all federal SEPs (with a few limited exceptions). Comments made by Clark last week at a Federalist Society forum suggest there may still be more to come on this front, as he indicated DOJ is studying the implications for the new policy on citizen suits. 

SEPs, which have been used in environmental settlements since the 1980s, allow a settling party to agree to undertake an environmentally beneficial project—with some nexus to the alleged violation—in exchange for a reduction in civil penalty. Some examples of SEPs in recent federal settlements include energy efficiency projects to replace PCB-containing light fixtures in public schools and the donation of safety equipment to first responders in areas impacted by chemical releases from manufacturing plants. 

Because SEPs typically provide tangible community benefits, enhance the environment, and often help bridge gaps in settlement negotiations, they have proven to be very popular among federal law enforcers, states, NGOs, and businesses alike. Regardless of their popularity, however, Clark believes SEPs may violate the law by diverting funds that otherwise would go to the treasury. 

What does this mean for environmental settlements going forward? 

No more federal SEPs … DOJ will no longer approve consent decrees that contain SEPs except for certain mobile source cases, where the projects are authorized by statute. This prohibition will apply to ongoing negotiations, regardless of how close they are to wrapping up and regardless of their impact on negotiations. The new policy won’t affect consent decrees that have already been signed.

Uncertainty for citizen suits … There is also reason to believe that DOJ may start objecting to settlements in citizen suits that contain environmental projects. Clark’s recent comments to the Federalist Society indicate that DOJ is “studying” whether the logic behind the new SEP policy impacts what should be permissible in citizen suits. It is not clear what actions, if any, will be taken, but DOJ is evaluating the issue. 

Different rules for states … The new ENRD policy is silent on the use of SEPs in federal consent decrees that also involve state co-plaintiffs and state law claims. And the policy doesn’t impact the ability of states to include SEP-like projects in separate settlement agreements with private parties who also enter federal decrees. This is exactly what happened in a Clean Air Act settlement entered just a few months ago between DOJ, the State of California, and Kohler. There, California and Kohler entered into a separate agreement under which Kohler agreed to supply $1.8 million worth of solar-battery generators to low-income Californians living in areas subject to frequent power outages to reduce wildfire risks. 

Mitigation projects go on … While the new policy applies only to SEPs, there’s an open question as to whether its rationale will impact the use of mitigation projects in settlements. Such projects are similar in nature to SEPs but serve a different purpose: to remediate a specific harm caused by an alleged violation. Because mitigation is a core component of a court’s equitable powers, one would think they would be unaffected by the principles underlying the new SEP policy. And, indeed, the new policy expressly states that it doesn’t apply to projects that “directly remedy” harm to the environment. Clark even explains that the new policy could result in an increase in “classic forms of injunctive relief” like mitigation. 

For as long as Clark remains AAG, the only real question is how he views the nexus requirement for mitigation. What he says about nexus for SEPs in the March 12 memo is instructive: such projects need to have a “strict” nexus in terms of (a) the geographic area affected by the violation, and (2) the pollutant(s) at issue in the violation. Look for EPA and ENRD attorneys to continue to seek mitigation in cases where there are practical means of achieving reductions in the pollutants subject to the alleged violations. For violations that have widespread geographic impacts—such as Clean Air Act violations affecting distant downwind communities—examples abound of the types of projects that could satisfy the nexus requirement. 

The only constant in life is change … Finally, it’s important to recognize that while the new DOJ policy does reflect a significant departure from existing policy, policy changes like these are not etched in stone. Clark’s new policy reverses the use of a popular settlement tool that had been in use for nearly four decades. It reverses guidance issued just two years ago by the current administration, which found the use of SEPs to be appropriate. When administrations change, so too do their enforcement priorities, and it’s safe to assume that undoing this new policy would be near the top of the list of any new ENRD administration. 

We’ll just have to wait and see whether this is a short blip or a long-term change in federal environmental enforcement policy.
                                    

PretiFlaherty attorneys Jeff Talbert and James Beers contributed to this article.

 

"Navigable Waters Protection Rule" Narrows Federal Clean Water Act Permitting Authority

On January 23, 2020, the U.S. Environmental Protection Agency and the Army Corps of Engineers finalized the Navigable Waters Protection (NWP) Rule, which redefines what waters are considered "navigable" and therefore regulated under the Clean Water Act (CWA). The final rule replaces the much-litigated Obama-era "Waters of the United States" (WOTUS) rule that was rescinded by the Trump administration in September 2019, as well as the case-specific "significant nexus" test enunciated by U.S. Supreme Court Justice Kennedy in Rapanos v. U.S. (2006) and subsequently issued agency guidance.

The NWP Rule substantially narrows the definition of "jurisdictional" waters to include only:

• Territorial seas and traditional navigable waters
• Perennial and intermittent tributaries that in a typical year flow to territorial seas and traditional navigable waters
• Wetlands that are directly adjacent to jurisdictional waters
• Lakes and ponds that are or contribute flow to navigable waters or are inundated by flooding from a jurisdictional water in a typical year and impoundments of jurisdictional waters

Excluded from federal jurisdiction are several categories of waters, including:

• Groundwater and surface water features connected only by groundwater to jurisdictional waters
• Interstate streams
• Ephemeral streams, swales, gullies, rills, and pools; i.e., that fill only in response to rainfall
• Diffuse stormwater run-off and sheet flow
• Many ditches, including most farm and roadside ditches
• Artificially irrigated areas and artificial ponds and lakes, such as farm and stock watering ponds
• Prior converted cropland
• Waste treatment systems

The NWP Rule becomes effective on March 23, 2020. Agricultural groups and the National Association of Home Builders have embraced the NWP Rule, praising its clarity and consistency. Environmental groups sued the Trump administration when it rescinded the WOTUS rule and a number are currently planning to take legal action against the NWP Rule.

For the time being, finalization of the NWP Rule means that the entire U.S. is now covered under a single regulation, whereas a welter of litigation had resulted in half the country being covered by the WOTUS rule and the other half operating under the predecessor to the WOTUS rule. However, it can be anticipated that the new rule will be vigorously contested nationwide, with the possibility that it will eventually come before the U.S. Supreme Court.

Most states, except for Idaho, Massachusetts, New Hampshire, and New Mexico, have been delegated CWA authority. Regulatory agencies in delegated states may continue to administer and enforce state regulations that define protected waters more broadly than the NWP Rule.