Examining End of EPA’s ‘Sue and Settle’ Practice

November 29, 2017Articles Law360

On Oct. 16, 2017, U.S. Environmental Protection Agency Administrator Scott Pruitt issued a directive to end the “sue and settle” practices within the agency related to rulemakings that resulted from consent decrees and settlement agreements entered into by the agency and certain unnamed “outside groups.”[1] The directive states that it is intended to promote transparency and public participation in the process of resolving lawsuits brought against the agency.[2]

Seven major environmental statutes allow individuals to file a deadline lawsuit to compel the EPA to issue a statutorily required rule, or to perform a statutorily required review of a rule to determine whether to revise the rule. Congress enacted key environmental laws such as the Clean Air Act and the Clean Water Act with statutory deadlines to both promulgate initial regulations affecting certain sources of pollution and to periodically review (e.g. on a five- to eight-year basis) those rules for updates and revision. The EPA has consistently fallen behind schedule on those rulemaking responsibilities for a variety of reasons. According to the EPA’s press release, “special interest groups have used lawsuits that seek to force federal agencies  especially EPA  to issue regulations that advance their interests and priorities on their specified timeframe.” In tandem with setting specific statutory deadlines, Congress also included in these environmental statutes “citizen suit provisions” that allow individuals or other entities to initiate lawsuits to compel the EPA to come into compliance with their rulemaking mandates. These so-called “deadline” lawsuits have become increasingly visible in recent years.

Roots of the directive can be found in allegations that the EPA has had a “cozy” relationship with environmental allies that has had a tendency to exclude the public and interested parties from the regulatory process. The EPA had also faced allegations that it would collaboratively craft settlements in advance behind closed doors.[3] In December 2013, the U.S. Senate Environment and Public Works Committee Republicans alleged that the EPA, as well as the U.S. Fish and Wildlife Service, had used the “sue and settle” strategy to lock in the agency’s commitment to publish controversial regulations.[4] Their press release stated that during the first term of the Obama administration (2009-2013), the EPA had entered into more than 60 “sue and settle” agreements with environmental allies, who often were rewarded with their legal fees paid by American taxpayers. These allegations received more extensive scrutiny in a U.S. Chamber of Commerce report titled, “Sue and Settle Updated: Damage Done 2013-2016,” issued in May 2017. In that report, the U.S. Chamber of Commerce concluded that the EPA had used sue and settle agreements to override state-level environmental decisions and force its preferred, more burdensome, requirements on states. The report also observed that the number of settlements under the Clean Air Act has grown substantially, totaling 137 between 2009 and January 2017, compared to 93 over the previous 12-year period.

Pruitt’s directive is already raising sharp objections. In a Nov. 13, 2017, letter, nearly 60 former counsel to the EPA, wrote a letter to Pruitt seeking to “correct the many mistakes of law and fact … concerning EPA settlement of lawsuits brought against the agency.” They rejected outright the allegation of collusion with outside groups. They also challenged the claim that the EPA had settled lawsuits “with a certain end in mind” and in a manner that relinquished EPA discretion. They cited a December 2014 United States Government Accountability Office(GAO) report (GAO-15-34) that concluded that the impact of deadline suits on the EPA’s rulemaking is “limited.”[5]

From September 2013 until December 2014, GAO conducted a review of the EPA’s practices involving settlements in deadline suits that compelled EPA to issue a major rule. Although the EPA does not specifically track settlements to the resulting proposed rulemakings, GAO’s investigation revealed that of the 32 major rules issued by the EPA from May 31, 2008, through June 1, 2013, nine of these rules were issued following settlements in deadline suits  they were all Clean Air Act rules. According to the GAO report, the EPA’s discretion in entering into settlements is sharply constrained. All of the settlements were focused on establishing a schedule to either promulgate a required rule, or to either promulgate a required rule or make a determination that doing so is not appropriate or necessary pursuant to the relevant statutory provision. The Clean Air Act is unique in that it requires proposed settlements to be published for public comment.[6] The EPA reported to the GAO that it does not typically ask for public comments on defensive settlements if the agency is not required to do so by statute. Regardless, the public notice and comment procedures of the Administrative Procedures Act apply to any rulemaking proposals that stem from a defensive settlement. On this point, the former EPA counsel emphatically denied that the EPA had, or even could, settle a suit “by agreeing to reach a certain end.”

The GAO report concluded that major rules resulting from deadline suits could only result in determining a schedule for the EPA to proceed to rulemaking. None of those settlements included a determination as to the outcome of that rulemaking process. Additionally, under a 1986 U.S. Department of Justice memorandum known as the Meese memorandum, any settlement that converts an otherwise discretionary authority of the agency to promulgate, revise or rescind regulations into a mandatory one, must receive approval of the deputy attorney general or associate attorney general.[7] Since selecting the substantive requirements of a rulemaking is generally within the discretion of the regulatory agency, the Meese memorandum would not allow a settlement agreement or consent decree that dictated any final rule’s requirements, thereby effectively impinging the agency’s discretion.

To date, there does not seem to be substantial evidence that settlement agreements and consent decrees have locked in agency commitments to promulgate regulations with specific substantive terms. Under the most frequently invoked statute, the Clean Air Act, any settlement must be subject to public comment. Rulemakings conducted under the Clean Air Act as well as the remaining key environmental statutes (Clean Water Act, the Comprehensive Environmental Response, Compensation, and Liability Act, Safe Drinking Water Act, Resource Conservation and Recovery Act, Toxic Substances Control Act) that do not require public comment on settlements remain subject to the Administrative Procedures Act, which requires public participation on any proposed regulation. Furthermore, it is highly likely given the stakes involved in major rules that any settlement that infringed on the EPA’s rulemaking discretion would be subject to challenge under the Administrative Procedures Act as arbitrary and capricious or otherwise contrary to law if its promulgation was tainted by allegations of preordained outcomes.

The prospect of resolving citizen suits against the EPA has clearly become a politicized issue. An August 2011 GAO report titled, “Cases against EPA and Associated Costs over Time” reviewed environmental cases brought against the EPA from 1995 through 2010 and concluded that the Department of Justice, which defends the agency against such cases, defended the EPA on an average of about 155 per year. Fifty-nine percent of those cases were filed under the Clean Air Act and 20 percent under the Clean Water Act. The frequency of filings and the type of plaintiffs who bring them can change depending on changes in the presidential administration and/or the passage of new regulations. An important correlation is evident in these statistics. There is an indisputable connection between the volume of suits filed against the EPA and Congress’ decisions to impose a relatively rigid set of requirements on a specific time frame and to authorize citizen suits in these statutes. Also, the phenomenon of citizen suits dates back much further than one or two presidential administrations and Congress has declined to change those citizen suit provisions. A lengthy debate could be held about the wisdom of allowing citizen suits to enforce Congress’ directives for implementing these regulatory regimes. But an entirely separate debate is more pressing on the question of whether Pruitt’s directive will provide relief for the EPA from the “sue and settle” policy.

Transparency is readily apparent from the portions of the directive that require the EPA to publish online all notices of intent to sue the agency, notices of a complaint or petition relating to the EPA as a defendant in a deadline suit or petition, publication of proposed consent decrees, and a categorized list of consent decrees and settlement agreements that govern agency actions. Other directive provisions are problematic, however. For example, paragraph five says that the EPA shall not enter into a consent decree or settlement that converts an otherwise discretionary duty of the agency into a mandatory duty to issue, revise or amend regulations. This kind of consent decree or settlement would be impermissible under the Meese memorandum as well as the principles of public notice and comment rulemaking and is therefore unnecessary. Paragraph six seeks to preclude payment of attorneys’ fees to any plaintiff or petitioner in the litigation on the mistaken premise that if the EPA resolves litigation through settlement, there is no prevailing party. The law does not support this proposition since a prevailing party can exist under a settlement if it obtains relief that it could have obtained through court order. More importantly, most litigants recognize that it is generally in their best interest to resolve a suit and pay attorneys’ fees when the law and facts do not support their position and continuing to litigate would only needlessly serve to increase litigation costs for all sides.

Of particular concern in the directive is the requirement that the EPA “directly notify any affected states and/or regulated entities” of a complaint or petition for review and that the agency “seek to receive the concurrence of the affected states and/or regulated entities before entering into a consent decree or settlement agreement.” Litigation over compliance with Clean Air Act and Clean Water Act deadlines more frequently implicates questions of timing  when will the EPA promulgate a rule and how will it prioritize its rulemaking obligations? The EPA wields substantial discretion over the scope of its rulemaking and how to balance competing comments. A threshold issue is how to identify the regulated entities. If the statute at issue says that the EPA must promulgate National Ambient Air Quality Standards (NAAQS) for certain pollutants, for example, sulfur dioxide, and the EPA agrees to promulgate regulations by a certain date, does it have to provide notice to all existing sources of sulfur dioxide or only those that currently have sulfur dioxide emissions above the threshold that the EPA is proposing to regulate? What if the EPA is promulgating standards for new sources of sulfur dioxide  does it have to identify and notify potential new sources? There is no definition of “regulated entities” in the directive, leaving all stakeholders to wonder who will actually be entitled to receive notice and have their concurrence solicited.

Apart from questions of defining the “regulated entities,” it is also clear from the directive that states and “regulated entities” gain a substantial advantage if their concurrence is required  but no other stakeholders’ is needed. As the former EPA counsel point out, these states and entities will have far less incentive to settle than the EPA and DOJ since their litigation dollars are not at stake. This means that rather than work out settlements that conserve agency and DOJ resources, the EPA and DOJ will be forced to litigate to conclusion both current and future deadline suits. Instead of negotiating resolutions that accommodate agency objectives, the EPA will be submitting to the courts their rationales for prioritizing some rulemakings over others and asking the federal courts to consider the various factors that go into the rulemaking process. Most seasoned litigators will readily advise their clients that out-of-court settlements are far more flexible and a better use of resources than putting their fate into the hands of the judiciary. Pre-directive settlements incorporated exactly these considerations. The immediate effects of the new directive have yet to be seen, but it seems very likely that putting the decisions of how and when to implement federal environmental law mandates is a matter better left in the hands of the EPA and DOJ than the courts.

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