New Fed Policy Eliminates Ability of Settlement Options to Include Payments to Non-Party NGOs

By Mark Johnson

On June 7, 2017, United States Attorney General Jeff Sessions issued a memorandum to all Department of Justice (DOJ) components and 94 United States Attorney’s Offices prohibiting them from entering into any agreement on behalf of the United States in settlement of federal claims or charges that directs or provides for a settlement payment to any non-governmental organization (NGO) where the NGO was not directly harmed by the conduct giving rise to the claim or lawsuit and was not a party to the lawsuit.  Specifically, the memo states that DOJ “attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges, including agreements settling civil litigation, accepting plea agreements, or deferring or declining prosecution in a criminal matter, that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.”  This new policy is effective immediately

With respect to this new policy, Attorney General Sessions stated “When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people— not to bankroll third-party special interest groups or the political friends of whoever is in power.” Mr. Sessions added that this policy is intended to ensure “that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct.”

This new policy is a significant departure from DOJ practice under the Obama Administration which repeatedly required settling parties to pay settlement funds to NGOs that were not directly involved in the litigation or harmed by the defendant’s conduct. The new policy will eliminate the possibility of settlement payments funding the operations of NGOs that are not a party of the lawsuit to fund their own operations or potentially environmental restoration projects unrelated to conduct at issue in the underlying action.  However, it appears that that this new policy would still allow the party responsible for the alleged harmful conduct to fund supplemental environmental protections (SEP) as part of a settlement.  SEPs are fairly common in environmental case settlements and typically involve an agreement to install additional environmental control equipment at a facility, such as air emission control equipment.  Funding an SEP can be used in lieu of paying a fine or penalty. The prohibition in the memo does not apply to a payment that directly remedies the targeted conducted.  Therefore, funding a SEP to reduce or eliminate a targeted condition that is harmful to the environment would continue to be a viable option.

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