"Compliance First": What EPA's Updated Priorities Mean For Industry

What Happened

On December 5, the U.S. Environmental Protection Agency's (EPA) Office of Enforcement and Compliance Assurance (OECA) issued a Memorandum emphasizing a "compliance first" policy in all existing and future compliance and enforcement matters. A summary of the Memorandum follows our analysis.

What Does the Memorandum Do?

The Memorandum directs EPA civil enforcement staff to prioritize compliance over prolonged negotiations, with early compliance emphasized while leaving the Superfund early action approach unchanged. The Memorandum outlines six guiding factors: (1) use of a compliance assistance toolkit (outreach, training, "find and fix" self-audits) to encourage voluntary compliance; (2) coordination with state partners to ensure consistency and allow states to join civil judicial actions; (3) open communication to avoid duplication and build trust with regulated entities; (4) clear, nationally consistent findings of violation based on the "best reading" of law and regulation; (5) efficient, economical compliance requirements and injunctive relief tied directly to governing statutes, with OECA approval required for SEPs and other remedies; and (6) reasoned decision-making under the "LEAPS" model (law, evidence, analysis, programmatic impact, stakeholder impact) to ensure sound enforcement outcomes.

Who Is Impacted

The Memorandum impacts any regulated entity engaging with EPA or DOJ in its representation of EPA in compliance or enforcement activities, especially for those defending some of EPA's most novel or aggressive interpretations to form the basis for their alleged violations.

What Industry Should Do

The objectives of the Memorandum are to compel more streamlined enforcement, findings of violation based on the best reading of a regulation, less burdensome injunctive provisions, and fewer unexpected compliance assurance activities. Below are several steps companies should take to align with this Administration's "compliance-first" orientation:

• Compliance Programs: Because this Administration encourages proactive compliance, continue to ensure environmental compliance programs and related protocols are up to date, diligently implemented, and have the appropriate resources. In that regard, see recent U.S. Department of Justice Corporate Compliance Guidelines.
• Find and Fix: The concept of "compliance first" refers not only to prioritization, but also to the timeline of when a company should come into compliance. Therefore, employ a "find and fix" approach by conducting confidential risk assessment audits and reviewing them to evaluate potential avenues for self-reporting and other voluntary compliance options, while protecting attorney-client privilege.
• Be Communicative: Because this framework emphasizes open communication, consider staying in touch more regularly with relevant agencies at both the federal and state levels to maintain strong, trusting relationships with regulators. The Administration will expect to see the "no surprises" policy going both ways.
• Finding of Violation: If your company receives a finding of violation that is uncertain or ambiguous, consult with counsel about raising and possibly elevating concerns with EPA. Under this framework, EPA must elevate such concerns to regional counsel or the Office of General Counsel.
• Settlements: If enforcement settlements involve third-party audits, monitoring, or any other mitigation or stipulated remedy, ensure EPA personnel have obtained appropriate approval from the OECA Assistant Administrator, as is required under this framework. Also, do not expect settlements to involve SEPs until additional guidance is issued.

Analysis

Craig Pritzlaff, Acting Assistant Administrator of EPA's OECA, issued the Memorandum, entitled "Reinforcing a 'Compliance First' Orientation for Compliance Assurance and Civil Enforcement Activities," to OECA personnel. Pritzlaff advanced a similar "compliance first" policy during his tenure as Director of the Office of Compliance and Enforcement at the Texas Commission on Environmental Quality (TCEQ). Beveridge & Diamond's Texas office has direct experience with the policy's implementation in Texas and anticipated the roll out of a "compliance first" orientation nationwide.

While "compliance first" has long been EPA's stated approach, the Memorandum calls for more frequent national elevation of regional violations and emphasizes open communication with regulated entities and coordination with state partners. The Memorandum could have significant impacts, potentially limiting the scope of EPA enforcement actions and reducing the agency's utilization of novel theories or overbroad interpretations of the law in lieu of creating new rules.

The Memorandum should not be interpreted as a directive to reduce inspections or reduce enforcement generally. If implemented as it was at TCEQ, "compliance first" is not simply an Agency enforcement policy, but a view that the Agency intends for industry to embrace as well, and well ahead of an inspection and enforcement. Companies should continue to prepare for inspections and regularly evaluate compliance status.

The Memorandum does not guarantee widespread change in environmental enforcement as a whole, and holding the Agency accountable to similar fair-play and best-reading-of-law concepts espoused in multiple Executive Orders has proved to be slow and often unsuccessful. However, the Memorandum will undoubtedly impact some cases and overall, and may shift emphasis to compliance actions and resolutions over more formal enforcement actions – that could mean more emphasis on administrative resolutions, more no-penalty Administrative Orders on Consent, and fewer judicial referrals. This may be especially true for regulated entities defending alleged violations based on novel or overreaching EPA legal interpretations that deviate substantially from years of past interpretive positions.

The Memorandum also elevates legal interpretations to Agency leadership, emphasizing that inspectors and enforcement staff, including attorneys, are not responsible for resolving ambiguity in federal environmental laws, but only for identifying and elevating such ambiguity when raised by a regulated entity. While this may expedite some resolution in some cases, in other instances, it may result in longer delays while leadership considers arguments and positions.

How much impact the Memorandum can have remains to be seen. The "find-it-fix-it" approach at TCEQ had strong legal support in the Texas Audit Act, which incentivizes industry self-audits and disclosures in ways that EPA's own Audit Policy has failed to achieve. TCEQ also has an administrative Penalty Policy that, under Pritzlaff's leadership, was updated regularly to make penalty calculations more transparent and more consistently applied. This is in contrast to EPA's current discrete and inconsistent programmatic penalty policies, many of which are decades old and can result in enormous swings in penalty ranges.

And while the focus on administrative enforcement has benefits, industry should keep in mind that administrative orders often do not satisfy the diligent prosecution bars in defending citizen suits that civil judicial enforcement does. And, how Jarkesy (see B&D's July 2024 alert here) will play out for EPA administrative actions is an issue to watch. All this means, of course, is that embracing "compliance first" cultures is the best first course of action.

Summary of the Memorandum

The Memorandum states that, effective immediately, all EPA personnel responsible for civil enforcement and compliance assurance activities must prioritize ensuring compliance when addressing ongoing and future potential non-compliance with federal environmental laws. This framework intends to streamline early compliance, rather than divert unnecessary resources into prolonged negotiations. The Memorandum also notes that it will not impact the established early action approach to Superfund enforcement. Below is a summary of the six factors relied upon in the Memorandum.

1. Compliance Assistance Toolkit
The first factor—the compliance assistance toolkit—is driven by OECA's assertion that enforcement should not be the only means for achieving compliance. Instead, the Memorandum urges EPA personnel to use compliance assistance tools such as outreach, technical assistance, and training, including employing a "find and fix" approach to voluntary compliance through self-reporting and self-audits, to proactively encourage regulated entities to comply, rather than retroactively addressing compliance issues in enforcement. This approach is consistent with the first Trump administration's efforts to prioritize compliance assistance rather than a standard "nail and hammer" enforcement approach that can occur once EPA identifies potential violations.

2. State Partner Coordination

Because most federal environmental laws delegate state authority for environmental compliance and enforcement, the Memorandum re-emphasizes the Trump administration's priority of having OECA and EPA enforcement personnel work with states to ensure consistency and state input in compliance assurance and enforcement activities.

It should be noted that if a state is a co-plaintiff in a civil judicial action, then those actions may continue even during this push for "compliance first." There is an incentive for states to join these actions to share in the penalty and coordinate on the implementation of injunctive relief. Additionally, at least in the RCRA context, states cannot join as a party in administrative actions.

3. Open Communication

Building on further coordination with state partners, the Memorandum also emphasizes open communication between all interested parties to ensure further clarity regarding required compliance. By strengthening communication, OECA seeks to avoid unnecessary or duplicative compliance assurance activities, which waste time and money. EPA emphasizes that more open communication will also help ensure there are "no surprises" for regulated entities and build trust between the parties, including encouraging voluntary compliance through self-reporting.

4. Finding of Violation

To avoid uncertainty, findings of violation must be "clear and unambiguous, well-tailored, and based on the 'best reading' of the relevant statute and regulation." The "best reading" of a statute or regulation must consider statutory construction canons, past practice, and current litigation. The Memorandum contemplates regulated entities raising concerns about how EPA has applied a statute or regulation to their case, such as asserting potentially controversial or novel enforcement theories. When a regulated entity raises a concern, inspectors and enforcement staff, including attorneys, are expected to elevate it, including to OECA as needed. Any decision is to be made at the national level to ensure national consistency. Lastly, OECA plans to create consolidated criteria to more clearly define specific categories of violations, which will allow for more consistent findings of violations across all EPA programs and regions.

5. Compliance Requirements and Injunctive Relief

Recognizing that rapid compliance may not always be possible and that formal enforcement will be necessary, the Memorandum emphasizes, in such cases, that EPA must take the most efficient, economical, and swift strategy possible in its negotiations and litigation (if needed). An important addition is their requirement that any injunctive relief provisions shall be based on "the best, most defensible interpretation of the law" to quickly achieve compliance. Furthermore, settlements and orders must reflect a "clear nexus to the governing statute and implementing regulations."

Additionally, the Memorandum rescinds EPA's April 2021 memorandum, which set forth expansive injunctive relief tools for civil enforcement settlements, such as third-party audits or monitoring. The OECA Assistant Administrator must now approve the use of these tools prior to negotiation. This includes supplemental environmental projects (SEPs), a historically controversial remedy, which are not to be included in any settlement until EPA issues additional guidance (see B&D's 2024 alert on SEPs here). Lastly, the OECA Assistant Administrator must approve the use of any other mitigation or stipulated remedy before negotiation. The Memorandum defines stipulated remedies as a settlement term that requires the implementation of a specified project in the event of any future violation of the settlement agreement but does not include stipulated penalties in this definition.

6. Reasoned Decision Making

The last factor requires OECA to use reasoned decision-making when determining non-compliance and enforcement remedies. This may be self-evident, but the Memorandum clarifies that decision-making must now follow the "LEAPS" model, using law, evidence, analysis, programmatic impact, and stakeholder impact to reach a sound, logical conclusion in compliance and enforcement actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.