Sue and Settle: Regulating Behind Closed Doors

In December 2008, the Environmental Protection Agency (EPA) was sued by environmental advocacy groups seeking to compel the agency to issue “maximum achievable control technology” (Utility MACT) air quality standards for hazardous air pollutants from power plants.

Less than one year later, the EPA and environmental groups entered into a settlement, without the involvement of the affected party, which mandated the issuance of the Utility MACT regulation. By entering this settlement agreement as a Court Order, the EPA agreed to take actions not mandated by the Clean Air Act, and hit the American economy with a rule that will cost $9.6 billion annually by 2015, according to the EPA’s own estimates.

The Utility MACT rule is just one example of how environmental groups use court orders to enter into secret agreements with the EPA, allowing them to manage the EPA’s regulatory agenda. This practice, referred to as “sue and settle,” occurs when environmental advocacy groups sue federal agencies to issue regulations by a specific deadline. Those groups and the federal agency work out an agreement behind closed doors, and then a draft consent decree is lodged with the court. Often there is no notice given or opportunity to intervene for those most impacted by the suit and subsequent settlement.

The U.S. Chamber of Commerce undertook an investigation of this process because of growing complaints by the business community that they are being entirely shut out of regulatory decisions by key federal agencies. The results of our findings, published in a new report, reveal that the EPA settled over 60 times between 2009 and 2012 in lawsuits brought by special interest advocacy groups, and in each case agreed to terms favorable to those groups. These settlements directly resulted in the EPA agreeing to publish over a hundred new regulations, many of them imposing compliance costs in the tens of millions and even billions of dollars.

We also found that when the EPA was asked by Congress to provide information relating to the notices of intent to sue received by the agency or petitions for rulemaking served on the EPA by private parties, the agency could not provide the information. When such lawsuits were initiated, the EPA did not disclose the notice of the lawsuit or its filing until an agreement had been worked out with the private parties and filed with the court. As a result, court orders were entered binding the agency to undertake a specific rulemaking within a specific and usually very short time period, notwithstanding whether the agency actually had sufficient time to perform the obligations imposed by the court order.

Addressing the problem presented by these agreements is critical. Through sue and settle private parties and federal courts control the EPA’ s regulatory priorities and budgets, not Congress. These secret rulemakings are especially dangerous because they allow private parties and unelected federal officials to circumvent the public participation and transparency requirements Congress mandated with the Administrative Procedure Act, which governs all federal rulemakings. In fact, no meaningful oversight has been conducted in more than four decades over the use and abuse of this process.

It is equally egregious that sue and settle agreements allow the EPA to use congressionally appropriated funds to achieve the demands of private parties.

But the greatest harm is done to the general public, by denying it the ability to provide comments prior to the agreement being filed with the court, since the courts merely rubber-stamp these agreements as if they are settlements between private parties.

The most effective solution to sue and settle lies with Congress. In 2012, the House Judiciary Committee investigated the abuses of this process. The House passed legislation to address sue and settle as part of a larger regulatory reform bill last summer, which would have mandated that before the agency and outside groups can file a proposed consent decree with a court, the proposed consent decree has to be published in the Federal Register for 60 days for public comment. Also, affected parties would be afforded an opportunity to intervene prior to the filing of the consent decree. Unfortunately, the Senate did not take up the legislation.

In April of this year, this legislation was re-introduced in the House and Senate as “the Sunshine for Regulatory Decrees and Settlement Act of 2013.” This strong legislation would implement common-sense changes and close the massive sue and settlement loophole in our regulatory process. Congress should pass it without delay.

Sue and settle is an affront to good government principles, which recognize the importance of transparency and public participation. We hope that by shining the light on how this process is abused by special interest groups, we can enact the reforms needed to protect the integrity of the rulemaking process.