17 ELR 10356 | Environmental Law Reporter | copyright © 1987 | All rights reserved

Environmental Penalties and Environmental Trusts — Constraints on New Sources of Funding for Environmental Preservation

Editors' Summary: Both plaintiffs and defendants in environmental enforcement litigation are discovering the benefits of creative remedies as part of a negotiated settlement, as alternatives to such traditional "remedies" as fines and forfeitures. The establishment of an environmental trust fund or the funding of a research project in lieu of civil or criminal penalties is often favored by plaintiffs, particularly citizens' groups, as a remedy that more directly compensates an environmental wrong. Defendants may find such "in lieu" arrangements attractive, particularly in criminal enforcement actions, as a means of avoiding adverse publicity and in mitigating the harshness of a criminal sentence. In this Article, Professor Stever examines such creative remedies and analyzes the legal constraints that may hinder or altogether prevent parties from entering into environmentally beneficial agreements in lieu of statutory fines. Professor Stever suggests how the constraints may be overcome and argues that the in-lieu agreement is and ought to be available in both the civil and criminal context, and criticizes the contrary view as unnecessarily restrictive.

Professor of Law, Pace University School of Law. The author wishes to acknowledge the assistance of Kathleen Kettles, a law student at Pace University School of Law, in the research for this Article, and also wishes to acknowledge The Fund for New England, pursuant to a grant from which the original research was done.

[17 ELR 10356]

This Article examines the legal and policy restraints affecting the use of money for environmentally beneficial purposes that would otherwise be paid to the government treasury as civil penalties in civil enforcement actions, or as criminal fines or forfeitures in criminal enforcement actions. Increasingly, particularly in citizen suits, defendants are asked or volunteer to pay money into an environmental trust fund, or fund a specific research project, in lieu of the payment of a monetary penalty. It is important to examine this issue in light of recent cases in which such arrangements have been made, and recent case law and governmental policies indicating that such arrangements are or might be unlawful, and particularly in light of the interest of both defendants and environmental organizations in such arrangements.

This Article focuses on the overall issue as four separate issues. First, civil enforcement actions brought by the federal government are analyzed, and constraints on either the federal prosecutors or federal judges in arranging or ordering payments in lieu of statutory civil penalties are explored. Second, there is a look at the Environmental Protection Agency's (EPA's) authority to compromise administrative penalty levies. Third, there is an exploration of the differences, if any, from the analytical results of a review of government enforcement actions, and those in which the plaintiff is a citizen organization suing under the authority of one of the citizen suit provisions contained in the federal environmental statutes. Finally, this Article analyzes the quite different considerations that apply in criminal cases.

There are essentially three types of arrangements by which enforcement sanctions are converted into environmental trusts, although within each there are a number of variants.

(1) Defendants may themselves agree to undertake environmentally beneficial expenditures in return for relief from penalties. EPA's credit policy, embodied in its formal air and water civil penalty policy, is one variant. Under this policy, the amount of penalties calculated under the Agency's rigid formula may be reduced upon a showing that the defendant has agreed to install pollution abatement equipment providing a greater degree of pollution abatement than is legally required. Another variant is the government's settlement of an air pollution case, United States v. City of Danville.¹ In Danville, the government agreed to waive civil penalties in return for the city's funding of a study of loggerhead turtle behavior.

(2) Defendants have occasionally funded environmental trust funds established and managed by the government. [17 ELR 10357] Such an arrangement was embodied in a plea bargain in United States v. Wyckoff Company, Inc.,² where the defendant funded an environmental trust administered by the EPA Regional Administrator for Region X.³

(3) Defendants have contributed to independent trust funds or foundations established specifically for the purpose of receiving and spending funds from such arrangements — which may or may not be controlled or influenced by the plaintiff (either the government or a citizen group) — or to established environmental trusts or organizations, more closely resembling charitable contributions. Examples of the first of these types of arrangements are recent contributions made to the Open Space Institute by defendants in Clean Water Act citizen suits controlled by the Natural Resources Defense Council, such as in Connecticut Fund for the Environment v. Marlin Firearms, Inc.⁴ An example of the latter kind of arrangement is United States v. New Port Largo,⁵ in which the consent decree established a trust fund that was to be administered by an established environmental organization.

The final introductory matter is the nature of the enforcement scheme with which we are dealing. It is not necessary to reproduce the applicable statutes or to discuss them in detail. All of the federal environmental laws embody the same basic enforcement mechanism. They all provide for injunctive relief and civil penalty awards by judges in lawsuits brought by the United States, controlled by the United States Department of Justice and which, in the case of EPA-administered statutes, operates under a cooperative memorandum of understanding with the Agency. All of the statutes additionally provide criminal responsibility for, usually, knowing or willful violations. Criminal cases are under the exclusive control of the Justice Department. Most (but not all) of the statutes authorize citizens to initiate and prosecute civil actions against alleged violators, subject to certain procedural restraints. Finally, several of the statutes authorize the administering agency to levy civil penalties administratively.

Civil Enforcement Actions Brought by the United States

Procedurally, there are two ways in which a defendant's resources might be channeled into a trust fund or other depository whose function is not related to remediating the consequences of the defendant's wrongdoing. One is by means of an order of the court following trial, the other by consent decree voluntarily entered into between the government and the defendant and approved by the court.⁶ In either event, the possibilities for implementation of such an arrangement include: (1) waiver of penalties in lieu of direct expenditures by the defendant specified in the decree; (2) waiver of penalties in lieu of payment by the defendant of a lump sum to the government to be used for specific purposes; and (3) waiver of penalties in lieu of payment by the defendant of a lump sum to a third party, such as an independent environmental trust fund, or other entity over which the defendant exercises little or no control.

Until 1983, the government was willing to enter into such arrangements with defendants in environmental cases, and it did so in a number of wetland destruction cases, typically in which restoration of the site unlawfully filled or dredged was not feasible, but the defendant had substantial assets that he was willing to apply to damage mitigation elsewhere. The New Port Largo case noted above⁷ is a typical example of such an arrangement. In settling such cases, the following issues were considered: (1) could an in-lieu payment exceed the maximum amount of civil penalties theoretically leviable against the defendant;⁸ and (2) what degree of control could the government retain over the trust fund without running afoul of the Anti-Deficiency Act.⁹

In general, it was felt until 1983 that in order for in-lieu contribution arrangements to be enforceable and fair, the amount of a contribution in lieu of penalties had to bear a reasonable relationship to the maximum possible penalty, although the tax and other potential financial benefits accruing to the defendant from the arrangement permitted in-lieu contributions in excess of penalty amounts to be approved from time to time. In wetland enforcement cases, the government occasionally approved in-lieu arrangements where restoration of the affected area was not practical, and in such cases attempted to structure the inlieu contribution to approximate the value of the lost resources, or in relation to some other relevant measure.

The Anti-Deficiency Act (31 U.S.C. § 1341)

The Anti-Deficiency Act poses a rather complex problem. The statute, which originated in 1895, states that an "officer or employee of the United States" may not "make or authorize any expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation; [or] involve [the] … government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law." The statute applies only to executive branch personnel, and thus arguably would not prohibit a federal judge from making an award that sets up or adds to a private sector trust fund, or orders work done.

The policy behind the statute is to prevent executive branch employees from involving the government in expenditures or liabilities beyond those authorized by congressional action.¹⁰ It is rooted as much in the doctrine of separation of powers as it is in curbing executive excesses.¹¹ The question then becomes whether an environmental trust fund either administered by a Department of Justice official or by EPA, or if not administered by such a person [17 ELR 10358] is nevertheless subject to their control or influence over its expenditures or maintenance, takes on sufficient "public" trappings to fall within the Act's prohibitions.

It is not the creation of such an arrangement but rather how it is administered that implicates the Anti-Deficiency Act. I have found no judicial decisions directly concerning the statute with fact patterns that provide any helpful guidance for determining the scope of permissible government involvement in such an arrangement. However, a recent decision involving a statute whose purpose is similar, the Federal Property and Administrative Services Act,¹² is instructive.

In Motor Coach Industries v. Dole,¹³ the court dealt with a trust fund established under an agreement between the Federal Aviation Administration (FAA) and airlines with slots at Dulles International Airport, located outside Washington, D.C. The corpus of the trust was made of payments made by the airlines pursuant to a formula based on passenger volume at the airport, the incentive for which was the FAA's agreement to waive collection of landing and lounge fees it was entitled to collect under the federal statutes governing the Washington, D.C., airports. The trust provided for the expenditure of its corpus to purchase new commuter buses needed to ferry passengers to and from Washington, D.C., and the airport. The airlines were the trust settlers, and airline-derived funds made up the corpus. The FAA, however, was the beneficiary of the trust, and under its terms controlled expenditures from it.

The court voided expenditures made by the FAA using trust assets on the ground that the trust was a public instrumentality and its assets public assets, and thus any expenditures were required to comply with the federal procurement statutes, which in this case had not been done. The court reasoned:

We agree that no single factor transforms an ostensibly private trust into an arm of the government. Whether a trust becomes a public instrumentality must be determined by analyzing the total factual circumstances surrounding its creation.

We must consider, at a minimum, the purposes for which the trust was established; the public or private character of the entity spearheading the trust's creation; the identity of the trust's beneficiary and administrators; the degree of control exercised by the public agency over disbursements and other details of administration; and the method by which the trust is funded.¹⁴

In concluding that the trust at issue was a public instrumentality, the court focused on the fact that the source of the funds was a voluntary contribution that was inextricably intertwined with the FAA's waiver of the statutorily authorized fees, thus giving the corpus a quasi-public aura. It also cited the FAA as the moving force behind creation of the arrangement, noting that it was essentially the sole determiner of how the assets were expended, and that it was the de facto as well as the specified beneficiary of the arrangement.

Although the court in Motor Coach Industries did not have occasion to consider the Anti-Deficiency Act explicitly, its opinion hints at the policies behind that statute in articulating why an injunction against further procurement was appropriate, even though violation of federal procurement guidelines usually does not warrant such harsh treatment. The court stated that the trust arrangement "undermined the integrity of the congressional appropriation process," and characterized the trust as "an attempt by the FAA to divert funds from their intended destination — the United States Treasury," and as an attempt to "supplement its budget … without congressional action."¹⁵

The Fourth Circuit's reasoning would seem to be applicable to government-initiated environmental trust fund schemes vis-a-vis the Anti-Deficiency Act. In an unpublished 1980 opinion, In Re Steuart Transportation Company, the Justice Department's Office of Legal Counsel opined that in the absence of express legislative authority, the government would violate the Anti-Deficiency Act if it took funds from the owner/operator of a vessel from which oil was discharged and applied them to replace natural resources lost or damaged by the oil spill.¹⁶

There is an important difference between the in-lieu arrangements considered in this Article and those at issue in Motor Coach Industries and in Steuart Transportation. In both of these situations the government sought to waive payment of monies due to the United States as fees, or as debt. The amounts were clearly owing to the government. A civil penalty is not owing to the government, and thus is not public money, until a court has in the exercise of its discretion ordered it paid, unless the statute affords the court no discretion, which is rarely the case and clearly not the case in any of the federal environmental laws. This seems a critical distinction, for rather than giving up collection of funds clearly due, the government in a carefully designed in lieu settlement is merely waiving its right to request the trial judge to exercise his discretion and award penalties. This is a classic settlement posture, and settlement of lawsuits is generally favored.

If one takes a conservative approach, and applies the Motor Coach Industries factors, an environmental trust fund established by a defendant pursuant to an agreement with the Department of Justice — the corpus of which is made up of monies that would otherwise have been paid to the Treasury as penalties and that is administered or substantially influenced in its administration by a government official and employed essentially for public benefit — would be a public instrumentality subject to the various statutory constraints arising from Congress' constitutional control of the appropriation process.¹⁷ These pitfalls may be avoided if the fact that the federal judge signs the agreement acts to convert it into an order of the court, thereby removing the executive branch official from the strictures of the appropriation laws. There is some authority supporting the notion that it does.

A 1984 opinion of the Comptroller General¹⁸ concluded [17 ELR 10359] that payments made pursuant to a court order by an agency, without an appropriation for that purpose, do not violate the Anti-Deficiency Act. This reasoning is consistent with a long line of tax cases holding that payments made pursuant to a court order, even if the order merely effectuates an agreement of the parties, are not gifts for gift tax purposes. It assumes that the federal judge possesses the authority to refuse entry of a proffered consent decree, and thus by signing the decree the judge exercises discretion and converts the agreement into an act of the judiciary. As noted above, the judiciary is not bound by the Anti-Deficiency Act.

There is a related problem, however, with judicial creation and management of trust funds created by defendants' assets in public lawsuits. There is ancient authority for the proposition that courts may not constitutionally appropriate funds. The source of this doctrine is United States v. Yale Todd,¹⁹ an eighteenth-century opinion of the Supreme Court, although it does not directly address the issue. The Court in Yale Todd held that an act of Congress that purported to confer on Article III courts the power to process claims of military personnel against a pension fund and disburse the awards was unconstitutional as conferring nonjudicial power on judges, in violation of Article I, § 8 of the Constitution.

The extreme view of this authority holds that "if conditions [imposed by a court on a defendant in lieu of a penalty] required payments of cash, goods, or services to third parties … they would effectuate a transfer of private wealth from one private individual to another private individual or organization. Such a condition would encroach on Congress' prerogatives to 'lay and collect taxes' … and to 'provide for the … general Welfare.'"²⁰ This view has little in the nature of common sense to support it, since federal courts redistribute private assets all of the time in the ordinary course of their activities.

It is more likely that the Yale Todd doctrine, if it has any present day viability, will be viewed to prevent judges from administering defendant-generated trust funds in a discretionary manner, and thus will not serve as a barrier to the establishment of privately administered trust funds by court order as an alternative to statutory civil remedies.

Since the United States does not settle environmental enforcement cases informally, virtually all environmental trust fund arrangements will be set up by consent decree. Prudence would dictate that in light of the paucity of law on the subject, such arrangements attempt to minimize the role of executive branch officials and the courts in the administration of any such trust. I believe that a consent decree-based trust administered by a nongovernmental trustee that is not subject to discretionary control by executive branch personnel will survive attack premised on the Anti-Deficiency Act and other appropriation process grounds.

The Miscellaneous Fees Act (31 U.S.C. § 3302)

The Justice Department's refusal to agree to trust fund arrangements in recent enforcement cases appears to rest on the Department's interpretation of the Miscellaneous Fees Act.²¹ Subsection (b) of this statute requires executive branch officers, employees and agents "receiving money for the government" to deposit it within a specified period of time in the Treasury. Subsection (c) requires a "person having custody or possession of public money" to deposit the money within a specified period of time in the Treasury "or with a depositary designated by the Secretary of the Treasury under Law." Unlike the Anti-Deficiency Act, the Miscellaneous Fees Act applies to the judicial branch by virtue of the breadth of subsection (c).

The Department of Justice policy appears to have originated in 1983 in a draft memorandum from the Office of the Attorney General, and has been implemented by Department attorneys responsible for overseeing environmental litigation. For example, in a letter dated September 5, 1985, a Department of Justice attorney stated the following:

Your letter … inquired whether [name deleted] could make a donation to an established environmental cause in lieu of paying a civil penalty to the U.S. Treasury. According to Department of Justice policy, we cannot agree to this; the Miscellaneous Fees Act … is viewedas prohibiting the U.S. from agreeing to the payment of such funds to an entity other than the U.S. Treasury.

The Department also relied upon the Miscellaneous Fees Act in its brief filed in United States v. M.C.C. of Florida, Inc.,²² in seeking to overturn a federal district judge's refusal to compel restoration in a Rivers and Harbors Act and Clean Water Act enforcement case. The district judge levied a $20,000 fine against the defendant, who had disturbed (filled in) federally protected wetlands, but the judge refused to issue an injunction ordering the defendant to effectuate the government's restoration plan for the area, which would cost $700,000. Instead, he ordered the defendant to pay $200,000 into the court registry, which was to be utilized (presumably under the court's discretionary supervision) to repair damage to sea grass in the Florida Keys.

Among the arguments made by the government to the 11th Circuit Court of Appeals in support of its position that the district court should have ordered in situ restoration was that the Miscellaneous Fees Act compelled the court to turn over to the Treasury the $200,000 paid into the court registry. The argument is, unfortunately, little more than a conclusory paragraph and was not addressed by the appellate court in its opinion.²³ The government's argument on the point was as follows:

While the court clearly intended that the $200,000 be used for mitigation measures in other damaged sites, the Miscellaneous Fees Act … would require the government to deposit the amount in the United States Treasury "as soon as practicable…." The Fees Act limits the authority of [17 ELR 10360] the United States to accept direct substitutes for civil penalties. It does not, however, limit the authority of a court to exercise otherwise lawful mitigation power. While the district court believed it could order the payment of funds to be used for limited restoration, the net effect of the order is an assessment of civil penalties totaling $220,000 …. The court could have ordered MCC to undertake mitigation measures up to the amount of $200,000 which would have been within the court's equitable authority ….²⁴

The Miscellaneous Fees Act was adopted primarily to cure the practice of tax collectors during the early years of the Republic who would make use of the revenues they collected on behalf of the government for a period of time before turning it over to the Treasury.²⁵ It appliesonly to government (executive branch) personnel "receiving money for the government" and to other persons (which would include court personnel or, presumably, a third party trustee or organization) "having custody or possession of public money …." As stated by the Attorney General in an 1883 opinion, the statute is limited to "whatever moneys vest in the United States."²⁶

It would thus seem that the relevant inquiry is whether the corpus of any in-lieu trust is "public money," or money intended "for the government," thereby triggering the obligations of the Miscellaneous Fees Act.²⁷

A reasonable application of the statute to the in-lieu contribution made would be to apply the factors used by the Fourth Circuit in its Motor Coach Industries opinion, discussed above in connection with the Anti-Deficiency Act,²⁸ as a basis for ascertaining the "publicness" of the trust. Quite clearly, a trust established by the defendant and administered by the defendant, or by a third party using monies paid directly to the trust by the defendant should not implicate the Miscellaneous Fees Act. The funds are at no time in the custody of a government official, and the government retains insufficient control over the expenditures to taint the fund with a public aura, within the meaning of Motor Coach Industries. An arrangement such as the one at issue in M.C.C. of Florida, Inc., where not only the structure of the arrangement but discretionary authority to pay out the trust proceeds rests with a public official, and where the proceeds are clearly in lieu of the defendant's performance of an obligation of federal law, would, however, probably run afoul of the Act.

It is important to understand that the above analytical framework is a conservative one. It might well be argued successfully that the Motor Coach Industries "publicness" approach is too broad for the Act. A narrow reading of the Act, in light of its historical origins, could lead one to conclude that under no circumstances would an in-lieu contribution scheme involving a third-party payee (i.e., someone other than the United States) transgress the Act. There is, alas, no law on the subject, so the conservative approach suggested above as a guide to establishing such an arrangement seems prudent.²⁹

Statutory Unavailability of Remedy

The Eleventh Circuit's opinion in United States v. M.C.C. of Florida, Inc. raises a third issue requiring brief treatment. The court concluded that a federal district judge erred when he refused to follow established remedial patterns for cases of the type he had before him. The government had sought in situ restoration, which the judge refused to order. Instead, he required the defendant to fund what was in effect an environmental trust fund to be utilized under court direction for wetland restoration or preservation elsewhere.

The appellate court's opinion³⁰ rests on the rather narrow ground that established precedent for such cases required the trial judge to give the defendant an opportunity to submit his own in situ remedial plan, which had not been done in this case, and the court remanded the matter for further proceedings. There is, however, broad dictum in the opinion implying that a judge may only order remedies directly related to the subject matter of the violation. Taken to its logical extreme, this argument would prevent any creative remedial orders by federal judges. It does not appear to be sound.

Most environmental statutes provide for two kinds of relief: penalties and injunctions. Federal courts have always been given wide latitude in formulating injunctive orders, even in the face of statutory language apparently limiting the exercise of judicial discretion.³¹ Similarly, federal courts possess broad equity power to fashion remedies that are just as effective. Congress rarely, if ever, dictates the parameters of the relief available against statutory offenders, except to place a ceiling, and sometimes a floor, on civil forfeitures.

The long-standing authority of the federal courts to fashion remedies, as recently affirmed by the Supreme Court in Romero-Barcelo should serve to turn back arguments such as the one springing from dictum in the M.C.C. of Florida opinion. Moreover, to the extent such arguments possess any viability with respect to contested orders, they are even less compelling when applied to judicially approved settlements.

[17 ELR 10361]

Administrative Enforcement Actions By Federal Agencies

Many of the federal environmental statutes authorize EPA to issue administrative orders and to levy civil penalties, subject only to an obligation to provide opportunity for an adjudicatory hearing. Section 3008 of the Resource Conservation and Recovery Act (RCRA)³² and § 120 of the Clean Air Act³³ are two examples of this authority.

Administrative agencies possess no authority similar to that of a court to fashion equitable remedies outside of statutory strictures. Thus, under a statute that authorizes the agency to issue orders securing compliance with regulatory requirements and to levy civil forfeitures, the agency is not free to require something else of the respondent. Although EPA and an entity subject to a civil penalty could in theory agree to an in-lieu payment scheme, which would stand unchallenged since no one would appeal it, were the entity subsequently to default on its obligation the agency could not compel it to act pursuant to the agreed order. Finally, EPA could reasonably take the position that it simply is not afforded sufficient discretion to enter into such an arrangement, and thus may not do so.

Administrative agencies fall squarely within the grip of the Anti-Deficiency Act and the Motor Coach Industries doctrine, moreover, and the argument that if an EPA official has the authority to require a company to pay money into a trust fund, then there is no barrier to an order compelling it to contribute directly to the Agency's program budget, seems a strong one. It can be argued, however, that where the Agency never receives any of the proceeds, and exercises no discretion over the disposition of the trust funds, there is insufficient publicness to implicate the Anti-Deficiency Act.³⁴ This is clearly a gray area, in light of Motor Coach Industries, and is at best limited to non-controversial consent agreements that involve minimal EPA control.

Citizen Suits

Citizen suits instituted since 1982 have provided the largest number of in-lieu contribution settlements. The model for these has been the Open Space Institute, created as a repository for cash settlements in Clean Water Act permit violation suits brought against industrial dischargers. These cases have largely been settled by consent decrees providing that the defendant will undertake certain remedial action, and agree to pay a set sum to the Open Space Institute in lieu of civil penalties, which the federal court would have the authority to levy in a citizen suit, but which would, if levied, go instead to the Treasury.³⁵

Neither the Anti-Deficiency Act nor the Miscellaneous Fees Act has any bearing on citizen suit settlements (although federal court orders in contested cases face the same uncertainties that are present in government-initiated enforcement actions).³⁶ Although citizens are suing in these actions to enforce a statutory standard or restriction designed to benefit the public at large, the citizen suit is nevertheless a lawsuit between two private parties, neither of whom is the government.³⁷ As such, the action may be settled by the parties on any terms that are not plainly repugnant to public policy.³⁸

The private nature of the action negates any inference of "publicness" of any trust fund or organization benefitted by the settlement, and thus negates any Motor Coach Industries-inspired issues.

Criminal Enforcement Situations

Introduction

The diversion of criminal fines, or provision for the payment of funds into an environmental trust fund in lieu of sentencing, generally raises issues that are very different from those affecting civil litigation. In some federal judicial circuits there is presently less opportunity for creative sentencing than for innovative remedial schemes in civil enforcement actions, although, as discussed below, that situation may soon change.

The following subsections address both preindictment deals and plea bargaining, and also address the question of the authority of the sentencing judge to order a charitable contribution in lieu of or as a sentence.

Preindictment Deals

In the federal system, criminal charges are initiated in one of three ways: warrant, arrest, and complaint; information (not available for felonies); and indictment. The first of these is typically applicable to street crimes, and provides little or no opportunity for the kind of arrangement at issue here. An information is a formal presentation of charges drawn up by the prosecutor and presented directly to the trial court without participation of a grand jury. An indictment is a formal presentation of charges by a grand jury.³⁹

[17 ELR 10362]

The target of a criminal investigation usually is aware of the pendency of the investigation before the indictment or information is produced and, particularly in "white collar" situations, there is often ample opportunity for the prosecutors and the defendant to engage in discussions aimed at an agreed resolution of the case. Particularly where the case is one in which an information is permitted, the defendant has an opportunity to propose a resolution of the matter before it is commenced. The defendant might, for example, offer to pay a sum of money into an environmental trust fund in return for an agreement by the prosecutor to proceed only on the less onerous of the possible counts under consideration.

Such arrangements are possible and have been entered into from time to time, although not generally in an environmental context. They are not per se enforceable, and thus involve a significant element of trust on the part of both parties, and primarily out of concern for appearance of impropriety, such arrangements are not popular with prosecutors.

Preindictment agreements in cases that involve a non-waivable grand jury requirement,⁴⁰ or where a grand jury has already begun an investigation, raise a potentially difficult logistical problem. The grand jury, as it has come to exist in Anglo-American law, maintains an independence both from the prosecutor and the judiciary. In theory, a grand jury may seize control of its investigation and might refuse to follow the recommendation of the prosecutor. Thus, just as a grand jury may refuse to authorize its foreman to sign as a "true bill" a proffered indictment, it may, on its own initiative, add counts to the indictment not desired by the prosecutor. Although a grand jury-proffered indictment need not be signed or pursued by the prosecutor, the potential for adverse publicity surrounding such a situation will deter many prosecutors from entertaining preindictment deals.

In a situation in which a preindictment or preinformation deal is possible, however, there appear to be few legal constraints. Those constraints that exist are the same as the ones discussed earlier involving civil arrangements,⁴¹ the primary one being a question about the legality of the United States Attorney actually holding or actively managing privately generated funds. A significant deterrent against in-lieu preindictment arrangements involving funds coming into the control of the prosecutor is concern for the appearance of impropriety on the prosecutor's part. Moreover, prosecutor-initiated deals of this type may well implicate negative due process connotations, and for that reason are problematic.

In sum, there appear to be few, if any, purely legal barriers to preindictment deals initiated by targets in which monetary assets are traded — to be given to environmental trusts or organizations — for reduced charges, although, for the reasons mentioned, they may be sufficiently unpopular among prosecutors to be essentially unavailable.

Postindictment Disposition

As mentioned in the introductory paragraphs, there have been reports of plea agreements between corporate defendants and federal prosecutors in which defendants agreed to plead guilty as well as pay large sums of money into a trust fund administered, in most cases, by nonprofit foundations, and in at least one case, United States v. Wyckoff Company,⁴² by a federal agency (EPA).⁴³

The decision to forego a trial on the merits will obviously be perceived by both parties as advantageous in order for such an agreement to be reached. In actuality, between 80 to 90 percent of all federal convictions are obtained by an agreement to plead guilty or nolo contendere rather than by trial.⁴⁴ Prosecuting attorneys are vested with a broad range of discretion in deciding who, when, and what to prosecute.⁴⁵ However, the reasons for enforcement or nonenforcement vary considerably between state and federal prosecutors and even among different offices in both branches of government.⁴⁶ Very often the differences in prosecution policy are mandated by factors over which individual prosecutors have little or no control.

Some of the factors that are germane to the prosecutor's decision to prosecute include limitations in available enforcement resources; excessive cost of prosecution, considering the nature of the violation; when the harm can be corrected without prosecution; and the sufficiency of the evidence.⁴⁷

All of these factors may come into play in influencing the prosecutor to "settle" with a defendant. Furthermore, the factors become particularly important in environmental criminal offenses which require specialized knowledge, may be costly in terms of manpower and time, and can probably be settled since corporate defendants will want to avoid the unfavorable publicity of a trial.⁴⁸ Moreover, the agreement to plead nolo contendere, if accepted by the court, may be even more attractive to some corporate defendants, particularly where the spectre of civil liability for their actions is a factor.⁴⁹

Thus, where a corporate defendant may have caused harm to the environment that also injured private entities, a court-accepted plea of nolo contendere in the criminal [17 ELR 10363] action may not be used against the defendant in a subsequent civil action.

The court must, however, be willing to accept such a plea taking into consideration "the views of the parties as well as the interest of the public in the effective administration of justice."⁵⁰ This discretionary power of the trial judge is a factor in the tender of any guilty pleas as a result of a plea agreement. Under Fed. R. Crim. P. 11(e)(2) a sentencing judge has the authority to reject a plea agreement acceptable to both parties. However, the rule does not outline the scope or the factors to be weighed in exerting that authority. It is clear that plea agreements must be voluntary⁵¹ based on a full understanding by the defendant of the charge,⁵² and that the court must be satisfied that there is a factual basis for the plea.⁵³

If the agreement does not meet the requirements of Rule 11, the judge clearly may, and arguably must, reject the deal. But where both the prosecutor and defendant agree and the mandatory prerequisites have been met, the judge may nevertheless still reject the plea bargain, although the cases seem to hold that in such a case the judge must articulate cogent reasons for doing so.⁵⁴

Even if the judge is not averse to a plea bargain itself, there nevertheless remains a tension between prosecutorial and judicial discretion in the sentencing process.

Of the four types of plea bargaining available in federal courts,⁵⁵ a plea agreement which specifies as a condition a particular disposition that must be imposed, such as a fine mitigated to zero by the establishment of a trust fund for a specified purpose and in a prescribed amount, offers defendants the most security in terms of protection against imposition of a harsher sentence by the judge, since rejection of the agreement by the judge entitles the defendant to withdraw his plea.⁵⁶ Primarily because of the potential for disruption of the docket in the event such an agreement is rejected, some judges discourage binding agreements in favor of nonbinding agreements, which can be rejected without disturbing the finality of the plea. Also, the court's ability to influence decisionmaking in a binding recommendation situation remains significant since rejection of a plea may be subsequently followed by the tender of a new agreement that may conform to the particular sentencing judge's interpretations of an appropriate disposition. As such, the judiciary may shape prosecutorial behavior by its approval or rejection of sentencing agreements, and in doing so, it seems that the prosecutor's discretionary control over sentencing can only operate with the court's acquiescence.⁵⁷

Under the current federal sentencing system a criminal offender may be imprisoned, fined, or both. Any creative remedy must be in lieu of sentence. If the sentencing judge wishes to suspend imposition or execution of sentence, authority for that action is derived from the Federal Probation Act.⁵⁸ Among the conditions that may be imposed under this statute are certain monetary payments, restitution or reparation to aggrieved parties for actual damages or loss, and monetary support for legal dependents.

The departure point for an analysis of the legality of a plea bargain embodying payments made to an environmental trust fund or other beneficial entity is whether such an arrangement is appropriate as a "sentence." If it is not, then the question becomes whether such an arrangement can be made as a condition of probation in the face of a suspended sentence.

On the first issue, virtually all of the criminal environmental statutes, and all of the Title 18 provisions — such as mail fraud and obstruction of justice — that are available to address white collar crimes, specifically provide for sentencing by fine or imprisonment. A "fine" is generally defined as a form of pecuniary punishment that is payable to the public treasury.⁵⁹ As one commentator has analyzed the term, "payment of a 'fine' to anyone other than a sovereign would not qualify as a fine" under the rule of statutory construction that a term should be given its ordinary meaning unless another meaning was intended by the legislature.⁶⁰ Thus, a sentence recommendation or agreement that contains any other monetary provision other than a "fine" may well be illegal under a conservative interpretation of existing authority.

A decision to suspend sentence and place a defendant on probation automatically invokes the Federal Probation Act.⁶¹ In the following sections, an analysis of the Federal Probation Act and the court decisions interpreting it is provided. As will be seen in that discussion, there is a split of authority among the courts addressing the issue of whether and under what restrictions the Probation Act authorizes or does not authorize payments to charitable organizations or other entities as a condition of probation. Also discussed below is the Sentencing Reform Act,⁶² [17 ELR 10364] which replaced the Federal Probation Act in November 1986, and the regulations of the Sentencing Commission, which may support a different analysis.

Issues Related to the Federal Probation Act (13 U.S.C. § 3651). The initial version of the Federal Probation Act was enacted in 1925, authorizing federal sentencing judges to suspend the sentence and place the defendant on probation. Until the early 1970s the Act was applied only to individual defendants, but beginning with United States v. Atlantic Richfield Co.,⁶³ the Act began to be applied to corporate defendants.⁶⁴ The limited number of federal corporate probation cases to date have produced disparate and controversial decisions where the terms of the proposed probation have involved the payment of money to an entity or for a purpose not expressly covered by the statute.

The Act's general limitation on the terms of probation is that they serve "the ends of justice and the best interest of the public as well as the defendant …."⁶⁵ This statutory language has been construed to require that the conditions bear "a reasonable relationship to the treatment of the accused and the protection of the public."⁶⁶ In the context of corporate probation, this requirement has been satisfied by showing that there is a rational nexus between the crime committed and the charitable program to be benefitted.⁶⁷ Arguably, then, a corporate defendant who committed a nonenvironmental crime could not be ordered to establish an environmental trust fund as a condition of probation. If one views the underlying premise of the Act as aimed at rehabilitation of offenders, one way to look at in-lieu payment schemes is whether in a given case such a scheme is rehabilitative in its effect.⁶⁸

A number of federal courts of appeal have rejected charitable contribution probations, in spite of the breadth of the Act's general implementing language. Most of those courts have focused on the examples given at the end of § 3651 and argued that they limit the purposes for which contributions or works in lieu of fines and/or imprisonment can be made.⁶⁹

In 1976 and 1982, the Tenth Circuit Court of Appeals overturned a monetary probation condition that had compelled the defendant to pay money to a charitable organization.⁷⁰ Both cases involved the antitrust laws, and in both the court did not set aside lower court findings of a rational nexus between the crime and the probation scheme. The conditions were struck down, however, because they were viewed as restitution or reparations, and the recipient was not an aggrieved party, as required by the statutory language. The court construed the Act using a familiar rule of statutory construction that a specific provision will govern notwithstanding the fact that a general provision, standing alone, may imply a different result.

The Tenth Circuit's analysis may be criticized on a number of grounds, and, as will be discussed below, does not necessarily doom trust fund probations in the environmental arena. The initial criticism is that the use of statutory construction conventions is fraught with opportunity for error. It has often been said that for each rule or maxim there is an opposite rule or maxim.⁷¹ The Probation Act's structure arguably contains a broad, general grant of authority that is intended to confer maximum discretion on the sentencing judge. The specific authorizations relied upon by the Tenth Circuit as exclusive and limiting are phrased not as mandatory but as permissive ("may" rather than "shall") while other limitations within the statute are clearly mandatory (such as the limitation that the period of probation "shall not exceed five years"), clearly demonstrating that Congress knew how to be absolute when it wanted to. A more reasonable construction of the statute would seem to be one that viewed the four criteria listed at its end as illustrative rather than limiting.⁷²

Nevertheless, the Tenth Circuit cases represent the majority view at the present time, which holds that the four explicit types of probationary arrangements mentioned in the Act limit the more general grant of authority.⁷³ Although not holding that the explicit provisions are exclusive as to all possible conditions of probation, the majority-rule courts have held that monetary conditions are limited to one of the types specified in the statute.⁷⁴

[17 ELR 10365]

Only the Ninth Circuit represents the minority point of view to date. In United States v. Mitsubishi International Corp.,⁷⁵ that court upheld a creative probation scheme applied to a defendant in a prosecution under the Elkins Act.⁷⁶ The sentencing judge levied the maximum statutory fine of $20,000 on each count of the indictment, then suspended the sentence and placed the defendant on three years probation — on the condition that it contribute $10,000 on each count plus the services of a corporate executive for one year to an ex-offender program. Mitsubishi appealed the order, arguing that the terms of probation were outside of the scope of the Probation Act. The court refused to set aside the probation, stating that the aggregate burden of the probation was not in excess of the maximum possible fine, and that the defendant was free to decline the probation and accept sentence.

The Ninth Circuit's reasoning differs fundamentally from that of the other courts in one important respect. It stated that probation conditions should be tailored to meet the needs and aims of the criminal law, and to address special situations with special remedies. A corporate defendant presents a special situation, since it cannot be incarcerated, and to avoid corporate criminals simply paying fines as a sort of cost of doing business, unique and creative probation terms should be sanctioned.⁷⁷

Although there is some dictum involving the issue in other circuits,⁷⁸ the above cases seem to represent the state of the law today. One lower court decision, however, is worthy of note as presenting an analysis that can guide the development of environmentally beneficial probation conditions in the future.

In United States v. Danilow Pastry, Inc.,⁷⁹ the defendant was found guilty of an antitrust violation involving the baked goods industry. The sentencing judge suspended a portion of the defendant's fine on the condition that it deliver baked goods to a number of charitable organizations over a one-year period of probation. The judge rejected the government's arguments that the arrangement violated the restitution limitation of the Act, stating first that the probation involved community service (acts rather than monetary payments) and then articulated a number of policy reasons for its action.

The most interesting policy argument made by the sentencing judge in Danilow Pastry was that if a fine sufficient to deter future conduct in violation of the statute were to be imposed, it could bankrupt a defendant in some circumstances, and produce locally significant unemployment, loss of competition, and other negative economic consequences.⁸⁰ Community service carried with it a number of benefits, including increased public awareness of the defendant's conduct. In the case of crimes that were essentially against the government, moreover, limiting probation to aggrieved-party restitution was impossible, and what should be focused on, the court argued, was whether there was a reasonable relationship between the entities chosen to be the beneficiaries of the probation order and the type of conduct for which the defendant was being punished. In the Danilow case, the court found a reasonable relationship between the poor people who would receive baked goods under the probation scheme and the defendant's price fixing, since they were among those who presumably were charged higher prices than they should have.⁸¹

Sentence Mitigation Cases. Before proceeding to discuss what might be done with the pattern of probation cases, and the operative policy considerations, brief mention should be made of several cases in which the sentencing judge undertook informally to encourage the defendant to make a charitable contribution in return for mitigation of the sentence imposed. The leading example of this type of approach is illustrated by United States v. Allied Chemical Co.⁸²

In Allied Chemical the district court fined Allied $13.24 million for criminal violations of the federal and state water pollution law. The judge let it be known that he would reduce the fine if the corporate offender took action to alleviate the conditions caused by its discharge. Allied then donated $8 million to establish the Virginia Environmental Endowment Fund, and the court reduced the fine to $4.5 million.⁸³

[17 ELR 10366]

This case and the others following the informal approach⁸⁴ have been criticized essentially on the grounds that the Federal Probation Act provides the only means for alternatives to sentencing, and that any such arrangement must comply with its proscriptions.⁸⁵ The Fifth Circuit's rejection of a similar attempt by a federal district judge in United States v. Haile,⁸⁶ moreover, demonstrates the depth of judicial skepticism of such arrangements.

Policy Analysis. As in the case of civil actions, the law on creative criminal sentencing in the federal arena, though not clear, does provide a sort of road map to follow in constructing environmental trust payments in lieu of fines.⁸⁷

A probation condition that requires the defendant to employ its expertise to actually clean up the area it polluted, or which requires the establishment of a victim compensation fund from which payments can be made to people who have been exposed to toxic pollutants discharged in criminal violation of federal law, would seem to satisfy the strictures imposed in even the majority-rule circuits. The former constitutes community service; the latter is a reparation to aggrieved persons.

In order to explore the gray areas, however, a better understanding of the policy rationales behind the majority decisions is required. Neither the language of the Probation Act nor its legislative history clearly points to the result reached by a majority of the circuits. Only the Eighth Circuit, in United States v. Missouri Valley,⁸⁸ articulated policy reasons for its action. The court stated that courts should not get into the business of directing defendants to pay money to unaggrieved private parties, since they are ill equipped to choose among countless worthy beneficiaries.⁸⁹

The more troublesome policy reason mentioned by the Eighth Circuit in Missouri Valley, discussed earlier in this Article,⁹⁰ is that since the charitable contributions would otherwise be fines paid to the treasury, the court was unwilling to follow the in-lieu course absent explicit direction from Congress.⁹¹ The court used this argument, which it no doubt acquired from the Iowa Law Review note discussed above,⁹² and which had been critical of the court's earlier contrary decision, as a basis for a narrow construction of the statute.

The logical flaw in this reasoning, it seems, is that fines are not public monies unless and until they are actually levied. Thus, one can distinguish between a sentence in which a fine is levied and then suspended in return for a charitable contribution, and one which simply places the defendant on probation the terms of which require charitable contributions. Unfortunately, the Probation Act has been viewed as authorizing probation merely as an alternative to the sentence imposed, not as a form of sentencing that can be imposed directly.

In general, critics of creative sentencing argue that the courts are not able to undertake the task effectively without some sort of institutionalized guidance.⁹³ Sentencing decisionmaking is viewed as inherently affected by the personal predilections of the judiciary, and thus incapable of coherent application, in particular where corporate criminals are involved. It is argued that there is no empirical evidence of the superiority of charitable contributions as furthering the aims of criminal justice than the payment of fines, and it has been said that there is a greater risk of disparate sentencing of similarly situated defendants, a situation antithetical to a rational sentencing system.⁹⁴

We may, accordingly, view the reluctance of a majority of the courts addressing in-lieu charitable-contribution probations as at least in part a product of a steady stream of criticism of sentencing discretion found in the literature in recent years. Another byproduct of this criticism is the Sentencing Reform Act of 1984,⁹⁵ which, as of its effective date of November 1, 1986, provides more detailed statutory guidance for criminal sentencing.

The Sentencing Reform Act of 1984 (18 U.S.C. §§ 3551-3559). The Sentencing Reform Act is a component of the Comprehensive Crime Control Act of 1984.⁹⁶ The Act establishes a Sentencing Commission, whose task is to establish sentencing guidelines and policy statements, which become effective as guidance for the federal judiciary on November 1, 1987, unless modified by Congress before that date. Under the new Act, a court may consider not only rehabilitation of the defendant in fashioning a sentencing remedy, but also the need to promote respect for the law, punishment, deterrence, and protection of the public.⁹⁷

The shift away from rehabilitation as the sole aim of sentencing represents a significant shift from the theoretical underpinnings of the present Probation Act. It removes from the critics of creative sentencing one of their more powerful policy arguments — that in the absence of empirical evidence of a superior rehabilitative effect, charitable contributions are inconsistent with the aims of the statute.⁹⁸

The new statute requires the sentencing judge to consider "the kind of sentence and sentencing range established for the applicable category of offense committed by the applicable category of defendant."⁹⁹ Probation, [17 ELR 10367] significantly, is clearly viewed as a type of sentencing rather than as something to be worked out in lieu of complying with the sentence, narrowly defined as fine or imprisonment.

The sentencing judge is required to apply the sentencing guidelines promulgated by the Sentencing Commission unless mitigating or aggravating factors exist that take the offense outside of the scope of the guidelines.¹⁰⁰ In such an event, the sentencing judge is required to articulate the reasons for not applying the guidelines.¹⁰¹ Restitution to "aggrieved parties" or "victims of the offense" is provided as something that can be ordered in addition to sentencing.¹⁰²

A sentence of probation and the conditions imposed thereby must follow consideration of a number of statutory factors. These are the nature and circumstances of the offense, the history and characteristics of the offender, and the purposes of sentencing. Conditions of probation are of two types, mandatory (imposed by the statute) and discretionary.¹⁰³ The mandatory conditions are that the defendant not commit another crime, and at least one of the following three conditions if the offense is a felony: (1) a fine; (2) restitution; or (3) work in community service.

The statute and the legislative history make it clear that the list of mandatory conditions are merely illustrative of the types of conditions the judge may impose as a matter of discretion.¹⁰⁴ The restrictions on discretionary probation conditions are that they be "reasonably related" to the history and characteristics of the offender, to the nature and circumstances of the offense, and the purposes of the sentencing scheme.¹⁰⁵ The Senate Report accompanying the legislation contains the following explanation of intent regarding this scheme:

It is anticipated that … the court will review the listed examples in light of the Sentencing Commission's guidelines and policy statements, weigh other possibilities suggested by the case, and, after evaluation, impose those that appear to be appropriate under the circumstances.¹⁰⁶

It should be apparent that the Sentencing Reform Act contemplates a greater degree of sentencing latitude than the majority rule permits under current law. Clearly, however, the role of the Sentencing Commission is important, and its guidelines can affect the easeby which environmental trust fund contributions can be employed as alternatives to other sentencing options.¹⁰⁷

The Act also raises the level of fines for felony and misdemeanor convictions, which apply across the board unless the substantive statute involved provides for a higher penalty.¹⁰⁸ For RCRA¹⁰⁹ and the Federal Insecticide, Fungicide, and Rodenticide Act,¹¹⁰ at least, the increased fines contained in the 1987 Sentencing Guidelines minimize the importance of arguments that significant in-lieu contributions exceed the statutory fines and thereby raise due process problems. For violations of the other statutes, which are classified as misdemeanors at present, there remains the problem that in-lieu contributions of a sufficient size to be meaningful may in many circumstances (such as single count indictments) far exceed the monetary impact of the maximum statutory fine, and thus arguably not be reasonably related to the gravity of the offense, even under the Sentencing Reform Act.

Although specific language about charitable contributions in the legislative history of the Sentencing Reform Act would be helpful, unfortunately there appears to be none. There is, however, repeated reference to the desirability of using probation conditions that are appropriate to the offender and circumstance.¹¹¹ This general policy would appear to support the establishment of a general trust fund in a situation where the defendant's criminal acts caused environmental pollution by chemicals that have adverse health effects in a situation where human exposure is likely, but where the actual victims cannot be identified.¹¹² The Act does not preclude creative approaches where restitution, though theoretically justified, is not workable,¹¹³ although it does not clearly mandate them, either.

The explicit provision for community service as a condition of probation may provide a more fruitful basis for in-lieu contributions. Community service work, in the broad sense, arguably encompasses funding community [17 ELR 10368] service organizations in addition to actually employing one's own labor. Community service work is most commonly associated with individual, rather than corporate, offenders. As applied to corporate offenders, however, it is hard to find a distinguishing rationale for allowing the direct employment of corporate human or equipment resources in community service, yet disallowing the employment of capital to support the same work.

The Sentencing Commission chose not to address the issue of in-lieu charitable contributions directly in the sentencing guidelines.¹¹⁴ Its discussion of probation terms, however, indicates a continuation of the kind of narrow focus represented by the majority of decisions by the courts of appeals,¹¹⁵ and an apparent desire to allow the courts to continue to develop the law on creative alternative sentencing, barring congressional intervention.¹¹⁶

Conclusion

The federal courts have not been hospitable to probation schemes involving charitable contributions that do not fit neatly within the permissive language of the Federal Probation Act. The Sentencing Reform Act of 1984 appears on its face to provide a greater degree of sentencing discretion in this area, though the Sentencing Commission has not made an effort to embrace charitable contributions as an alternative to fines.¹¹⁷ It will remain for the courts, and perhaps for Congress, to define the permissible limits of the exercise of any such judicial discretion. The legislative history of the Sentencing Reform Act does not clearly point the courts in one direction or the other in this regard, and any predictions as to how the courts will react to creative sentencing in the future have to be tempered with the knowledge that the climate toward in-lieu charitable contributions has been frosty in the past.

There are several important considerations that should be a part of any future environmental plea bargain or sentence recommendation, that grow out of the foregoing analysis:

(1) Alternative sentences imposed by a judge over the prosecutor's objection and appealed by the government have generally fared poorly. Quite clearly, however, a plea bargain that is palatable to the government and to the defendant, and which does not come before a hostile judge, will be viable, since no one will appeal it.

(2) The subject of any trust fund or other contribution benefitted by an environmental offender should bear some relation to the nature of the harm caused by the offense, or at least be in reasonably close proximity to the situs to the violation. For example, if the offender violated the Endangered Species Act, it would be wise to condition a probationary award on support of research of or reestablishment of the particular species involved. If the violator damaged wetlands, the contribution would best be limited to protection of the areas of impact, or at least to wetlands in the region where the defendant's facility is located.¹¹⁸

(3) Where possible, the plea bargain or sentencing memorandum should track either the language of the restitution provision or the community service provision of the Sentencing Reform Act, and should clearly articulate the reasons for any deviation from the usual types of probation if the arrangement does not clearly fit one or the other.

(4) Most of the "law" in this area has come out of antitrust convictions. There seems a better argument for inlieu contributions in environmental criminal cases, at least where the offense involves some sort of pollution of the environment, than as expressed in antitrust cases. The antitrust laws' overriding social purpose, if any continues today, involves notions of competitive utility that often do not implicate clear victims — and where there are victims, there are usually no institutional means of compensating the victims in a meaningful way. Environmental laws, on the other hand, are designed to protect something tangible — public health or natural ecosystems — and true "restitution" of damage to such victims would seem logically to embrace paying money to entities whose purpose it is to protect and restore them.

(5) For the reasons given in the discussion of civil actions, probation schemes that involve the management of funds by the judiciary or executive branch personnel are to be avoided.

This area is clearly in a state of flux. The Supreme Court has not construed the Probation Act in this context, and may not do so before the Sentencing Guidelines become effective on November 1, 1987. Interpretation of the Sentencing Reform Act must await not only the issuance of the sentencing guidelines but also application of the statute to specific facts.

1. No. 79-0071-D (W.D. Va. 1979) (unreported).

2. No. CR 84-167V (W.D. Wash. 1985) (unreported).

3. A similar arrangement was worked out in United States v. FMC Corp. (E.D. Pa. 1979), in which a probation agreement had the United States Attorney designate a trust fund or escrow account into which the defendant was to pay a sum of money to be used for environmentally beneficial purposes.

4. No. H 83-964 (JAC) (D. Conn. 1986).

5. (S.D. Fla.) (unreported).

6. A theoretical third possibility, an "out of court settlement," the terms of which are not approved by the court, is never employed by the government in environmental enforcement actions.

7. Supra note 5.

8. In cases where the payment was in lieu of an injunction requiring restoration, this was not an issue.

9. 31 U.S.C. § 1341.

10. 21 Op. Att'y Gen. 248 (1895).

11. Cf. Parshall v. United States, 147 F. 433 (D. Mo. 1906); Blackhawk Heating & Plumbing Co. v. United States, 622 F.2d 539 (Ct. Cl. 1980).

12. 40 U.S.C. §§ 471-758.

13. 725 F.2d 958 (4th Cir. 1984).

14. Id. at 964-965.

15. Id. at 968.

16. Section 311 of the Clean Water Act, 33 U.S.C. § 1321, ELR STAT. 42132, did not at the time the arrangement was entered into specifically authorize the expenditure of oil spill funds or recoveries to compensate for natural resource damage. The statute was amended in 1978 to authorize such uses, see Pub. L. No. 95-576, § 1(b), 92 Stat. 2467 (1978), and thus the precise issue involved in Steuart Transp. became moot.

17. Of course, an arrangement that did not involve control by executive branch officials over the trust administration would not violate the laws solely because the source of the corpus is money that would otherwise be public funds paid in as penalties.

18. 63 Op. Comp. Gen. 308 (1984).

19. Reported as an appendix to United States v. Ferreira, 54 U.S. (13 How.) 43, 56-58 (1851).

20. Note, United States v. William Anderson Co.: Monetary Conditions of Probation Under the Federal Probation Act, 69 IOWA L. REV. 1147, 1160 (1984).

21. 31 U.S.C. § 3302.

22. 772 F.2d 1501, 15 ELR 21091 (11th Cir. 1985), reh'g en banc denied, 778 F.2d 793 (11th Cir. 1985), cert. granted on different issue, 55 U.S.L.W. 3745 (U.S. May 4, 1987) (vacating and remanding in light of Tull v. United States, 17 ELR 20667 (1987)).

23. Although the government prevailed on the remedial issue, the court of appeals made no mention of the Miscellaneous Fees Act argument. It premised its remand of the district court's order to former Fifth Circuit law, developed under the Rivers and Harbors Act, requiring the courts in wetland cases to give defendants an opportunity to present their own in situ restoration plans, and to provide a hearing on the proffered plan. The appeals court concluded that the district court had not followed this procedural requirement.

24. Brief for United States at 28-29, United States v. M.C.C. of Fla., Inc., 772 F.2d 1501, 15 ELR 21091 (11th Cir. 1985).

25. See United States v. Forsythe, Fed. Cas. 15,133 (C.C. Ohio 1855); 17 Op. Att'y Gen. 592 (1883).

26. 17 Op. Att'y Gen. 592 (1883).

27. Interestingly, repeated inquiries of the Department of Justice have failed to turn up any written explication of reasoning along these lines to support its stated policy position on such arrangements. The Department's published settlement policies have heretofore been limited to arguing why it should not enter into settlements that bind agency discretion.

28. Supra notes 13-20 and accompanying text.

29. One interesting aside is the fact that I find it difficult to imagine how this issue can be put squarely before a court. Since most inlieu contribution schemes are the products of negotiated settlements, there are only two possibilities for litigation. An intervening party who does not agree with the arrangement can challenge it, or the district judge may refuse to approve the decree. Both are rare occurrences. If the government simply "refuses to deal" with such suggestions (which appears to be its current posture) there is no way to successfully bring the matter to a judge, although a creative litigant might proffer a FED. R. CIV. P. 60(b) offer of settlement — a rarely successful, little used, device.

30. 772 F.2d 1501, 15 ELR 21091 (11th Cir. 1984).

31. See Weinberger v. Romero-Barcelo, 456 U.S. 305, 12 ELR 20538 (1982); but see Tennessee Valley Auth. v. Hill, 437 U.S. 173, 8 ELR 20513 (1978) (concluding that Congress unambiguously determined that there is no room for the application of equitable factors mitigating the harshness of a mandated remedy under the Endangered Species Act).

32. 42 U.S.C. § 6928, ELR STAT. RCRA 019.

33. 42 U.S.C. § 7420, ELR STAT. 42226.

34. EPA cannot, of course, receive the funds without turning them over to the Treasury because of the Miscellaneous Fees Act.

35. The consent decrees reviewed for this Article demonstrated some differences. Some defendants preferred to name a different recipient of their largess, and some insisted on a right to review and approve expenditures of their funds by the recipient Institute, while others had no interest in exerting any influence whatsoever over the ultimate fate of their contributions.

The largest litigation-related arrangement to date did not involve federal lawsuits, but arose out of complicated state and administrative litigation in New York. The Hudson River Foundation was set up initially as part of a multi-million dollar settlement of a longstanding controversy between environmental groups and electric utilities over the latter's consumptive use of Hudson River waters. Its resources were augmented several years later by legislative appropriations made as part of a deal between the state, environmental groups, and the Exxon Corporation resolving issues arising out of Exxon's withdrawal of Hudson River water for use in one of its Caribbean refineries.

36. See supra notes 10-29 and accompanying text.

37. Very interesting questions arise if the defendant is a federal agency. The Anti-Deficiency Act probably bars the defendant agency from agreeing to pay money to a third party as part of a settlement of a citizen suit. Another interesting problem of a different sort arises if the Supreme Court, in the pending Gwaltney of Smithfield v. Chesapeake Bay Found., No. 86-473 (U.S. cert. granted Jan. 12, 1987) case, were to decide that civil penalties are unavailable as a remedy in a citizen suit. In that case, citizen plaintiffs will have no leverage to seek trust funding from defendants.

38. Cf. United States v. Hooker Chems. & Plastics Corp., 607 F. Supp. 1052, 15 ELR 20801 (W.D.N.Y.) (approving terms of settlement for S-Area Landfill over objection of intervenors, citing law on the subject), aff'd, 776 F.2d 410, 16 ELR 20079 (2d Cir. 1985).

39. See generally FED. R. CRIM. P. 6 & 7.

40. At the present time, none of the environmental crimes are nonwaivable.

41. See supra notes 6-38 and accompanying text.

42. No. CR 84-167V (W.D. Wash. 1985). A similar arrangement, in which the United States Attorney had authority to designate the recipient of funds, was entered in United States v. FMC Corp. (E.D. Pa. 1979).

43. Since the scope of this Article is limited to federal law, I have not attempted to survey the myriad state laws on the subject. It should be noted, however, that a limited look at New York criminal practice has revealed the presence of much greater creativity in alternative sentencing than generally found in federal prosecutions. In New York, the state probation statute affords exceedingly wide discretion to the sentencing judge, who is an active participant in plea bargaining. Moreover, under New York law, the prosecutor does not presently have the right to appeal a sentence, and thus state law provides an opportunity for defendant-judge negotiated alternative sentences not available under federal practice.

44. 1 S. J. SCHULHOFER, PROSECUTORIAL DISCRETION AND SENTENCING REFORM, A REPORT TO THE FEDERAL JUDICIAL CENTER 8 (1979).

45. 2 W. R. LaFAVE & J. H. ISRAEL, CRIMINAL PROCEDURE § 13.2, at 160 (1984).

46. Id. at 161.

47. Id. at 163.

48. Aside from avoiding unfavorable publicity, corporate defendants who bargain with a prosecutor in return for their guilty plea may also receive the advantage of a decrease in time-consuming, expensive litigation and either reduced charges or a lighter sentence (usually a fine).

49. Although a nolo contendere plea is treated as a guilty plea for sentencing purposes, it is generally not viewed in federal practice as a guilty finding or admission of guilt that would affect a later civil action premised on the same acts. See FED. R. CRIM. P. 11(e)(6)(B).

50. FED. R. CRIM. P. 11(b).

51. FED. R. CRIM. P. 11(a).

52. FED. R. CRIM. P. 11(c).

53. FED. R. CRIM. P. 11(f).

54. S. J. SCHULHOFER, supra note 44, at 74. The nature of the reasoning for rejecting a plea that is facially in conformity with FED. R. CRIM. P. 11 varies among the federal circuits. The most controversial reason for plea rejection — that the offense pleaded does not adequately reflect the seriousness of the defendant's conduct — has not been explored in relation to white collar crime since most of the cases involving judicial rejection of plea bargains on this basis involve individual defendants charged with violent crimes. In general, however, while some courts have concluded that prosecutorial-charging discretion should generally prevail over judicial-sentencing discretion, on balance, the legislative history of FED. R. CRIM. P. 11 is interpreted by most commentators as allowing greater judicial control. See, e.g., S. J. SCHULHOFER, supra note 44, at 78 & 79 n.97.

55. Under the Federal Rules of Criminal Procedure, there are four distinct routes to the imposition of a sentence: (1) The defendant may plead guilty to all of the original charges, with hopes for leniency in the absence of official assurances, in light of his charitable or other publicly beneficial voluntary act (i.e., hoping to propose his own alternative sentencing scheme to a willing judge); (2) the defendant may plead guilty to only some of the initial charges, in exchange for the prosecutor's agreement to dismiss the remainder. FED. R. CRIM. P. 11(e)(11)(A); (3) the defendant may plead guilty (either to all or some of the charges) in exchange for the prosecutor's agreement to make a nonbinding recommendation on sentence. FED. R. CRIM. P. 11(e)(1)(B); (4) the defendant may plead guilty pursuant to an agreement specifying the sentence that must be imposed if the guilty plea is accepted. FED. R. CRIM. P. 11(e)(1)(C).

56. See FED. R. CRIM. P. 11(e)(4).

57. It should be understood that the foregoing discussion is only a theoretical construct of prosecutorial and judicial behavior in situations involving plea bargains, in the absence of empirical studies involving the distribution of sentencing power.

58. 18 U.S.C. § 3651.

59. Sanders v. Pacific Gas & Elec. Co., 53 Cal. App. 3d 661, 677, 126 Cal. Rptr. 415, 425 (1975).

60. Note, supra note 20, at 1153.

61. 13 U.S.C. § 3651.

62. 18 U.S.C. §§ 3551-3559.

63. 465 F.2d 58, 60 (7th Cir. 1972).

64. See generally Note, Punishing the Corporation: Charitable Contributions as a Condition of Probation, 15 RUTGERS L.J. 1069 (1984) [hereinafter Punishing the Corporation]; Note, Corporate Probation Conditions: Judicial Creativity or Abuse of Discretion?, 52 FORDHAM L. REV. 637 (1984) [hereinafter Corporate Probation Conditions].

65. 13 U.S.C. § 3651.

66. Porth v. Templar, 453 F.2d 330 (10th Cir. 1971).

67. See United States v. Prescon Corp., 695 F.2d 1236, 1242 (10th Cir. 1982).

68. This matter is discussed further, infra notes 96-116 and accompanying text.

69. The statute provides in relevant part:

While on probation and among the conditions thereof, the defendant —

May be required to pay a fine in one or several sums; and

May be required to make restitution or reparation to aggrieved parties for actual damage or loss caused by the offense for which conviction was had; and

May be required to provide for the support of any persons, for whose support he is legally responsible.

13 U.S.C. § 3651.

70. United States v. Prescon Corp., 540 F.2d 1236 (10th Cir. 1982); United States v. Clovis Retail Liquor Dealers Trade Ass'n, 540 F.2d 1389 (10th Cir. 1976);

71. See O. J. HETZEL, LEGISLATIVE LAW & PROCESS 349 (1980).

72. See Punishing the Corporation, supra note 64, at 1076. The legislative history is sparse. One commentator has argued that Congress, which patterned the statute on state laws, specifically listed mandatory conditions because they were not common in the state analogs and wanted to assure the federal judiciary of the propriety of such actions. Note, supra note 20, at 1153. This commentator also argued that since in-lieu charitable contributions were unheard of under state law in 1925, Congress could not have intended to adopt them by implication. This argument seems to stand the Act and its legislative purpose on its head.

73. The Third, Fourth, Fifth, and Eighth Circuits have followed the Tenth. For a general review of the cases in all but the Fifth Circuit, see Note, Charitable Contributions As A Condition of Federal Probation For Corporate Defendants, 60 NOTRE DAME L. REV. 530 (1985); see also supra notes 87-95 and accompanying text.

74. Illustrative of the majority rule cases is United States v. Missouri Valley Constr. Co., 741 F.2d 1542 (8th Cir. 1984), in which the Eighth Circuit overruled a previous decision that took a more liberal approach. The court reasoned initially that the narrow approach to construing the Act should be applied, and then concluded that the provision relating to restitution or reparation limited cash payments to those necessary to cover actual damages or loss to aggrieved parties resulting from the offense. The court also reasoned that the transfer to third parties of large amounts of money that would otherwise be paid over as fines was not contemplated by the statute and would be an appropriation of federal treasury funds by the judiciary in violation of Art. I, § 8 of the Constitution.

The Fourth Circuit, in another antitrust case, United States v. Wright Contracting Co., 728 F.2d 648 (4th Cir. 1984), overturned a probation condition that required a corporate defendant to pay $175,000 to a foundation that provided services to the poor, as "corporate penance," relying solely on the perceived restrictive effect of the four conditions.

In United States v. John Scher Presents, Inc., 746 F.2d 959 (3d Cir. 1984), the corporate and individual defendants in an antitrust prosecution were placed on probation by the sentencing judge at the defendants' request, and over the opposition of the prosecutor, on the condition that they contribute their services and talents at promoting musical concerts to events being staged for charitable purposes, up to a value of services of $100,000. The Third Circuit held that the sentencing judge had exceeded his authority in requiring the corporate defendant to pay money to a charitable foundation that was in no way aggrieved by the offense, reasoning that by requiring the defendants to contribute services valued in monetary terms, the court was, in effect, requiring the payment of money. The court did say, however, that its decision should not be interpreted as prohibiting all community service-type probations, stating that it did not view the condition imposed in Scher as community service, but rather as a contribution of money. Community service, the court reasoned, would require the defendants to do something different than their normal business activity. Id. at 963. The sentencing judge had called the condition "symbolic restitution," a phrase the Court of Appeals believed had no significance.

The most recent court to weigh in on the issue is the Fifth Circuit. In United States v. Haile, 795 F.2d 489 (5th Cir. 1986), the appellate court overturned a trial judge's sentence that relied upon FED. R. CRIM. P. 35 to "divert" part of an agreed fine to an approved charitable organization, over the prosecutor's objection. The decision follows the Clovis rationale, though the court opined that mitigation of a fine in light of prior charitable contributions might be a proper use of FED. R. CRIM. P. 35 authority.

The final majority decision to date is United States v. John A. Beck Co., 770 F.2d 83 (6th Cir. 1985). Here, the sentencing judge ordered an antitrust defendant to pay a $150,000 fine, but provided that the fine could be reduced significantly if the defendant hired and maintained on its payroll a number of parolees and probationers. The Sixth Circuit first held that the sentence was invalid under the Sherman Act, and then opined that it could not be resuscitated if framed as a condition of probation, on the same reading of the statute as that of the Third and Tenth Circuits.

75. 677 F.2d 785 (9th Cir. 1982).

76. 49 U.S.C. §§ 11903, 11915 (dealing with certain types of unlawful rebates in interstate commerce).

77. 677 F.2d at 788.

78. See, e.g., Fiore v. United States, 696 F.2d 205 (2d Cir. 1982) (opining that the Act prohibited probationary contributions that simply benefit the community at large).

79. 563 F. Supp. 1159 (S.D.N.Y. 1983).

80. Id. at 1166-67.

81. Id. at 1168 n.18. Of course, the probation conditions imposed in this case appear to be no different than those imposed in Scher, and would probably not survive appeal in that circuit.

82. No. 76-0129-R (E.D. Va. 1976) (unreported) (discussed in detail in Note, Corporate Contributions To Charity, 9 J. CORP. L. 241, 247 (1984)). Other aspects of the case are reported in United States v. Allied Chem. Corp., 420 F. Supp. 122 (E.D. Va. 1976).

83. From Allied's standpoint, it was better off under this scheme from a public relations standpoint, and also financially better off in the event it could secure tax benefits from the charitable contribution.

84. United States v. Olin Mathieson, No. 78-30 (D. Conn. 1978); United States v. Borden, No. 74-Crim 0319 (D. Ariz. 1976).

85. Note, supra note 82, at 247-248.

86. 795 F.2d 489 (5th Cir. 1986).

87. Although I have not heretofore stated this explicitly, it should be apparent that virtually all such arrangements shall be in lieu of fines, since: (1) a corporation may not go to jail; and (2) corporate officers who can go to jail usually do not have sufficient assets to make meaningful contributions. A probation scheme whereby a corporation would make contributions in lieu of jail terms for its officers would appear to be illegal for a number of reasons not necessary to explicate.

88. 741 F.2d 1542 (8th Cir. 1984).

89. Id. at 1550.

90. See supra notes 58-62 and accompanying text.

91. A similar line of reasoning appears in the Fifth Circuit's Haile decision.

92. Supra note 20.

93. See Corporate Probation Conditions, supra note 64, at 653.

94. Id. at 654.

95. See S. REP. NO. 225, 98th Cong., 1st Sess. 37-38 (1983).

96. Pub. L. No. 98-473, 98 Stat. 1987 (1984).

97. 18 U.S.C. § 3553(a)(2).

98. It should be noted that in Danilow Pastry, supra notes 79-81 and accompanying text, the court looked to retribution as a reason for its sentence.

99. 18 U.S.C. § 3551(c)(1), in addition, specifically states that an organization may be sentenced to a term of probation.

100. See 18 U.S.C. § 3554. In addition to sentencing guidelines, the Commission's policy guidance is apparently intended to provide judges with a basis for evaluating prosecutorial deals. See S. REP. NO. 225, supra note 95, at 63.

101. 18 U.S.C. §§ 3554(c)(1) & (c)(2).

102. Id. § 3556.

103. Id. § 3563(a) & (b).

104. See id. § 3553(b)(20); see also S. REP. NO. 225, supra note 95, at 96 n.6.

105. 18 U.S.C. §§ 3553(a)(1) & (a)(2).

106. S. REP. NO. 225, supra note 95, at 96 n.6.

107. The Sentencing Commission is made up of federal judges and presidential appointees. Its charge in establishing the guidelines is to consider the grade of the offense, mitigating circumstances, the nature and degree of harm caused, the community perception of the seriousness of the offense, deterrence, and a variety of offender characteristics. See Corporate Probation Conditions, supra note 64, at 659.

108. 18 U.S.C. § 3771. The Sentencing Commission's Guidelines, submitted to Congress on April 13, 1987, include specific sentencing recommendations for various categories of environmental crimes. See 52 Fed. Reg. 18080 (1987) (Part Q). The sentencing matrix for environmental crimes is complex. Sentences are determined by combining the "offense level" assigned by the Guidelines and the "Criminal History" level for the defendant, and referring to a "Sentencing Table" or a "Fine Table" contained in the Guidelines. Categories of environmental offenses include knowing endangerment resulting from mishandling of hazardous or toxic substances, pesticides, or other pollutants (§ 2Q1.1, 52 Fed. Reg. at 18080), mishandling of hazardous substances or pesticides, and recordkeeping, tampering and falsification relating to such substances (§ 2Q1.2, 52 Fed. Reg. at 18080), mishandling, recordkeeping, tampering or falsification relating to other pollutants (§ 2Q1.3, 52 Fed. Reg. at 18080), tampering or threatened tampering with a public water supply (§§ 2Q1.4, 2Q1.5, 52 Fed. Reg. at 18081), protected or endangered species acts violations (§ 2Q2.1, 52 Fed. Reg. at 18080), and Lacey Act violations (§ 2Q2.2, 52 Fed. Reg. 18080).

109. 42 U.S.C. §§ 6901-6991i, ELR STAT. RCRA 001.

110. 7 U.S.C. §§ 136-136y, ELR STAT. 42301.

111. See Note, supra note 73, at 541-45.

112. Such would be the case where a highly mobile population is involved, or where long latency period effects are involved. A general victim compensation fund could, for example, be established, or a medical surveillance program set up, or funds channeled to research on the health effects of the substance involved. Cf. Reitze & Rowe, The Price-Anderson Act — Limited Liability for the Nuclear Industry, 17 ELR 10185 (June 1987) (discussing the Health-Surveillance Model authorized by the Superfund Amendments and Reauthorization Act of 1986). One law review commenter has argued from this premise to support charitable contributions as an appropriate form of restitution where what was harmed was an ecosystem of value to the community at large, such as a marsh. Note, supra note 73, at at 545 nn. 88, 89.

113. 18 U.S.C. §§ 3553(c) requires the sentencing judge to provide an explanation where the sentence does not involve restitution.

114. See generally 52 Fed. Reg. 18046 (1987).

115. See id. at 18096 (ch. 5, pt.B).

116. Under the Act, Congress has six months in which to modify the guidelines following their issuance, before they become effective as to offenses.

117. The Commission also did not choose to tread on the traditional role of the prosecutor in shaping a plea bargain. See 52 Fed. Reg. 18015 (1987) (ch. 6 — Sentencing Procedures and Plea Agreements).

118. Under this approach, defendants who violate the procedural requirements of the environmental statutes, such as companies that make false statements to EPA, and who have not thereby actually caused any provable environmental harm, are poor candidates for in lieu sentencing. In addition, general purpose environmental trust funds may prove to be less viable repositories for in lieu contributions than local, special-purpose funds.

17 ELR 10356 | Environmental Law Reporter | copyright © 1987 | All rights reserved