Chapter 12 Ethical Compliance During and After the NEPA Project Development Phase

• Jurisdiction: United States

Chapter 12 Ethical Compliance During and After the NEPA Project Development Phase
Craig D. Galli^* Holland & Hart LLP Salt Lake City, UT

CRAIG GALLI advises clients on complex regulatory compliance issues not only in the energy and natural resources sector, but in other industry sectors as well. He defends corporate and individual clients in environmental and natural resources litigation arising under both civil and criminal laws. Craig has handled more than 50 litigation matters to judgment and uses his skills as a former Senior Trial Attorney with the U.S. Department of Justice (DOJ) in Washington, D.C., to litigate and settle enforcement actions and other civil and criminal litigation. Craig is the Distinguished Practitioner in Residence at Brigham Young University Law School where he teaches environmental law, public lands and natural resources law, international environmental law, and energy law.

Introduction

I. Ethical NEPA Compliance During the Project Development Phase

A. NEPA Consultant Conflicts of Interest
B. Undue Influence of Proponents
C. Undue Influence of Opponents

II. Ethical Leadership and Corporate Culture

A. Ethical Corporate Culture vs. Toxic Culture
B. Ethical Leaders vs. Toxic Leaders

III. Robust Compliance During the Project Implementation Phase

A. Inclusion of NEPA Commitments in the Environmental Compliance Program
B. Conducting Robust Internal Investigations of Non-Compliance

Conclusion

[12-1]

INTRODUCTION

Why ethics? Justice Potter Stewart, a centrist and pragmatist who was appointed to the Supreme Court in 1958 and served until 1981, is credited with stating that: "Ethics is knowing the difference between what you have a right to do and what is right to do."¹ Given the public interest and regulatory scrutiny of natural resources development projects - especially those on public lands - ensuring ethical conduct and legal compliance during the life of a project is critical.

Part I below addresses various ethical considerations that can arise during the natural resources project development phase in connection with compliance with the National Environmental Policy Act ("NEPA"). Part II discusses the key ingredients to a robust compliance program that, as lawyers, we often overlook, i.e., ethical leadership and corporate culture. Part III provides recommendations for incorporating NEPA commitments into a project's environmental compliance program, and how to conduct robust internal investigations of any non-compliance. The paper offers the central conclusion that ensuring ethical conduct during the project development phase, conducting effective internal investigation of compliance during project implementation, and ensuring transparency during the life of the project will create an ethical and legally compliance culture within the organization that will yield competitive advantages.

I. ETHICAL NEPA COMPLIANCE DURING THE PROJECT DEVELOPMENT PHASE

A. NEPA Consultant Conflicts of Interest

The Council on Environmental Quality ("CEQ") NEPA regulations provide that the lead federal agency "is responsible for the accuracy, scope and content of environmental documents prepared by the agency or by an applicant or contractor under the supervision of the agency."² However, unlike the pre-2020 CEQ NEPA regulations which required that the agency select the consultant that prepares an environmental impact statement ("EIS"), the new CEQ NEPA rules provide "greater flexibility for the project sponsor (including private entities) to participate in the preparation of NEPA documents under the supervision of the lead agency" while still requiring "agencies to independently evaluate and take responsibility for those documents., taking

[12-2]

reasonable steps to ensure the accuracy of information prepared by applicants and contractors."³ Presumably such agency oversight will include selection of a third-party NEPA consultant to prepare the NEPA document. Of course, federal agencies retain discretion to prepare or, more likely, select a third-party consultant to prepare the NEPA document although this is not entirely clear from the language of and preamble to the new CEQ NEPA regulations.

Regarding the preparation of an EIS by a third-party contractor to be paid by the project proponent, the agency typically requires a written contract which spells out the relationship between the project proponent and contractor, and a memorandum of understanding between agency and the project proponent.⁴ For example, the BLM NEPA Handbook provides: "This MOU must: establish the roles and responsibilities of each party; and specify that all costs of using a contractor in the preparation of the NEPA document will be borne by the applicant."⁵ This practice likely will not change under the new CEQ regulations.

The new CEQ regulations require that, to avoid an actual or perceived conflict of interest,

[c]ontractors or applicants preparing environmental assessments or environmental impact statements shall submit a disclosure statement to the lead agency that specifies any financial or other interest in the outcome of the action. Such statement need not include privileged or confidential trade secrets or other confidential business information.⁶

Moreover, "[t]he agency shall independently evaluate the information submitted or the environmental document and shall be responsible for its accuracy, scope, and contents," which applies to both EAs and EISs prepared by project applicants and/or contractors.⁷

[12-3]

The conflict of interest disclosure requirement for third-party contractors was previously explained in the CEQ Forty Most Asked Questions, namely that financial interest subject to the conflict of interest disclosure requirement includes "any financial benefit such as a promise of future construction or design work on the project, as well as indirect benefits the consultant is aware of. . . ."⁸ However, if the applicant - rather than a contractor - prepares an EA or EIS, what "financial or other interest in the outcome of the action" must be disclosed? Obviously, a project applicant has both financial and other interests in the outcome of the project or they would not be the project proponent, but those interests are entirely different from that of a contractor which normally receives compensation for preparing the NEPA document without any prospect of future work which could taint the objectivity of the NEPA analysis. If the applicant preparing the EIS is, for example a mining company hoping to develop a mining operation on Bureau of Land Management ("BLM"), what information must be included in the conflict of interest disclosure short of "confidential trade secrets or confidential business information" that are exempted from the disclosure statement, as set forth above?⁹

While we found no case law pertaining to conflicts of interest arising from an EIS prepared by the project applicant. However, in resolving allegations of conflicts of interest by NEPA contractors, courts have determined that "when an EIS is challenged on the basis of an alleged conflict of interest that is known to the agency., the Court can evaluate the oversight that the agency provided to the environmental impact statement process as a factual matter and make a determination upholding the environmental impact statement" and whether the alleged conflicts compromised "the objectivity and integrity" of the NEPA process.¹⁰ Similarly, courts generally apply what could be called a "reasonable oversight" test to apply to conflict of interest claims,

[12-4]

such that if the federal agency demonstrates that it conducted sufficient and reasonable oversight and reviewed the EIS prior to finalization, the EIS will be upheld unless the evidence clearly demonstrates that the conflict resulted in biased and inaccurate analysis or information contained in the EIS.¹¹ This same test likely would apply to the preparation of an EIS by the project proponent.

[12-5]

Moreover, if the project proponent prepares the NEPA document or engages the consultant to prepare the NEPA document, but works closely with the consultant in developing the information to be used in the analysis and in preparing the analysis itself, the project proponent (along with the consultant whether or not engaged by the project proponent) should submit the disclosure statement and "the DEIS should clearly state the scope and extent of the firm's prior involvement to expose any potential conflicts of interest that may exist.... But absent an actual conflict of interest the statute and regulations are satisfied by a conflict of interest disclosure statement."¹²

In other challenges to conflicts of interest by the NEPA contractor, one court held that "[a] contractor with an agreement, enforceable promise or guarantee of future work has a conflict of interest."¹³ However, a contractor is not disqualified from preparing a NEPA document for an agency when the firm was previously "involved in developing initial data and plans for the project" so long as that prior involvement between the proponent and the consultant is disclosed to the agency.¹⁴ One court found a conflict of interest and required remedial measures where the consultant was contractually obligated to prepare a finding of no significant impact before it prepared the underlying environmental assessment.¹⁵ A NEPA document prepared by a contractor with a conflict of interest may result in a court or the agency determining that the NEPA document and the NEPA process itself has been tainted or biased.¹⁶ NEPA conflicts of interest allegations can also arise in the context of alleged violations of the agency's contracting requirements.¹⁷

[12-6]

Based on the CEQ regulations, case law and agency guidance, the best practice would be for the entity preparing the NEPA document - whether a contractor hired by the agency, a contractor hired by the project proponent, or the project proponent itself - to disclose to the lead federal agency any potential...