Top NC court could blunt sue-and-settle environmental schemes

Environmental activists and friendly regulators might face more obstacles in the future when they employ a “sue-and-settle” strategy to change North Carolina’s rules. Members of the state’s highest court recently signaled they could take steps that would make the strategy less likely to succeed.

The “sue-and-settle” label applies when an outside group sues a government agency to challenge a law or regulation. Rather than fight the lawsuit, the agency endorses a settlement.

Conditions prove acceptable to both the outside activists and the regulators. Yet others affected by the conditions have no input.

The process avoids both lawmaking through the General Assembly and rulemaking governed by North Carolina’s Administrative Procedure Act.

Yet an ongoing legal dispute between the state Department of Environmental Quality and the North Carolina Farm Bureau Federation could change the sue-and-settle calculus.

The North Carolina Supreme Court heard oral arguments on April 23.

Technically, the state’s highest court is not addressing the Farm Bureau’s allegations of a sue-and-settle arrangement. Yet Jake Parker, the group’s secretary and general counsel, explained in his presentation that a sue-and-settle deal played a major rule in the dispute.

DEQ’s Division of Water Resources issues general animal-waste permits that cover roughly 2,000 hog, cattle, and poultry farms across North Carolina. Each uses a “lagoon-and-spray-field system.”

The Farm Bureau argues that state regulators added three conditions to the general permit in 2019 that emerged from a lawsuit settlement. Those conditions involved groundwater monitoring, filing annual reports, and analyzing phosphorus loss.

From farmers’ perspective, those conditions should have faced the state’s formal public comment and review process.

“This case presents this court with an opportunity to make clear that the division cannot operate outside of the APA’s uniform system of rulemaking unless an exception applies,” Parker argued.

A unanimous North Carolina Court of Appeals panel agreed in November 2023.

“This was error,” argued state Assistant Attorney General Taylor Crabtree, representing DEQ. “For at least 20 years, the General Assembly has known that these permits were being issued as permits — not adopted as rules. And despite interacting with the program on multiple occasions and directly intervening to refine the division’s process for issuing these permits, it has never required that these permits be adopted as rules.”

Justice Richard Dietz critiqued the government’s argument. “If the permits themselves, when we look at them, … are providing a general rule that’s going to apply to everyone unless the agency gives someone an exception, that sounds like rulemaking,” Dietz said.

“The ability for the agency to … just in its discretion decide what other criteria it wants to stick on a permit is allowing it to start regulating without any oversight from the General Assembly,” he added.

Dietz was not the only skeptic.

“I’m struggling to find limiting principles for all this,” Justice Trey Allen said.

“It’s difficult for me to believe that the General Assembly’s intent in enacting the permitting process was to enable the department to essentially avoid having to engage in rulemaking,” Allen added.

“I agree with you, your honor, that that’s not what the General Assembly intended,” Parker responded.

Dietz and Allen are part of the court’s 5-2 Republican majority. One of their Democratic colleagues, Justice Anita Earls, raised concerns about the potential impact of a decision favoring the Farm Bureau.

“DEQ administers 21 different general industrial permits,” Earls said. “If we were to say that the conditions for the permitting process here have to go through rulemaking, does that mean that for every kind of industrial permit that has conditions, those would also have to go through rulemaking? And would this extend beyond DEQ to all of the state government operations?”

Parker downplayed the potential impact on other state government permits. He noted that the Farm Bureau challenged just three conditions within a much larger document.

“I don’t think it’s going to blow up the permitting system or anything to that extent,” Parker said. “I do think it puts an extra check in the process for the agency.”

“Farm Bureau engages in the rulemaking process all the time,” he added. “It does take time, but again, it’s a process by which everybody gets heard. The rules are out in front where everybody can see them. … That’s the balance the APA reached.”

A decision favoring the Farm Bureau over DEQ would not end sue-and-settle schemes in North Carolina. Yet the strategy could lose at least some of its appeal.

If activists cannot avoid state rulemaking by going to court, they might be less inclined to file suit in the future.

Mitch Kokai is senior political analyst for the John Locke Foundation.