[House Report 114-694]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-694
======================================================================
STOP SETTLEMENT SLUSH FUNDS ACT OF 2016
_______
July 18, 2016.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5063]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 5063) to limit donations made pursuant to settlement
agreements to which the United States is a party, and for other
purposes, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 11
Committee Consideration.......................................... 11
Committee Votes.................................................. 11
Committee Oversight Findings..................................... 16
New Budget Authority and Tax Expenditures........................ 16
Congressional Budget Office Cost Estimate........................ 16
Duplication of Federal Programs.................................. 18
Disclosure of Directed Rule Makings.............................. 18
Performance Goals and Objectives................................. 18
Advisory on Earmarks............................................. 18
Section-by-Section Analysis...................................... 18
Dissenting Views................................................. 19
The Amendment
The amendment is as follows:
Strike all that follows after the enacting clause and insert
the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Stop Settlement Slush Funds Act of
2016''.
SEC. 2. LIMITATION ON DONATIONS MADE PURSUANT TO SETTLEMENT AGREEMENTS
TO WHICH THE UNITED STATES IS A PARTY.
(a) Limitation on Required Donations.--An official or agent of the
Government may not enter into or enforce any settlement agreement on
behalf of the United States, directing or providing for a payment to
any person or entity other than the United States, other than a payment
that provides restitution for or otherwise directly remedies actual
harm (including to the environment) directly and proximately caused by
the party making the payment, or constitutes payment for services
rendered in connection with the case.
(b) Penalty.--Any official or agent of the Government who violates
subsection (a), shall be subject to the same penalties that would apply
in the case of a violation of section 3302 of title 31, United States
Code.
(c) Effective Date.--Subsections (a) and (b) apply only in the case
of a settlement agreement concluded on or after the date of enactment
of this Act.
(d) Definition.--The term ``settlement agreement'' means a settlement
agreement resolving a civil action or potential civil action.
Purpose and Summary
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,''
prohibits terms in Department of Justice (DOJ) settlements that
direct or provide for payments to non-victim third-parties.
Background and Need for the Legislation
A year-long Committee investigation has revealed that the
DOJ is pushing and even requiring settling defendants to donate
money to non-victim third-parties.
Donations can earn up to double credit against defendants'
overall payment obligations, while credit for direct relief to
consumers is merely dollar-for-dollar. What is more, documents
show that groups that stood to gain from these mandatory
donations lobbied DOJ to include them in settlements. DOJ has
funneled third-party groups as much as $880 million dollars in
just the last 2 years. These payments occur entirely outside of
the Congressional appropriations and grant oversight process.
What is worse, in some cases, DOJ-mandated donations restore
funding that Congress specifically cut.
It is critical that Congress act. DOJ is ignoring Congress'
concerns--increasing the use of third-party payments, even as
Congress objects. Just last month, DOJ included such terms in
its settlement with Goldman Sachs.
The purpose of DOJ enforcement actions should be punishment
and redress to actual victims. Carrying that concept to
communities at large or community groups, however worthy, is a
matter for the Legislative branch and is not to be conducted at
the unilateral discretion of the Executive.
This is fundamentally a bipartisan, institutional issue.
That is one reason that an amendment banning mandatory
donations in last year's Commerce, Justice, Science and Related
Agencies Appropriations Act passed the House by voice vote.
I. THE IMPORTANCE OF CONGRESS' SPENDING POWER
Congress' spending power is its most effective tool for
oversight and reining in Executive overreach.
In Federalist No. 58, James Madison described the power of
the purse as ``that powerful instrument by which we behold, in
the history of the British Constitution, an infant and humble
representation of the people . . . finally reducing . . . all
the overgrown prerogatives of the other branches of
government.''\1\ Accordingly, Article I section 9, clause 7
provides that, ``No Money shall be drawn from the Treasury, but
in Consequence of Appropriations made by Law.'' Alexander
Hamilton noted that this provision gave Congress the power to
control not only the amount of an expenditure, but its purpose.
``[N]o money can be expended, but for an object, to an extent,
and out of a fund, which the laws have prescribed.''
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\1\The Federalist No. 58 (James Madison).
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Legal experts note that the Framers ``vested Congress with
this authority precisely because it was the most representative
branch; the immediate accountability of Congress . . . insures
equitable distribution of government funds.''\2\
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\2\Todd Peterson, Protecting the Appropriations Power: Why Congress
Should Care About Settlements at the Dep't of Justice, 2009 BYU L. Rev.
327, 335 (2009).
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II. EFFORTS BY AGENCIES TO CIRCUMVENT CONGRESS'
SPENDING POWER
Precisely because the spending power so effectively reins
in agency overreach, the Executive Branch has long sought ways
around it.
A. The Antideficiency Act
As early as 1809, a Congressional resolution called for
methods to ``prevent the improper expenditure of Federal
funds.'' Executive departments would enter into vendor
contracts without authorization, knowing that Congress could
not in good conscience deny payment once the goods were
provided. These ``coercive deficiencies'' prompted the 1820
Antideficiency Act (ADA) which provided that ``no contract
shall hereafter be made . . . except under law authorizing the
same, or under appropriation adequate to its fulfillment.'' The
statute applied only to the Departments of War, State and
Treasury. In 1870, Congress expanded it to cover all Federal
agencies. In 1905, seeing that compliance problems persisted,
Congress added criminal penalties. Even though no criminal
prosecutions have been brought under the Antideficiency Act,
``the in terrorem effect of the criminal sanctions has been
enough to get the executive branch to take the provisions of
the Act seriously.''\3\
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\3\Peterson, supra note 2, at 339.
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B. The Miscellaneous Receipts Act
The Executive Branch soon found ways around the ADA. The
Constitution requires an appropriation to withdraw money from
the Treasury, it does not, agencies argued, require that money
be placed there to begin with. Thus, agencies began to ``divert
funds received by an agency to that agency's uses before it is
placed in the [T]reasury.'' Congress closed this loophole with
the 1849 Miscellaneous Receipts Act (MRA). It provides that
officials ``receiving money for the Government from any source
shall deposit the money in the Treasury.''\4\ The law reflects
the Separation of Powers principle. The Executive Branch
negotiates settlements, but Congress gets to decide how to
allocate the money recovered.\5\ As the Government
Accountability Office (GAO) explains, the MRA is ``another
element in the statutory pattern by which Congress retains
control of the public purse under the Separation of Powers
doctrine.''\6\
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\4\31 U.S.C. Sec. 3302.
\5\Andy Spalding, The Much Misunderstood Miscellaneous Receipts Act
(Part 1), The FCPA Blog (Sept. 29, 2014, 7:18 AM), http://
www.fcpablog.com/blog/2014/9/29/the-much-misunderstood-miscellaneous-
receipts-act-part-1.html.
\6\Peterson, supra note 2, at 341.
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Unfortunately, DOJ has devised a way around the MRA too.
The loophole is lamented in an article by Todd Peterson, former
deputy Assistant Attorney General for the Office of Legal
Counsel (OLC) in the Clinton administration: ``Because the
Department of Justice has such broad settlement authority, it
has the ability to use settlements to circumvent the
appropriations authority of Congress.'' In particular, DOJ has
the power ``to short circuit the Miscellaneous Receipts Act by
agreeing to settlement terms that require the violator of a
Federal statute to undertake certain responsibilities or
actions that might inure to the benefit of the executive
branch.'' Thus, the Department could effectively ``augment the
appropriations of the Executive Branch without running afoul of
the technical requirements of the Miscellaneous Receipts Act--
although creating an unconstitutional interference with
Congress' appropriations power.''\7\
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\7\Peterson, supra note 2, at 348.
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That is precisely what has happened.
Beginning in the 1980's, various Federal enforcement
agencies, including the Commodity Futures Trading Commission,
Nuclear Regulatory Commission and the Environmental Protection
Agency (EPA), wanted to use settlement money to fund community
service projects.\8\
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\8\Andrew B. Spalding, Restorative Justice for Multinational
Corporations, University of Richmond Scholarship Repository, 35 (2015).
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In 1991, Representative John Dingell, then Chair of the
Energy and Commerce Committee's Oversight Subcommittee sought a
GAO opinion on the practice. He asked particularly about the
permissibility of EPA including Supplementary Environmental
Projects (SEPs) in settlements with polluters. A SEP is a
``beneficial project that a violator voluntarily agrees to
perform in addition to actions required to correct the
violation . . . as part of a settlement.''\9\
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\9\Peterson, supra note 2, at 352.
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When GAO concluded that SEPs violated the MRA, EPA
protested. GAO reexamined its opinion, but reaffirmed the
conclusion:
An interpretation of an agency's prosecutorial
authority to allow an enforcement scheme involving
supplemental projects that go beyond remedying the
violation in order to carry out other statutory goals
of the agency would permit the agency to improperly
augment its appropriations for those other purposes in
circumvention of the congressional appropriations
process.\10\
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\10\Peterson, supra note 2, at 354.
In subsequent face-to-face meetings between Rep. Dingell's
staff, DOJ, and EPA, it was agreed that this analysis did not
apply to all SEPs and that EPA would issue guidelines to avoid
violations of the MRA and the related augmentation problem.
SEPs continued in the meantime. The guidelines were finally
released in 1998.\11\
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\11\Id.
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One key tactic the Executive Branch uses is to structure
the transaction as an ``adjustment of penalty.'' The government
simply reduces the amount owed to it by the amount that the
defendant agrees to pay directly to the community service
project. Since the government never receives the money the MRA
is not triggered. This idea is echoed in a 2006 DOJ Office of
Legal Counsel memo. It advises that ``[t]o avoid the
Government's constructively `receiving money for the
Government,''' settlements that include payments to third-
parties should ``be executed before an admission or finding of
liability in favor of the United States; and . . . the United
States [should] not retain post-settlement control over the
disposition or management of the funds.''\12\
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\12\Application of the Gov't Corp. Control Act and The
Miscellaneous Receipts Act to the Canadian Softwood Lumber Settlement
Agreement, Op. O.L.C. (2006), https://www.justice.gov/sites/
default/files/olc/opinions/attachments/2015/05/29/op-olc-v030-
p0111.pdf.
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C. LThe U.S. Attorney's Manual's Limits on Defendant Funded Community
Service Projects
A May 14, 2008 memo from Deputy Attorney General Mark Filip
announced the following amendment to the U.S. Attorney's Manual
(USAM) pertaining to defendant-funded community service
projects:
Plea agreements . . . should not include terms
requiring the defendant to pay funds to a charitable .
. . community, or other organization . . . that is not
a victim of the criminal activity or is not providing
services to redress the harm caused by the defendant's
criminal conduct. . . . [T]his practice is restricted
because it can create actual or perceived conflicts of
interest and/or other ethical issues.\13\ (Emphasis
added.)
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\13\U.S. Attorney's Manual 9-16.325, Plea Agreements, Deferred
Prosecution Agreements, Non-Prosecution Agreements and Extraordinary
Restitution, http://www.justice.gov/usao/eousa/foia_reading_room/usam/
title9/16mcrm.htm#9-16.325 (emphasis added).
The history of this provision is instructive. According to
a 2012 U.S. Attorney's Bulletin, the amendment was recommended
``due to instances of perceived abuse of extraordinary
restitution by some offices.'' The original plan was to end all
forms of such ``extraordinary community restitution,'' except
as statutorily authorized for certain drug crimes.
After intense discussion, the Criminal Chief's Working
Group decided to make an exception for environmental crimes.
This concession ``was due in large part to guidance that was
issued by the Environment and Natural Resources Division
(ENRD).''\14\ Thus, the USAM makes exception for community
service provisions in plea agreements . . . resolving
environmental matters.'' Importantly, when contemplating such
provisions, the prosecutor must confer with the Environment and
Natural Resources Division, ``which has issued guidance to
ensure that the community service requirements are narrowly
tailored to the facts of the case.''\15\ Exception is also made
for certain drug offenses where there is an ``absence of
identifiable victims, as well as a nexus between the payment
and the offense.''\16\
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\14\Kris Dighe, Organizational Community Serv. in Envtl. Crimes
Cases, 60 U.S. Attorneys' Bulletin 101 (July 2012) (emphasis added).
\15\Id.
\16\Id.
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There are several reasons why the USAM language has not
proven a barrier to DOJ's expanding mandatory donation
provisions in civil matters such as the recent banking
settlements. First, strictly speaking, the USAM provision
covers only criminal matters. In addition, the USAM's language
leaves loopholes. It permits payments ``to redress the harm
caused.'' This phraseology fails to impose a tight nexus
between the harm and the payment. Without demanding a direct
causal link between the two, connections may be easy to
manipulate.
III. DOJ'S UNPRECEDENTED MANDATORY-DONATION BANK
SETTLEMENT TERMS
A. LThe Emergence of Troubling Terms in DOJ Mortgage Banking
Settlements
In November 2014, the House Judiciary and Financial
Services Committees opened a pattern-or-practice investigation
into the Justice Department's mortgage lending settlements with
major banks, including JP Morgan, Citi and Bank of America
(BoA). The concern was that DOJ was systematically subverting
Congress' spending power by using settlements to funnel money
to third-party groups.
The initial evidence supporting the committees' concern was
a progression of troubling terms in DOJ's major mortgage
banking settlements. This began with the 2013 JP Morgan
settlement that offered the bank credit against its settlement
obligations for donations to community redevelopment
groups.\17\ Next came Citi and Bank of America settlements in
2014 which required $150 million in donations to housing non-
profits.\18\ These donations earned double credit against the
banks' overall obligations. Meanwhile, credit for direct forms
of consumer relief remained dollar-for-dollar.
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\17\Settlement Agreement between DOJ and JP Morgan, Annex2--
Consumer Relief, Nov. 19, 2013, Menu Item 4D available at https://
www.justice.gov/iso/opa/resources/644201311191647591
63425.pdf.
\18\Settlement Agreement between DOJ and Citi, Annex2--Consumer
Relief, July 14, 2014, Menu Items 4D, 4E, 4F, available at http://
www.justice.gov/iso/opa/resources/649201471413
721380969.pdf; Settlement Agreement between DOJ and Bank of America,
Annex2--Consumer Relief, Menu Items 3E, 3F, 3G, Aug. 21, 2014,
available at http://www.justice.gov/iso/opa/resources/
8492014829141239967961.pdf.
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Bank of America's settlement went further. It not only
required direct donations to housing non-profits, but required
the bank to set aside $490 million to pay potential consumer
tax liability arising from loan modifications. Logic dictates
that if there is no consumer tax liability to cover, that money
should revert to the bank. Instead, under the terms of the
settlement, since Congress extended the non-taxable treatment
of loan modifications in December 2015, the money is split
between NeighborWorks America and Interest on Lawyer's Trust
Account entities (IOLTAs) that fund legal aid.\19\
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\19\Settlement Agreement between DOJ and Bank of America, Annex3--
Tax Fund, Aug. 21, 2014, available at http://www.justice.gov/iso/opa/
resources/4922014829141329620708.pdf; Settlement between DOJ and Bank
of America, Aug. 21, 2014, pg. 9, available at, http://www.justice.gov/
iso/opa/resources/3392014829141150385241.pdf.
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B. Committee Oversight & DOJ Delay
The investigation formally commenced on November 25, 2014,
when the Judiciary and Financial Services Committees requested
DOJ documents pertaining to the genesis of these unprecedented
and controversial settlement terms.
Nevertheless, for over a year, DOJ provided none of the
requested internal communications pertaining to the
controversial settlement provisions. Rather, DOJ provided just
sixty pages of emails between DOJ and outside parties.
Furthermore, because of duplicative email chains, those sixty
pages amounted to fewer than ten distinct emails. What little
information DOJ did provide confirmed that third-party groups,
which stood to gain from mandatory donation provisions,
actively lobbied for their inclusion in the settlements.
In response to further Judiciary Committee inquiries, DOJ
claimed in September 2015 not to have understood that internal
communications were sought. This contention is difficult to
credit in light of the unambiguous language in Committee
letters and hearing questions. For example, at a May 19, 2015
hearing, Chairman Goodlatte pressed Civil Division Principal
Deputy Assistant Attorney General Benjamin Misner specifically
on internal documents: ``the Department has sent a paltry 60
pages of email between the Department of Justice and outside
groups, no internal Department of Justice emails. And those are
critical . . . When will we get those documents?''\20\
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\20\Ongoing Oversight: Monitoring The Activities Of The Justice
Dep't's Civil, Tax And Env't And Nat. Resources Divisions And The U.S.
Trustee Program: Hearing Before the H. Subcomm. On Reg. Reform, Com.
and Antitrust Law, 114th Cong. 81 (2015) (statement by Rep. Bob
Goodlatte, Chairman, H. Judiciary Comm.).
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Finally, on March 18, 2016, 15 months after the initial
request, DOJ relented and agreed to let the Committee review
the internal documents, but only at DOJ, and subject to
restrictions on releasing the documents' contents.
The internal documents confirm that DOJ conceived of the
mandatory donation provisions. It also seems quite possible
that then Associate Attorney General Tony West was the driving
force behind the effort. Indeed, an August 22, 2014 email from
the President of the National Association of IOLTA Programs
(NAIP) to senior legal aid colleagues, obtained independently
by the Committee, stated:
I would like to discuss ways we might want to recognize
and show appreciation for the Department of Justice and
specifically Associate Attorney General Tony West who
by all accounts was the one person most responsible for
including the IOLTA provisions. (Emphasis added.)
In response, the Executive Director of the Hawaii Legal Aid
Foundation wrote, ``[f]rankly, I would be willing to have us
build a statue [of West] and then we could bow down to this
statue each day after we get our $200,000+.''\21\
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\21\Email from Bob LeClair, Executive Director of the Hawaii Legal
Aid Foundation, to Charles Dunlap et al, President of NAIP, Aug 22,
2014, on file with the House Judiciary Committee.
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On April 8, 2016, the Committee requested transcribed
interviews with four DOJ officials who, according to the
documents the Committee reviewed, were most involved in
inserting the mandatory donation provisions into the
settlements.
C. DOJ is Ignoring Congressional Concerns
In the meantime, rather than suspending the practice of
mandatory donation provisions in response to legitimate
Congressional concerns, the Department of Justice has doubled
down.
On March 3, 2015, a full 3 months after the Judiciary
Committee first expressed concerns with mandatory donations,
the U.S. Trustee Program (UST) entered into an over $50 million
settlement with JP Morgan relating to robo-signing.\22\ Seven-
and-one-half million of those dollars did not make it to
victims. Instead, it went to a third-party, largely to educate
high school and college students about using credit cards
responsibly.\23\
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\22\Robo-signing is the practice of signing legal documents without
verifying the accuracy of their contents. In this case, DOJ alleged
that bank officials filed ``payment change notices'' required in
certain bankruptcy cases that ``were improperly signed, under penalty
of perjury, by persons who had not reviewed the accuracy of the
notices.''
\23\In re: Belzak, Case No. 10-23963-dob (Bankruptcy Court E. D.
Mi, Northern Div. Bay City) (Order Approving Settlement between the
United States Trustee Program and JPMorgan Chase Bank N.A.) available
at, http://www.justice.gov/ust/eo/public_affairs/press/docs/2015/
pr201503
03_order.pdf.
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Similarly, DOJ's September 2015 settlement with Hudson City
Savings Bank requires the defendant to ``[s]pend $750,000 on
local partnerships.''\24\
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\24\Consent Order with Hudson City Savings Bank, p 17, Sept. 24,
2015, available at https://www.justice.gov/opa/pr/justice-department-
and-consumer-financial-protection-bureau-reach-
settlement-hudson-city.
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Most recently, on April 11, 2016, DOJ announced a $5
billion Residential Mortgage Backed Securities (RMBS)
settlement with Goldman Sachs.\25\ The consumer relief
provision requires $240 million in ``Financing and/or donations
to fund affordable rental and for-sale housing.''\26\
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\25\Settlement Agreement between DOJ and Goldman Sachs, Annex2--
Consumer Relief, Apr. 11, 2016, Menu Item 2 available at https://
www.justice.gov/opa/file/839906/download.
\26\https://www.justice.gov/opa/file/839906/download.
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IV. THE CRUX OF THE SUBVERSION OF CONGRESS' SPENDING POWER
The subversion of Congress' spending power can take several
forms. In some cases, mandatory donation provisions reinstate
funding Congress specifically cut. In others, funding is not
reinstated, but funding decisions that should properly be made
only by an accountable Congress are instead made at the
unilateral discretion of the Executive. In both cases, it is
not only Congress that is sidestepped, but also the standard
grant-oversight process that ensures money is spent as
intended.
A. Reinstating Funding Congress Specifically Cut
In the most egregious cases, DOJ is using mandatory
donations to restore funding that Congress specifically cut.
In 2011, Congress eliminated $88 million in funding for
HUD's ``housing counseling assistance'' program.\27\ Congress
reinstated about $45 million for the program in 2012.''\28\
Grantee groups lamented the 50% cut. For 2014 and 2015,
Congress continued to provide just $45 MM and $47MM
respectively.\29\ Thus, the groups were understandably pleased
with the mandatory donation provisions in the 2014 Citi
settlement.
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\27\Department of Defense and Full-Year Continuing Appropriations
Act, 2011, Pub. L. No. 112-10, Sec. 2245, 125 Stat 38 (2011).
\28\Press Release, Nat'l Council of La Raza, Settlement With Top
Mortgage Service Providers A Win For Struggling Homeowners (Feb. 9,
2012), http://www.nclr.org/index.php/about_us/news/
news_releases/
settlement_with_top_mortgage_service_providers_a_win_for_struggling_
homeowners.
\29\See, http://www.lis.gov/cgi-lis/query/D?c113:7:./temp/
c113yBgthU; see also, H.R.3547--Consolidated Appropriations Act, 2014,
U.S. Congress, https://www.congress.gov/bill/113th-
congress/house-bill/3547/text.
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The settlements promised to reinstate all or more of the
eliminated funding. Compared to the pre-2011 baseline of $88MM,
HUD grants for 2014 and 2015 fall ``short'' by a combined
$84MM. The DOJ settlements require $30MM to go specifically to
groups in the HUD grant program, so 36% is recouped directly.
In addition, some HUD grantees will also be eligible for a
portion of the remaining $120MM in mandatory donations, not to
mention the $490MM in the tax relief fund. For example,
NeighborWorks is an eligible HUD grantee, but will also receive
$122MM from BoA's Tax Fund since Congress extended the non-
taxable treatment of loan forgiveness in December 2015. This
means that DOJ's mandatory donation provisions, which were
negotiated in consultation with HUD, are restoring at least
$152MM ($122+$30) to HUD grantees in place of the $88MM
reduction mandated by Congress.
B. LUsurping Congress' Authority to Decide Funding Priorities
The beneficiaries of mandatory donation provisions may or
may not be worthy, non-partisan entities, but that is entirely
beside the point. Under our system of government, Congress gets
to decide how money is spent, not DOJ.
The authority to settle cases necessarily includes the
ability to obtain redress and remediation for victims. That is
not in dispute. The issue is that Federal law understands
victims to be those ``directly and proximately harmed'' by a
defendant's bad acts.\30\ Once those victims have been
compensated, deciding what to do with additional funds
extracted from defendants becomes a policy question properly
decided by elected representatives in Congress, not agency
bureaucrats or prosecutors. It is not that DOJ officials are
necessarily funding bad projects, it is that, outside of
securing compensation for actual victims, it is not their
decision to make.
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\30\18 U.S.C. Sec. 3771(e).
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For example, consider UST's March 3, 2015 robo-signing
settlement referenced above. It required JP Morgan to donate
$7.5 million to a third-party: the American Bankruptcy
Institute's (ABI) endowment for financial education and support
for the Credit Abuse Resistance Education Program (CAREP).
CAREP educates high school and college students on the
responsible use of credit and credit cards.\31\ The underlying
harm UST was addressing in the settlement was compliance
failures at banks impacting homeowners already in bankruptcy.
As such, the connection between the activity giving rise to the
settlement and the work of the third-party receiving donations
under it is attenuated. This creates a significant question
whether the payment violates the Miscellaneous Receipts Act.
Either way, it is clear that CAREP is not remediating the
direct harm caused by JP Morgan's alleged wrongdoing. As such,
CAREP has no clearer claim to settlement funds than any number
of other worthy causes. The spending-priority issue is a
question for Congress, not DOJ.
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\31\About CARE, available at, http://care4yourfuture.org/about.
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Importantly, UST seemed unaware of just how much money the
settlement provided to ABI as a percentage of ABI's current
assets. According to its financial statements, at the end of
2013 ABI had $13.6 MM in total assets, with $9.5 MM in net
assets. The mandatory donation was $7.5 MM.\32\
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\32\American Bankruptcy Institute, 2014 Annual Report, available
at, http://www.abi.org/about-us/annual-reports.
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ABI is not an ideological group. It is a non-profit with a
reputation for good work. Nevertheless, if its efforts are to
be subsidized by the government, that is a decision Congress
must make, for which Congress will be accountable to the
people. It is inappropriate for the Executive Branch to secure,
at its unilateral discretion, the near-doubling of the entire
net worth of an organization--however worthy the organization
may be.
C. Circumventing Grant Oversight
Federal grants come with a litany of rules and procedures
designed to ensure that funds are used as intended. When
entities are funded out of settlements rather than
appropriations, this careful system of oversight and
accountability is undone. That is a key reason that requiring
third-party payments in DOJ settlements is so troubling. It
evades oversight.
Federal grant recipients are subject to a variety of
administrative requirements detailed in the grant agreement,
including detailed financial and program reporting
requirements. Federal agencies are required to follow
government-wide guidance, known as circulars, when entering
into grant agreements. These circulars, issued by the Office of
Management and Budget, set standards for a range of grant
management activities, including financial reporting, audit
requirements and suspension and debarment provisions. Federal
agencies administering grant programs then incorporate the
standards into regulations for specific grant programs.\33\
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\33\Congressional Research Service, Federal Grant Recipient
Financial Reporting Requirements, April 24, 2015.
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Such controls are entirely absent in DOJ's banking
settlements. DOJ officials claim that there is oversight
because each settlement has an independent monitor. That is
misleading. It is true that monitors ensure that the banks
comply with all the settlement terms, including the mandatory
donations. However, the monitors' jurisdiction extends only to
the banks, not to the grant recipients. Nothing in the
settlement agreements gives the monitors authority to conduct
ongoing oversight of recipients to ensure that they are using
donated funds as intended.
In fact, in some settlements, DOJ has explicitly disclaimed
any oversight responsibility for the donations defendants are
required to make. Consider again DOJ's March 3, 2015 settlement
with JP Morgan that required a $7.5 million donation to the
American Bankruptcy Institute (ABI). DOJ was adamant that
neither it nor the bank retained ongoing oversight over ABI to
ensure the donated money is used as intended. Indeed, the
settlement specifically provides that ``the Parties understand
and agree that neither has any involvement in or oversight over
the American Bankruptcy Institute or the Credit Abuse
Resistance Education Program and neither will monitor the use
of the contribution by the recipient.''\34\ This is a
remarkable admission.
---------------------------------------------------------------------------
\34\Supra note 23 (emphasis added).
---------------------------------------------------------------------------
V. THE ``STOP SETTLEMENT SLUSH FUNDS ACT OF 2016''
H.R. 5063 prohibits terms in DOJ settlements that direct or
provide for payments to non-victim third-parties.
The legislation explicitly permits payments to remediate or
otherwise directly remedy the direct harm, including
environmental harm, done by defendants' wrongful activity. For
example, a liable defendant could be required to pay for long-
term healthcare monitoring for individuals poisoned by toxic
exposure to the defendant's carcinogenic chemicals. Such care
directly remedies direct harm to victims.
The bill also explicitly permits payments for services
rendered in connection with a case, for example, to a
settlement monitor. The bill applies prospectively only, so as
not to disturb any settlements already concluded.
Hearings
On May 28, 2016, the Subcommittee on Regulatory Reform,
Commercial and Antitrust Law conducted a legislative hearing on
the ``Stop Settlement Slush Funds Act of 2016.'' The witnesses
at the hearing were: The Honorable Daniel E. Lungren, Esq.,
Principal, Lungren Lopina LLC; Prof. Paul F. Figley, Associate
Director of Legal Rhetoric, American University Washington
College of Law; and Prof. David M. Uhlmann, Director,
Environmental Law and Policy Program, The University of
Michigan Law School.
Two of the three witnesses testified in support of the
bill. They detailed the importance of Congress' spending power
and the need to preserve it. They also suggested improvements
to the bill, including revisions incorporated into the
substitute amendment. The Minority witness testified that he
understood the concern that mandatory donations encroach on
legislative authority and can create the appearance of
conflicts of interest. Nevertheless, he objected to the bill
because he was concerned that it could prevent the government
from addressing generalized harm, particularly in environmental
cases. The bill, however, is clear that DOJ may require
payments to redress direct environmental harm. Generalized harm
may be addressed as well, but how best to do so is a policy
question that is appropriately left to Congress rather than
DOJ.
Committee Consideration
On May 11, 2016, the Committee met in open session and
ordered the bill H.R. 5063 favorably reported, with an
amendment, by a rollcall vote of 18 to 6, a quorum being
present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following rollcall votes occurred during the Committee's
consideration of H.R. 5063:
1. Amendment #1, by Mr. Conyers. The Amendment would exempt
certain discrimination settlements from the bill's ban on
third-party payments. Defeated by a rollcall vote of 9 to 15.
ROLLCALL NO. 1
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL)..............................
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 9 15
------------------------------------------------------------------------
2. Amendment #2, by Ms. Jackson Lee. The Amendments,
offered en bloc, would exempt settlements resolving workplace
sexual harassment, violence or discrimination or providing
restitution to a State from the bill's ban on third-party
payments. Defeated by a rollcall vote of 7 to 16.
ROLLCALL NO. 2
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX)................................. X
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................ X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)........................... X
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................
------------------------
Total...................................... 7 16
------------------------------------------------------------------------
3. Amendment #3, by Mr. Johnson. The Amendment would exempt
antitrust settlements from the bill's ban on third-party
payments. Defeated by a rollcall vote of 7 to 15.
ROLLCALL NO. 3
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................ X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................
------------------------
Total...................................... 7 15
------------------------------------------------------------------------
4. Amendment #4, by Mr. Cicilline. The Amendment would
exempt settlements pertaining to protecting privacy from the
bill's ban on third-party payments. Defeated by a rollcall vote
of 6 to 15.
ROLLCALL NO. 4
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................ X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 6 15
------------------------------------------------------------------------
5. Reporting H.R. 5063. The bill prohibits terms in DOJ
settlements that direct or provide for payments to non-victim
third-parties. Reported by a rollcall vote of 18 to 6.
ROLLCALL NO. 5
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI).................... X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. Forbes (VA)................................ X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)................................... X
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID).............................. X
Mr. Farenthold (TX)............................
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Ms. Walters (CA)............................... X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Trott (MI)................................. X
Mr. Bishop (MI)................................ X
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Mr. Pierluisi (PR)............................. X
Ms. Chu (CA)................................... X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)............................... X
Mr. Jeffries (NY).............................. X
Mr. Cicilline (RI)............................. X
Mr. Peters (CA)................................ X
------------------------
Total...................................... 18 6
------------------------------------------------------------------------
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 5063, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 13, 2016.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Marin Burnet,
who can be reached at 226-2860.
Sincerely,
Keith Hall,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 5063--Stop Settlement Slush Funds Act of 2016.
As ordered reported by the House Committee on the Judiciary
on May 11, 2016.
H.R. 5063 would prohibit government officials from entering
into or enforcing any settlement agreement for civil actions on
behalf of the United States if that agreement requires the
other party to the settlement to make a donation to a third
party. That prohibition would not include payments to provide
restitution or another remedy that is associated with the basis
for the settlement agreement. In recent settlements with the
United States, large corporations, such as Goldman Sachs and
Bank of America, have been required to donate funds to
charitable institutions as a part of their restitution. Such
donations typically constitute a very small fraction of overall
settlement amounts.
By precluding any such donations in civil settlements that
have not been finalized, H.R. 5063 could affect the number and
content of future settlements relative to current law. However,
CBO cannot determine whether enacting the legislation would
lead to an increase or a decrease in the number of such
settlements or to a change in the Federal receipts and
forfeitures stemming from future settlements.
Pay-as-you-go procedures apply because enacting H.R. 5063
could affect direct spending and revenues; however, CBO cannot
determine the magnitude or timing of those effects.
CBO estimates that enacting H.R. 5063 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2027.
H.R. 5063 contains no intergovernmental or private-sector
mandates as defined in the Unfunded mandates Reform Act and
would not affect the budget of State, local, or trial
governments.
The CBO staff contact for this estimate is Marin Burnett.
The estimate was approved by H. Samuel Papenfuss, Deputy
Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 5063 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 5063 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. Sec. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
5063 prohibits terms in DOJ settlements that direct or provide
for payments to non-victim third-parties.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5063 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short title.
Section 1 sets forth the short title of the bill as the
``Stop Settlement Slush Funds Act of 2016.''
Section 2. Limitation on Donation Terms in Settlements to which the
U.S. is a Party
Section 2(a) Limitation on Required Donations: A U.S.
official or agent may not enter into or enforce any U.S.
government settlement directing or providing for a payment to
any person other than the United States. However, it permits a
payment that provides restitution for, or otherwise directly
remedies, actual harm (including to the environment) directly
and proximately caused by the party making the payment, or that
constitutes payment for services rendered in connection with
the case.
Section 2(b) Penalties: Violators of section (a) are
subject to the same penalties applicable to violations of 31
U.S.C. Sec. 3302 (the Miscellaneous Receipts Act).
Section 2(c) Effective Date: Subsections (a) and (b) apply
only in the case of a settlement agreement concluded on or
after the date of enactment of this Act.
Section 2(d) Definitions: ``Settlement Agreement'' means a
settlement agreement resolving a civil action or potential
civil action.
Dissenting Views
INTRODUCTION
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,''
is a deeply flawed proposal that would establish sweeping
changes to the enforcement of the law by civil enforcement
agencies. Based on unsubstantiated allegations that ignore
established law and agency practice, the bill would prohibit
any official or agent of the government from consummating or
enforcing a settlement agreement that includes payments to
parties who are not ``directly and proximately'' harmed by the
unlawful conduct of the settling party. In doing so, H.R. 5063
would undermine the ability of agencies to hold unlawful
conduct accountable and provide complete restitution for
violations of the law, or tailor remedies to address systemic
or diffuse harms to unidentifiable victims, the public health,
or the environment. The cumulative effect of H.R. 5063 would be
to deter agencies from the efficient resolution of civil
complaints through settlement agreements. By forcing agencies
into needless litigation, the bill would waste agency time and
resources as well as taxpayer dollars and delay the timely
enforcement of the law and the provision of full relief for
victims.
Although proponents of this legislation argue that
settlement payments to third parties are effectively ``slush
funds'' paid to ``activist groups,''\1\ there is no evidence to
substantiate such concerns. For example, the Majority has for
the last 18 months conducted an extensive investigation into
certain settlement agreements structured by the Department of
Justice. To date, however, no credible facts have been
discovered evidencing that these settlements included so-called
slush funds otherwise subject to appropriations, despite
voluminous document production by the Justice Department and
private parties. These proponents also ignore well-established
law and agency practice governing the propriety of settlement
payments to third parties, as recognized by the non-partisan
and independent Government Accountability Office (GAO) and
Congressional Research Service (CRS),\2\ and which the Majority
itself admits is lawful.\3\
---------------------------------------------------------------------------
\1\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members
of the H. Comm. on the Judiciary 9 (May 9, 2016) (on file with
Democratic staff of the H. Comm. on the Judiciary); Consumers Short
Changed? Oversight of the Justice Department's Mortgage Lending
Settlements: Hearing Before the Subcomm. on Regulatory Reform,
Commercial and Antitrust Law of the H. Comm. on the Judiciary, 114th
Cong. 8 (2015) (statement of U.S. Rep. Bob Goodlatte, Chairman, H.
Comm. on the Judiciary) [hereinafter ``Judiciary Oversight Hearing''].
\2\See, e.g., David Carpenter, Cong. Research Serv., Legal
Principles Associated with monetary Relief Provided as Part of
Financial-Related Legal Settlements & Enforcement Actions 1 (2015);
David Carpenter & Edward Lieu, Cong. Research Serv., Monetary Relief to
Third Parties as Part of Federal Legal Settlements 3 (2016); U.S. Gov't
Accountability Office, B-210210, Matter of: Commodity Futures Trading
Comm'n--Donations Under Settlement Agreements (1983) (donations must be
reasonably related to prosecutorial authority under statutory goals);
U.S. Gov't Accountability Office, B-238419, Matter of: Nuclear
Regulatory Commission's Auth. to Mitigate Civil Penalties (1990)
(settlements may not impose punishments unrelated to prosecutorial
objectives).
\3\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members
of the H. Comm. on the Judiciary 1 (May 9, 2016) (``Since the
government never receives the money the MRA is not triggered. This idea
is echoed in a 2006 DOJ Office of Legal Counsel memo.'') (on file with
Democratic staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
Not surprisingly, the Justice Department, in its strenuous
opposition to H.R. 5063, states the bill would ``unwisely
constrain the government's settlement authority and preclude
many permissible settlements that would advance the public
interest,'' while interfering with the Department's ability to
address, remedy, and deter systemic harm caused by unlawful
conduct.\4\ Several leading environmental and banking law
experts similarly oppose the bill because it would undermine
the restitution of generalized harm in various cases.\5\
---------------------------------------------------------------------------
\4\Comments from the Dep't of Justice on H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the
Judiciary 1, 3 (May 17, 2016) (on file with Democratic staff of the H.
Comm. on the Judiciary).
\5\Stop Settlement Slush Funds Act of 2016: Hearing on H.R. 5063
Before the Subcomm. on Regulatory Reform, Commercial and Antitrust Law
of the H. Comm. on the Judiciary, 114th Cong. 3 (2016) [hereinafter
``H.R. 5063 Hearing''] (written statement of Joel Mintz, Professor,
Nova Southeastern University College of Law) (on file with Democratic
staff of the H. Comm. on the Judiciary); Id. (statement of David
Uhlmann, Director, Environmental Law and Policy Program, University of
Michigan School of Law, and former Chief of the Environmental Crimes
Section of the Justice Department), https://judiciary.house.gov/wp-
content/uploads/2016/04/Uhlmann-Testimony.pdf; Settling the Question:
Did Bank Settlement Agreements Subvert Congressional Appropriations
Powers?: Hearing Before the Subcomm. on Oversight and Investigations of
the H. Comm. on Financial Services, 114th Cong. (2016) [hereinafter
``Financial Services Oversight Hearing''] (statement of David K. Min,
Assistant Professor of Law, University of California Irvine School of
Law), http://financialservices.house.gov/uploadedfiles/hhrg-114-ba09-
wstate-dmin-20160519.pdf.
---------------------------------------------------------------------------
For these reasons and those discussed below, we
respectfully dissent and urge our colleagues to oppose this
seriously flawed bill.
DESCRIPTION AND BACKGROUND
DESCRIPTION
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,''
prohibits the enforcement or consummation of settlement
agreements that direct payments to parties not ``directly and
proximately'' harmed by the unlawful conduct of the settling
party (``settlement donations''). A violation of this measure
would constitute a violation of the Miscellaneous Receipts Act,
which prohibits the augmentation of agency appropriations
through enforcement policy.\6\ The intent of this legislation
is to prevent the Justice Department and other civil
enforcement agencies from crafting settlement agreements that
direct funds to non-government organizations, which according
to the Majority,\7\ circumvent Congress' appropriations power
under article I, section 9, clause 7 of the U.S.
Constitution.\8\ A detailed section-by-section explanation of
the bill appears at the end of these views.
---------------------------------------------------------------------------
\6\31 U.S.C. Sec. 3302 (b), (d) (2016).
\7\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R.
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the
H. Comm. on the Judiciary 6 (Apr. 25, 2016).
\8\U.S. Const. art. I, Sec. 9 (``No Money shall be drawn from the
Treasury but in Consequence of Appropriations made by Law.'').
---------------------------------------------------------------------------
BACKGROUND
I. PROSECUTION OF MISCONDUCT IN CONNECTION WITH THE
GREAT RECESSION
In 2008, the economy of the United States nearly collapsed,
resulting in millions of Americans losing their jobs and their
homes.\9\ Unprecedented since the Great Depression, the crisis
severely depressed the values of home prices nationwide,
destabilized the home building sector and other industries, and
created international economic instability.\10\ More than 13
million homes were lost to foreclosure between 2006 and
2014.\11\
---------------------------------------------------------------------------
\9\Nelson D. Schwartz, Can the Mortgage Crisis Swallow a Town?,
N.Y. Times, Sept. 4, 2007.
\10\Id; Judiciary Oversight Hearing, supra note 1, at 1 (statement
of Geoffrey Graber, Deputy Associate Attorney General and Director of
the Residential Mortgage-Backed Securities Working Group of the
Financial Fraud Enforcement Task Force), https://judiciary.house.gov/
wp-content/uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-
12Feb15.pdf.
\11\Daniel Indiviglio, Could Foreclosuregate Really Cost Big Banks
$17 Billion? The Atlantic (May 28, 2011), http://www.theatlantic.com/
business/archive/2011/05/could-foreclosuregate-really-cost-big-banks-
17-billion/239600/#; see RealtyTrac, 1.1 Million U.S. Properties with
Foreclosure Filings in 2014, Down 18 Percent From 2013 to Lowest Level
Since 2006 (Jan. 14, 2015), http://www.realtytrac.com/news/foreclosure-
trends/1-1-million-u-s-properties-with-foreclosure-filings-in-2014-
down-18-percent-from-2013-to-lowest-level-since-2006/.
---------------------------------------------------------------------------
A significant cause of this fiscal crisis\12\ was the
fraudulent packaging and trading of residential mortgage-backed
securities.\13\ Investments in these securities created a cycle
of failure in the housing market: weaknesses in the market
undermined the value of these securities, while the securities'
declining value ``cratered the housing market.''\14\
---------------------------------------------------------------------------
\12\United States v. Bank of Am. Corp., No. 3:13-CV-00446-MOC, 2014
WL 2777397, at *8 (W.D.N.C. June 19, 2014) (``The court need not reach
far outside the Complaint or be an expert in economics to take notice
that it was the trading of toxic RMBS between financial institutions
that nearly brought down the banking system in 2008.''); Judiciary
Oversight Hearing, supra note 1, at 2 (statement of Geoffrey Graber,
Deputy Associate Attorney General and Director of the Residential
Mortgage-Backed Securities Working Group of the Financial Fraud
Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf;
The Administration's Report to Congress: Reforming America's Housing
Finance Market: Hearing Before the S. Comm. on Banking, Housing and
Urban Affairs, 112th Cong. (2011) (prepared statement of Timothy
Geithner, Secretary, U.S. Treasury Dep't).
\13\A residential mortgage-backed security is comprised of a ``pool
of mortgage loans created by banks and other financial institutions''
that derives value from the ``characteristics of the borrowers and the
value of the properties underlying'' the security. Dep't of Justice,
Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with
Its Sale of Residential Mortgage Backed Securities (Feb. 11, 2016),
https://www.justice.gov/opa/pr/morgan-stanley-agrees-pay-26-billion-
penalty-connection-its-sale-residential-mortgage-backed.
\14\Judiciary Oversight Hearing, supra note 1, at 2 (statement of
Geoffrey Graber, Deputy Associate Attorney General and Director of the
Residential Mortgage-Backed Securities Working Group of the Financial
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
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In response, the Justice Department established the
Residential Mortgage-Backed Securities (RMBS) Working Group
``to investigate those responsible for misconduct contributing
to the financial crisis through the pooling and sale of
residential mortgage-backed securities.''\15\ The broader
purpose of the RMBS Working Group is to ``hold accountable
those who broke the law, speed assistance to homeowners, and
help turn the page on an era of recklessness that hurt so many
Americans.''\16\ The broad focus of the Justice Department's
investigation reflects the diffuse impact of misconduct in the
mortgage-backed securities market on the ``entire financial
system and the American economy as a whole.''\17\
---------------------------------------------------------------------------
\15\Dep't of Justice, U.S. Attorney General Holder, State and
Federal Officials Announce
Collaboration to Investigate Residential Mortgage-backed Securities
Market (2012), http://www.justice.gov/opa/pr/us-attorney-general-
holder-state-and-federal-officials-announce-
collaboration-investigate.
\16\White House, Office of the Press Secretary, Remarks by the
President in State of the Union Address (Jan. 24, 2012), https://
www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-
union-address (announcing the creation of an investigatory unit to
``hold accountable those who broke the law, speed assistance to
homeowners, and help turn the page on an era of recklessness that hurt
so many Americans.''); Edward Wyatt & Shaila Dewan, New Housing Task
Force Will Zero in on Wall Street, N.Y. Times (Jan. 25, 2012), http://
www.nytimes.com/2012/01/26/business/new-housing-task-force-takes-aim-
at-wall-st.html.
\17\Judiciary Oversight Hearing, supra note 1, at 1 (statement of
Geoffrey Graber, Deputy Associate Attorney General and Director of the
Residential Mortgage-Backed Securities Working Group of the Financial
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
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To date, the RMBS Working Group has facilitated record
settlements with five financial institutions--Bank of America,
Citigroup, Goldman Sachs, Morgan Stanley, and JPMorgan Chase--
for alleged misconduct involving the packaging, marketing, and
sale of residential mortgage-backed securities. In 2013, the
Justice Department agreed to a $13 billion settlement with
JPMorgan Chase following an investigation by the RMBS Working
Group of the bank's sale, marketing, and use of residential
mortgage-backed securities.\18\ At the time, this settlement
represented the largest settlement with a single entity in
American history, as well as the largest civil penalty for a
claim rising under Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA).\19\ Thereafter, the Justice
Department in 2014 agreed to a $7 billion settlement with
Citigroup stemming from its allegedly fraudulent ``packaging,
securitization, marketing, sale, and issuance of residential
mortgage-backed securities,''\20\ which also included a $4
billion civil penalty under FIRREA. That same year, the Justice
Department entered into a settlement agreement with the Bank of
America for nearly $17 billion to resolve claims arising from
the company's fraudulent sale, arrangement, marketing, and
other uses of mortgage-backed securities and collateralized-
debt obligations.\21\ Anne Tompkins, U.S. Attorney for the
Western District of North Carolina, said that the settlement
``attests to the fact that fraud pervaded every level of the
RMBS industry, including purportedly prime securities,'' and
that the settlement demonstrates that even ``reputable
institutions like Bank of America caved to the pernicious
forces of greed and cut corners, putting profits ahead of their
customers.''\22\ In 2016, the Justice Department settled
potential claims relating to Morgan Stanley's alleged
misconduct in the market pursuant to which Morgan Stanley would
pay a $2.6 billion penalty.\23\ Most recently, the Justice
Department announced a $5.06 billion settlement with Goldman
Sachs--including a $2.385 billion civil penalty under FIRREA--
relating to its allegedly fraudulent packaging, securitization,
marketing, sale and issuance of mortgage-backed securities.\24\
---------------------------------------------------------------------------
\18\Dep't. of Justice, Justice Department, Federal and State
Partners Secure Record $13 Billion Global Settlement with JPMorgan for
Misleading Investors about Securities Containing Toxic Mortgages
(2013), http://www.justice.gov/opa/pr/justice-department-federal-and-
state-
partners-secure-record-13-billion-global-settlement.
\19\Id; 12 U.S.C. Sec. 1833a (2016); United States v. Bank of New
York Mellon, No. 11 Civ. 6969 LAK 2 (S.D.N.Y. Apr. 24, 2013).
\20\Dep't. of Justice, Justice Department, Federal and State
Partners Secure Record $7 Billion Global Settlement with Citigroup for
Misleading Investors about Securities Containing Toxic Mortgages
(2014), http://www.justice.gov/opa/pr/justice-department-federal-and-
state-partners-
secure-record-7-billion-global-settlement.
\21\Dep't of Justice, Bank of America to Pay $16.65 Billion in
Historic Justice Department Settlement for Financial Fraud Leading up
to and During the Financial Crisis (2014), http://www.justice.gov/opa/
pr/bank-america-pay-1665-billion-historic-justice-department-
settlement-financial-fraud-leading.
\22\Id.
\23\Dep't of Justice, Morgan Stanley Agrees to Pay $2.6 Billion
Penalty in Connection with Its Sale of Residential Mortgage Backed
Securities (Feb. 11, 2016), https://www.justice.gov/opa/pr/morgan-
stanley-agrees-pay-26-billion-penalty-connection-its-sale-residential-
mortgage-backed.
\24\Dep't of Justice, Goldman Sachs Agrees to Pay More than $5
Billion in Connection with Its Sale of Residential Mortgage Backed
Securities (Apr. 11, 2016), https://www.justice.gov/opa/pr/goldman-
sachs-agrees-pay-more-5-billion-connection-its-sale-residential-
mortgage-backed.
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In addition to significant monetary penalties, these
settlements also include statements of facts describing the
significant fraud and misrepresentation relating to the
settling banks' sale and underwriting of securities, serving as
``an acknowledgement by the banks to their shareholders and the
American public of the misconduct uncovered by the Department
of Justice.''\25\ For example, one of the settling banks
acquired pools of mortgage-backed securities that the bank
graded poorly, such as loans with high loan-to value or debt-
to-income ratios.\26\ Notwithstanding the poor quality of these
securities, the bank continued to securitize, package, and sell
them to investors.\27\ In another example, a settling bank
``knowingly securitized and sold mortgage loans with
significant percentages of material defects,'' while making
positive representation to investors about the quality of the
loans it securitized.\28\ In an internal communication, one of
the bank's traders stated that he ``would not be surprised if
half of these loans went down,'' and that the bank should
``start praying.''\29\
---------------------------------------------------------------------------
\25\Judiciary Oversight Hearing, supra note 1, at 3 (statement of
Geoffrey Graber, Deputy Associate Attorney General and Director of the
Residential Mortgage-Backed Securities Working Group of the Financial
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
\26\Dep't of Justice, JPMorgan Statement of Facts 6-8 (2013),
http://www.justice.gov/iso/opa/resources/94320131119151031990622.pdf.
\27\Id.
\28\Dep't. of Justice, Justice Department, Federal and State
Partners Secure Record $7 Billion Global Settlement with Citigroup for
Misleading Investors about Securities Containing Toxic Mortgages (July
14, 2014), http://www.justice.gov/opa/pr/justice-department-federal-
and-state-partners-secure-record-7-billion-global-settlement.
\29\Id.
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Several of these settlements also include ``consumer
relief'' provisions that require the settling banks to
remediate harms resulting from the banks' allegedly unlawful
conduct.\30\ These provisions provide the settling banks with
discretion to choose various forms of consumer relief,
including principal forgivingness, community reinvestment and
stabilization initiatives to remediate neighborhood blight,
foreclosure prevention programs, affordable housing resources,
and income-based lending for ``borrowers who lost homes to
foreclosure.''\31\ Additionally, two of these settlements, with
Citigroup\32\ and Bank of America,\33\ require donations to
third-party charitable organizations, including legal aid
organizations, community development financial institutions,
and housing counseling groups that have been certified by the
U.S. Department of Housing and Urban Development (HUD). These
donations account for less than 1% of the overall amount of
each settlement and will ``support services provided by housing
counselors and other trusted intermediaries that enable
consumers to access the consumer relief to which they are
entitled under the settlements.''\34\ Geoffrey Graber, who
formerly served as the Director of the RMBS Working Group,
testified that these settlements embody the goals of the RMBS
Working Group in several ways:
---------------------------------------------------------------------------
\30\See, e.g, Dep't. of Justice, Justice Department, Federal and
State Partners Secure Record $7 Billion Global Settlement with
Citigroup for Misleading Investors About Securities Containing Toxic
Mortgages (July 14, 2014), http://www.justice.gov/opa/pr/justice-
department-federal-and-state-partners-secure-record-7-billion-global-
settlement; Dep't of Justice, Annex 2: Citigroup Consumer Relief Report
(2014), http://www.justice.gov/iso/opa/resources/6492014714137
21380969.pdf [hereinafter ``Citigroup Consumer Relief Report'']; Citi
Monitorship First Report, Jenner & Block LLP at 6-7 (Jan. 2015), http:/
/www.citigroupmonitorship.com/uploads/3/5/1/9/3519321/
citi_monitorship_initial_report_2015-01-21.pdf.
\31\Financial Services Oversight Hearing, supra note 5, at 3
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf; see, e.g.,
Citigroup Consumer Relief Report, supra note 14, at 11-15; Dep't of
Justice, Annex 2: Consumer Relief Report (2013), http://
www.justice.gov/iso/opa/resources/6442013111916
4759163425.pdf.
\32\The consumer relief portions of the Justice Department's
settlement with Citigroup include a two-to-one payment credit for
donations to legal assistance groups to ``help rectify the harm caused
by Citi's conduct.'' These groups include: (1) community development
financial institutions (CDFIs), land banks subject to state or local
regulation, or community development funds administered by non-profits
or local governments (at least $25 million); (2) state-based Interest
on Lawyers' Trust Account (IOLTA) organizations that provide funds to
legal aid organizations (at least $15 million); and (3) HUD-approved
housing counseling agencies (HCAs) to ``provide foreclosure prevention
assistance and other housing counseling activities'' (at least $10
million). Citigroup Consumer Relief Report, supra note 30, at 11-15.
\33\The Bank of America settlement includes a two-to-one credit for
donations to third-party groups, such as donations to: (1) Community
Development Financial Institutions (CDFIs), land banks, or community
development funds administered by non-profits or local governments; and
(2) state-based Interest on Lawyers' Trust Account (IOLTA)
organizations that provide funds to legal aid organizations; and (3)
HUD-approved housing counseling agencies (HCAs) to ``provide
foreclosure prevention assistance and other housing counseling
activities.'' Dep't of Justice, Annex 2: Bank of America Consumer
Relief Report 6-8 (2014), https://www.justice.gov/iso/opa/resources/
8492014829141239967961.pdf.
\34\Letter from Julia Gordon, Center for American Progress (CAP),
to Members of the H. Comm. on the Judiciary (Feb. 12, 2015) (on file
with Democratic staff of the H. Comm. on the Judiciary).
First, each settlement achieved accountability by
requiring a significant (and in some cases record)
monetary penalty, as well as a statement of facts
acknowledging the evidence underlying the government's
allegations. These penalties will hopefully serve to
deter future misconduct; and the statements of facts
serve as an acknowledgement by the banks to their
shareholders and the American public of the misconduct
---------------------------------------------------------------------------
uncovered by the Department of Justice.
Second, each bank committed to provide many billions of
dollars of consumer relief, of a type that is designed
to enable many Americans to stay in their homes, and
will enable many more to secure homeownership for the
first time (the particular settling banks had
origination and/or servicing operations that helped
facilitate this type of relief). These consumer relief
provisions--in which the settling banks agreed to
provide billions of dollars in relief for consumers in
the housing market--provide an especially salient
feature of these settlements. This type of relief
likely could not have been ordered by a court, even if
the government had prevailed at trial.\35\
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\35\Judiciary Oversight Hearing, supra note 1, at 3 (statement of
Geoffrey Graber, Deputy Associate Attorney General and Director of the
Residential Mortgage-Backed Securities Working Group of the Financial
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
II. OVERSIGHT OF THE JUSTICE DEPARTMENT'S INCLUSION OF DONATIONS IN
SETTLEMENT AGREEMENTS
The Majority is conducting an oversight investigation into
the consumer relief provisions of the Justice Department's
settlements with Citigroup and Bank of America (``RMBS
settlements'').\36\ On November 25, 2014, House Judiciary
Committee Chairman Bob Goodlatte (R-VA) and Financial Services
Chairman Jeb Hensarling (R-TX) commenced a formal ``pattern-or-
practice investigation'' into these settlements.\37\ They
issued a joint letter to the Justice Department requesting
production of ``all communications relating to what became the
`Community Reinvestment and Neighborhood Stabilization'
provisions in the Citigroup and BoA settlements,''\38\
explaining that the settlements ``appear to serve as a vehicle
for funding activist groups.''\39\ Prior to the Majority's
investigatory letter, Spencer Bachus (R-AL), the former
Chairman of the Regulatory Reform, Commercial and Antitrust Law
(RRCAL) Subcommittee, sent a letter to the Justice Department's
Civil Division expressing similar concerns and also requesting
additional information on the consumer-relief portions of these
settlements.\40\ On February 12, 2015, the RRCAL Subcommittee
held an oversight hearing entitled ``Consumers Short Changed?
Oversight of the Justice Department's Mortgage Lending
Settlements,''\41\ where Chairman Goodlatte and RRCAL
Subcommittee Chairman Tom Marino (R-PA) accused the Justice
Department of using ``its controversial settlements'' to
``funnel money to activist groups instead of consumers.''\42\
Chairman Goodlatte and Chairman Hensarling sent another letter
on May 14, 2015 asking for ``all documents and communications
generated or transmitted by non-profit, charitable, or similar
organizations,'' as well as ``all communications pertaining to
what became Annex Three (``Tax Fund'') of the Bank of America
settlement.''\43\ At a subsequent oversight hearing in the
RRCAL Subcommittee on March 19, 2015,\44\ Chairman Goodlatte
complained that the Justice Department's production of 60 pages
of emails did not include internal communications.\45\
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\36\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R.
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the
H. Comm. on the Judiciary 6 (Apr. 25, 2016) (on file with Democratic
staff of the H. Comm. on the Judiciary).
\37\Id. at 3, 6.
\38\Letter from U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, & U.S. Rep. Jeb Hensarling, Chairman, H. Comm. on Financial
Services, to Eric Holder, U.S. Attorney General 3 (Nov. 25, 2014) (on
file with staff of the H. Comm. on the Judiciary).
\39\Id. at 3.
\40\Letter from U.S. Rep. Spencer Bachus, Chairman, Subcomm. on
Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the
Judiciary, to Stuart Delery, Dep't of Justice, Civil Div., Assistant
Attorney Gen. (Sept. 10, 2014).
\41\Judiciary Oversight Hearing, supra note 2.
\42\H. Comm. on the Judiciary, Regulatory Reform Subcommittee Holds
Hearing on the Justice Department's Controversial Mortgage-Lending
Settlements (Feb. 5, 2015), https://
judiciary.house.gov/press-release/regulatory-reform-subcommittee-holds-
hearing-on-the-justice-
department-s-controversial-mortgage-lending-settlements/.
\43\Letter from U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, to Loretta Lynch, U.S. Attorney General (May 14, 2015) (on
file with staff of the H. Comm. on the Judiciary).
\44\Ongoing Oversight: Monitoring The Activities of the Justice
Dep't's Civil, Tax And Env't And Nat. Resources Divisions And The U.S.
Trustee Program: Hearing Before the Subcomm. on Regulatory Reform,
Commercial and Antitrust Law of the H. Comm. on the Judiciary, 114th
Cong. 81 (2015) (statement by Rep. Bob Goodlatte, Chairman, H. Comm. on
the Judiciary).
\45\Id. (``the Department has sent a paltry 60 pages of email
between the Department of Justice and outside groups, no internal
Department of Justice emails. . . . When will we get those
documents?'').
---------------------------------------------------------------------------
The Justice Department initially complied with the
Majority's request on May 29, 2015 through a production of
``hundreds of pages of documents'' relating to the consumer
relief provisions of the RMBS settlements.\46\ In a letter to
Chairman Goodlatte describing the full scope of the Justice
Department's efforts to accommodate the Majority's request,
Assistant Attorney General Peter Kadzik explained:
---------------------------------------------------------------------------
\46\Letter from Peter J. Kadzik, Assistant Attorney General, to
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al.
(May 29, 2015) (on file with staff of the H. Comm. on the Judiciary).
The Department has provided written responses dated
January 6, 2015, March 31, 2015, May 18, 2015, May 29,
2015, and November 6, 2015, which included the
production of hundreds of pages of documents. The
Department also testified about the RMBS settlements on
February 12, 2015, and responded to written questions
for the record on May 18, 2015. In addition to this
testimony and our formal written responses, the
Department also briefed your staff on January 15, 2015,
and has spoken with your staff during numerous
telephone conversations. Through these actions, the
Department has sought to address all of the Committee's
stated information needs regarding the RMBS
settlements. The Department's accommodation efforts
described above have been guided by discussions with
your staff regarding the scope and focus of the
Committee's inquiry.\47\
---------------------------------------------------------------------------
\47\Id.
Following this production, the Justice Department supplemented
its earlier responses through another transmission of documents
on November 6, 2015.\48\ This production includes approximately
300 additional pages of emails, internal Justice Department
communications as well as references to communications with
third parties.\49\ Thereafter, the Justice Department also
provided an in camera review of nearly 500 pages of documents,
including internal work product, memoranda, and communications
relating to the inclusion of the consumer relief provisions in
the RMBS settlement agreements.\50\
---------------------------------------------------------------------------
\48\Letter from Peter J. Kadzik, Assistant Attorney General, to
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al.
(Nov. 6, 2015) (on file with staff of the H. Comm. on the Judiciary).
\49\Id.
\50\Letter from Peter J. Kadzik, Assistant Attorney General, to
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al.
(Feb. 29, 2016) (on file with staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
Notwithstanding the Justice Department's substantial
cooperation with the Majority's request, proponents of H.R.
5063 now argue that the Justice Department has ignored
congressional concerns with settlement agreements and ``doubled
down'' on ``mandatory donation provisions'' in settlements.\51\
The Majority now plans to interview a representative from HUD
regarding these settlements.
---------------------------------------------------------------------------
\51\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R.
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the
H. Comm. on the Judiciary 8 (Apr. 25, 2016) (on file with Democratic
staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
CONCERNS WITH H.R. 5063
I. H.R. 5063 IS A POORLY-DESIGNED SOLUTION TO AN
UNDOCUMENTED PROBLEM
Proponents of H.R. 5063 argue that the Justice Department
has structured settlements to direct ``slush funds'' to
``activist groups,''\52\ even though they offer no proof in
support of their contention.\53\ Notwithstanding significant
document production by the Justice Department--including an
extensive in camera review, private briefings and telephone
conversations, and internal work product and
communications,\54\ along with hundreds of pages of documents
produced by private parties--the Majority's investigation of
the Justice Department's settlement agreements has produced no
evidence that these settlements included unlawful or
politically motivated terms.\55\
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\52\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members
of the H. Comm. on the Judiciary 9 (May 9, 2016).
\53\H.R. 5063 Hearing, supra note 5, at 1, 5 (written statement of
Joel Mintz, Professor, Nova Southeastern University College of Law) (on
file with Democratic staff of the H. Comm. on the Judiciary).
\54\Letter from Peter J. Kadzik, Assistant Attorney General, to
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al.
(Feb. 29, 2016) (on file with staff of the H. Comm. on the Judiciary).
\55\See H.R. 5063 Hearing, supra note 5, at 2 (written statement of
Joel Mintz, Professor, Nova Southeastern University College of Law)
(``The Random House Dictionary of the English Language defines the
phrase `slush fund' as `a sum of money used for illicit or corrupt
political purposes, as for buying influence or votes, bribing public
officials, or the like.' The SEPs permitted by EPA cannot be fairly
considered slush funds in any sense.'') (on file with Democratic staff
of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
Although proponents of H.R. 5063 claim that the Justice
Department's RMBS settlements are unlawful,\56\ the Justice
Department has broad enforcement discretion when settling
litigation involving the Federal Government,\57\ a traditional
power of the Executive Branch.\58\ Under the Take Care Clause
of the Constitution,\59\ civil enforcement agencies have
substantial flexibility in crafting settlement agreements
within their statutory enforcement authority that provide
remedies for the alleged misconduct of an entity.\60\ Since its
creation in 1789, the Justice Department has possessed plenary
authority for all litigation on behalf of the Government or a
Federal agency except as otherwise provided by law.\61\ The
authority to compromise and settle litigation is inherent
within this broad grant of plenary authority over government
litigation,\62\ and extends beyond mere litigation strategy to
include the ``national policies espoused by the
Executive.''\63\ As Professor Christopher Schroeder of Duke
University Law School observed in his testimony before the
Committee, this discretion is one of the ``unavoidable features
in executing almost all laws.''\64\ In its landmark decision,
the Supreme Court noted in Heckler v. Chaney that agency
enforcement decisions involve ``a complicated balancing of a
number of factors that are peculiarly within its expertise,''
making the agency ``far better equipped than the courts to deal
with the many variables involved in the proper ordering of its
priorities.''\65\ Professor Joel Mintz of Nova Southeastern
University College of Law, a former chief attorney with the
Environmental Protection Agency (EPA), explains that this same
rationale clearly applies to settlement terms, which ``involve
numerous complicated technical issues as well as important
judgments respecting the use of limited prosecutorial
resources,'' and are ``best left in the hands of expert
agencies and prosecutors, rather than dictated by Congress or
the Federal courts.''\66\
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\56\See generally Memorandum from U.S. Rep. Bob Goodlatte (R-VA)
for Markup of H.R. 5063, the ``Stop Settlement Slush Funds Act of
2016,'' to Members of the H. Comm. on the Judiciary 9 (May 9, 2016).
\57\28 U.S.C. Sec. 516 (2016); Letter from Peter J. Kadzik,
Assistant Attorney General, to Rep. Bob Goodlatte, Chairman, H. Comm.
on the Judiciary, et al. (May 29, 2015) (The Justice Department has
``long been authorized to manage the Federal Government's litigation
interests . . . a responsibility that includes the authority to settle
or compromise cases based on such terms as the Department sees fit.'')
(on file with Democratic staff of the H. Comm. on the Judiciary).
\58\Agencies also have ample discretion when making determination
not to enforce a law in light of enforcement priorities and resources.
Heckler v. Chaney, 470 U.S. 821, 831 (1985).
\59\U.S. Const. art. II, Sec. 3 (the President ``shall take Care
that the Laws be faithfully executed.'').
\60\David Carpenter, Cong. Research Serv., Legal Principles
Associated with monetary Relief Provided as Part of Financial-Related
Legal Settlements & Enforcement Actions 1 (2015).
\61\Assistant Attorney General Theodore Olsen, Office of Legal
Counsel, The Attorney General's Role as Chief Litigator for the United
States, Memorandum Opinion for the Attorney General, Jan. 4, 1982, at
47-48, https://www.justice.gov/sites/default/files/olc/opinions/1982/
01/31/op-olc-v006-p0047.pdf.
\62\Id. at 59.
\63\Id. at 60; Smith v. United States, 375 F.2d 243, 248 (5th
Cir.), cert. denied, 389 U.S. 841 (1967). (``The Federal Government's
decisions concerning enforcement of its criminal statutes comprise a
part of its pursuit of national policy.'').
\64\Enforcing the President's Constitutional Duty to Faithfully
Execute the Laws: Hearing Before the H. Comm. on the Judiciary, 113th
Cong. 55 (2014) (statement of Christopher H. Schroeder, Charles S.
Murphy Professor of Law and Professor of Public Policy Studies, Duke
University), https://www.gpo.gov/fdsys/pkg/CHRG-113hhrg86841/pdf/CHRG-
113hhrg86841.pdf.
\65\Heckler v. Chaney, 470 U.S. 821, 831-32 (1985).
\66\See H.R. 5063 Hearing, supra note 5, at 3 (written statement of
Joel Mintz, Professor, Nova Southeastern University College of Law) (on
file with Democratic staff of the H. Comm. on the Judiciary).
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Furthermore, donations under settlement agreements
(``settlement donations'') are a lawful exercise of Justice
Department's enforcement discretion.\67\ The Miscellaneous
Receipts Act (MRA)\68\ and other appropriations laws\69\
establish a general prohibition against augmentation of agency
appropriations through enforcement policy.\70\ These laws
effectuate Congress' role in appropriating funds and ensuring
that Congress retains control of the public purse.\71\
Importantly, however, this prohibition is clearly inapplicable
to funds that are not received by the Government.\72\
---------------------------------------------------------------------------
\67\Financial Services Oversight Hearing, supra note 5, at 6
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf; Comments from the
Dep't of Justice on H.R. 5063, the ``Stop Settlement Slush Funds Act of
2016,'' to Members of the H. Comm. on the Judiciary 1 (May 17, 2016)
(on file with Democratic staff of the H. Comm. on the Judiciary).
\68\31 U.S.C. Sec. 3302(b) (2016); 19 U.S.C. Sec. 527 (2016)
(requiring deposit of customs fines, penalties, and forfeitures to the
Treasury).
\69\31 U.S.C. Sec. 1301(a) (2016) (restricting the use of
appropriated funds to their intended purposes); U.S. Gov't
Accountability Office, GAO-06-382SP, Principles of Federal
Appropriations Law 2 (2004). The Antideficiency Act also prohibits
Federal agencies from receiving Federal funds or volunteer services for
which there was no existing appropriation. 31 U.S.C. Sec. 1341(a)
(2016).
\70\U.S. Gov't Accountability Office, Nuclear Regulatory
Commission's Auth. to Mitigate Civil Penalties 17, 19 (1990).
\71\U.S. Const. art. I, Sec. 9, cl. 7 (``No Money shall be drawn
from the Treasury, but in Consequence of Appropriations made by
Law.''); U.S. Const. art. I, Sec. 8, cl. 1 (``The Congress shall have
Power . . . to pay the Debts and provide for the common Defense and
general Welfare of the United States.'').
\72\31 U.S.C. Sec. 3302(b) (2016). Penalties for violating this
statute include the possibility of removal from office and forfeiture
of funds to the U.S. Treasury. 31 U.S.C. Sec. 3302(d) (2016).
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The non-partisan and independent Government Accountability
Office (GAO) has issued several opinions clarifying settlement
donations are not ``for the Government'' within the meaning of
the MRA.\73\ The GAO explains that an agency's enforcement
discretion includes the use of settlement donations as long as
the remedies have a nexus to the correction of an underlying
violation and the agency's prosecutorial objectives.\74\
Indeed, GAO has stated that ``settlements may contain terms and
undertakings that go beyond the [agency's] remedies,''\75\ and
that an enforcement agency ``may adjust penalties to reflect
the special circumstances of the violation or concessions
exacted from the violator.''\76\ As Professor David Min of the
University of California Irvine School of Law observes, the
thrust of this policy is to allow the Federal Government to
```adjust' penalties on a case-by-case basis, so long as the
remedies are not `unrelated to the correction of the violation
in question.'''\77\ Thus, in light of GAO decisions on this
matter, these settlement terms ``fall within the Executive's
legitimate enforcement authority and [do] not run afoul of
either Congress's Article I power of the purse or the
MRA.''\78\
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\73\See, e.g., U.S. Gov't Accountability Office, B-210210, Matter
of: Commodity Futures Trading Comm'n--Donations Under Settlement
Agreements (1983) (donations must be reasonably related to
prosecutorial authority under statutory goals); U.S. Gov't
Accountability Office, B-238419, Matter of: Nuclear Regulatory
Commission's Auth. to Mitigate Civil Penalties (1990) (settlements may
not impose punishments unrelated to prosecutorial objectives).
\74\U.S. Gov't Accountability Office, B-210210, Matter of:
Commodity Futures Trading Comm'n--Donations Under Settlement Agreements
(1983).
\75\Id.
\76\U.S. Envtl. Prot. Agency, B-247155.2, 1993 WL 798227 (Comp.
Gen. Mar. 1, 1993), http://www.gao.gov/assets/200/195921.pdf
\77\Financial Services Oversight Hearing, supra note 5, at 6
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
\78\Andrew Brady Spalding, Restorative Justice for Multinational
Corporations, 76 Ohio St. L.J. 357, 394-95 (2015).
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The non-partisan Congressional Research Service (CRS)
likewise agrees that settlement donations are a lawful exercise
of agency enforcement discretion.\79\ Noting that enforcement
agencies have ``tremendous flexibility to craft the terms of
legal settlements with entities for alleged misbehavior,'' CRS
has observed that remediation under a settlement ``could take
numerous legal forms, such as civil money penalties, civil
forfeiture, or restitution to harmed investors, consumers, or
public programs.''\80\ Furthermore, private parties may
lawfully distribute relief to third parties--including state or
local governmental entities or private parties--under the terms
of a settlement.\81\ These payments, CRS explains, are ``not
`for the Government' for purposes of the miscellaneous receipts
statute'' and are ``wholly outside `the statutory mosaic
Congress has enacted to implement its constitutional power of
the purse.'''\82\
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\79\David Carpenter & Edward Lieu, Cong. Research Serv., Monetary
Relief to Third Parties as Part of Federal Legal Settlements 1 (2016).
\80\Id. at 1-2.
\81\David Carpenter, Cong. Research Serv., Legal Principles
Associated with monetary Relief Provided as Part of Financial-Related
Legal Settlements & Enforcement Actions 6 (2015).
\82\Id.
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Courts have also broadly upheld the use of settlement
donations.\83\ The Supreme Court has long held that a
settlement may impose broader relief than would be available
through litigation. In 1986, the Court ruled in Firefighters v.
City of Cleveland that settlements may include broader forms of
relief than those outlined in the underlying statute, as long
as these terms come within the general scope of the case,
further an objective upon which the law is based, and do not
violate the underlying statute.\84\ Unlike civil penalties
imposed by a court, which must be paid to the U.S.
Treasury,\85\ the Court characterized settlements as contracts
because the ``voluntary nature of a consent decree is its most
fundamental characteristic.''\86\
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\83\See, e.g., Sierra Club, Inc. v. Elec. Controls Design, Inc.,
909 F.2d 1350, 1355 n.7 (9th Cir. 1990) (``Consent decrees, such as the
one at issue here, are also consistent with current practice. Courts
throughout the country have entered consent judgments in civil suits
requiring defendants to make payments to various environmental
organizations and, in some cases, the defendants have not been required
to pay penalties to the U.S. Treasury.'').
\84\Local No. 93, Int'l Ass'n of Firefighters, AFL-CIO C.L.C. v.
City of Cleveland, 478 U.S. 501, 517-18, 525-26 (1986); see Sierra
Club, Inc. v. Elec. Controls Design, Inc., 909 F.2d 1350, 1355 (9th
Cir. 1990) (construing Local No. 93) (``While it is clear that a court
cannot order a defendant in a citizens' suit to make payments to an
organization other than the U.S. treasury, this prohibition does not
extend to a settlement agreement whereby the defendant does not admit
liability and the court is not ordering non-consensual monetary
relief.'').
\85\Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc.,
484 U.S. 49, 53 (1987).
\86\Id. at 521.
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Lower courts have similarly held that settlement donations
are in the public interest.\87\ In 1990, the Ninth Circuit
construed Firefighters v. City of Cleveland to allow lawful
payments to third parties under a settlement.\88\ There, the
court found that these payments furthered Congress' purpose of
the underlying statute and that Congress did not intend to
prevent these forms of payments:
---------------------------------------------------------------------------
\87\See, e.g., Friends of the Earth v. Eastman Kodak Co., 656 F.
Supp. 513, 513 (W.D.N.Y.), aff'd, 834 F.2d 295 (2d Cir. 1987)
(upholding payments to environmental organizations in a consent
decree).
\88\Sierra Club, Inc. v. Elec. Controls Design, Inc., 909 F.2d
1350, 1356 (9th Cir. 1990).
The Clean Water Act also does not render the proposed
consent judgment unlawful. The provisions of the Act
provide no limitation on the type of payments to which
parties to citizens' suits can agree in a settlement.
There is no indication that where a defendant agrees to
a settlement it must also agree to pay penalties to the
treasury. Likewise, the Act's legislative history
reveals no Congressional intent that private parties be
precluded from entering into settlements which do not
require the defendant to tender civil penalties to the
United States. . . . We therefore find that the
proposed consent decree furthers the purpose of the
statute upon which the complaint was based and does not
violate its terms or policy. The payments to the
environmental organizations are not in recognition of
liability under the Clean Water Act and are not civil
penalties. No liability was ever judicially
established. The district court abused its discretion
in failing to enter the proposed consent judgment.\89\
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\89\Id.
In Northwest Environmental Defense Center v. Unified Sewerage
Agency, the District Court for the District of Oregon similarly
ruled that a consent decree directing funds to restore waters
of the Tualatin River, which included funding for staff
positions to ensure compliance with the agreement, was lawful
under the Clean Water Act.\90\ The district court explained:
---------------------------------------------------------------------------
\90\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1-2 (D. Or. July 27,
1990).
What better use of the penalty type payments in an
action like this than to facilitate water quality
improvements to the affected watershed in ways which
could not be required under law. These additional
enhancements to water quality, the payment for which
also serves as a hefty sanction to defendant, fully
meet congressional intent that there be penalty aspects
of Clean Water Act consent decrees to discourage other
polluters. The proposed consent decree here
accomplishes other important and worthwhile purposes.
It allows rehabilitation of the resource to begin
immediately, rather than suffer possible future
pollutant insult and/or exacerbation during months or
years more of litigation. This is one of the important
reasons that courts should encourage settlement of
these actions. Settlements, like that proposed here,
fully meet the intent of Congress in providing the
Clean Water Act as a friend and protector of our
precious natural water resources. The litigants will
now become cooperative partners in protecting water
quality rather than merely remaining opposing litigants
in a court battle, which, without more, offers little
utility.\91\
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\91\Id.
Settlement donations are also valid under longstanding
Justice Department policy so long as the agency does not
actually or constructively receive funds through a
settlement.\92\ In 1980, the Justice Department Office of Legal
Counsel (OLC) advised that the Government may constructively
receive a third part payment under a settlement in cases where
an ``agency could have accepted possession and retains
discretion to direct the use of the money.''\93\ In 2006, OLC
stated in another opinion that there are two criteria to avoid
constructively receiving funds through a settlement agreement:
---------------------------------------------------------------------------
\92\Financial Services Oversight Hearing, supra note 5, at 6
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
\93\Effect of 31 U.S.C. Sec. 484 on the Settlement Authority of the
Attorney General, 4B Op. O.L.C. 684, 688 (1980).
(1) the settlement be executed before an admission or
finding of liability in favor of the United States; and
(2) the United States not retain post-settlement
control over the disposition or management of funds or
any projects carried out under the settlement, except
for ensuring that the parties comply with the
settlement.\94\
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\94\Application of the Government Corporation Control Act and the
Miscellaneous Receipts Act to the Canadian Softwood Lumber Settlement
Agreement, 30 Op. O.L.C. 111, 119 (2006).
Settlements meeting these conditions do not violate the
Miscellaneous Receipts Act because the government does not
actually or constructively ``receive money for the
Government.''\95\
---------------------------------------------------------------------------
\95\31 U.S.C. Sec. 3302(b) (2016); see Sierra Club v. Electronic
Controls Design, Inc., 909 F.2d 1350, 1355 (1990) (upholding a consent
decree directing funds to third-party charitable organizations).
---------------------------------------------------------------------------
In the context of the RMBS settlements, the Justice
Department resolved the potential civil liability of these
banks by requiring a donation of less than 1% of the overall
settlement agreement amounts to provide affected consumers with
legal assistance funds to access the relief they were entitled
to under the settlements.\96\ The terms of these agreements
arise from the Justice Department's statutory enforcement
authority under FIRREA\97\ and have a substantial prosecutorial
nexus to the underlying conduct giving rise to the claim (i.e.,
foreclosure prevention). The RMBS settlements also satisfy the
Justice Department's own longstanding guidelines. As Professor
David Min of the University of California Irvine School of Law
explains:
---------------------------------------------------------------------------
\96\Letter from Julia Gordon, Center for American Progress (CAP),
to Members of the H. Comm. on the Judiciary (Feb. 12, 2015) (on file
with Democratic staff of the H. Comm. on the Judiciary).
\97\FIRREA authorizes the Department of Justice to file a complaint
against any persons who commits a predicate offense under FIRREA that
involves or affects financial institutions and government agencies.
FIRREA also authorizes the Department of Justice (DOJ) to issue
administrative subpoenas to witnesses requiring production of relevant
records. 12 U.S.C. Sec. 1833a (2016); United States v. Bank of New York
Mellon, No. 11 Civ. 6969 LAK 2 (S.D.N.Y. Apr. 24, 2013).
They do not include a finding of liability on the part
of the banks, and the Federal Government does not
maintain post-settlement control over the disposition
or management of the funds. Indeed, the banks
themselves maintain full control over how they can
disburse the funds under the consumer relief
provisions, and there is no requirement that they
donate any funds to third parties under the terms of
these agreements. They appear to be clearly permissible
under current law.\98\
---------------------------------------------------------------------------
\98\Financial Services Oversight Hearing, supra note 5, at 6
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
In sum, funds paid under the RMBS settlements are not
``drawn from the Treasury,'' nor are they actually or
constructively received ``for the Government.''\99\ These
settlements plainly fall within the Justice Department's lawful
enforcement authority and outside the ``the statutory mosaic
Congress has enacted to implement its constitutional power of
the purse.''\100\ Indeed, by the Majority's own admission,
settlements donations that the government never receives do not
trigger the MRA.\101\ Further, the Majority ``has implicitly
acknowledged the legality of charitable payment terms by
passing H.R. 5063 out of Committee,'' as Professor Min
notes.\102\
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\99\Comments from the Dep't of Justice on H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the
Judiciary 1, 3 (May 17, 2016) (on file with Democratic staff of the H.
Comm. on the Judiciary).
\100\See, e.g., U.S. Const. art. I, Sec. 9, cl. 7 (``No Money shall
be drawn from the Treasury, but in Consequence of Appropriations made
by Law.''); U.S. Const. art. I, Sec. 8, cl. 1 (``The Congress shall
have Power . . . to pay the Debts and provide for the common Defense
and general Welfare of the United States.''); 31 U.S.C. Sec. 3302(b)
(2016); David Carpenter & Edward Lieu, Cong. Research Serv., Monetary
Relief to Third Parties as Part of Federal Legal Settlements 3 (2016).
\101\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members
of the H. Comm. on the Judiciary 1 (May 9, 2016) (``Since the
government never receives the money the MRA is not triggered. This idea
is echoed in a 2006 DOJ Office of Legal Counsel memo.'').
\102\Financial Services Oversight Hearing, supra note 5, at 6
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
---------------------------------------------------------------------------
In addition to clearly satisfying the existing legal
framework for settlement donations, the RMBS settlements are
also well-designed as a matter of policy, obviating the need
for a legislative fix. Under the consumer-relief terms of the
Citigroup and Bank of America settlements, for example, each
bank has committed to providing funds to prevent foreclosure
and enable first-time homeownership.\103\ Housing-counseling
agencies, as well as other forms of legal assistance
contemplated by consumer-relief provisions of the RMBS
settlements, are empirically very effective at foreclosure
prevention.\104\ Julia Gordon, the former Senior Director of
Housing and Consumer Finance at the Center for American
Progress (CAP), notes that homeowners that receive assistance
from HUD-certified housing counselors are three times more
likely to avoid foreclosure than homeowners that do not receive
assistance.\105\ Housing intermediaries also ensure that banks
comply with the terms of settlements, which Ms. Gordon adds,
``is not always a given.''\106\
---------------------------------------------------------------------------
\103\Judiciary Oversight Hearing, supra note 1, at 2 (statement of
Geoffrey Graber, Deputy Associate Attorney General and Director of the
Residential Mortgage-Backed Securities Working Group of the Financial
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
\104\See Judiciary Oversight Hearing, supra note 1, at 2 (statement
of Alan White, Professor, CUNY School of Law), https://
judiciary.house.gov/wp-content/uploads/2016/02/AW-testimony-
Judiciary-Feb-12-2015.pdf.
\105\Letter from Julia Gordon, Center for American Progress (CAP),
to Members of the H. Comm. on the Judiciary 2 (Feb. 12, 2015) (on file
with Democratic staff of the H. Comm. on the Judiciary).
\106\Id.
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While H.R. 5063's proponents have claimed, without
evidence, that the recipients of RMBS settlement donations are
``activist groups,'' the Majority has overlooked the fact that
conservative groups may also receive funds through the RMBS
settlements.\107\ Furthermore, numerous mechanisms within the
settlement terms prevent the misuse of settlement funds.\108\
At a hearing on the RMBS settlements, Professor Alan White of
CUNY School of Law addressed the Majority's concerns directly:
---------------------------------------------------------------------------
\107\Financial Services Oversight Hearing, supra note 5, at 10
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
\108\Judiciary Oversight Hearing, supra note 1, at 1 (statement of
Alan White, Professor, CUNY School of Law), https://
judiciary.house.gov/wp-content/uploads/2016/02/AW-testimony-
Judiciary-Feb-12-2015.pdf.
First, it is entirely up to the banks which legal aid
agencies and housing counselors to fund. The banks may
choose from hundreds of housing counselors and legal
aid agencies, including many faith-based organizations
and nonpartisan community development groups whose
political orientations range from left to centrist to
nonpartisan to right. If a bank sees a particular
nonprofit agency as too controversial, because of the
work that agency does with its other funding, the bank
can simply leave the group off of its donation list.
Second, less than one percent of the consumer relief
dollars in these settlements is earmarked for housing
counselors and legal aid. There is simply no
significant diversion of money from the billions in
required consumer relief. Third . . . the nonprofit
legal aid and housing counseling agencies are all
subject to auditing and oversight that prevents misuse
of public and private funds for political activity of
any kind.\109\
---------------------------------------------------------------------------
\109\Id.
Lastly, even if it were desirable to change existing law in
response to the RMBS settlements, H.R. 5063 does not achieve
this goal. The consumer relief provisions of the RMBS
settlement agreements were tailored to provide relief to third
parties directly affected by the misconduct of the settling
banks. These parties are likely entitled to direct relief
through third-party payments under section 2(a) of H.R. 5063 as
these provide restitution for actual harm (i.e., home
foreclosures) caused by the settling banks' allegedly unlawful
conduct.
In the absence of any credible evidence that the Justice
Department or other Federal agencies have circumvented
Congress' spending power or directed money to favored groups,
H.R. 5063 simply addresses a non-existent problem.
II. H.R. 5063 WOULD UNDERMINE PUBLIC HEALTH AND SAFETY BY ELIMINATING
THE GENERAL ENFORCEMENT AND REMEDIATION OF UNLAWFUL CONDUCT IN ALL
CIVIL ENFORCEMENT CASES
A. LSettlement Donations Serve the Twin Enforcement Goals of General
Deterrence and Compensation
Unlike injuries in the context of tort or contract
liability, penalties sought in the public enforcement of
Federal statutes are based on theories of deterrence and
general compensation to society.\110\ Administrative law expert
Colin S. Diver explains that while the primary function of
civil enforcement is to ``motivate future behavior,'' an
important secondary function is to provide general compensation
to society:
---------------------------------------------------------------------------
\110\Financial Services Oversight Hearing, supra note 5, at 8
(statement of David K. Min, Assistant Professor of Law, University of
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
By definition, a civil money penalty does not serve a
``specific'' compensatory function of making whole an
identifiable individual specifically injured by the
offending conduct. Money penalties can, however, be
used to serve a ``general'' compensatory function--that
is, to compensate ``society'' at large for harm that it
has suffered at the hands of a violator. Alternatively,
one might view the payment as compensation to the
government for the costs incurred by it in enforcing
the substantive standard.\111\
---------------------------------------------------------------------------
\111\Colin S. Diver, The Assessment and Mitigation of Civil Money
Penalties by Federal Administrative Agencies, 79 Colum. L. Rev. 1435,
1456 (1979).
This form of ``general compensation'' is particularly
appropriate in cases where a party's unlawful conduct involves
diffuse or systemic harms, or injures an unidentifiable victim,
the public health, or the environment. Charlie Garlow, a former
senior EPA attorney, explains that environmental injuries
cannot be remedied solely through funds directed to the
---------------------------------------------------------------------------
Treasury:
For violations of environmental statutes, restitution
is indeed the correct penalty to be imposed if the
goals of rehabilitation, deterrence and retribution are
to be served. However, to be effective, the doctrine of
restitution in environmental law must be defined in
terms of restoration and recompense, rather than
monetary or prison sentencing alone.\112\
---------------------------------------------------------------------------
\112\Charlie Garlow, Environmental Recompense, 1 Appalachian J.L.
1, 5-6 (2002).
To provide for complete restitution to generalized harms,
environmental settlements sometimes include ``offset
projects.'' For example, the EPA may include Supplemental
Environmental Projects (SEPs) in settlement terms to offset the
harms of unlawful conduct by requiring parties to undertake an
environmentally beneficial project or activity that ``is not
required by law, but that a defendant agrees to undertake as
part of the settlement of an enforcement action.''\113\ As with
other settlement donations, these projects must have a
sufficient nexus to the underlying conduct of the
defendant.\114\ In practice, this requirement entails that
these projects ``are generally carried out at the site where
the violation occurred, at a different site within the same
ecosystem, or within the same immediate geographic area.''\115\
The EPA has also clarified that they cannot include cash
donations to community groups, environmental organizations, or
other third parties.\116\ As courts have observed, these forms
of settlement donations better serve the purposes of the
underlying statute than merely directing funds to the
Treasury.\117\
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\113\See, e.g., Envtl. Protection Agency, Office of Enforcement and
Compliance Assurance, Issuance of the 2015 Update to the 1998 U.S.
Environmental Protection Agency Supplemental Environmental Projects
Policy (2015), https://www.epa.gov/sites/production/files/2015-04/
documents/sepupdatedpolicy15.pdf.
\114\Id. at 7.
\115\See H.R. 5063 Hearing, supra note 5, at 3 (written statement
of Joel Mintz, Professor, Nova Southeastern University College of Law)
(on file with Democratic staff of the H. Comm. on the Judiciary).
\116\Envtl. Protection Agency, Office of Enforcement and Compliance
Assurance, Issuance of the 2015 Update to the 1998 U.S. Environmental
Protection Agency Supplemental Environmental Projects Policy 17 (2015),
https://www.epa.gov/sites/production/files/2015-04/documents/
sepupdatedpolicy15.pdf.
\117\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1 (D. Or. July 27,
1990).
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In addition to serving the public interest, settlement
donations may also be in the interest of private parties.
Professor Joel Mintz of Nova Southeastern University College of
Law, a former chief attorney with the EPA, notes in his written
statement on H.R. 5063 that these types of donations create
``win-win'' for all parties in civil enforcement cases:
SEPs demonstrate EPA's willingness to cooperate with
the regulated community, and they create a more
flexible regulatory climate. SEPs also benefit
environmental violators by reducing some of the civil
penalties those parties would otherwise have to pay.
They help repair corporate public images that would
otherwise be further harmed by negative environmental
publicity; and they promote settlements, allowing
businesses to avoid the costs and risks of litigation.
Finally, SEPs increase the likelihood that communities
forced to bear the burden of environmental degradation
will benefit directly from enforcement actions against
violators.\118\
---------------------------------------------------------------------------
\118\H.R. 5063 Hearing, supra note 5, at 3 (written statement of
Joel Mintz, Professor, Nova Southeastern University College of Law) (on
file with Democratic staff of the H. Comm. on the Judiciary).
B. LH.R. 5063 Would Prohibit Civil Enforcement Agencies from Fully
Protecting the Public Interest
H.R. 5063 applies far beyond the Justice Department's
settlement authority to all civil enforcement agencies. Section
2(a) of the bill prohibits any officer or agent of the
Government from resolving the civil liability of a party
through a settlement agreement that directs or provides
payments for a payment to any person or entity other than the
Government, subject to minor exceptions. This represents a
sweeping change in the enforcement of current law, which
authorizes civil enforcement agencies to resolve a party's
civil liability through a settlement that provides both direct
and indirect forms of restitution for injuries caused by
unlawful conduct.\119\ It is therefore unsurprising that the
Justice Department, which has plenary authority to enforce the
law and defend the interests of the United States,\120\
strongly opposes the bill.\121\ In comments on H.R. 5063, the
Justice Department has expressed concerns that ``this bill
would unwisely constrain the government's settlement authority
and preclude many permissible settlements that would advance
the public interest.''\122\ The Department explains:
---------------------------------------------------------------------------
\119\See, e.g., id. (written statement of David Uhlmann, Professor,
University of Michigan Law School).
\120\Assistant Attorney General Theodore Olsen, Office of Legal
Counsel, The Attorney General's Role as Chief Litigator for the United
States, Memorandum Opinion for the Attorney General, Jan. 4, 1982, at
47-48, https://www.justice.gov/sites/default/files/olc/opinions/1982/
01/31/
op-olc-v006-p0047.pdf.
\121\Comments from the Dep't of Justice on H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the
Judiciary 1 (May 17, 2016) (on file with Democratic staff of the H.
Comm. on the Judiciary).
\122\Id. at 2.
The bill prohibits payments by a party other than those
made to directly remedy ``actual harm'' that the party
directly and proximately caused or for services
rendered in connection with the case . . . this
language may inhibit or restrict settlements from
requiring remediation to impacted victims that
addresses more intangible harms, or from requiring
monetary payments to victims in estimated amounts where
it is impractical or resource-prohibitive to quantify
the actual harm. The language would further impede the
government's ability to address the root causes of
violations and establish effective remedies that are
effective retrospectively (correcting noncompliance)
and prospectively (addressing root causes of
noncompliance to prevent recidivism). . . . In certain
cases, as part of negotiated settlement terms, a
defendant or potential defendant, might undertake to
correct the harms, both direct and indirect, that its
conduct may have caused; to carry out activities making
the public less vulnerable to conduct of that type; or
to modify the conditions and circumstances that might
otherwise contribute to similar conduct by others. The
government legitimately considers such undertakings
when it assesses the just resolution of its claims or
potential claims.\123\
---------------------------------------------------------------------------
\123\Id.
To illustrate this concern, Representative David Cicilline
(D-RI) offered an amendment to exempt from the bill any
settlement agreement concerning privacy protections. He
explained that his amendment would preserve ``the ability of
civil enforcement agencies to compel large corporations to
adopt programs to protect consumer data,'' which would be
undermined by H.R. 5063's prohibition of settlement
donations.\124\ He also noted that in cases of diffuse or
systemic privacy violations, ``the most appropriate remedy may
involve prescribing steps that effectively prevent future
misconduct.''\125\ H.R. 5063 would expressly prohibit the
inclusion of these types of projects in settlements by making
unlawful payments that do not remedy a harm directly caused by
the alleged conduct of a settling party.\126\
---------------------------------------------------------------------------
\124\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 58 (May
11, 2016).
\125\Id. at 59.
\126\See H.R. 5063 Hearing, supra note 5, at 3 (written statement
of Joel Mintz, Professor, Nova Southeastern University College of Law)
(``[T]he proposed Stop Settlement Sludge Funds Act appears likely to
prohibit many of the important benefits now provided by EPA's SEPs
program.'') (on file with Democratic staff of the H. Comm. on the
Judiciary).
---------------------------------------------------------------------------
Speaking in opposition to this amendment, Chairman Bob
Goodlatte (R-VA) argued that the bill's exception for
``services rendered in connection with the case'' would apply
to the settlement donations contemplated by the amendment.\127\
In response, Representative Cicilline observed that the bill's
language is specific to ``costs associated with the litigation,
not the settlement.''\128\ Indeed, while numerous statutes
authorize attorney's fees and other forms of payment in
connection with litigation,\129\ these statutes commonly
specify the appropriate recipient of funds and the intended
scope of services to be covered by the statute.\130\ Moreover,
we are unaware of any statute containing the bill's exact
language. Furthermore, cases construing similar language
contemplate attorney's fees or other litigation expenses,\131\
but not payments for monitoring, compliance programs, workplace
training, or other forms of relief currently available under
settlements. It is therefore unclear whether courts would
broadly construe this exception to include settlement donations
designed to prevent future misconduct. Notwithstanding ample
bipartisan support for protecting Americans' privacy rights,
however, the amendment was defeated by a vote of 6 to15.\132\
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\127\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 64 (May
11, 2016).
\128\Id. at 65.
\129\The Equal Access to Justice Act, 28 U.S.C. Sec. 2412(d)(1)(A)
(2016).
\130\See id. at (d)(2) (defining ``fees and other expenses''); see,
e.g., Conrad, Rubin & Lesser v. Pender, 289 U.S. 472, 475-76 (1933)
(attorney's fees in bankruptcy proceedings).
\131\See, e.g., Dell v. Bowen, No. CIV-83-480E, 1986 WL 12482, at
*1 (W.D.N.Y. Nov. 5, 1986) (attorney's fees under the Equal Access to
Justice Act (28 U.S.C. Sec. 2412(d)(1)(A)).
\132\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 70 (May
11, 2016).
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C. LH.R. 5063 Would Undermine the Enforcement of Civil Rights Laws
Civil rights laws embody core values of equality of
opportunity and freedom from discrimination. Congress passed
the Civil Rights Act of 1964\133\ to remove discriminatory
barriers and to promote equality of employment
opportunities.\134\ As the Supreme Court recently noted,
however, ``[m]uch progress remains to be made in our Nation's
continuing struggle against racial isolation'' and toward ``our
historic commitment to creating an integrated society.''\135\
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\133\42 U.S.C. Sec. Sec. 2000e et seq. (2016).
\134\Griggs v. Duke Power Co., 401 U.S. 424, 429 (1971)
\135\Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities
Project, Inc., 135 S. Ct. 2507, 2525 (2015).
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Cases involving discrimination claims often occur without
identifiable victims and tend to affect the interests of
persons who are not likely to receive compensation for unlawful
conduct (e.g., unidentifiable victims such as former and future
employees).\136\ In these cases, a settling party that violated
antidiscrimination laws may seek to resolve its civil liability
through workplace monitoring or training programs that seek to
remedy systemic unlawful conduct. As the Justice Department has
observed, remedies can correct both noncompliance and
recidivism through settlement terms that require a party to
undertake activity to prevent future misconduct.\137\ Without
the ability to include these forms of relief in settlements,
H.R. 5063, the Department argues, would hamper the enforcement
of myriad civil rights laws:
---------------------------------------------------------------------------
\136\Mark E. Recktenwald, Collateral Attacks on Employment
Discrimination Consent Decrees, 53 U. Chi. L. Rev. 147 (1986).
\137\Comments from the Dep't of Justice on H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the
Judiciary 4 (May 17, 2016) (on file with Democratic staff of the H.
Comm. on the Judiciary).
In settling such cases that the Department has brought
to redress a pattern or practice of systemic
discrimination, the Department seeks both compensation
for individual victims harmed by the unlawful
practices, and injunctive relief to correct or prevent
discrimination. Unfortunately, it is often
extraordinarily difficult to prospectively identify all
of the possible victims in certain cases, due to the
nature of the discriminatory practices, the mobility of
the possible victims, or both. Accordingly, the
Department enters into consent orders requiring
defendants to establish a settlement fund to compensate
victims who will be identified post-settlement. In such
cases, the defendants deposit a negotiated amount into
an interest-bearing escrow account and provide notice
targeted to reach possible victims. After the notice
period ends, and victims have been identified, the
United States submits the proposed disbursements to the
Court for approval. If unclaimed monies remain in the
settlement fund after all identified victims have been
paid, the decrees provide that the court may order that
unclaimed funds be paid to a non-profit organization
that is dedicated to addressing and preventing the kind
of discriminatory practices that gave rise to the
lawsuit. These organizations must have the requisite
qualifications and expertise in the areas specified in
the consent order.\138\
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\138\Id.
To highlight this concern, Ranking Member John Conyers, Jr. (D-
MI) offered an amendment that would have exempted from the bill
any settlement agreement that pertains to the enforcement of
civil rights laws. He explained that his amendment was
necessary because ``the bill's broad and ill-defined
prohibition would effectively deter civil enforcement agencies
from providing general relief in discrimination cases,
discourage courts from enforcing these settlements, and invite
costly and needless litigation concerning these
provisions.''\139\ Unfortunately, this amendment failed by a
vote of 9 to 15.\140\
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\139\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 19 (May
11, 2016).
\140\Id. at 26.
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To further underscore these concerns, Representative Sheila
Jackson Lee (D-TX) offered an amendment that would have
exempted from H.R. 5063 settlement agreements that pertain to
payments to indirectly remediate and prevent sexual harassment,
violence, or discrimination in the workplace. She explained
H.R. 5063 would prevent settlement donations for workplace
monitoring and other payments to remedy generalized harm,
including remedies designed to prevent the recurrence of sexual
violence or discrimination.\141\ This amendment also failed by
a vote of 7 to 16.\142\
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\141\Id. at 31.
\142\Id. at 44.
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D. LH.R. 5063 Would Prevent the General Remediation of Environmental
Injuries and Compensation to States and Local Communities
Environmental laws, such as the Clean Air Act and Clean
Water Act, expressly authorize restitution for generalized
harm. The Clean Air Act, for example, grants authority in
environmental enforcement cases for ``beneficial mitigation
projects'' to ``enhance the public health or the
environment,''\143\ which require that a settling party
remedies, reduces, or offsets the harm caused by its alleged
violations. These terms are typically included in settlements
where a party's unlawful emissions or discharges cause general
harm to the public, wildlife, or the environment.\144\ Since
the enactment of the Clean Air Act, Congress has additionally
authorized courts to direct funds to beneficial mitigation
projects in the final judgment of a citizen suit,\145\ and
likewise refrained from enacting guidelines for the inclusion
of these agreements in civil penalties or settlement
agreements, generally deferring to the courts and
agencies.\146\
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\143\42 U.S.C. Sec. 7604 (2016).
\144\Envtl. Protection Agency, Office of Enforcement and Compliance
Assurance, Securing Mitigation as Injunctive Relief in Certain Civil
Enforcement Suits 2 (2012).
\145\42 U.S.C. Sec. 7604 (g)(2) (2016).
\146\See Edward Lloyd, Supplemental Environmental Projects Have
Been Effectively Used in Citizen Suits to Deter Future Violations As
Well As to Achieve Significant Additional Environmental Benefits, 10
Widener L. Rev. 413, 425 (2004).
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H.R. 5063, however, would effectively circumvent these
statutes to prevent the general remediation of environmental
injuries. Professor David Uhlmann of the Michigan Law School,
who formerly served as Chief of the Environmental Crimes
Section of the Justice Department, explained in his testimony
at the hearing on the bill that corporate defendants in large,
catastrophic pollution cases are typically required to direct
funds to congressionally-chartered foundations for the purpose
of addressing the general harms caused by vessel
pollution.\147\ To resolve its liability for one uniquely
catastrophic spill, British Petroleum (BP) agreed to direct
funds for environmental projects ``to address the catastrophic
harm to the Gulf of Mexico ecosystem that occurred because of
BP's misconduct,'' in addition to the largest penalties for an
environmental crime in history.\148\ H.R. 5063 would eliminate
these forms of remedies to major environmental misconduct.
---------------------------------------------------------------------------
\147\H.R. 5063 Hearing, supra note 5, at 4 (statement of David
Uhlmann, Professor, University of Michigan Law School), https://
judiciary.house.gov/wp-content/uploads/2016/04/Uhlmann-
Testimony.pdf.
\148\Id.
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Proponents of the bill argue that H.R. 5063 allows agencies
to redress direct environmental injuries, and where direct
remediation is impractical, ``the violator is not let off the
hook'' because funds are paid to the Treasury, leaving Congress
to decide how best to remediate environmental damage.\149\ This
argument, however, is wrong for several reasons.
---------------------------------------------------------------------------
\149\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members
of the H. Comm. on the Judiciary 12 (May 9, 2016) (on file with
Democratic staff of the H. Comm. on the Judiciary).
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First, H.R. 5063's exception for environmental remediation
is drafted too narrowly to allow for environmental
projects.\150\ As Professor Mintz observes, the bill would
prohibit the following ``entirely legitimate, appropriate'' use
of settlement funds permitted under current law:
---------------------------------------------------------------------------
\150\H.R. 5063 Hearing, supra note 5, at 5 (written statement of
Joel Mintz, Professor, Nova Southeastern University College of Law) (on
file with Democratic staff of the H. Comm. on the Judiciary).
1) LPollution prevention projects that improve plant
procedures and technologies, and/or operation and
maintenance practices, that will prevent additional
---------------------------------------------------------------------------
pollution at its source;
2) LEnvironmental restoration projects including
activities that protect local ecosystems from actual or
potential harm resulting from the violation;
3) LFacility assessments and audits, including
investigations of local environmental quality,
environmental compliance audits, and investigations
into opportunities to reduce the use, production and
generation of toxic materials;
4) LPrograms that promote environmental compliance by
promoting training or technical support to other
members of the regulated community; and
5) LProjects that provide technical assistance or
equipment to a responsible state or local emergency
response entity for purposes of emergency planning or
preparedness.\151\
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\151\Id.
These projects are unlikely to be construed as redressing the
``actual (environmental) harm, directly and proximately
caused'' by unlawful conduct and, accordingly would be unlawful
under H.R. 5063, notwithstanding the beneficial nature of such
settlement donations.\152\
---------------------------------------------------------------------------
\152\Id.
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Secondly, H.R. 5063 would foreclose settlement donations to
local communities and states harmed by violations of the law.
In 2012, for example, the EPA and Justice Department resolved
the civil liability of several corporations in connection with
the Deepwater Horizon oil spill through a settlement that
directed funds to several Gulf states, including Texas, which
was not a party to the complaint, but received $3.25 million
for Supplemental Environmental Projects (SEPs) and other
responsive actions to remediate the generalized harm of the oil
spill.\153\ As the Justice Department notes, this common
feature of settlements in environmental enforcement actions
would likely be barred by H.R. 5063:
---------------------------------------------------------------------------
\153\Envtl. Protection Agency, MOEX Offshore 2007 LLC Settlement
(Feb. 17, 2012), https://www.epa.gov/enforcement/moex-offshore-2007-
llc-settlement#sep.
The United States frequently enters into joint
settlement of environmental cases with States; those
cases nearly always provide for payment of civil
penalties to the participating State. Such civil
penalties appear to be payments prohibited under the
bill. Similarly, the United States may settle
litigation brought by third parties against Federal
agencies under various environmental, natural
resources, and other statutes for the payment of
specified monies. Such payments are arguably barred by
the bill. If the term ``payment'' is interpreted to
have a meaning broader than monetary payments, or to
include payments made to third parties who implement
terms of a settlement, there could be additional
consequences for environmental settlements.\154\
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\154\Comments from the Dep't of Justice on H.R. 5063, the ``Stop
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the
Judiciary 3 (May 17, 2016) (on file with Democratic staff of the H.
Comm. on the Judiciary).
Third, in response to the Majority's argument that Congress
should decide how best to allocate compensatory funds, not
agencies, Congress has already made this decision through the
passage of environmental laws that specifically contemplate
settlement donations.\155\ As courts have noted, the purposes
of these laws are ``to improve water quality, not endow the
Treasury.''\156\ Furthermore, as Charlie Garlow, a former
senior EPA attorney, notes, funds directed to the Treasury
seldom fully remedy environmental injuries:
---------------------------------------------------------------------------
\155\42 U.S.C. Sec. 7604 (2016).
\156\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1 (D. Or. July 27,
1990).
Money served to the Treasury does little to ``make the
environment whole again.'' It is making the environment
whole that is the ultimate goal of environmental
restitution. The environment, for the purposes of this
criminal law analogy, is ``the victim,'' against which
the offender commits a crime. Once a defendant's
egregious acts are proven and he is convicted of the
environmental crime, restoration and recompense provide
the doctrinal mechanism through which rehabilitation of
the offender can occur. Just as in the criminal
context, the offender is forced to face the
responsibility he owes to society as a whole to
preserve the environment. Instead of merely paying a
fine to a general governmental unit and continuing his
business as usual, the defendant must confront and
address the damage he has directly caused.\157\
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\157\Charlie Garlow, Environmental Recompense, 1 Appalachian J.L.
1, 5-6 (2002).
Lastly, Congress lacks the time, expertise, and resources
to properly review and make these enforcement decisions on
behalf of Federal agencies.\158\ Requiring a congressional
appropriation for each environmental project would greatly
strain Congress' already limited legislative resources and
scarce time, while opening the doors to industry influence and
obstruction in routine enforcement matters.\159\ The cost of
delays associated with this scheme would have devastating
consequences for the public health, environment, and local
communities.
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\158\See The REINS Act of 2013: Promoting Jobs, Growth, and
American Competitiveness: Hearing on H.R. 367 Before the Subcomm. on
Regulatory Reform, Commercial and Antitrust L. of the H. Comm. on the
Judiciary, 113th Cong. (2013) (statement of Ronald M. Levin, William R.
Orthwein Distinguished Professor of Law, Washington University in St.
Louis).
\159\Id.
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In response to these concerns, Representative Sheila
Jackson Lee (D-TX) offered an amendment that would have
exempted from H.R. 5063 settlement agreements that provide
restitution to states that are not parties to litigation.\160\
This amendment failed by a vote of 7 to 16.\161\
---------------------------------------------------------------------------
\160\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 31 (May
11, 2016).
\161\Id. at 44.
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III. H.R. 5063'S VAGUE PROVISIONS WILL RESULT IN NEEDLESS LITIGATION
AND DELAY
As drafted, H.R. 5063 is inherently vague. The bill, for
instance, fails to define key terms, which will undoubtedly
engender legal challenges to proposed settlements, deter
agencies from pursuing settlements, and ultimately force courts
to interpret them.
For example, the bill does not define what constitutes a
``payment.'' Professor David Uhlmann of the University of
Michigan Law School explains that ``courts interpreting the
legislation could conclude that it precludes third-party
payments as part of civil settlement agreements, other than
restitution, even in cases of generalized harm to the
environment or consumers.''\162\ He is concerned that, even as
ordered reported by the Committee in its amended form, H.R.
5063 continues to raise a ``host of questions about what
payments are covered,'' while failing to meaningfully define
terms or address the bill's underlying problems.\163\
---------------------------------------------------------------------------
\162\H.R. 5063 Hearing, supra note 5, at 4 (statement of David
Uhlmann, Professor, University of Michigan Law School), https://
judiciary.house.gov/wp-content/uploads/2016/04/Uhlmann-
Testimony.pdf.
\163\Email from Prof. David Uhlmann, Professor, University of
Michigan Law School, to Democratic staff of the H. Comm. on the
Judiciary (May 9, 2016) (on file with Democratic staff of the H. Comm.
on the Judiciary).
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H.R. 5063 also fails to define ``official or agent of the
Government.'' This term could be construed to apply to any
state actor, including a Federal judge or local official. Thus,
a Federal judge could hesitate to enforce even clearly valid
settlements in actions involving the Government to avoid
violating the bill's prohibition. This may also be true for
purely private actions, as it could be argued that a Federal
judge enforces these settlements as an ``official or agent of
the Government . . . on behalf of the United States.'' This
provision may also prevent the payment of funds to private
parties through a settlement where the Government is a
defendant in a civil action, such as class action litigation
directing undistributed funds to charitable organizations.
Combined with these unclear provisions, the bill's chilling
penalties--removal from office--may prevent Federal agencies
from making payments even where statutorily authorized, such as
payments to whistleblowers under FIRREA.\164\
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\164\U.S.C. Sec. 4205(d)(1) (2016); Comments from the Dep't of
Justice on H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,''
to Members of the H. Comm. on the Judiciary 2 (May 17, 2016) (on file
with Democratic staff of the H. Comm. on the Judiciary).
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SECTION-BY-SECTION EXPLANATION OF H.R. 5063
A description of the bill's principal substantive
provisions follows.
Section 2(a) of the bill prohibits an officer or agent of
the Government from resolving the civil liability of a party
through a settlement agreement that directs or provides
payments to any person or entity other than the Government,
subject to two exceptions. First, settlement agreements may
direct payments to third parties to provide restitution for the
actual harm that was ``directly and proximately'' caused by the
unlawful conduct that is the basis of the settlement agreement.
Second, settlement agreements may include payments to third
parties for ``services rendered in connection with the case''
(e.g., attorney's fees).
Under section 2(b) of the bill, a violation of section 2(a)
constitutes a violation under the Miscellaneous Receipts Act,
which include the possibility of removal from office and
forfeiture of received funds to the U.S. Treasury.\165\
---------------------------------------------------------------------------
\165\31 U.S.C. Sec. 3302(d) (2016).
---------------------------------------------------------------------------
Section 2(c) sets forth the effective date as the date of
enactment, clarifying that the bill only applies to settlement
agreements concluded on or after the enactment date.
Section 2(d) defines ``settlement agreement'' to include a
resolution of a civil action or potential civil action through
settlement agreement.
CONCLUSION
Similar to the multitude of the Majority's anti-regulatory
bills that our Committee has considered over this and the last
two Congresses, H.R. 5063 is yet another solution in search of
a problem that is rife with unintended consequences. There is
no credible evidence substantiating the underlying premise of
this bill, namely, that settlement donations are an
unconstitutional subversion of congressional spending authority
or that agencies have included unlawful terms in settlement
agreements. Longstanding appropriations law and agency policy--
as recognized by the Government Accountability Office and the
Congressional Research Service--clearly contemplate these
concerns and prevent civil enforcement agencies from directing
funds to politically-favored groups or circumventing Congress
to augment their own appropriations. Nevertheless, H.R. 5063
would establish sweeping changes to the enforcement of Federal
statutes and severely undermine the ability of agencies to
respond to unlawful conduct through the provision of general
compensation for indirect harm. Further, H.R. 5063's unclear
provisions and chilling penalties will generate needless
litigation and dissuade the timely resolution of civil
complaints through settlement.
Accordingly, we strongly oppose H.R. 5063 and we urge our
colleagues to join us in opposition.
Mr. Conyers, Jr.
Ms. Lofgren.
Ms. Jackson Lee.
Mr. Cohen.
Mr. Johnson, Jr.
Mr. Deutch.
Mr. Jeffries.
Mr. Cicilline.
[all]