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115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-72
======================================================================
STOP SETTLEMENT SLUSH FUNDS ACT OF 2017
_______
March 30, 2017.--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. 732]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 732) 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......................................................... 13
Committee Consideration.......................................... 13
Committee Votes.................................................. 13
Committee Oversight Findings..................................... 18
New Budget Authority and Tax Expenditures........................ 19
Congressional Budget Office Cost Estimate........................ 19
Duplication of Federal Programs.................................. 20
Disclosure of Directed Rule Makings.............................. 20
Performance Goals and Objectives................................. 20
Advisory on Earmarks............................................. 20
Section-by-Section Analysis...................................... 21
Dissenting Views................................................. 21
The Amendment
The amendment is as follows:
Strike all 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
2017''.
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 or
loan to any person or entity other than the United States, other than a
payment or loan 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 loan, or
constitutes payment for services rendered in connection with the case
or a payment pursuant to section 3663 of title 18, United States Code.
(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, a plea
agreement, a deferred prosecution agreement, or a non-prosecution
agreement.
(e) Reports on Settlement Agreements.--
(1) In general.--Beginning at the end of the first fiscal
year that begins after the date of the enactment of this Act,
and annually thereafter, the head of each Federal agency shall
submit electronically to the Congressional Budget Office a
report on each settlement agreement entered into by that agency
during that fiscal year that directs or provides for a payment
or loan to a person or entity other than the United States 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 loan, or constitutes
payment for services rendered in connection with the case,
including the parties to each settlement agreement, the source
of the settlement funds, and where and how such funds were and
will be distributed.
(2) Prohibition on additional funding.--No additional funds
are authorized to be appropriated to carry out this subsection.
(3) Sunset.--This subsection shall cease to be effective on
the date that is 7 years after the date of the enactment of
this Act.
(f) Annual Audit Requirement.--
(1) In general.--Beginning at the end of the first fiscal
year that begins after the date of the enactment of this Act,
and annually thereafter, the Inspector General of each Federal
agency shall submit a report to the Committees on the
Judiciary, on the Budget and on Appropriations of the House of
Representatives and the Senate, on any settlement agreement
entered into in violation of this section by that agency.
(2) Prohibition on additional funding.--No additional funds
are authorized to be appropriated to carry out this subsection.
Purpose and Summary
H.R. 732, the ``Stop Settlement Slush Funds Act of 2017,''
prohibits terms in Justice Department settlements that direct
or provide for payments to non-victim third-parties.
Background and Need for the Legislation
An extended House Judiciary Committee investigation has
revealed that the previous Administration's Department of
Justice (DOJ) subverted Congress' spending power by requiring
settling defendants to donate money to non-victim third-
parties.
Donations earned up to double credit against defendants'
overall payment obligations while credit for direct relief to
consumers was merely dollar-for-dollar. What is more, documents
show that groups that stood to gain from these mandatory
donations lobbied DOJ to include them. The Justice Department
funneled third-party groups over a billion dollars in just the
last 30 months of the previous Administration. These payments
occured entirely outside of the Congressional appropriations
and grant oversight process. What is worse, in some cases, the
DOJ-required mandatory donations restored funding that Congress
specifically cut.
DOJ's 2016 settlement with Volkswagen required the company
to spend $2 billion on an Administration electric vehicle
initiative after Congress twice refused to pay for it. It is
critical that Congress act to prevent these activities in the
future.
This is fundamentally a bipartisan, institutional issue.
Serious people on both sides of the aisle understand this. A
former deputy Assistant Attorney General for the Office of
Legal Counsel in the Clinton administration warned, in 2009,
that DOJ ``has the ability to use settlements to circumvent the
appropriations authority of Congress.''\1\ In 2008, a top
Republican DOJ official restricted mandatory donation
provisions, because they ``can create actual or perceived
conflicts of interest and/or other ethical issues.''
---------------------------------------------------------------------------
\1\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).
---------------------------------------------------------------------------
Opponents' central concern is that there may be cases of
``generalized harm'' to communities that cannot be addressed by
restitution. But this misses the fundamental point. DOJ has
authority to obtain redress for victims. Federal law defines
victims to be those ``directly and proximately harmed'' by a
defendant's acts. 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 would necessarily
fund bad projects, it is that, outside of compensating actual
victims, it is not their decision to make.
The ``Stop Settlement Slush Funds Act of 2017'' bars
mandatory donation terms in DOJ settlements. It is a bipartisan
bill. It makes clear that payments to provide restitution for
actual harm, directly caused, are permitted.
It explicitly references the environmental context for
which the injury to the environment may be diffuse and there
may be no identifiable victims. The bill deals with this by
explicitly permitting payments to remediate environmental
damage. If direct remediation of the harm is impossible or
impractical, the violator is not let off the hook. The full
penalty is paid, but into the Treasury.
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.''\2\ 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 gives 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.''
---------------------------------------------------------------------------
\2\The Federalist No. 58 (James Madison).
---------------------------------------------------------------------------
Similarly, as renowned liberal legal scholar Abner Mikva
explained, the Founders knew the Spending Power was ``the most
far reaching and effectual'' and they wanted ``[t]o ensure that
Congress would act as the first branch of government.''\3\
Accordingly, they understood Congress ``would less efficiently
and less coherently devise fiscal policy than would a single
`treasurer' or `fiscal czar.' Yet they chose, for good reason,
to suffer this cost and bear its risks.''\4\
---------------------------------------------------------------------------
\3\Abner J. Mikva, The Congress, The Purse, The Purpose, and The
Power, 21 Georgia Law Rev. 1, 2 (1986).
\4\Id.
---------------------------------------------------------------------------
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.''\5\
---------------------------------------------------------------------------
\5\Peterson, supra note 3, at 339.
---------------------------------------------------------------------------
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.''\6\ The law reflects
the Separation of Powers principle. The Executive Branch
negotiates settlements, but Congress gets to decide how to
allocate the money recovered.\7\ 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.''\8\
---------------------------------------------------------------------------
\6\31 U.S.C. Sec. 3302.
\7\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.
\8\Peterson, supra note 3, at 341.
---------------------------------------------------------------------------
Unfortunately, previous Administrations 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.''\9\
---------------------------------------------------------------------------
\9\Id. at 348.
---------------------------------------------------------------------------
That is precisely what has happened, prior to and through
the end of the Obama administration.
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.\10\
---------------------------------------------------------------------------
\10\Andrew B. Spalding, Restorative Justice for Multinational
Corporations, University of Richmond Scholarship Repository 35 (2015).
---------------------------------------------------------------------------
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.''\11\
---------------------------------------------------------------------------
\11\Peterson, supra note 3, at 352.
---------------------------------------------------------------------------
When GAO concluded that SEPs violated the Miscellaneous
Receipts Act, 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.\12\
---------------------------------------------------------------------------
\12\Id. 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.\13\
---------------------------------------------------------------------------
\13\Id.
---------------------------------------------------------------------------
One tactic DOJ has used 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.''\14\
---------------------------------------------------------------------------
\14\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.
---------------------------------------------------------------------------
C. LThe U.S. Attorney's Manual's Limits on Defendant Funded Community
Service Projects
A May 14, 2008 memo from then Deputy Attorney General Mark
Filip announced the following amendment to the U.S. Attorney's
Manual 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.\15\
---------------------------------------------------------------------------
\15\U.S. Attorney's Manual 9-16.325, Plea Agreements, Deferred
Prosecution Agreements, Non-Prosecution Agreements and Extraordinary
Restitution (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).''\16\ 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.''\17\ 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.''\18\
---------------------------------------------------------------------------
\16\Kris Dighe, Organizational Community Serv. in Envtl. Crimes
Cases, 60 U.S. Attorneys' Bulletin 101 (July 2012).
\17\Id.
\18\Id.
---------------------------------------------------------------------------
There are several reasons why the USAM language did not
prove a barrier to DOJ's expanding mandatory donation
provisions in civil matters such as the banking settlements.
First, strictly speaking, the USAM provision covers only
criminal matters. In addition, the USAM's language 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 JPMorgan, Citi and Bank of America. The
concern was that DOJ was systematically subverting Congress'
spending power by using settlements to funnel money to third-
party groups.
The evidence was a progression of troubling terms in DOJ's
major mortgage banking settlements.
It began with the 2013 JPMorgan settlement which merely
offered the bank credit for donations to community
redevelopment groups.\19\ Next came Citi and Bank of America
settlements in 2014, which required $150 million in donations
to housing non-profits.\20\ These donations earned double
credit against the banks' overall obligations. Meanwhile,
credit for direct forms of consumer relief remained dollar-for-
dollar.
---------------------------------------------------------------------------
\19\Settlement Agreement between DOJ and JPMorgan, Annex2--Consumer
Relief, Nov. 19, 2013, Menu Item 4D, https://www.justice.gov/iso/opa/
resources/64420131119164759163425.pdf.
\20\Settlement Agreement between DOJ and Citi, Annex2--Consumer
Relief, July 14, 2014, Menu Items 4D, 4E, 4F, http://www.justice.gov/
iso/opa/resources/649201471413721380969.pdf; Settlement Agreement
between DOJ and Bank of America, Annex2--Consumer Relief, Menu Items
3E, 3F, 3G, Aug. 21, 2014, http://www.justice.gov/iso/opa/resources/
8492014829141239
967961.pdf.
---------------------------------------------------------------------------
Bank of America's settlement went further. It 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.\21\
---------------------------------------------------------------------------
\21\Settlement Agreement between DOJ and Bank of America, Annex3--
Tax Fund, Aug. 21, 2014, http://www.justice.gov/iso/opa/resources/
4922014829141329620708.pdf; Settlement between DOJ and Bank of America,
Aug. 21, 2014, pg. 9, http://www.justice.gov/iso/opa/resources/
3392014829141150385241.pdf.
---------------------------------------------------------------------------
B. Committee Oversight & DOJ Delay
The Committee's 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.
Finally, on March 18, 2016, 15 months after the initial
request, DOJ 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. They also make clear 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.
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+.''\22\
---------------------------------------------------------------------------
\22\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.
---------------------------------------------------------------------------
On April 8, 2016, the Committee requested transcribed
interviews with four DOJ subordinates who, according to the
documents the Committee reviewed, were closely involved in
inserting the mandatory donation provisions into the
settlements. On July 19, 2016, the Judiciary and Financial
Services Committees held a transcribed interview with Maame
Frimpong, Tony West's deputy. On December 8, 2016, following
the Presidential election, DOJ released key documents into the
Committee's custody, on condition that DOJ be consulted before
they are made public.
C. DOJ Has Ignored Congressional Concerns
Rather than suspend the practice of mandatory donation
provisions in response to legitimate Congressional concerns,
however, the Obama administration 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 JPMorgan relating to robo-signing. Seven-and-
one-half million of those dollars did not make it to victims.
Instead, they went to a third-party, largely to educate high
school and college students about using credit cards
responsibly.\23\
---------------------------------------------------------------------------
\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.), http://
www.justice.gov/ust/eo/public_affairs/press/docs/2015/
pr20150303_order.pdf.
---------------------------------------------------------------------------
Similarly, DOJ's September 2015 settlement with Hudson City
Savings Bank requires the defendant to ``[s]pend $750,000 on
local partnerships.''\24\
---------------------------------------------------------------------------
\24\Consent Order with Hudson City Savings Bank at 17 (Sept. 24,
2015), https://www.justice.gov/opa/pr/justice-department-and-consumer-
financial-protection-bureau-reach-
settlement-hudson-city.
---------------------------------------------------------------------------
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
credit dollars in ``Financing and/or donations to fund
affordable rental and for sale housing.''\26\
---------------------------------------------------------------------------
\25\Settlement Agreement between DOJ and Goldman Sachs, Annex2--
Consumer Relief, Apr. 11, 2016, Menu Item 2, https://www.justice.gov/
opa/file/839906/download.
\26\https://www.justice.gov/opa/file/839906/download.
---------------------------------------------------------------------------
Most recently, in the final hours of the Obama
administration, DOJ entered into a mortgage settlement with
Credit Suisse. The terms required the bank to spend $240
million credit dollars to finance affordable housing
projects.\27\ This provision highlighted DOJ's shift in tactics
late in the Obama administration. Facing increased scrutiny for
mandatory donation terms, DOJ began forcing settling defendants
to make donations in the guise of loans.
---------------------------------------------------------------------------
\27\Settlement Agreement between DOJ and Credit Suisse, Annex2--
Consumer Relief, Jan. 18, 2017, https://www.justice.gov/opa/press-
release/file/928486/download.
---------------------------------------------------------------------------
To understand this, it is important to appreciate that low
income housing projects typically feature four layers of
financing. The first layer of debt is conventional financing
provided by different lenders and repaid at market rates. A
second and third layer are equity-based financing structures
featuring both common and preferred equity, which govern who
receives valuable tax breaks typically associated with such
projects. The fourth layer is provided by the government and is
debt that is never repaid. These government grants are used
because low-income housing projects are not otherwise
profitable for developers. Beginning in 2014, DOJ required
settling defendants to provide over $340 million in this fourth
type of project financing, which is never paid back. That is
precisely why the settlement documents described these
financing provisions as defendants earning credit for the
``loss'' associated with the loans.\28\ The financing was
simply a donation in the guise of a loan.
---------------------------------------------------------------------------
\28\Id. at 5.
---------------------------------------------------------------------------
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 can 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. LReinstating Funding Congress Specifically Cut or Denied
In the most egregious cases, DOJ used mandatory donations
to restore funding that Congress specifically cut.
In 2011, Congress eliminated $88 million in funding for
HUD's ``housing counseling assistance'' program.\29\ Congress
reinstated about $45 million for the program in 2012.\30\
Grantee groups lamented the 50% cut. For 2014 and 2015,
Congress continued to provide just $45 MM and $47MM
respectively.\31\ Thus, the groups were understandably pleased
with the mandatory donation provisions in the 2014 Citi
settlement.
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\29\Department of Defense and Full-Year Continuing Appropriations
Act of 2011, Pub. L. No. 112-10, Sec. 2245, 125 Stat 38.
\30\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.
\31\See http://www.lis.gov/cgi-lis/query/D?c113:7:./temp/
c113yBgthU::; see also Consolidated Appropriations Act of 2014, Pub.
L. No. 113-76.
---------------------------------------------------------------------------
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 fell ``short'' by a combined
$84MM. The DOJ settlements required $30MM to go specifically to
groups in the HUD grant program, so 36% was recouped directly.
In addition, some HUD grantees were also eligible for a portion
of the remaining $120MM in mandatory donations, not to mention
the $490MM in the tax relief fund. For example, NeighborWorks
was an eligible HUD grantee, but also received $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, restored at least $152MM ($122+$30) to
HUD grantees in place of the $88MM reduction mandated by
Congress.
More recently, DOJ's 2016 Volkswagen settlement required
the company to pay $2 billion to increase the use of electric
vehicles.\32\ This spending cannot be justified as a mitigation
payment, because the settlement states explicitly that a
separate $2.7 billion ``mitigation trust'' payment would
``fully mitigate'' the pollution that Volkswagen caused.\33\
Rather, DOJ used the settlement to fund an Administration
electric vehicle initiative for which Congress had twice
refused to pay.\34\
---------------------------------------------------------------------------
\32\Press Release, Dept. of Justice, Volkswagen to Spend Up to
$14.7 Billion to Settle Alle-
gations of Cheating Admissions Tests and Deceiving Customers on 2.0
Liter Diesel Vehicles (June 28, 2016), https://www.justice.gov/opa/pr/
volkswagen-spend-147-billion-settle-allegations-
cheating-emissions-tests-and-deceiving.
\33\In re Volkswagen ``Clean Diesel'' Mktg., Sales, Practices, and
Prods. Liab. Litig., MDL No. 2672, at 5 (N.D. Cal. June 28, 2016).
\34\Comments of the Competitive Enterprise Institute et al., Notice
of Lodging of Proposed Partial Consent Decree Under the Clean Air Act,
81 Fed. Reg. 44051 (July 6, 2016).
---------------------------------------------------------------------------
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.\35\ 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 would
necessarily fund bad projects; it is that outside of
compensating actual victims, it is not their decision to make.
---------------------------------------------------------------------------
\35\18 U.S.C. Sec. 3771(e).
---------------------------------------------------------------------------
For example, consider UST's March 3, 2015 robo-signing
settlement referenced above. It required JPMorgan 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.)
The CAREP educates high school and college students on the
responsible use of credit and credit cards.\36\ 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 JPMorgan'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.
---------------------------------------------------------------------------
\36\About CARE, http://care4yourfuture.org/about.
---------------------------------------------------------------------------
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.\37\
---------------------------------------------------------------------------
\37\American Bankruptcy Institute, 2014 Annual Report, http://
www.abi.org/about-us/annual-
reports.
---------------------------------------------------------------------------
ABI is not an ideological group. It is a non-profit with a
reputation for solid 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 entire net worth of an
organization, however worthy, to be nearly doubled at the
unilateral discretion of the Executive Branch.
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.\38\
---------------------------------------------------------------------------
\38\Congressional Research Service, Federal Grant Recipient
Financial Reporting Requirements, April 24, 2015.
---------------------------------------------------------------------------
Such controls were 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 a monitor ensures that the banks
comply with all the settlement terms, including the mandatory
donations. However, the monitor's jurisdiction extends only to
the banks, not to the grant recipients. Nothing in the
settlement agreements gives the monitor authority to conduct
ongoing oversight of recipients to ensure that they are using
donated funds as intended.
In fact, in some settlements, DOJ explicitly disclaimed any
oversight responsibility for the donations defendants were
required to make. Consider again, DOJ's March 3, 2015
settlement with JPMorgan which 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 directed. 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.''\39\ This is a
remarkable admission.
---------------------------------------------------------------------------
\39\Consent Order with Hudson City Savings Bank, supra note 23
(emphasis added.).
---------------------------------------------------------------------------
V. THE ``STOP SETTLEMENT SLUSH FUNDS ACT OF 2017''
H.R. 732 prohibits terms in DOJ settlements that direct or
provide for payments or loans to non-victim third-parties.
The legislation makes clear that prohibited payments do not
include payments to entities to remediate direct harm,
including environmental harm, done by defendants' wrongful
activity. This is particularly important in the environmental
context, in which the injury to the environment may be diffuse
and there may be no identifiable victims. The bill deals with
this by explicitly permitting payments to remediate
environmental damage. If direct remediation of the harm is
impossible or impractical, the violator is not let off the
hook. The full penalty is paid, but into the Treasury. It is
simply that the decision as to what is the next best thing to
do with the money is left to the people's elected
representatives in Congress rather than the Executive Branch.
Similarly, the bill's prohibition on terms requiring
defendants to make loans is aimed at donations in the guise of
loans and not at loan modifications. Modifications for direct
victims are, in fact, expressly permitted as remedial.
The bill also explicitly permits payments for services
rendered in connection with the case, for example, to a
settlement monitor. The bill applies prospectively only, so as
not to disturb any settlements already concluded. The bill
covers both civil and criminal settlements, with the exception
of certain drug crimes for which Congress explicitly authorized
community restitution payments.\40\ Nor is this bill intended
to interfere with the Federal False Claims Act, the moiety
statute or similar statutes that permit whistleblowers who
expose fraud against the government to collect a reward.\41\ In
those cases, money is not being directed to a whistleblower
instead of the government. Rather the government is simply
paying a reward to the whistleblower out of funds that it has
recovered through a settlement. Congress has explicitly
authorized such payments to whistleblowers.
---------------------------------------------------------------------------
\40\18 U.S.C. Sec. 3663.
\41\31 U.S.C. Sec. 3729-3733; 19 U.S.C. Sec. 1619.
---------------------------------------------------------------------------
The Committee received statements or letters of support for
H.R. 732 from Americans for Tax Reform, the U.S. Chamber of
Commerce, Americans for Limited Government, FreedomWorks,
National Taxpayers Union, and the Small Business &
Entrepreneurship Council.
Hearings
The Committee did not hold a hearing on H.R. 732. However,
the bill is nearly identical to a 2016 bill on which the
Committee did hold a hearing.
On April 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, Esq.,
Associate Director of Legal Rhetoric, American University
Washington College of Law; Prof. David M. Uhlmann, Esq.,
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. However, the bill 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 left to Congress rather than DOJ.
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.
On September 7, 2016, the House passed H.R. 5063 in a
bipartisan 241-174 vote.
Committee Consideration
On February 7, 2017, the Committee met in open session and
ordered the bill H.R. 732 favorably reported, with an
amendment, by a rollcall vote of 17 to 8, 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. 732.
1. An amendment by Mr. Conyers to exempt settlement terms
that address indirect harm from violations of laws minimizing
lead or copper in drinking water. Defeated 10 to 14.
ROLLCALL NO. 1
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................
Mr. DeSantis (FL).............................. X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Bishop (MI)................................ X
Ms. Roby (AL).................................. X
Mr. Gaetz (FL).................................
Mr. Johnson (LA)............................... X
Mr. Biggs (AZ)................................. X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Swalwell (CA).............................. X
Mr. Lieu (CA).................................. X
Mr. Raskin (MD)................................
Ms. Jayapal (WA)............................... X
------------------------
Total...................................... 10 14
------------------------------------------------------------------------
2. An amendment by Mr. Johnson (D-GA) to exempt settlement
terms addressing indirect harm from violations of the Clean Air
Act. Defeated 10 to 14.
ROLLCALL NO. 2
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL)..............................
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Bishop (MI)................................ X
Ms. Roby (AL).................................. X
Mr. Gaetz (FL).................................
Mr. Johnson (LA)............................... X
Mr. Biggs (AZ)................................. X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................ X
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Swalwell (CA).............................. X
Mr. Lieu (CA).................................. X
Mr. Raskin (MD)................................ X
Ms. Jayapal (WA)............................... X
------------------------
Total...................................... 10 14
------------------------------------------------------------------------
3. An amendment by Mr. Cicilline to exempt settlement terms
providing for payments to HUD-approved housing counseling
agencies, legal aid organizations performing housing related
work, or community redevelopment organizations in cases arising
out of mortgage lending activity prior to 2009. Defeated 9 to
16.
ROLLCALL NO. 3
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL)..............................
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX)............................. X
Mr. Bishop (MI)................................ X
Ms. Roby (AL).................................. X
Mr. Gaetz (FL)................................. X
Mr. Johnson (LA)............................... X
Mr. Biggs (AZ)................................. X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Swalwell (CA).............................. X
Mr. Lieu (CA).................................. X
Mr. Raskin (MD)................................ X
Ms. Jayapal (WA)............................... X
------------------------
Total...................................... 9 16
------------------------------------------------------------------------
4. An amendment by Ms. Jayapal to exempt settlement terms
providing for payments to HUD-approved faith-based or community
organizations that aid homeowners. Defeated 6 to 17.
ROLLCALL NO. 4
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX).............................
Mr. Bishop (MI)................................ X
Ms. Roby (AL).................................. X
Mr. Gaetz (FL)................................. X
Mr. Johnson (LA)............................... X
Mr. Biggs (AZ)................................. X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)............................... X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Swalwell (CA).............................. X
Mr. Lieu (CA)..................................
Mr. Raskin (MD)................................
Ms. Jayapal (WA)............................... X
------------------------
Total...................................... 6 17
------------------------------------------------------------------------
5. Motion to report H.R. 732 favorably, as amended. Passed
by a rollcall vote of 17 to 8.
ROLLCALL NO. 5
------------------------------------------------------------------------
Ayes Nays Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman................... X
Mr. Sensenbrenner, Jr. (WI)....................
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA).................................. X
Mr. King (IA)..................................
Mr. Franks (AZ)................................ X
Mr. Gohmert (TX)............................... X
Mr. Jordan (OH)................................ X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT).............................. X
Mr. Marino (PA)................................ X
Mr. Gowdy (SC)................................. X
Mr. Labrador (ID)..............................
Mr. Farenthold (TX)............................ X
Mr. Collins (GA)............................... X
Mr. DeSantis (FL).............................. X
Mr. Buck (CO).................................. X
Mr. Ratcliffe (TX).............................
Mr. Bishop (MI)................................ X
Ms. Roby (AL).................................. X
Mr. Gaetz (FL)................................. X
Mr. Johnson (LA)............................... X
Mr. Biggs (AZ)................................. X
Mr. Conyers, Jr. (MI), Ranking Member.......... X
Mr. Nadler (NY)................................ X
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN)................................. X
Mr. Johnson (GA)............................... X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA).................................. X
Mr. Richmond (LA)..............................
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI)............................. X
Mr. Swalwell (CA).............................. X
Mr. Lieu (CA)..................................
Mr. Raskin (MD)................................
Ms. Jayapal (WA)............................... X
------------------------
Total...................................... 17 8
------------------------------------------------------------------------
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. 732, 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, February 24, 2017.
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. 732, the ``Stop
Settlement Slush Funds Act of 2017.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz, who can be reached at 226-2860.
Sincerely,
Keith Hall,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 732--Stop Settlement Slush Funds Act of 2017.
As ordered reported by the House Committee on the Judiciary
on February 7, 2017.
H.R. 732 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 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. 732 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. 732
could affect direct spending and revenues; however, CBO cannot
determine the magnitude or timing of those effects.
CBO also cannot determine the long-term effects of the bill
on direct spending or on-budget deficits but such effects are
very unlikely to increase net direct spending or on-budget
deficits by more than $5 billion in any of the four consecutive
10-year periods beginning in 2028.
The bill also would require Federal agencies, for seven
years after enactment, to submit an annual report to the
Congress if certain settlement agreements were entered into
during that year by the agency. Based on the cost of similar
activities, CBO estimates that preparing those reports would
cost less than $500,000 annually; such spending would be
subject to the availability of appropriated funds.
H.R. 732 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Mark Grabowicz.
The estimate was approved by H. Samuel Papenfuss, Deputy
Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 732 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. 732 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.
732 prohibits terms in Justice Department 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. 732 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.
Sec. 1: Short Title: Provides that the bill may be cited as
the Stop Settlement Slush Funds Act of 2017.
Sec. 2: Limitation on Donation Terms in Settlements to
which the U.S. is a Party
(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 or loan to any person other than the United
States. However, it permits a payment or loan 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 loan, or constitutes payment for services
rendered in connection with the case or is authorized
by 18 U.S.C. Sec. 3663 relating to drug prosecutions.
(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).
(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) Definitions--``Settlement Agreement'' means a
settlement agreement resolving a civil action or
potential civil action, a plea agreement, a deferred
prosecution agreement, or a non-prosecution agreement.
(e) Reports on Settlement Agreements--Each agency shall
submit an annual report to CBO detailing any settlement
agreements that provide payments to non-victim third-
parties pursuant to the allowed exceptions in section
(a). Reports should detail the parties, source of funds
and how they are spent. No additional funding is
provided for such reports and the requirement lapses
after 7 years.
(f) Annual Audit Requirement--Each agency Inspector
General shall report annually to the House Judiciary,
Budget and Appropriation Committees on any settlements
that violate this Act. No additional funds are provided
for such reports.
Dissenting Views
H.R. 732, the ``Stop Settlement Slush Funds Act of 2017,''
is a deeply flawed proposal that would undermine the ability of
civil enforcement agencies to hold corporate wrongdoers
accountable for unlawful conduct. Based on unsubstantiated
allegations that ignore established law and agency practice,
the bill would prohibit any official or agent 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. 732
would prevent agencies from ensuring wrongdoers make complete
restitution for violations of the law and from tailoring
remedies to address systemic or diffuse harms to unidentifiable
victims, the public health, or the environment. By forcing
agencies into needless litigation, the bill would also delay
the timely enforcement of the law and would waste agency time
and resources.
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, for several years the
Majority has conducted an extensive investigation into certain
settlement agreements structured by the Department of Justice.
To date, however, no credible facts have been discovered that
would suggest that these settlements included so-called slush
funds otherwise subject to appropriations. 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).
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Not surprisingly, the Justice Department, in its strenuous
opposition to a substantively identical version of the
legislation considered last Congress, stated that 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 opposed that
legislation because it would undermine the restitution of
generalized harm in various cases.\5\ In the context of a veto
threat of that bill, the Obama Administration stated that the
``legislation seeks to address a problem that does not exist''
and ``would interfere with the just and fair settlement of
cases.''\6\ Not surprisingly, a coalition of public interest
organizations--including the National Urban League, Public
Citizen, and Americans for Financial Reform, and The Leadership
Conference on Civil and Human Rights--opposes H.R. 732.\7\
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\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.
\6\Exec. Office of the President, Office of Mgm't & Budget,
Statement of Administration Policy: H.R. 5063, Stop Settlement Slush
Funds Act of 2016 (2016).
\7\Letter from Public Citizen to H. Comm. on the Judiciary (Feb. 1,
2017) (on file with Democratic staff of the H. Comm. on the Judiciary);
Letter from Marc H. Morial, President, the National Urban League, to
Chairman Goodlatte & Ranking Member Conyers, H. Comm. of the Judiciary
(Feb. 1, 2017) (on file with Democratic staff of the H. Comm. on the
Judiciary); Letter from Americans for Financial Reform, et al. (Sept.
7, 2016) (on file with Democratic staff of the H. Comm. on the
Judiciary).
---------------------------------------------------------------------------
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. 732, the ``Stop Settlement Slush Funds Act of 2017,''
prohibits the enforcement or consummation of settlement
agreements that direct payments or loans to parties not
``directly and proximately'' harmed by the unlawful conduct of
the settling party (``settlement payments''). A violation of
this measure would constitute a violation of the Miscellaneous
Receipts Act, which prohibits the augmentation of agency
appropriations through enforcement policy.\8\ 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,\9\ circumvents Congress'
appropriations power under article I, section 9, clause 7 of
the U.S. Constitution.\10\ A detailed section-by-section
explanation of the bill appears at the end of these views.
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\8\31 U.S.C. Sec. 3302 (b), (d) (2017).
\9\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).
\10\U.S. Const. art. I, Sec. 9 (``No Money shall be drawn from the
Treasury but in Consequence of Appropriations made by Law.'').
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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.\11\ 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.\12\ More than 13
million homes were lost to foreclosure between 2006 and
2014.\13\
---------------------------------------------------------------------------
\11\Nelson D. Schwartz, Can the Mortgage Crisis Swallow a Town?,
N.Y. Times, Sept. 4, 2007.
\12\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.
\13\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/.
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A significant cause of this fiscal crisis\14\ was the
fraudulent packaging and trading of residential mortgage-backed
securities (RMBS).\15\ 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.''\16\
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\14\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).
\15\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.
\16\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 RMBS
Working Group ``to investigate those responsible for misconduct
contributing to the financial crisis through the pooling and
sale of residential mortgage-backed securities.''\17\ In a 2012
State of the Union Address, President Obama stated that the
broader purpose of the RMBS Working Group was 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.''\18\ 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.''\19\
---------------------------------------------------------------------------
\17\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.
\18\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.
\19\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 six financial institutions--Bank of America,
Citigroup, Goldman Sachs, Morgan Stanley, Deutsche Bank, 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.\20\ 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).\21\ 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,''\22\ 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.\23\ 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.''\24\ In
2016, the Justice Department settled potential claims relating
to Morgan Stanley's alleged misconduct in the mortgage-backed
securities market pursuant to which it agreed to pay a $2.6
billion penalty.\25\ In April 2016, 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.\26\
Most recently, the Justice Department finalized a $7.2 billion
settlement with Deutsche Bank.\27\ According to then-Attorney
General Loretta E. Lynch, this settlement ``holds Deutsche Bank
accountable for its illegal conduct and irresponsible lending
practices, which caused serious and lasting damage to investors
and the American public.''\28\
---------------------------------------------------------------------------
\20\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.
\21\Id; 12 U.S.C. Sec. 1833a (2017); United States v. Bank of New
York Mellon, No. 11 Civ. 6969 LAK 2 (S.D.N.Y. Apr. 24, 2013).
\22\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.
\23\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.
\24\Id.
\25\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.
\26\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.
\27\Dep't of Justice, Deutsche Bank Agrees to Pay $7.2 Billion for
Misleading Investors in its Sale of Residential Mortgage-Backed
Securities (Jan. 17, 2017), https://www.justice.gov/opa/pr/deutsche-
bank-agrees-pay-72-billion-misleading-investors-its-sale-residential-
mortgage-backed.
\28\Id.
---------------------------------------------------------------------------
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.''\29\ 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.\30\ Notwithstanding the poor qualities of
these securities, the bank continued to securitize, package,
and sell them to investors.\31\ 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.\32\ 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.''\33\
---------------------------------------------------------------------------
\29\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.
\30\Dep't of Justice, JPMorgan Statement of Facts 6-8 (2013),
http://www.justice.gov/iso/opa/resources/94320131119151031990622.pdf.
\31\Id.
\32\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.
\33\Id.
---------------------------------------------------------------------------
Several of these settlements also include ``consumer
relief'' provisions that require the settling banks to
remediate harms resulting from the banks' allegedly unlawful
conduct.\34\ 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.''\35\ Additionally, two of these settlements, with
Citigroup\36\ and Bank of America,\37\ required donations to
third-party charitable organizations, including legal aid
organizations, community development financial institutions,
and housing counseling groups 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
``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.''\38\ 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:
---------------------------------------------------------------------------
\34\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.
\35\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://financial
services.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/64420131119164759163425.pdf.
\36\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). Dep't of Justice, Annex 2: Citigroup Consumer Relief Report
11-15 (2014), http://www.justice.gov/iso/opa/resources/
649201471413721380969.pdf.
\37\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.
\38\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.\39\
---------------------------------------------------------------------------
\39\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
Since 2014, the Majority has conducted an ``extended''
investigation into the consumer relief provisions of the
Justice Department's settlements with Citigroup and Bank of
America (``RMBS settlements'').\40\ 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.\41\ 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,''\42\ explaining that the settlements ``appear to
serve as a vehicle for funding activist groups.''\43\ 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.\44\ On February 12, 2015,
the RRCAL Subcommittee held an oversight hearing entitled
``Consumers Short Changed? Oversight of the Justice
Department's Mortgage Lending Settlements,''\45\ 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.''\46\ 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.''\47\ At a
subsequent oversight hearing in the RRCAL Subcommittee on March
19, 2015,\48\ Chairman Goodlatte complained that the Justice
Department's production of 60 pages of emails did not include
internal communications.\49\
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\40\Memorandum from U.S. Rep. Bob Goodlatte (R-VA), Chair, H. Comm.
on the Judiciary, for Markup of H.R. 732, the ``Stop Settlement Slush
Funds Act of 2017,'' to Members of the H. Comm. on the Judiciary 1
(Feb. 1, 2017) (on file with Democratic staff of the H. Comm. on the
Judiciary); 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).
\41\Id. at 3, 6.
\42\Letter from Rep. Bob Goodlatte, Chairman, H. Comm. on the
Judiciary, & 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).
\43\Id. at 3.
\44\Letter from 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).
\45\Judiciary Oversight Hearing, supra note 2.
\46\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/.
\47\Letter from 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).
\48\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).
\49\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.\50\ 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:
---------------------------------------------------------------------------
\50\Letter from Peter J. Kadzik, Assistant Attorney General, to
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.\51\
---------------------------------------------------------------------------
\51\Id.
Following this production, the Justice Department supplemented
its earlier responses through another transmission of documents
on November 6, 2015.\52\ This production includes approximately
300 additional pages of emails, internal Justice Department
communications as well as references to communications with
third parties.\53\ 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.\54\
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\52\Letter from Peter J. Kadzik, Assistant Attorney General, to
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).
\53\Id.
\54\Letter from Peter J. Kadzik, Assistant Attorney General, to
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. 732
now argue that the Justice Department has ignored congressional
concerns with settlement agreements and ``doubled down'' on
``mandatory donation provisions'' in settlements.\55\
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\55\Memorandum from U.S. Rep. Bob Goodlatte (R-VA), Chair, H. Comm.
on the Judiciary, for Markup of H.R. 732, the ``Stop Settlement Slush
Funds Act of 2017,'' to Members of the H. Comm. on the Judiciary 7
(Feb. 1, 2017).
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CONCERNS WITH H.R. 732
I. H.R. 732 IS A POORLY-DESIGNED SOLUTION TO A
NON-EXISTENT PROBLEM
Proponents of H.R. 732 argue that the Justice Department
has structured settlements to direct ``slush funds'' to
``activist groups,''\56\ even though they offer no proof in
support of their contention.\57\ 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,\58\ 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.\59\
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\56\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\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).
\58\Letter from Peter J. Kadzik, Assistant Attorney General, to
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).
\59\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. 732 claim that the Justice
Department's RMBS settlements are unlawful,\60\ the Justice
Department has broad enforcement discretion when settling
litigation involving the Federal Government,\61\ a traditional
power of the Executive Branch.\62\ Under the Take Care Clause
of the Constitution,\63\ 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.\64\ 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.\65\ The
authority to compromise and settle litigation is inherent
within this broad grant of plenary authority over government
litigation,\66\ and extends beyond mere litigation strategy to
include the ``national policies espoused by the
Executive.''\67\ 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.''\68\ 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.''\69\ 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.'' \70\
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\60\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).
\61\28 U.S.C. Sec. 516 (2017); 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).
\62\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).
\63\U.S. Const. art. II, Sec. 3 (the President ``shall take Care
that the Laws be faithfully executed.'').
\64\David Carpenter, Cong. Research Serv., Legal Principles
Associated with monetary Relief Provided as Part of Financial-Related
Legal Settlements & Enforcement Actions 1 (2015).
\65\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.
\66\Id. at 59.
\67\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.'').
\68\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.
\69\Heckler v. Chaney, 470 U.S. 821, 831-32 (1985).
\70\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).
---------------------------------------------------------------------------
Furthermore, settlement payments are a lawful exercise of
the Justice Department's enforcement discretion.\71\ The
Miscellaneous Receipts Act (MRA)\72\ and other appropriations
laws\73\ establish a general prohibition against augmentation
of agency appropriations through enforcement policy.\74\ These
laws effectuate Congress' role in appropriating funds and
ensuring that Congress retains control of the public purse.\75\
Importantly, however, this prohibition is clearly inapplicable
to funds that are not received by the Government.\76\
---------------------------------------------------------------------------
\71\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://financial
services.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).
\72\31 U.S.C. Sec. 3302(b) (2017); 19 U.S.C. Sec. 527 (2017)
(requiring deposit of customs fines, penalties, and forfeitures to the
Treasury).
\73\31 U.S.C. Sec. 1301(a) (2017) (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).
\74\U.S. Gov't Accountability Office, Nuclear Regulatory
Commission's Auth. to Mitigate Civil Penalties 17, 19 (1990).
\75\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.'').
\76\31 U.S.C. Sec. 3302(b) (2017). 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) (2017).
---------------------------------------------------------------------------
The non-partisan and independent Government Accountability
Office (GAO) has issued several opinions clarifying settlement
payments are not ``for the Government'' within the meaning of
the MRA.\77\ The GAO explains that an agency's enforcement
discretion includes the use of settlement payments as long as
the remedies have a nexus to the correction of an underlying
violation and the agency's prosecutorial objectives. \78\
Indeed, GAO has stated that ``settlements may contain terms and
undertakings that go beyond the [agency's] remedies,''\79\ and
that an enforcement agency ``may adjust penalties to reflect
the special circumstances of the violation or concessions
exacted from the violator.''\80\ 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.'''\81\ 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.''\82\
---------------------------------------------------------------------------
\77\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).
\78\U.S. Gov't Accountability Office, B-210210, Matter of:
Commodity Futures Trading Comm'n--Donations Under Settlement Agreements
(1983).
\79\Id.
\80\U.S. Envtl. Prot. Agency, B-247155.2, 1993 WL 798227 (Comp.
Gen. Mar. 1, 1993), http://www.gao.gov/assets/200/195921.pdf
\81\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://financial
services.house.gov/uploadedfiles/hhrg-114-ba09-wstate-dmin-
20160519.pdf.
\82\Andrew Brady Spalding, Restorative Justice for Multinational
Corporations, 76 Ohio St. L.J. 357, 394-95 (2015).
---------------------------------------------------------------------------
The non-partisan Congressional Research Service (CRS)
likewise agrees that settlement payments are a lawful exercise
of agency enforcement discretion.\83\ Noting that enforcement
agencies have ``tremendous flexibility to craft the terms of
legal settlements with entities for alleged misbehavior,'' CRS
observes 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.''\84\ 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.\85\ 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.'''\86\
---------------------------------------------------------------------------
\83\David Carpenter & Edward Lieu, Cong. Research Serv., Monetary
Relief to Third Parties as Part of Federal Legal Settlements 1 (2016).
\84\Id. at 1-2.
\85\David Carpenter, Cong. Research Serv., Legal Principles
Associated with monetary Relief Provided as Part of Financial-Related
Legal Settlements & Enforcement Actions 6 (2015).
\86\Id.
---------------------------------------------------------------------------
Courts have also broadly upheld the use of settlement
payments.\87\ 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 then
objective upon which the law is based, and do not violate the
underlying statute.\88\ Unlike civil penalties imposed by a
court, which must be paid to the U.S. Treasury,\89\ the Court
characterized settlements as contracts because the ``voluntary
nature of a consent decree is its most fundamental
characteristic.''\90\
---------------------------------------------------------------------------
\87\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.'').
\88\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.'').
\89\Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc.,
484 U.S. 49, 53 (1987).
\90\Id. at 521.
---------------------------------------------------------------------------
Lower courts have similarly held that settlement payments
are in the public interest.\91\ In 1990, the Ninth Circuit
construed Firefighters v. City of Cleveland to allow lawful
payments to third parties under a settlement.\92\ 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:
---------------------------------------------------------------------------
\91\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).
\92\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.\93\
---------------------------------------------------------------------------
\93\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.\94\ The district court explained:
---------------------------------------------------------------------------
\94\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.\95\
---------------------------------------------------------------------------
\95\Id.
Settlement payments are also valid under longstanding
Justice Department policy so long as the agency does not
actually or constructively receive funds through a
settlement.\96\ 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.''\97\ In 2006, OLC
stated in another opinion that there are two criteria to avoid
constructively receiving funds through a settlement agreement:
---------------------------------------------------------------------------
\96\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://financial
services.house.gov/uploadedfiles/hhrg-114-ba09-wstate-dmin-
20160519.pdf.
\97\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) Lthe 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.\98\
---------------------------------------------------------------------------
\98\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.''\99\
---------------------------------------------------------------------------
\99\31 U.S.C. Sec. 3302(b) (2017); 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 settlement agreements.\100\ The terms of these
agreements arise from the Justice Department's statutory
enforcement authority under FIRREA\101\ 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 Min explains:
---------------------------------------------------------------------------
\100\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).
\101\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 (2017); 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.\102\
---------------------------------------------------------------------------
\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://financial
services.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.''\103\ 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.''\104\ Indeed, by the Majority's own admission,
settlements donations that the government never receives do not
trigger the MRA.\105\ Further, the Majority ``has implicitly
acknowledged the legality of charitable payment terms by
passing [this bill] out of Committee,'' as Professor Min
notes.\106\
---------------------------------------------------------------------------
\103\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).
\104\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)
(2017); David Carpenter & Edward Lieu, Cong. Research Serv., Monetary
Relief to Third Parties as Part of Federal Legal Settlements 3 (2016).
\105\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.'').
\106\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://financial
services.house.gov/uploadedfiles/hhrg-114-ba09-wstate-dmin-
20160519.pdf.
---------------------------------------------------------------------------
In addition to clearly satisfying the existing legal
framework for settlement payments, 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.\107\ 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.\108\ 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.\109\ Housing intermediaries also ensure that banks
comply with the terms of settlements, which Ms. Gordon adds,
``is not always a given.''\110\
---------------------------------------------------------------------------
\107\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.
\108\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.
\109\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).
\110\Id.
---------------------------------------------------------------------------
While H.R. 732's proponents claim, without evidence, that
the recipients of RMBS settlement payments are ``activist
groups,'' the Majority has overlooked the fact that
conservative groups may also receive funds through the RMBS
settlements.\111\ Furthermore, numerous mechanisms within the
settlement terms prevent the misuse of settlement funds.\112\
At a hearing on the RMBS settlements, Professor Alan White of
CUNY School of Law addressed the Majority's concerns directly:
---------------------------------------------------------------------------
\111\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://financial
services.house.gov/uploadedfiles/hhrg-114-ba09-wstate-dmin-
20160519.pdf.
\112\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.\113\
---------------------------------------------------------------------------
\113\Id.
Lastly, even if it were desirable to change existing law in
response to the RMBS settlements, H.R. 732 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. 732 as
these provide restitution for actual harm (i.e., home
foreclosures) caused by the settling banks' allegedly unlawful
conduct.
In recognition of these concerns, Representatives David N.
Cicilline (D-RI) and Pramila Jayapal (D-WA) offered amendments
to exclude settlement payments that remedy harms caused by
fraudulent residential-mortgage backed securities or include
payments to faith-based organizations community organizations.
Representative Cicilline stated in support of his amendment
that the consumer relief provisions or the RMBS settlements
were ``designed to enable many Americans to stay in their homes
by directing funds to distressed homeowners, community
reinvestment and stabilization, and income-based lending for
borrowers who lost homes to foreclosure.''\114\ Representative
Jayapal likewise noted that housing counseling agencies ``were
essential during the foreclosure crisis,'' particularly among
communities that ``bore a disproportionate burden and were
targeted by predatory lending practices.''\115\ Representative
Cicilline's amendment failed by a party-line vote of 16 to
9.\116\ Representative Jayapal's amendment was likewise
rejected along party lines, 17 to 6.\117\
---------------------------------------------------------------------------
\114\Tr. of Markup of H.R. 732, the ``Stop Settlement Slush Funds
Act of 2017,'' by the H. Comm. on the Judiciary, 115th Cong. 63 (Feb.
7, 2017).
\115\Id. at 76.
\116\Id. at 74.
\117\Id. at 90.
---------------------------------------------------------------------------
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. 732 simply addresses a non-existent problem.
II. H.R. 732 WOULD UNDERMINE PUBLIC HEALTH AND SAFETY BY ELIMINATING
THE GENERAL ENFORCEMENT AND REMEDIATION OF UNLAWFUL CONDUCT IN ALL
CIVIL ENFORCEMENT CASES
A. LSettlement Payments 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.\118\ 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:
---------------------------------------------------------------------------
\118\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://financial
services.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.\119\
---------------------------------------------------------------------------
\119\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 identifiable 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.\120\
---------------------------------------------------------------------------
\120\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''
to provide generalized relief for unlawful conduct. 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.''\121\ As with
other settlement payments, these projects must have a
sufficient nexus to the underlying conduct of the
defendant.\122\ 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.''
\123\ The EPA has also clarified that they cannot include cash
donations to community groups, environmental organizations, or
other third parties.\124\ As courts have observed, these forms
of settlement payments better serve the purposes of the
underlying statute than merely directing funds to the
Treasury.\125\
---------------------------------------------------------------------------
\121\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.
\122\Id. at 7.
\123\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).
\124\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.
\125\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).
---------------------------------------------------------------------------
In addition to serving the public interest, settlement
payments may also be in the interest of private parties. For
example, Professor Joel Mintz of Nova Southeastern University
College of Law, a former chief attorney with the EPA, notes in
his written statement on a substantially identical version of
H.R. 732 considered in the last Congress 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.\126\
---------------------------------------------------------------------------
\126\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. 732 Would Prohibit Civil Enforcement Agencies from Fully
Protecting the Public Interest
H.R. 732 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.\127\ It is therefore unsurprising that the
Justice Department, which has plenary authority to enforce the
law and defend the interests of the United States,\128\
strongly opposes the bill.\129\ In comments on a bill
substantively identical to H.R. 732 considered in the last
Congress, the Justice Department expressed concerns that it
``would unwisely constrain the government's settlement
authority and preclude many permissible settlements that would
advance the public interest.''\130\ The Department explained:
---------------------------------------------------------------------------
\127\See, e.g., id. (written statement of David Uhlmann, Professor,
University of Michigan Law School).
\128\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.
\129\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).
\130\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.\131\
---------------------------------------------------------------------------
\131\Id.
C. LH.R. 732 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\132\ to remove discriminatory
barriers and to promote equality of employment
opportunities.\133\ As the Supreme Court 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.''\134\
---------------------------------------------------------------------------
\132\42 U.S.C. Sec. Sec. 2000e et seq. (2017).
\133\Griggs v. Duke Power Co., 401 U.S. 424, 429 (1971)
\134\Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities
Project, Inc., 135 S. Ct. 2507, 2525 (2015).
---------------------------------------------------------------------------
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., former and future employees).\135\ 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.\136\ Without the ability to include
these forms of relief in settlements, this measure, the
Department has argued, would hamper the enforcement of myriad
civil rights laws:
---------------------------------------------------------------------------
\135\Mark E. Recktenwald, Collateral Attacks on Employment
Discrimination Consent Decrees, 53 U. Chi. L. Rev. 147 (1986).
\136\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.\137\
---------------------------------------------------------------------------
\137\Id.
D. LH.R. 732 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,''\138\ 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.\139\ 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,\140\ 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.\141\
---------------------------------------------------------------------------
\138\42 U.S.C. Sec. 7604 (2017).
\139\Envtl. Protection Agency, Office of Enforcement and Compliance
Assurance, Securing Mitigation as Injunctive Relief in Certain Civil
Enforcement Suits 2 (2012).
\140\42 U.S.C. Sec. 7604 (g)(2) (2017).
\141\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).
---------------------------------------------------------------------------
H.R. 732, 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
on a prior version of 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.\142\ 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.\143\ H.R. 732 would eliminate
these forms of remedies to major environmental misconduct.
---------------------------------------------------------------------------
\142\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.
\143\Id.
---------------------------------------------------------------------------
Proponents of the bill argue that H.R. 732 allows agencies
to redress direct environmental harm, 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.\144\ This
argument, however, is wrong for several reasons.
---------------------------------------------------------------------------
\144\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).
---------------------------------------------------------------------------
First, H.R. 732's exception for environmental remediation
is drafted too narrowly to allow for environmental
projects.\145\ As Professor Mintz observes, the bill would
prohibit the following ``entirely legitimate, appropriate'' use
of settlement funds permitted under current law:
---------------------------------------------------------------------------
\145\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.\146\
---------------------------------------------------------------------------
\146\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. 732, notwithstanding the beneficial nature of such
settlement payments.\147\
---------------------------------------------------------------------------
\147\Id.
---------------------------------------------------------------------------
Secondly, H.R. 732 would foreclose settlement payments 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 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.\148\ As the Justice Department noted, this common
feature of settlements in environmental enforcement actions
would likely be barred by legislation, such as H.R. 732:
---------------------------------------------------------------------------
\148\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.\149\
---------------------------------------------------------------------------
\149\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 payments.\150\ As courts have noted, the purposes of
these laws are ``to improve water quality, not endow the
Treasury.''\151\ Furthermore, as Charlie Garlow, a former
senior EPA attorney, notes, funds directed to the Treasury
seldom fully remedy environmental injuries:
---------------------------------------------------------------------------
\150\42 U.S.C. Sec. 7604 (2017).
\151\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.\152\
---------------------------------------------------------------------------
\152\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.\153\ 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.\154\ The cost of
delays associated with this scheme would have devastating
consequences for the public health, environment, and local
communities.
---------------------------------------------------------------------------
\153\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).
\154\Id.
---------------------------------------------------------------------------
To illustrate this concern, Ranking Member John Conyers,
Jr. (D-MI) offered an amendment that would have exempted from
the bill any settlement agreement that directs funds to
remediate the harms caused by unlawful conduct resulting in
lead in drinking water.\155\ He explained that his amendment
was a necessary response to the Flint water crisis, which ``has
generated numerous lawsuits by affected people and public-
interest organizations, such as the Natural Resources Defense
Council and American Civil Liberties Union.'' The ``systemic
nature of lead contamination in drinking water,'' he argued,
may necessitate settlement agreements that ``require setting
aside funds for unidentifiable victims, directing payments to
address generalized harm, or establishing an environmental
compliance program to avoid lead contamination in the
future.''\156\
---------------------------------------------------------------------------
\155\Tr. of Markup of H.R. 732, the ``Stop Settlement Slush Funds
Act of 2017,'' by the H. Comm. on the Judiciary, 115th Cong. 26 (Feb.
7, 2017).
\156\Id. at 27.
---------------------------------------------------------------------------
Speaking in opposition to the amendment, Chairman Bob
Goodlatte (R-VA) argued that ``Congress can make additional
appropriations,'' but the Justice Department ``should not be
permitted to augment these funding decisions entirely outside
the congressional appropriation and oversight process.''\157\
In response, Ranking Member Conyers stated that it is
``unthinkable to suggest that Congress should make individual
appropriations in response to each instance of general harms
caused by lead contamination in public drinking water'' because
the ``cost, delay, and overall folly of this scheme would have
a disastrous impacts on public health and local
communities.''\158\ Unfortunately, this amendment failed by a
party-line vote of 14 to 10.\159\
---------------------------------------------------------------------------
\157\Id. at 29.
\158\Id. at 28.
\159\Id. at 40.
---------------------------------------------------------------------------
Representative Henry C. ``Hank'' Johnson, Jr. (D-GA)
similarly offered an amendment to exempt from the bill
settlement payments that remediate indirect environmental harms
that result from the ``intentional bypassing, defeating, or
rendering inoperative a required element of a vehicle's
emissions control system'' in violation of the Clean Air
Act.\160\ He explained that the amendment was necessary in
response to the Volkswagen emissions scandal. According to the
Justice Department, the automobile manufacturer ``plead guilty
to three criminal felony counts and pay a $2.8 billion criminal
penalty as a result of the company's long-running scheme to
sell approximately 590,000 diesel vehicles in the U.S. by using
a defeat device to cheat on emissions tests mandated by the
Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB), and lying and obstructing justice to
further the scheme.''\161\ As Representative Johnson noted,
while the terms of this settlement required a direct payment of
$14.7 billion to consumers, it also included a $2.7 billion
payment to an environmental mitigation trust to fund clean
transportation programs and to remedy the indirect harms of
Volkswagen's misconduct.\162\ The amendment was not adopted,
failing by a party-line vote of 14 to 10.
---------------------------------------------------------------------------
\160\Id. at 42.
\161\Justice Dep't, Volkswagen AG Agrees to Plead Guilty and Pay
$4.3 Billion in Criminal and Civil Penalties; Six Volkswagen Executives
and Employees are Indicted in Connection with Conspiracy to Cheat U.S.
Emissions Tests (Jan. 11, 2017), https://www.justice.gov/opa/pr/
volkswagen-ag-agrees-plead-guilty-and-pay-43-billion-criminal-and-
civil-penalties-six.
\162\Tr. of Markup of H.R. 732, the ``Stop Settlement Slush Funds
Act of 2017,'' by the H. Comm. on the Judiciary, 115th Cong. 43 (Feb.
7, 2017).
---------------------------------------------------------------------------
III. H.R. 732'S VAGUE PROVISIONS WILL RESULT IN NEEDLESS LITIGATION AND
DELAY
As drafted, H.R. 732 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 explained 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.''\163\ In sum, he warned that
with respect to substantively identical legislation considered
in the last Congress that the measure raised a ``host of
questions about what payments are covered,'' while failing to
meaningfully define terms or address the bill's underlying
problems.\164\
---------------------------------------------------------------------------
\163\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.
\164\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).
---------------------------------------------------------------------------
H.R. 732 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 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.\165\
---------------------------------------------------------------------------
\165\U.S.C. Sec. 4205(d)(1) (2017); 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).
---------------------------------------------------------------------------
SECTION-BY-SECTION EXPLANATION OF H.R. 732
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 or loans for a payment 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.\166\
---------------------------------------------------------------------------
\166\31 U.S.C. Sec. 3302(d) (2017).
---------------------------------------------------------------------------
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. As
introduced,
Section 2(d) defines ``settlement agreement'' to include a
resolution of a civil action or potential civil action through
settlement agreement.
Section 2(e) establishes a reporting requirement for each
settlement entered into by a Federal agency, requiring that
each agency submit to the Congressional Budget Office
information relating to the settlement, including parties to
each settlement agreement, the source of the settlement funds,
and the manner for distributing funds under the settlement
agreement.
Section 2(f) sets forth an additional reporting requirement
for the Inspectors General of each Federal agency concerning
any settlement agreement adopted in violation of the bill.
CONCLUSION
Similar to the multitude of the Majority's anti-regulatory
bills that our Committee has considered over this and the last
several Congresses, H.R. 732 is a 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 payments 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. 732
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. 732'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. 732 and we urge our
colleagues to join us in opposition.
Mr. Conyers, Jr.
Mr. Nadler.
Ms. Jackson Lee.
Mr. Cohen.
Mr. Johnson, Jr.
Mr. Deutch.
Mr. Gutierrez.
Ms. Bass.
Mr. Richmond.
Mr. Jeffries.
Mr. Cicilline.
Mr. Swalwell.
Mr. Lieu.
Mr. Raskin.
Ms. Jayapal.
[all]
