[Congressional Record Volume 155, Number 55 (Wednesday, April 1, 2009)]
[House]
[Pages H4275-H4283]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




END GOVERNMENT REIMBURSEMENT OF EXCESSIVE EXECUTIVE DISBURSEMENTS (END 
                             THE GREED) ACT

  Mr. CONYERS. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 1575) to petition the courts to avoid fraudulent transfers 
of excessive compensation made by entities that have received 
extraordinary Federal financial assistance on or after September 1, 
2008, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 1575

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``End the Government 
     Reimbursement of Excessive Executive Disbursements (End the 
     GREED) Act''.

     SEC. 2. CIVIL ACTION TO AVOID FRAUDULENT TRANSFER.

       The Attorney General, after consultation with the Secretary 
     of the Treasury, may commence a civil action in an 
     appropriate district court of the United States to avoid any 
     transfer of compensation by (or on behalf of) a recipient 
     entity to (or for the benefit of) an officer, director or 
     employee made on or after September 1, 2008 (and to avoid the 
     obligation pursuant to which such transfer occurred, to the 
     extent of such transfer), and to recover such compensation 
     (wherever located) for the benefit of such entity, to the 
     extent such entity received less than a reasonably equivalent 
     value in exchange for such compensation and such entity--
       (1) was insolvent on the date that such compensation was 
     transferred, not taking into account any covered direct 
     capital investment received by such entity on or after 
     September 1, 2008, or
       (2) was engaged in business or a transaction, or was about 
     to engage in business or a transaction, for which property 
     remaining in the recipient entity was an unreasonably small 
     capital, not taking into account any such covered direct 
     capital investment.
     Pursuant to the authority provided in this section, the 
     Attorney General may avoid any such transfer in the manner 
     described in this section, or may avoid any such transfer to 
     the full extent that such transfer is avoidable under 
     applicable law by or on behalf of any creditor holding an 
     unsecured claim against such entity.

     SEC. 3. SUBPOENA AUTHORITY.

       The Attorney General may, after consultation with the 
     Secretary of the Treasury, issue a subpoena requiring the 
     attendance and testimony of witnesses and the production of 
     documentary evidence relevant to possible avoidance of any 
     transfer of compensation under section 2, including evidence 
     regarding the circumstances surrounding any compensation 
     arrangement or transfer of compensation involved, which 
     subpoena, in the case of contumacy or refusal to obey, shall 
     be enforceable by order of an appropriate district court of 
     the United States.

     SEC. 4. DEFINITIONS.

       For purposes of this Act--
       (1) the term ``covered direct capital investment'' means a 
     direct capital investment received under the Troubled Assets 
     Relief Program or, with respect to the Federal National 
     Mortgage Association, the Federal Home Loan Mortgage 
     Corporation, or a Federal home loan bank, under the 
     amendments made by section 1117 of the Housing and Economic 
     Recovery Act of 2008,
       (2) the term ``officer, director, or employee'' includes--
       (A) an officer, director, or employee of a recipient 
     entity, and
       (B) an officer, director, or employee of a subsidiary of a 
     recipient entity,
       (3) the term ``compensation arrangement'' means an 
     arrangement that provides for the payment of compensation 
     (including performance or incentive compensation, a bonus of 
     any kind, or any other financial return designed to replace 
     or enhance incentive, stock, or other compensation), and

[[Page H4276]]

       (4) the term ``recipient entity'' means a person (including 
     any subsidiary of such person) that on or after September 1, 
     2008, is holding (or has the direct benefit of) a covered 
     direct capital investment that exceeds $5,000,000,000 
     outstanding.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Michigan (Mr. Conyers) and the gentleman from Texas (Mr. Smith) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Michigan.


                             General Leave

  Mr. CONYERS. Mr. Speaker, I ask unanimous consent for all Members to 
have 5 legislative days to revise their remarks and include extraneous 
material on the bill under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Michigan?
  There was no objection.
  Mr. CONYERS. I yield myself as much time as I may consume.
  Members of the House, this is a modest effort to safeguard taxpayer 
funds and rein in the out-of-control compensation and bonus abuses by 
companies that have used Federal Government-supplied capital to stay 
out of bankruptcy.
  Essentially, the two main provisions in it are first, it supplements 
existing fraud laws to allow the Attorney General to use the courts to 
challenge, on a case-by-case basis, the most egregious bonuses by 
entities receiving more than $5 billion in direct capital investments. 
This measure is directly based on fraudulent transfer laws that are in 
the United States Code, codified, or a matter of common law in every 
State that goes back to Elizabethan times, if anyone would care to 
research that.
  Secondly, we authorize the Attorney General to subpoena necessary 
information relevant to the bonuses. But, unlike other measures, this 
act applies to bonuses made as far back as the fall of 2008, so that it 
could apply to year-end bonuses made by AIG and Merrill Lynch. And so 
it also can be applied to foreigners, since we found out that a 
majority of AIG bonuses, as determined by Attorney General Cuomo, were 
not received by Americans, and that, for some reason, foreign 
individuals appear less likely to return their bonuses voluntarily.
  So, this is a very important complement to everything else that's 
going on. And later on I'll introduce records for those constitutional 
Members of the body that want to be assured that this is a 
constitutional matter. We have Laurence Tribe and three other 
professors who have analysis of the constitutionality of this measure 
to be inserted into the Record at the appropriate time.
  I'll reserve, now, the balance of my time.
  Mr. SMITH of Texas. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, H.R. 1575 should not be on the floor today. In the rush 
to respond to the bonuses paid to AIG executives, some in the majority 
have, once again, let expediency override common sense. The Judiciary 
Committee has held no hearings, heard no expert witnesses, and provided 
no reasoned evaluation of this bill during the normal legislative 
process. Instead, the bill went directly to full committee markup 
within hours of its introduction. After markup, it was substantially 
rewritten behind closed doors. Now it has been rewritten in the dark, 
once again, and has been sent prematurely to the floor.
  In the last few weeks, Congress has learned the hard way about the 
unintended consequences of rushing to legislate without adequate expert 
testimony or debate. The results this time could be more costly than 
any of us would want.
  President Obama, Secretary Geithner, leading financial institutions, 
and even the Washington Post, have already sounded the alarm. Congress' 
haste to rewrite contracts, claiming that payments under the contracts 
were ``fraudulent conveyances,'' as this bill attempts to do, could 
scare banks and other institutions away from the government's financial 
rescue programs.

                              {time}  1300

  Keenly aware of this, President Obama has urged us to act 
intelligently, not out of anger, but to pass this bill would be to do 
the opposite of what President Obama has said that he wants.
  Early last week, Secretary Geithner finally announced a toxic assets 
relief program, relying heavily on private participation. The markets 
responded by rallying strongly for the first time in months. Why would 
we scare private institutions away now just when we need them the most?
  Bonuses like AIG's may seem unwise and unfair, but to companies 
receiving them and courts reviewing them, are they really fraudulent?
  Our efforts to void legal contracts make the prospect of working with 
the government look like a walk through a minefield. Remember, it was 
the current administration that urged congressional Democrats to 
protect AIG's right to pay these bonuses through the stimulus bill. 
Congressional Democrats willingly complied. House Democrats passed a 
bill without even reading it and without any House Republican even 
supporting it. Then President Obama signed it.
  How could bonuses that Congress and the President specifically 
ratified suddenly be fraudulent? If they were not fraudulent, how can 
this be anything other than an unconstitutional taking of contractual 
rights?
  What is more, this bill is unnecessary. We have already passed tax 
legislation to recoup the AIG bonuses. Besides, a great majority of the 
key AIG bonus recipients have returned their bonuses.
  In the end, New York Attorney General Cuomo expects to force the 
return of all bonuses that went to domestic recipients. He apparently 
is not as confident about his ability to recoup payments overseas. I am 
confident, however, that if Mr. Cuomo needs additional authority to 
recoup overseas payments, the New York legislature is competent to pass 
legislation through regular order to give him just that authority.
  Meanwhile, we cannot say with any confidence that this bill will 
permit us to recoup anything beyond what Attorney General Cuomo has 
already recovered or may be able to recover. This bill, accordingly, 
may be utterly useless.
  The AIG bonuses may have been unwise, but what was fraudulent about 
them when Congress and the President specifically ratified them?
  The retribution this bill threatens rests on anger, not on sound 
policy. It will undoubtedly undermine the Federal Government's ability 
to recruit bank rescue participants, so this bill will hinder a 
successful economic recovery rather than contribute to it.
  Finally, the House just passed H.R. 1586. We do not need to take 
follow-up action, and we certainly do not need to take it in haste or 
to overreact. We should not compromise on our duty to the American 
people by rushing out this hasty, ill-considered and unnecessary bill. 
I fully expect there will be bipartisan opposition to this legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. CONYERS. I am pleased to recognize the chairman of the 
subcommittee from which this measure came, Mr. Cohen of Tennessee, for 
as much time as he may consume.
  Mr. COHEN. Mr. Speaker, I want to thank Chairman Conyers for the time 
and for being the lead sponsor on this important legislation. I greatly 
respect my colleague from Texas, the ranking member, but I would have 
to disagree with his perspectives on the bill.
  First of all, it does not rewrite contracts whatsoever. It just gives 
a court the opportunity in a contested hearing, with the United States 
on one side and the recipient of what is alleged fraudulent transfer or 
excessive compensation or bonus on the other side, to argue whether 
that compensation was a fraudulent transfer and was excessive and was 
beyond what would be dictated in the economic conditions and times that 
the payment was made.
  I think that is the American way to have issues such as this 
determined before a neutral and detached magistrate based on the facts 
and on the law of this country. This would be applying a fraudulent 
transfer law which 45 States have and that has existed in common law 
for many, many years.
  The manager's amendment, which makes the bill, is different from the 
original bill that did have some controversy about the question of its 
constitutionality. There were several esteemed judicial minds who felt 
that

[[Page H4277]]

the original bill was constitutional, a majority of people whose 
opinions were sought and who replied, but it is almost unanimous 
agreement that this bill is constitutional. None other than Laurence 
Tribe of the Harvard Law School and others have taken the position that 
this is constitutional.
  The public was justly outraged, as were many Members of this 
Congress--I suspect nearly every Member of this Congress--at the size 
of the bonuses paid to AIG. AIG, Merrill Lynch and other companies were 
given money, Mr. Speaker, because they were going to be broke. They 
were broke. They had recklessly ruined their stockholders' investments 
and had put this country on the verge of economic collapse. Because of 
that, it was necessary for the United States Congress to respond, both 
under President Bush and President Obama, and to put moneys into these 
institutions to make them whole, hopefully, with the idea that they 
would be lending money to the American consumer and to American 
businesses to get the economy moving again.
  Unfortunately, what some of these people did--Merrill Lynch was one, 
and AIG was another--is they used these moneys in ways that were not 
intended, sometimes parceling them out to their associate companies in 
Europe as well as here, by giving out bonuses called ``retention 
bonuses'' or other types of bonuses in excess of $1 million and 
sometimes up to $6 million. The individuals who got these bonuses would 
have gotten nothing if it were not for the United States' money coming 
in to make those companies solvent, with the purpose of making them 
solvent and able to lend money to businesses to get our economy 
moving--to stimulate our economy. Instead of that, they stimulated each 
other, and did something to the American public that has not been done 
since, maybe, to Sabine women. It was the wrong thing to do.
  For this purpose, it was important that Congress responded to protect 
the taxpayer and to protect the Treasury. We passed a bill last week 
concerning taxes. This is a fairly narrowly drawn bill, surgically 
drawn to only allow courts to make these decisions on companies that 
have over $5 billion worth of assets--not community banks, not small 
folks--but big folks who got big bucks who then put big bucks out to 
their employees who basically, in many cases, were the people who 
recklessly put those companies on the verge of collapse, and the 
American economy and the world economy on the verge of collapse.
  It shocks the public conscience, and any of those bonuses should be 
void against public policy, and because they would be void against 
public policy, this Congress appropriately acted with legislation. I am 
proud to stand with Chairman Conyers and with other members of the 
Judiciary Committee who brought this legislation that has been reviewed 
by scholars and that has been found to be constitutional and that gives 
the Attorney General, in consultation with the Secretary of the 
Treasury, the opportunity to bring fraudulent transfer charges into 
court where a judge can make a decision on whether or not the moneys 
should or should not be expended.
  So I urge all of my colleagues to vote as to what is appropriate--to 
void this act against public policy and against the unjust enrichment 
of people who have been reckless with our public dollars and earlier 
with their private dollars and with their stockholders' dollars and to 
put the whole situation back in balance.
  Mr. SMITH of Texas. I yield myself such time as I may consume.
  Mr. Speaker, I would like to address in a little bit more detail some 
of the defects in this bill.
  Many of us believe that the AIG bonuses were unwise, but what was 
fraudulent about them? Urged on by the White House and by the 
Department of the Treasury, a provision to protect AIG's right to pay 
the AIG bonuses was sneaked into the stimulus bill, which was 
subsequently signed by President Obama.
  How can bonuses that Congress and the President specifically ratified 
be fraudulent? If they were not fraudulent, how can this bill do 
anything but threaten an unconstitutional taking of contractual rights?
  Bonus retribution rests on anger, not on sound policy. It will 
undermine the Federal Government's ability to recruit bank rescue 
participants. President Obama, Secretary Geithner and others have all 
recognized the obvious, that the more we rewrite the contracts of 
companies participating in the rescue programs, the more the companies 
will run the other way from our programs.
  Secretary Geithner has finally announced the program that was 
supposed to help the meltdown at the very outset, the toxic assets 
relief plan. The markets responded strongly and positively to that 
announcement just last week. So how can we take this action that will 
only scare participants and that program away precisely when we need 
them to succeed?
  H.R. 1575 will put executive compensation decisions into a multitude 
of district judges' different hands. The bill cannot fairly or reliably 
restrain these 1,000-plus judges as they assess in districts across the 
country what they think is ``reasonably equivalent value for 
services.'' The bill is, thus, a prescription for arbitrary results.
  What is more, in the cases in which the judges find that reasonable 
compensation was not exceeded, we will recover not one dime of these 
bonuses. So what is the point?
  Mr. Speaker, this bill is the product of hurried decision-making, the 
trampling of regular order and insufficient vetting. In fact, this bill 
was rewritten twice behind closed doors before we arrived here today, 
and it still is riddled with all of the flaws that I have discussed. 
Mr. Speaker, the answer is therefore clear. We certainly should not 
pass this bill today.
  I reserve the balance of my time.
  Mr. CONYERS. Mr. Speaker, I am pleased to recognize the gentlewoman 
from Houston, Texas, who has served with great effectiveness on the 
Judiciary Committee, and I would yield her as much time as she may 
consume (Ms. Jackson-Lee of Texas).
  (Ms. JACKSON-LEE of Texas asked and was given permission to revise 
and extend her remarks.)
  Ms. JACKSON-LEE of Texas. I thank the distinguished gentleman from 
Michigan and the chairman of the subcommittee, Mr. Cohen, for their 
leadership.
  Mr. Speaker, I am very pleased to be an original cosponsor of this 
legislation, and frankly, I think it is important that we clear the air 
and provide a treatise, an instructive recalling, of the reason we are 
on the floor today.
  First of all, this is a moderate approach, a temperate approach, a 
constitutional approach of, really, paying the taxpayers back, of 
giving the taxpayers a day in the sun and of using the Constitution and 
the respect of three branches of government to be able to protect the 
taxpayers. This does not thwart the work of Secretary Geithner or the 
administration. It is a complement to them.
  Mr. Speaker, the committee undertook a careful constitutional 
assessment of this bill. We were quite well aware that we did not want 
to violate the Constitution, and we secured the assistance and the 
insight of four prominent constitutional scholars to affirm its 
constitutional soundness.
  Mr. Speaker, I insert into the Record at this point the letters of 
law professors Laurence Tribe of Harvard Law School and Michael 
Gerhardt of the University of North Carolina.

                                           Harvard University,

                                    Cambridge, MA, March 24, 2009.

     Re constitutionality of H.R. 1575.

     Hon. John Conyers, Jr.,
     Chairman, Committee on the Judiciary, House of 
         Representatives, Washington, DC.
       I have been asked to address the constitutional validity of 
     H.R. 1575, the ``End the Government Reimbursement of 
     Excessive Executive Disbursements (End the GREED) Act.'' 
     Having carefully reviewed the text of the bill, I believe it 
     stands on solid constitutional ground. This judgment applies 
     both to the bill as reported by the Judiciary Committee on 
     March 18, 2009, and to the revised version your staff sent me 
     on March 23, which has been narrowed to a provision 
     authorizing the Attorney General to petition a court to avoid 
     a covered payment of compensation in exchange for ``less than 
     a reasonably equivalent value,'' and a related subpoena 
     provision. Because I understand that this narrowed version of 
     the bill is the one now being considered for the House floor, 
     it is this bill that I will address primarily in this 
     memorandum.
       Enacting this legislation is well within Congress's 
     affirmative constitutional authority under the Bankruptcy 
     Clause, Article I, Section 8, Clause 4, ``[t]o establish . . 
     . uniform Laws on the subject of Bankruptcies

[[Page H4278]]

     throughout the United States.'' That this authority extends 
     not only to laws regarding bankruptcy itself, but also to 
     laws regarding companies facing insolvency generally--and 
     thus to the very entities defined in Section 2 of H.R. 1575--
     is established beyond question by settled Supreme Court 
     precedent. In Continental Illinois National Bank & Trust Co. 
     v. Chicago Rock Island & Pacific Railway Co., 294 U.S. 648, 
     667-68 (1935), for example, the Supreme Court stated that, 
     ``[w]hile attempts have been made to formulate a distinction 
     between bankruptcy and insolvency, it has long been settled 
     that, within the meaning of the [Bankruptcy Clause], the 
     terms are convertible.'' And, in Railway Labor Executives' 
     Ass 'n v. Gibbons, 455 U.S. 457, 466 (1982), the Court 
     explained that, ``[a]lthough we have noted that `t]he subject 
     of bankruptcies is incapable of final definition,' we have 
     previously defined `bankruptcy' as the `subject of relations 
     between an insolvent or nonpaying or fraudulent debtor and 
     his creditors, extending to his and their relief.' Congress' 
     power under the Bankruptcy clause `contemplate[s] an 
     adjustment of a failing debtor's obligations.''' (citation 
     omitted.) H.R. 1575 thus fits comfortably within the category 
     of laws that the Bankruptcy Clause empowers Congress to 
     enact--particularly when that clause is coupled with the 
     Necessary and Proper Clause of Article I, Section 8, 
     Clause 18, and when it is supplemented by the Commerce 
     Clause of Article I, Section 8, Clause 3.
       Moreover, because H.R. 1575 is limited to the subject of 
     fraudulent transfers from companies that have received at 
     least $5 billion in federal funds since the beginning of 
     September 2008, it is also readily justified as a reasonable 
     condition on the expenditure of funds provided by Congress in 
     the exercise of its power ``To lay and collect Taxes, . . . 
     to pay the Debts and provide for the . . . general Welfare of 
     the United States.'' U. S. Const., Article I, Section 8, 
     Clause 1. The power of Congress to invoke this taxing and 
     spending authority, again in conjunction with the Necessary 
     and Proper Clause, to impose conditions on the receipt of 
     federal funds where, as in this instance, those conditions 
     relate directly and substantially to ensuring that those 
     funds are expended solely for the purposes contemplated by 
     Congress, is thoroughly settled. See, e.g., South Dakota v. 
     Dole, 483 U.S. 203, 206-07 (1987); Fullilove v. Klutznick, 
     448 U.S. 448, 474 (1980); Lau v. Nichols, 414 U.S. 563, 569 
     (1974).
       Questions have been raised about whether H.R. 1575 might 
     constitute a forbidden Bill of Attainder, but any such claim 
     would be wholly without merit. The bill is carefully 
     structured to apply to a broad class of individuals and 
     inflicts no punishment whatsoever but merely subjects those 
     individuals to suits brought by the Attorney General to 
     recover excessive compensation. The government cannot prevail 
     in such suits without proving ``in an appropriate district 
     court of the United States'' that the individuals in question 
     gave ``less than a reasonably equivalent value in exchange'' 
     for the ``compensation'' the government seeks to avoid as a 
     ``fraudulent transfer.'' H.R. 1575, Section 2. Even if the 
     ultimate recovery of such compensation were deemed punitive 
     rather than regulatory, that recovery would take place only 
     pursuant to trial in an Article III court, a far cry from the 
     trial by legislature against which the Bill of Attainder 
     Clause is directed. See Selective Service System v. Minnesota 
     Public Interest Research Group, 468 U.S. 841, 851-53 (1984); 
     Nixon v. Administrator of General Services, 433 U.S. 425, 
     472-73 (1977); United States v. Brown, 381 U.S. 437, 458-61 
     (1965); United States v. Lovett, 328 U.S. 303 (1946). As I 
     explained in my constitutional law treatise, ``The essence of 
     the bill of attainder ban is that it proscribes legislative 
     punishment of specified persons--not of whichever persons 
     might be judicially determined to fit within properly general 
     proscriptions duly enacted in advance. . . . Its application 
     necessarily depends on the presence of improper specification 
     by the legislature of the individuals singled out for 
     punishment. . . . [N]o attainder may be said to have resulted 
     from the mere fact that the set of persons having the 
     characteristic [designated by the legislature] might in 
     theory be enumerated in advance and that the set is in 
     principle knowable at the time the law is passed.'' Laurence 
     H. Tribe, American Constitutional Law 643 (2d ed. 1988). In 
     this instance, moreover, the ``set of persons having the 
     characteristic'' of receiving what H.R. 1575 deems a 
     ``fraudulent transfer'' is not knowable in advance, in part 
     because the characteristic is by no means self-defining and 
     requires factual development in each individual case and in 
     part because the statute would operate not just 
     retrospectively to transfers made between September 1, 2008, 
     and the date of the bill's enactment as law but also 
     prospectively from that date forward.
       The remaining constitutional questions raised about H.R. 
     1575 are somewhat more plausible superficially but in the end 
     are all without merit.
       The first of those remaining questions is whether setting 
     aside completed transfers of compensation from functionally 
     insolvent entities receiving more than the designated amounts 
     of federal funds to keep them afloat would amount to a 
     ``taking'' of financial resources from the recipients of 
     those transfers to benefit the federally-supported entities 
     from which the transfers had come and could thus trigger an 
     obligation on the part of the Federal Treasury to provide 
     ``just compensation'' to the transferees--which would, of 
     course, defeat the entire purpose of the bill insofar as its 
     ultimate aim is to avoid a waste of federal tax revenues. The 
     answer is that the Takings Clause is simply inapplicable. 
     Federally imposed obligations to make monetary payments to 
     third parties are not properly characterized as ``takings'' 
     at all under the Takings Clause of the Fifth Amendment. 
     Indeed, such obligations have never been subjected to the 
     Takings Clause by a Supreme Court majority. Although four 
     Justices, writing for a plurality in Eastern Enterprises v. 
     Apfel, 524 U.S. 498 (1998), invoked the Takings Clause to 
     review a law imposing such financial obligations, a majority 
     of the Court in that case--including both Justice Kennedy, 
     concurring in the result, id. at 539-47, and Justice Breyer, 
     dissenting in an opinion joined by Justices Stevens, Souter, 
     and Ginsburg, id. at 554-57--squarely held the Takings Clause 
     altogether inapplicable to such mandated monetary transfers, 
     noting that ``application of the Takings Clause [to such 
     financial obligations] bristles with conceptual 
     difficulties,'' id. at 556 (Breyer, J., joined by Stevens, 
     Souter, and Ginsburg, JJ.), difficulties that in my view 
     would be completely insuperable. To be sure, this conclusion 
     of the five Justices in Eastern Enterprises is not itself a 
     holding of the Supreme Court, see When The Dissent Creates 
     The Law: Cross-cutting Majorities And The Prediction Model of 
     Precedent, 58 Emory L.J. 207, 216, 240 (2008), but it affords 
     a strong basis for predicting what the Court would hold in 
     any case presenting the issue today, especially in light of 
     the fact that Justice O'Connor, the author of the plurality 
     opinion viewing the Takings Clause as applicable, has been 
     replaced by Justice Alito, and that Chief Justice Rehnquist, 
     who joined the O'Connor opinion, has been replaced by Chief 
     Justice Roberts. Moreover, the analysis of the five Justices 
     who deemed the Takings Clause inapplicable seems to me 
     logically unassailable.
       Those five Justices explained why the Takings Clause is 
     ``the wrong legal lens,'' id. at 554, through which to view 
     such measures. Either ``the Government's imposition of an 
     obligation between private parties, or [its] destruction of 
     an existing obligation, must relate to a specific property 
     interest [such as an interest in a specific parcel of land or 
     a specific item of personal or intellectual property] to 
     implicate the Takings Clause.'' Id. at 544 (Kennedy, J., 
     concurring in the judgment and dissenting in part) (italics 
     added). The financial liability that would be imposed on the 
     transferee by the operation of H.R. 1575, and the monetary 
     recovery to the transferor that enforcement of this liability 
     against the transferee would entail, ``no doubt will reduce 
     [the] net worth'' of the transferees who are subject to the 
     law's avoidance provisions, ``but this can be said of any law 
     which has an adverse economic effect.'' Id. at 543 (Kennedy, 
     J.). A decision to apply the Takings Clause to a measure 
     that, like HR 1575, requires only the restoration of 
     improperly transferred funds and not the confiscation or 
     transfer of any specific property interest ``would expand an 
     already difficult and uncertain rule [treating some 
     regulatory measures as takings] to a vast [new] category 
     of cases not [previously] deemed . . . to implicate the 
     Takings Clause,'' id. at 542, and ``would throw one of the 
     most difficult and litigated areas of the law into 
     confusion, subjecting [every level of government] to the 
     potential of new and unforeseen claims in vast amounts.'' 
     Id. There is no realistic prospect that the Supreme Court 
     would plunge headlong into that thicket by applying the 
     Takings Clause to any measure like H.R. 1575, nor is there 
     any good reason for any court or lawmaker to do so.
       This is even more obviously correct when the federally 
     imposed obligation to make monetary payments to third parties 
     ripens only with a judicial determination that those 
     subjected to the obligation were wrongfully enriched in the 
     first instance and when the payment obligation has the 
     character of avoiding that unjust enrichment so as to restore 
     the status quo ante. The implicit theory underlying the 
     seminal case of Calder v. Bull, 3 U.S. 386 (1798), was that a 
     government-mandated transfer from one private party to 
     another was either a naked redistribution of wealth and thus 
     beyond the powers the people ceded to government under the 
     original social compact or an act of corrective justice and 
     thus a violation of the separation of powers unless taken 
     pursuant to a judicial determination of prior wrong. Tribe, 
     American Constitutional Law, supra, at 561, 571 & n.9; Thomas 
     Cooley, A Treatise on the Constitutional Limitations Which 
     Rest Upon the Legislative Power of the States of the American 
     Union 357 (8th ed. 1927). Precisely such a determination 
     forms the heart of the transfer authorized by H.R. 1575. To 
     call it a compensable taking would thus be incoherent.
       Admittedly, the Coal Act provision at issue in Eastern 
     Enterprises was ultimately found to be unconstitutional. But 
     that result followed only because the Coal Act, ``in creating 
     liability for events which occurred 35 years [before its 
     enactment,] ha[d] a retroactive effect of unprecedented 
     scope,'' id. at 549 (Kennedy, J.), and was viewed by five 
     Justices as being in no meaningful sense ``remedial'' in 
     purpose, id., leading Justice Kennedy to the conclusion, as a 
     matter of substantive due process, that the measure was 
     understandable only as ``'a means of retribution against 
     unpopular groups or individuals.''' Id. at 548 (quoting 
     Landgraf v. USI Film Products, 511 U.S. 244, 266 (1994)). But 
     ``[s]tatutes may be invalidated on due process grounds only 
     under the most egregious of

[[Page H4279]]

     circumstances,'' id. at 550, circumstances that four Justices 
     deemed absent even with respect to the extreme measure at 
     issue in Eastern Enterprises and that are absent by any 
     conceivable measure with respect to H.R. 1575. This 
     conclusion is strongly reinforced by a long string of Supreme 
     Court rulings concluding that nothing beyond a standard of 
     reasonableness, usually amounting to a bare showing of 
     rationality, constrains retroactive federal legislation in 
     the economic sphere. United States. v. Carlton, 512 U.S. 26, 
     30-31 (1994); Pension Benefit Guaranty Corporation v. R.A. 
     Gray & Co., 467 U.S. 717, 729-30, 733 (1984); Usery v. Turner 
     Elkhorn Mining Co., 428 U.S. 1, 16-18 (1976).
       The second remaining question is whether changing the lens 
     from that of the Takings Clause (or the Due Process Clause) 
     to that of the Ex Post Facto Clause would provide a sounder 
     basis for attack by those seeking to challenge H.R. 1575. 
     Again, the clear answer is no. Ever since Calder v. Bull, 3 
     U.S. 386 (1798), the Ex Post Facto Clause ``has [been] 
     considered . . . to apply only in the criminal context,'' 
     Eastern Enterprises, supra, at 524, 538 (Thomas, J., 
     concurring). Measures that are not the functional 
     equivalent of criminal punishment are not subject to the 
     clause. Although Justice Thomas has indicated that ``[i]n 
     an appropriate case [he] would be willing to reconsider 
     Calder and its progeny to determine whether a retroactive 
     civil law that passes muster under . . . Takings Clause 
     jurisprudence is nonetheless unconstitutional under the Ex 
     Post Facto Clause,'' id., there is no prospect that others 
     would join him in taking so radical a step. And, more than 
     that, it is hard to imagine that even Justice Thomas would 
     regard H.R. 1575 as presenting ``an appropriate case'' for 
     reconsideration of a principle with so venerable a 
     pedigree.
       There is also venerable precedent supporting the general 
     principle that neither the Ex Post Facto Clause nor the Due 
     Process Clause stands in the way of congressional measures 
     authorizing the federal government to rescind even privileges 
     as basic as U.S. citizenship when the means by which such 
     privileges were obtained indicate that they never rightfully 
     belonged to those from whom the government is authorized to 
     recover them. See Johannessen v. United States, 225 U.S. 227, 
     240-43 (1912). In upholding a congressional measure reversing 
     a decision that would have permitted an instrumentality of 
     the Cuban government to recover the proceeds from a sale of 
     sugar wrongfully expropriated by the Cuban government, a 
     district court quoted the Johannessen Court's observation of 
     the underlying principle that ``[t]here is no such thing as a 
     vested right to do wrong.'' Banco Nacional de Cuba v. Farr, 
     243 F. Supp. 957, 979 (S.D.N.Y. 1965), aff'd, 383 F.2d 166 
     (2d Cir. 1967), cert. denied, 390 U.S. 956 (1968) (quoting 
     Johannessen, 225 U.S. at 241-42). That principle, too, 
     supports the constitutionality of H.R. 1575.

                                                Laurence H. Tribe,
                               Carl M. Loeb University Professor.*

       * University affiliation listed for identification purposes 
     only.
                                  ____

                                                   March 24, 2009.
     Hon. John Conyers, Jr.,
     Chair, House Judiciary Committee, House of Representatives, 
         Washington, DC.
     Hon. Lamar S. Smith,
     Ranking Member, House Judiciary Committee, House of 
         Representatives, Washington, DC.
       Dear Representative Conyers and Representative Smith: I 
     appreciate the opportunity to share with you my analysis of 
     the constitutionality of the proposed Manager's Amendment to 
     The End the GREED Act. Although I am currently abroad 
     teaching a mini-course on American constitutional law to 
     French law students, I have had the opportunity to closely 
     read the pending bill. As I explain below, I believe that The 
     End the GREED Act, specifically as revised in the proposed 
     Manager's Amendment, is unquestionably constitutional. Each 
     of the powers deployed to enact this bill is plenary, and 
     these powers--individually and collectively--provide an 
     unusually strong, unassailable constitutional foundation for 
     the proposed Manager's Amendment to The End GREED Act.
       First, The End the GREED Act is based on Congress' Article 
     I power ``to enact uniform laws on the subject of 
     Bankruptcies.'' The bankruptcy power is a unique, plenary 
     power of the Congress. Indeed, the Supreme Court has held 
     that this power may be used to impair contracts; and in 
     Wright v. Union Central Life Insurance Company, 304 U.S. 502, 
     513-54 (1938), the Supreme Court declared that an 
     ``adjudication in bankruptcy is not essential to the 
     jurisdiction [that Congress has in the field in 
     bankruptcies.] The subject of bankruptcies is nothing less 
     than the `subject of relations between an insolvent or 
     nonpaying or fraudulent debtor, and his creditors, extending 
     to his and their relief'' (citation omitted). The Court 
     ruled, in other words, that the Congress is not confined to 
     addressing insolvency (or its prospects or consequences) in 
     the context of bankruptcy proceedings. This law, particularly 
     the section authorizing a federal civil cause of action for 
     fraudulent transfers, is plainly consistent with that 
     longstanding understanding of the scope of the bankruptcy 
     clause.
       Second, The End the GREED Act is based in part on Congress' 
     plenary power under Article I to regulate interstate 
     commerce. For instance, section (c) easily satisfies all of 
     the requirements that the Court has recognized with respect 
     to federal regulations of private economic conduct. In United 
     States v. Lopez, 514 U.S. 549 (1995), the Supreme Court 
     recognized that pursuant to its power to regulate interstate 
     commerce the Congress had the authority to regulate three 
     categories of private conduct or affairs--the channels of 
     interstate commerce, the instrumentalities of interstate 
     commerce, and activities that substantially affected 
     interstate commerce. Ten years later, in Gonzales v. Raich, 
     545 U.S. 1 (2005), the Court explained that it would only 
     employ the rational basis test to assess the 
     constitutionality of a regulation of economic conduct that 
     was either part of a comprehensive regulatory scheme or could 
     if aggregated substantially affect interstate commerce. There 
     is no question that The End the GREED bill, including 
     section (c), is a regulation of economic transactions, 
     which, if aggregated, could substantially affect 
     interstate commerce. As such, this bill would be subject 
     to the most deferential judicial review possible and 
     easily pass constitutional muster.
       Besides Congress' plenary bankruptcy and commerce powers, 
     The End the Greed Act is supported by the Congress' spending 
     power. The conditions imposed by the bill satisfy the 
     requirements for spending measures that the Supreme Court has 
     set forth over the years: They are germane to the purposes of 
     the expenditures; the conditions imposed by the bill are 
     clear and unambiguous; recipient entities have no fundamental 
     right to contract and thus are not giving up a fundamental 
     right in exchange for compliance with the conditions 
     attaching to the funds that they are receiving; and the 
     recipient of the funds are not being forced or coerced to 
     take money from the federal government. Moreover, the courts 
     have been extraordinarily deferential to the Congress in 
     their assessment of the constitutionality of the requirements 
     imposed by the Congress' spending measures: In fact, the 
     Supreme Court has not struck down a spending clause enactment 
     since 1936. I am confident that this spending measure will 
     fare no differently than any of the other spending measures 
     subjected to judicial review since 1936.
       I am also confident that The End the GREED bill is not 
     vulnerable to a Takings Clause challenge. First, as I have 
     indicated, the Supreme Court has recognized that the 
     bankruptcy power may be used to impair private contracts. 
     Second, the Supreme Court has usually upheld federal 
     regulations of private contracts that have been challenged 
     under the Taking Clause. See David H. Carpenter, CRS Report 
     for Congress, Constitutional Issues Relating to Proposals to 
     Impose Interest Rate Freezing/Reduction on Existing 
     Mortgages, February 15, 2008, at 4. There is no good reason 
     to think any court would treat The End the GREED Act any 
     differently. Indeed, The End the GREED Act does not run afoul 
     of the Supreme Court's balancing test set forth in Penn 
     Central v. City of New York, 438 U.S. 104 (1978), for 
     determining when regulations effect a taking for purposes of 
     the Takings Clause. In this case, the conduct that is the 
     subject of the regulation is not only arising in an area that 
     is traditionally ``heavily regulated'' but also the federal 
     government is obviously not operating in bad faith or its 
     regulation is not designed to benefit only a very few people 
     as opposed to the general public.
       I hope this analysis will be of some help to you and the 
     Committee. It is a great privilege to share it with you. If 
     you have any questions or if I can be of further service to 
     you or the Committee, I hope you will not hesitate to let me 
     know.
           Very truly yours,
                                              Michael J. Gerhardt,
         Samuel Ashe Distinguished Professor of Constitutional Law 
           & Director of the UNC Center on Law and Government, UNC 
           at Chapel Hill Law School.

  Ms. JACKSON-LEE of Texas. The reason we wanted to be extraordinarily 
thoughtful is that we knew these questions would be asked, but let me 
tell you the simplicity of what this legislation speaks to: At the same 
time, let me go on record, Congresswoman Jackson-Lee from Houston, 
Texas:
  I am in support of the Nation's financial markets, investment houses. 
They have been at our back for a number of years. They have invested 
your moneys, your 401(k)s. Capitalism has, in fact, worked, but abuse 
does not work, so we speak today about abuse, not about crumbling the 
financial houses, the investment houses. We want them to be 
strengthened. Young people every day are graduating from college and 
are saying, ``I want to be an investment banker.'' They want to help 
grow the economy. We are not unsupportive of that.
  In fact, in my own congressional district, it used to be American 
General. I have AIG employees. I applaud them. They come up to me on 
the street. I want them to know I appreciate their work in the 
insurance business--in protecting and in insuring everything from 
whistles, to haystacks, to Hollywood actors, to the transportation 
modes that you travel on--but we have got to be able to protect your 
tax dollars.

[[Page H4280]]

  Let me tell you why this bill works. Attorney General Cuomo made it 
work. He issued subpoenas. What do we get? Some $50 billion back--and 
more growing--from AIG. It shows that the long hand of the law can be 
effective. The $160 billion given to executives is more than most 
Americans will see ever in their lifetimes. This is a simple response 
to it. What it does is it allows the Attorney General to recover prior 
excessive payments to employees made by the company. It allows the 
government, as a creditor, to show that the excessive payments that 
were made have no bearing on the work. It is permissive. It allows. It 
does not suggest that, in fact, there is a coup d'etat, that the 
Attorney General can do it without any oversight.

                              {time}  1315

  They must go into court. That makes a difference. The judge must 
ultimately say, You know what? I agree with the petitioner/the attorney 
general/the government as creditor or I disagree.
  Second, it allows the Attorney General to limit payments to company 
executives to 10 times the average nonpayment wages just as it would 
have been if the case was forced into bankruptcy. This is a fair 
assessment if a company has taken Federal dollars, and $700 billion 
given to these companies in October of 2008. Most of them bought up 
your baby banks, not put that money out to help Americans.
  So Mr. Speaker, I think what is key here is that this is reasonable. 
We have constitutional scholars who have indicated that you are within 
the constitutional framework. Why would the Judiciary Committee want to 
eliminate those barriers.
  And then secondly and thirdly, we thank the employees that are doing 
their job every day trying to make this economy work. But what we say 
to the taxpayers is, if there is ever a committee that has to play the 
enforcement role to enhance the Constitution, to gather in those who 
have gone outside the boundaries of reason, who are abusive in issuing 
moneys to people who are part of the problem, it is the Judiciary 
Committee, and the Attorney General that complements the work of the 
Secretary of the Treasury, and our very able leader in the White House, 
who is constructively trying to put this capitalistic system back on 
its feet. Then it has to be those of us with the responsibility of 
enforcement to ensure that we provide the coverage for taxpayers who 
cannot speak for themselves.
  I rise enthusiastically to support H.R. 1575 for the very reason that 
we will be derelict if this committee, the holders of the Constitution, 
did not come to the floor and provide this thoughtful legislation that 
provides you with the protection of evidence that you have already seen 
in the moneys that have been returned under the New York State Attorney 
General. Imagine the wielding of that action on behalf of all of the 
people of the United States.
  Support H.R. 1575.
  Mr. Speaker, I rise in strong support of H.R. 1575, the ``End 
Government Reimbursement of Excessive Disbursements (End Greed) Act.'' 
I want to thank my colleague Congressman John Conyers, Jr. of Michigan 
for introducing this important legislation, and I urge my colleagues to 
support this bill.


                               Background

  Mr. Speaker, since August 2008, the federal government has invested 
hundreds of billions of dollars in private financial institutions. The 
credit crisis deepened in September when the federal government put 
Fannie Mae and Freddie Mac into conservatorship after it became clear 
that the financial situations of two of the nation's largest mortgage 
purchasers were rapidly deteriorating.
  On September 14, 2008, the impact of the crisis widened as global 
financial services company Merrill Lynch agreed to sell itself to Bank 
of America, investment bank Lehman Brothers filed for bankruptcy and 
international insurer and financial services company American Insurance 
Group (``AIG'') asked the federal government for a $40 billion bridge 
loan.
  On September 23, 2008, then-Treasury Secretary Paulson and Federal 
Reserve Chairman Ben Bernanke appeared before Congress asking for a 
$700 million rescue plan to buy and resell mortgage backed securities 
citing fears of a recession if the government did not act.
  On October 3, 2008, Congress authorized $700 billion for the Treasury 
to buy troubled assets to prevent disruption in the economy. One week 
after the $700 billion was authorized, the Bush Administration decided 
that it would use a portion of the $700 billion to recapitalize some of 
the nation's leading banks by buying their shares. The idea was to help 
healthy banks continue to provide loans to businesses and consumers. 
This did not happen. Instead, banks began to acquire smaller banks that 
were not given access to the $700 billion.
  Funds were used to pay employee bonuses. The payment of employee 
bonuses and the use of TARP funds to do so, was expressly prohibited by 
the TARP bill. Despite this prohibition, the nation's largest banking 
and financial institutions continued to pay employee bonuses using the 
TARP funds. This bill puts the teeth in the original TARP bill and 
provides a mechanism for these financial institutions to return the 
funds they wrongly used.
  Our constituents are worried about the Golden Parachutes that they 
see given to big business while they struggle to pay mortgages, keep 
the electricity on, and send their children to college. The saving of 
corporate executives while unemployment rates continue to go up, has 
driven many Americans to wonder what has happened to corporate 
responsibility and accountability.
  Mr. Speaker, H.R. 1575, the ``End Government Reimbursement of 
Excessive Executive Disbursements (End GREED) Act,'' applies to 
companies that have received more than $10 billion in federal financial 
assistance since September 1, 2008. The bill ends the unjust enrichment 
of the corporate executives who wrongly benefitted from their 
companies' receipt and misuse of TARP funds. As discussed further 
below, the bill has two key components.
  First, it creates a federal fraudulent transfer statute that will 
allow the Attorney General to recover prior excessive payments to 
employees made by the company. This allows the government, as a 
creditor, to show that excessive payments were made bearing no 
relationship to fair value and to recover those payments for the 
company.
  Second, on an ongoing forward basis, it allows the Attorney General 
to limit payments to company executives to ten times the average non-
management wages, just as would have been the case if the company had 
been forced into bankruptcy. In addition, the bill authorizes the 
Attorney General to issue a subpoena to obtain pertinent information 
from these companies about employee bonus and compensation payments.
  I urge my colleagues to support this bill. It is the right thing to 
do and prevents unjust enrichment by the bank and financial institution 
executives. The TARP funds were originally intended to be used by the 
banks to continue to provide services to the public. The TARP funds 
were not supposed to be used for the executives and bankers to get 
engorged and rich.
  Mr. SMITH of Texas. Mr. Speaker, I will be the remaining speaker on 
this side.
  I will reserve the balance on my side.
  Mr. CONYERS. Mr. Speaker, I have no further speakers.
  I reserve the balance of my time.
  Mr. SMITH of Texas. Mr. Speaker, I yield myself the balance of my 
time.
  Mr. Speaker, I would like to close by reiterating that this bill is 
misguided and should be opposed for many reasons.
  The AIG bonuses were unwise, but what was fraudulent about them? How 
can bonuses Congress and the President specifically ratify through the 
stimulus bill be fraudulent? Bonus retribution rests on anger, not 
sound policy. It will undermine the Federal Government's ability to 
recruit bank rescue participants.
  President Obama has urged us not to act out of anger, and Secretary 
Geithner has finally just announced a toxic assets relief program 
relying heavily on private participation. The markets responded to 
Secretary Geithner by rallying strongly. Why would we scare the private 
institutions away now?
  State fraudulent conveyance law is already working. New York Attorney 
General Andrew Cuomo has used New York State law tools to force at 
least 15 of the top AIG bonus recipients to return their bonuses. He 
has recouped at least $50 million. He expects to recoup all bonuses 
paid to U.S. recipients, and he and other State authorities may recoup 
bonuses that went overseas.
  H.R. 1575 puts executive compensation decisions into a multitude of 
district judges' different hands. H.R. 1575 cannot constrain executive 
compensation. It just leaves it to over 1,000 district judges to 
arbitrarily determine whether compensation exceeds a reasonably 
equivalent value for services.
  The House just passed H.R. 1586. We don't need to take a follow-up 
action.

[[Page H4281]]

Just 2 weeks ago, the House passed H.R. 1586 to go after the AIG 
bonuses under the Tax Code. H.R. 1575 is redundant and poses some of 
the same risk. So why does that make sense?
  H.R. 1575 is not only unwise, it is unnecessary. It is not only 
unnecessary, it is the product of a ransacking of regular order. And 
not only that, it will hamper our economic recovery.
  Mr. Speaker, I just want to say to my colleagues that Republican 
leader John Boehner, Whip Eric Cantor, and Conference Chairman Mike 
Pence are all going to vote ``no'' on this legislation.
  I strongly urge a bipartisan ``no'' vote on H.R. 1575.
  I yield back the balance of my time.
  Mr. CONYERS. Mr. Speaker, I close regretfully lamenting the comments 
of my good friend, Lamar Smith, the ranking member on this committee, 
because he may not have sensed the outrage of the American people in 
terms of the fact that these outrageous bonuses were being arrogantly 
issued out with government funds that were by the billions, that were 
going to corporations to supposedly save them from bankruptcy. And so 
for him to ignore the fact that at least 47 States already have these 
laws, to think that there would be a constitutional problem with the 
government in this very limited case directing the courts to, on a 
case-by-case basis, review their appropriateness is rather astounding.
  So I would like to personally make myself available, particularly to 
new Members of this great body of the 111th Congress, to please consult 
with me before you do anything that will prevent us from having a long 
friendship and get to know each other a lot better in the Congress.
  Mr. CONYERS. Mr. Speaker, I submit the other two law professor 
letters for the Record.

                                                   March 24, 2009.
     Hon. John Conyers, Jr.,
     Hon. Lamar Smith,
     Committee on the Judiciary,
     House of Representatives, Washington, DC.
       Dear Congressman Conyers and Congressman Smith: I am 
     writing to express my opinion that the fraudulent transfer 
     provisions of H.R. 1575 pass constitutional muster. I am 
     writing in my capacity as an expert on fraudulent transfer 
     law, not on behalf of any group or individual.
       I am the Harry A. Bigelow Distinguished Service Professor 
     at the University of Chicago. I joined Chicago's faculty in 
     1980, was Director of its law and economics program from 1992 
     to 1994, and served as its Dean from 1994 to 1999. I have 
     been a visiting professor at Stanford, Harvard, and Yale. 
     Currently a Director of the American College of Bankruptcy, I 
     was Vice Chair of the National Bankruptcy Conference from 
     1997 until 2004. My publications include a number of articles 
     on fraudulent transfer law.
       I begin by emphasizing that the fraudulent transfer 
     provision of H.R. 1575 has modest scope. It creates a new 
     federal procedure, but the substantive right in question has 
     existed under state law for a long time. In every 
     jurisdiction, creditors (including the United States) have 
     the ability to avoid transfers made by an insolvent or 
     financially troubled debtor for less than reasonably 
     equivalent value. Indeed, more than half the states have 
     enacted the Uniform Fraudulent Transfer Act (``UFTA''), which 
     uses nearly identical statutory language.
       Apart from the UFTA being a state-based procedure and 
     generally broader in scope, the only substantive difference 
     between the UFTA and H.R. 1575 is on the narrow question of 
     the time at which insolvency or unreasonably small capital is 
     judged. Under H.R. 1575, it is at the time of the payment, 
     while under the UFTA. It is the time that the contract is 
     entered into. Such a difference, however, should not be of 
     great moment. Congress has enacted fraudulent transfer rules 
     before (typically in bankruptcy legislation) and has departed 
     more substantially from the nonbankruptcy rule. For example, 
     the Bankruptcy Abuse Prevention and Consumer Protection Act 
     of 2005 enacted a fraudulent transfer provision that allows 
     recovery against insider employees who receive more than 
     reasonably equivalent value and it contains no insolvency 
     requirement or unreasonably small capital requirement at all.
       Because H.R. 1575 largely replicates rights that the United 
     States already possesses under state law, there seems little 
     doubt that Congress has the power to enact it. While the 
     statute does reach, among other things, transfers that have 
     already taken place, this has been the case with previous 
     fraudulent conveyance statutes enacted by Congress, most 
     recently in 2005. I am not aware that anyone has ever 
     suggested that these were constitutionally suspect.
       H.R. 1575 is not an ex post facto law, as it involves only 
     civil liability. See Calder v. Bull, 3 U.S. 386 (1798). Nor 
     is it a bill of attainder as it applies generally to entities 
     that have received a particular type of federal funding. The 
     only remotely colorable constitutional argument against H.R. 
     1575 is that it violates the due process rights of the 
     transferees because of the statute's retroactive effect. This 
     should not, however, create a constitutional problem, as long 
     as Congress's intent to apply it retroactively is expressed 
     clearly.
       In Usery v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976), 
     the Supreme Court noted that it ``is by now well established 
     that legislative Acts adjusting the burdens and benefits of 
     economic life come to the Court with a presumption of 
     constitutionality, and that the burden is on one complaining 
     of a due process violation to establish that the legislature 
     has acted in an arbitrary and irrational way.''
       On the rare occasions in which it has struck down 
     legislation that has had a retroactive effect, the Court has 
     emphasized that, to constitute a due process violation, it 
     must cross a significant threshold, such as, in one case, 
     prospective liability on account of conduct that a company 
     had ceased many decades before. While ``legislation might be 
     unconstitutional if it imposes severe retroactive liability 
     on a limited class of parties that could not have anticipated 
     the liability, and the extent of that liability is 
     substantially disproportionate to the parties' experience,'' 
     as a general matter ``Congress has considerable leeway to 
     fashion economic legislation, including the power to affect 
     contractual commitments between private parties.'' Eastern 
     Enterprises v. Apfel, 524 U.S. 498, 529-30 (1998).
       Legislation, such as H.R. 1575, that largely tracks 
     existing state law cannot take private parties by surprise. 
     In this case, the basic principle--that financially troubled 
     debtors cannot give their assets away--has been part of 
     Anglo-American law for centuries. See Twyne's Case, 3 Coke 
     80b, 76 Eng. Rep. 809 (1601).
       If you or your staff have any questions or would like 
     further information, I would be happy to be of assistance.
           Sincerely,
     Douglas G. Baird.
                                  ____



                                     University of California,

                                  Los Angeles, CA, March 24, 2009.
     Re H.R. 1575, 111th Congress, 1st Session.

     Hon. John Conyers, Jr.,
     Chairman, House Committee on the Judiciary, Washington, DC.
     Hon. Lamar Smith,
     Ranking Member, House Committee on the Judiciary, Washington, 
         DC.
       Dear Chairman Conyers and Ranking Member Smith: Chairman 
     Conyers has asked me to analyze whether the fraudulent 
     transfer provisions in the Manager's amendment to H.R. 1575 
     violate the United States Constitution. For the reasons set 
     forth below, it is my view as a professor of law that the 
     fraudulent transfer provisions of the Manager's amendment to 
     H.R. 1575 are constitutional on their face and as applied to 
     avoid payments of excessive compensation made under contracts 
     entered into before the date of enactment.
       The Manager's amendment to H.R. 1575, prepared for floor 
     consideration in the House of Representatives, seeks to 
     authorize the Attorney General to file a civil action to 
     avoid, as fraudulent transfers, certain payments of excessive 
     compensation made by entities who received more than $5 
     billion in federal government funds on or after September 1, 
     2008. It does so by vesting the Attorney General with two 
     kinds of fraudulent transfer avoiding powers.
       First, section 2(1)-(2) gives the Attorney General the 
     power to avoid constructive fraudulent transfers made for 
     less than a reasonably equivalent value if the company making 
     the payments either was insolvent or possessed an 
     unreasonably small capital on the date of the payments. Both 
     insolvency and unreasonably small capital are determined 
     without consideration of the federal government funds or 
     lines of credit. Second, the legislation authorizes the 
     Attorney General to stand in the shoes of an actual unsecured 
     creditor of the payor who could avoid the payments under 
     other applicable law to avoid excessive compensation payments 
     to the same extent.
       Having extensive familiarity with the interface of 
     bankruptcy, insolvency, and constitutional law, it is my view 
     as a scholar that the fraudulent transfer provisions of the 
     Manager's amendment to H.R. 1575 are constitutional on their 
     face and as applied to avoid payments of excessive 
     compensation made under contracts entered into before the 
     date of enactment. The Commerce Clause, Bankruptcy Clause, 
     and Necessary and Proper Clause provide ample congressional 
     power to enact this legislation. See U.S. Const., art. I, 
     Sec. 8, cls. 3, 4 & 18.
       Even though the United States did not put recipients of 
     federal government funds into bankruptcy, conservatorship, or 
     receivership as a condition of receiving those funds, H.R. 
     1575 could be supported under the Bankruptcy Clause. In 
     Railway Labor Executives' Ass'n v. Gibbons, 455 U.S. 457, 466 
     (1982), the Court stated, ``although we have noted that 
     `[t]he subject of bankruptcies is incapable of final 
     definition,' we have previously defined `bankruptcy' as the 
     `subject of relations between an insolvent or nonpaying or 
     fraudulent debtor and his creditors, extending to his and 
     their relief.' * * * Congress' power under the Bankruptcy 
     Clause `contemplate[s] an adjustment of a failing debtor's 
     obligations.' '' (citations omitted) As the Court noted in 
     Continental Illinois

[[Page H4282]]

     National Bank & Trust Co. of Chicago v. Chicago, Rock Island 
     & Pacific Railway Co., 294 U.S. 648, 667-68 (1935), the 
     Bankruptcy Clause applies to regulate insolvent companies as 
     well as those that are bankrupt: ``While attempts have been 
     made to formulate a distinction between bankruptcy and 
     insolvency, it has long been settled that, within the meaning 
     of the [Bankruptcy Clause], the terms are convertible.''
       Moreover, under the Commerce Clause, H.R. 1575 is valid 
     regulatory legislation applicable to companies that do 
     business in interstate commerce.
       Furthermore, the legislation properly invokes fraudulent 
     transfer law remedies that have been part of Anglo-American 
     bankruptcy and insolvency laws since enactment of the Statute 
     of 13 Elizabeth in England in 1571. These laws, in their 
     modern form, are part of the statutory or common law of every 
     state as well as the federal bankruptcy code. They permit the 
     avoidance of actual intent or constructive fraudulent 
     transfers. In pertinent part, constructive fraudulent 
     transfer laws operate to permit the avoidance of transfers 
     made for less than a fair consideration or reasonably 
     equivalent value while the transferor is insolvent (in either 
     the balance sheet or equity sense) or left with an 
     unreasonably small capital.
       Many of the companies that received federal government 
     funds were undoubtedly insolvent in the balance sheet or 
     equity sense or left with an unreasonably small 
     capital before the receipt of the funds. Had the United 
     States not intervened to advance the federal government 
     funds, the excessive compensation payments would have been 
     avoidable in a bankruptcy or receivership, or, 
     alternatively, under applicable fraudulent transfer laws 
     to the extent they were not given in exchange for 
     reasonably equivalent value or fair consideration. Indeed 
     the contracts under which these payments were made 
     themselves might have been avoidable as fraudulently 
     incurred obligations under these laws, at least to the 
     extent they authorize payments in excess of the fair value 
     of services rendered.
       When a business is insolvent, unable to pay its debts as 
     they mature, or left with an unreasonably small capital, the 
     assets of that business can be considered to be equitably 
     owned by its creditors. The fraudulent transfer laws prevent 
     a business from giving away assets that it does not equitably 
     own. Therefore there is a strong historical legal 
     underpinning for application of fraudulent transfer 
     principles in the Manager's amendment to H.R. 1575.
       Had the United States not made available the federal 
     government payments, these excessive payments would have been 
     avoidable in many different scenarios. It undoubtedly was 
     never the intention of the United States to make federal 
     government funds available to enable a recipient entity to 
     facilitate fraudulent transfers. Accordingly there is a 
     rational basis making it appropriate for Congress to enact 
     regulatory legislation to prevent that result and for a court 
     to enforce H.R. 1575 to avoid the excessive payments. Indeed, 
     in addition to statutory remedies, a court of equity might 
     exercise equitable powers of reformation or 
     recharacterization to facilitate this result.
       Nevertheless, entities resisting disgorgement of the 
     transfers might seek to challenge the constitutionality on 
     several grounds. Recipients of excessive payments might 
     allege that the legislation violates their contract rights. 
     The response is that congressional impairment of contract 
     rights is not unconstitutional. First, although the Manager's 
     amendment to H.R. 1575 permits the court to interfere with 
     contractual obligations, it is clear that the Contracts 
     Clause of the Constitution only limits impairment of 
     obligations of contracts by the states and does not limit 
     federal power to impair contractual obligations. See U.S. 
     Const., art. I, Sec. 10.
       Second, because the avoidance only takes place in a federal 
     court judicial proceeding based on adequate notice and an 
     opportunity to be heard, there is no denial of due process in 
     violation of the Fifth Amendment. See Mullane v. Central 
     Hanover Bank & Trust Co., 339 U.S. 306, 307 (1950) 
     (considering due process under the Fourteenth Amendment; the 
     analysis would be similar under the Fifth Amendment).
       Third, under H.R. 1575, there is no taking of private 
     property for public use without just compensation in 
     violation of the Fifth Amendment. Courts have held that the 
     Bankruptcy Code's authorization of lien avoidance does not 
     implicate a taking under the Fifth Amendment. See, e.g., 
     Travelers Ins. Co. v. Bullington, 878 F.2d 354, 359 n.6 (11th 
     Cir. 1989); Yi v. Citibank (Md.) N.A. (In re Yi), 219 B.R. 
     394, 401 (E.D. Va. 1998). Here, recipients of the excess 
     payments do not enjoy liens in property, but simply contract 
     rights under contracts that are also avoidable. The Court has 
     upheld the power of Congress to limit contractual 
     compensation rights without causing violation of the Fifth 
     Amendment. See Reconstruction Fin. Corp. v. Bankers Trust 
     Co., 318 U.S. 163, 168-70 (1943) (77 railroad reorganization 
     case in which claims for compensation for services, attorneys 
     fees, and expenses of indenture trustee of secured mortgage 
     bonds was referred to interstate commerce commission for 
     determination). By limiting avoidance of compensation claims 
     only to the extent they exceed reasonably equivalent value, 
     H.R. 1575 places a ``reasonable limitation'' on the 
     permissible amount of compensation disbursements. Under the 
     Supreme Court's reasoning in Kuehner v. Irving Trust Co., 299 
     U.S. 445, 452, 455 (1937) the placement of such a reasonable 
     limitation does not violate the Fifth Amendment, even though 
     it results in the destruction of a creditor's contractual 
     remedies.
       Thus, constitutional challenges to H.R. 1575 should fail. 
     And even if they succeed, at best the recipient would have a 
     claim against the United States under the Tucker Act for any 
     excessive payments disgorged.
       In order to let you put this analysis in context, let me 
     share with you my qualifications to make this analysis. After 
     graduating from Harvard Law School cum laude in 1974, I 
     served as Associate Counsel to the House Committee on the 
     Judiciary, working primarily with Republican members from 
     1974-1977 on bankruptcy law reform, among other issues. As a 
     staff member, I was one of the principal drafters of the 1978 
     Bankruptcy Code. Since then, I have devoted my entire career 
     to the pursuit of bankruptcy law and scholarship. After 
     leaving the Hill I commenced working as a bankruptcy lawyer 
     and also served as a consultant on bankruptcy matters to the 
     House Judiciary Committee until 1982, well past enactment of 
     the 1978 Bankruptcy Code. I also served as a consultant to 
     the Department of Justice on bankruptcy matters during 1983-
     1984.
       I commenced teaching bankruptcy law in 1979 as an adjunct 
     professor at the UCLA School of Law and became a full time 
     professor there in 1997, after teaching at Harvard Law School 
     in 1995-1996 as the Robert Braucher visiting professor from 
     practice.
       My interest in bankruptcy legislation has continued over 
     the years. I served on the legislation committee of the 
     National Bankruptcy Conference for several years, acting as 
     its Chair from 1992-1999. Chief Justice Rehnquist appointed 
     me to serve on the Judicial Conference's Advisory Committee 
     on Bankruptcy Rules from 1992-2000.
       During my career, I have paid particular attention to the 
     interface between bankruptcy law and the United States 
     Constitution. While serving as a congressional staff member, 
     I co-authored a House Judiciary Committee Report in 1977 
     correctly predicting that it would be unconstitutional to 
     give a grant of broad pervasive jurisdiction to non-tenured 
     bankruptcy judges. See H.R. Rep. No. 95-595, 95th Cong., 1st 
     Sess. 23-39 (1977). The United States Supreme Court validated 
     this position in Northern Pipeline Construction Co. v. 
     Marathon Pipe Line Co., 458 U.S. 50 (1982).
       I have served as amicus curiae to the courts on the 
     intersection of bankruptcy and constitutional law, most 
     recently in Tennessee Student Assistance Corp. v. Hood, 541 
     U.S. 440 (2004) where the Court adopted the amici suggestion 
     of an in rem exception to a state's assertion of sovereign 
     immunity in bankruptcy cases. Within the past few months, I 
     have authored a book ``Bankruptcy and the Supreme Court,'' 
     which devoted an entire chapter to bankruptcy and 
     constitutional law.
       Please let me know if you have additional questions with 
     respect to this important legislation. I appreciate the 
     opportunity to be of service.
           Sincerely yours,
                                                  Kenneth N. Klee.

  Ms. WATERS. Mr. Speaker, I rise in strong support of the End GREED 
Act, H.R. 1575. We worked on this bill in the Judiciary Committee, and 
with bipartisan support, I believe that we made significant 
improvements over the original bill.
  This narrowly crafted measure gives the Attorney General the ability 
to recover the most egregious bonuses by entities that receive or have 
received more than $5 billion in direct capital investment by the U.S. 
under TARP or HERA by filing a civil action in federal court. Every 
state in the U.S. has some form of similar fraudulent transfer statute, 
including my home state of California.
  The Attorney General could only do so where the entity was insolvent 
and paid excessive compensation to an officer, director, or employee 
who provided less than reasonably equivalent value in exchange. This 
applies to bonuses paid after September 1, 2008.
  This legislation takes another critical step in executive 
compensation by reaching bonuses made at the end of 2008. For example, 
more than $3 billion in bonuses were paid by Merrill Lynch late last 
year.
  This bill also provides a mechanism for recovering bonuses paid to 
non-citizens who would be unaffected by the tax provision Congress 
recently passed. New York Attorney General Cuomo reported that only 47 
percent of AIG bonuses were paid to U.S. citizens. Therefore, this bill 
authorizes the Attorney General, after consultation with the Treasury 
Secretary, to subpoena witnesses and to obtain necessary information 
relevant to the bonuses.
  Finally, Mr. Speaker, I know some of the critics of this legislation 
have raised questions about the constitutionality of this bill. Please 
let me add to the Record the comments of several prominent 
constitutional scholars who have confirmed that the bill is 
constitutional. Here's what some of the constitutional scholars have 
said about this bill:

       Prof. Laurence Tribe (Harvard)--``Having carefully reviewed 
     the text of the bill, I believe it stands on solid 
     constitutional ground.''
       Prof. Doug Baird (Univ. of Chicago)--``Because H.R. 1575 
     largely replicates rights that

[[Page H4283]]

     the United States already possesses under state laws, there 
     seems to be little doubt that Congress has the power to enact 
     it.''
       Prof. Michael Gearhardt (UNC)--``I believe that The End 
     GREED Act is unquestionably constitutional. Each of the 
     powers deployed to enact this bill is plenary, and these 
     powers--individually and collectively provide an unusually 
     strong, unassailable constitutional foundation for The End 
     GREED Act.''
       Prof. Ken Klee (UCLA)--``It is my view as a professor of 
     law that the fraudulent transfer provisions of the Manager's 
     amendment to H.R. 1575 are constitutional on their face and 
     as applied to avoid payments of excessive compensation made 
     under contracts entered into before the date of enactment.''

  Mr. Speaker, I urge my colleagues to support H.R. 1575, the End GREED 
Act.
  Mr. CONYERS. I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Michigan (Mr. Conyers) that the House suspend the rules 
and pass the bill, H.R. 1575, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. SMITH of Texas. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

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