[House Report 118-339]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } {118-339
======================================================================
STOP SETTLEMENT SLUSH FUNDS ACT OF 2023
_______
January 9, 2024.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Jordan, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 788]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 788) 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
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 3
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Committee Oversight Findings..................................... 8
New Budget Authority and Tax Expenditures........................ 8
Congressional Budget Office Cost Estimate........................ 8
Committee Estimate of Budgetary Effects.......................... 9
Duplication of Federal Programs.................................. 9
Performance Goals and Objectives................................. 10
Advisory on Earmarks............................................. 10
Federal Mandates Statement....................................... 10
Advisory Committee Statement..................................... 10
Applicability to Legislative Branch.............................. 10
Section-by-Section Analysis...................................... 10
Dissenting Views................................................. 11
The amendment is as follows:
Strike all that follows after the enacting clause and insert
the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Stop Settlement Slush Funds Act of
2023''.
SEC. 2. LIMITATION ON DONATIONS MADE PURSUANT TO SETTLEMENT AGREEMENTS
TO WHICH THE UNITED STATES IS A PARTY.
(a) Limitation on Required Donations.--An official or agent of the
Government may not enter into or enforce any settlement agreement on
behalf of the United States directing or providing for a payment to any
person or entity other than the United States, other than a payment
that provides restitution for or otherwise directly remedies actual
harm (including to the environment) directly and proximately caused by
the party making the payment, or constitutes payment for services
rendered in connection with the case.
(b) Penalty.--Any official or agent of the Government who violates
subsection (a) shall be subject to the same penalties that would apply
in the case of a violation of section 3302 of title 31, United States
Code.
(c) Effective Date.--Subsections (a) and (b) apply only in the case
of a settlement agreement entered 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.
(e) Reports on Settlement Agreements.--
(1) In general.--Not later than at the end of the first
fiscal year that begins after the date of 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 to a person or entity other than the United States that
is providing restitution for or otherwise directly remedies
actual harm (including to the environment) directly and
proximately caused by the party making the payment, or that
constitutes payment for services rendered in connection with
the case, which shall include 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 enactment of this
Act.
(f) Annual Audit Requirement.--
(1) In general.--Not later than at the end of the first
fiscal year that begins after the date of enactment of this
Act, and annually thereafter, the Inspector General of each
Federal agency shall submit a report on any settlement
agreement entered into in violation of this section by that
agency to--
(A) the Committee on the Judiciary, the Committee on
the Budget, and the Committee on Appropriations of the
Senate; and
(B) the Committee on the Judiciary, the Committee on
the Budget, and the Committee on Appropriations of the
House of Representatives.
(2) Prohibition on additional funding.--No additional funds
are authorized to be appropriated to carry out this subsection.
Purpose and Summary
H.R. 788, the Stop Settlement Slush Funds Act of 2023,
introduced by Rep. Lance Gooden (R-TX), eliminates the practice
of slush fund settlements by prohibiting the federal government
from entering into any settlement agreement that provides a
payment to a person or entity other than the United States,
with an exception for payments that are restitution, directly
remedy actual harm, or constitute a payment for services
rendered. The bill also improves transparency by requiring
agencies to file annual reports with the Congressional Budget
Office that describe how settlement funds are handled, and by
requiring inspectors general to report to Congress on
violations of the Act.
Background and Need for the Legislation
Popularized during the Obama-Biden Administration, the use
of settlement slush funds divert funds that otherwise should be
directed to injured parties or deposited in the U.S. Treasury
to politically-favored third-party entities or programs, while
avoiding Congressional oversight.\1\ In these cases, as part of
a settlement, defendants are required to make payments to
favored or politically-friendly third parties.\2\ Because these
payments are from a defendant to a third party, and the money
does not flow through the Treasury, it can be challenging to
track these settlements and the funds involved.\3\ Many of
these settlements also involve non-disclosure requirements, and
therefore, other than public statements that may inform the
defendant's shareholders of the settlement amount, there is
little transparency into which entities receive the funds under
the settlement.\4\ Such settlements effectively put some of
Congress's power over the purse into the hands of agencies
because the executive branch, not Congress, is determining the
terms of these settlements.
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\1\See Letter from Michael Buschbacher to Hon. Merrick B. Garland,
Att'y Gen., U.S. Dep't of Just. (Jul. 12, 2022), at 17-18; see also,
e.g., John Allison, et al., Improper Third-Party Payments in U.S.
Government Litigation Settlements, Regulatory Transparency Project of
the Federalist Society 1 (February 22, 2021) [hereinafter Improper
Third-Party Payments].
\2\See, e.g., Improper Third-Party Payments at 1.
\3\Id. At 6-7.
\4\Id.
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One example of how settlement slush funds work relates to
President Obama's unsuccessful request in 2011 that Congress
fund electric vehicle innovation.\5\ After Congress did not act
upon his request, the Environmental Protection Agency (EPA)
reached a partial settlement with Volkswagen in a lawsuit
related to pollution claims.\6\ The settlement required
Volkswagen to invest $2.7 billion in ``projects across the
country'' to reduce emissions, with billions of dollars
directed toward ``improving infrastructure, access and
education to support and advance zero emissions vehicles.''\7\
This settlement circumvented Congressional spending and
policymaking authority, and was an unconstitutional
governmental overreach.\8\ The Obama-Biden Administration also
used settlements to direct funds to political allies such as
the National Fish and Wildlife Foundation, the National
Community Reinvestment Coalition, the National Urban League,
and the National Council of La Raza in order to advance an
agenda without Congressional oversight.\9\
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\5\Glenn Kessler, Obama's 2011 State of the Union Address: An
Accounting, Wash. Post (Jan. 23, 2012).
\6\Press Release, U.S. Dep't of Just., Volkswagen to Spend Up to
$14.7 Billion to Settle Allegations of Cheating Admissions Tests and
Deceiving Customers on 2.0 Liter Diesel Vehicles (June 28, 2016).
\7\Id.
\8\William Yeatman, Justice Department Revives Slush Fund
Settlements, Cato at Liberty (May 6, 2022).
\9\See, e.g., Ian Tuttle, Good Riddance to the Obama DOJ's
Scandalous Settlement `Slush Fund' Policy, Nat'l. Rev. (Sept 12, 2017).
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Unlike with federal outlays to third parties, where
Congress has authorized an agency to exercise discretion in
directing funds, there are few requirements as to how
settlement funds must be spent and accounted for.\10\ For
example, government contracting laws require clear disclosure
and accounting of how third parties spend funds allocated
through normal government channels.\11\ In contrast, settlement
slush funds are not subject to such laws, and thus these
settlements can be used by the executive branch to apply
pressure on defendants and direct funds without the same
Congressional oversight that would apply in other contexts.\12\
Accordingly, the details of where third-party payments go are
often unknown. For example, one study found that only 1.4% of
all settlement slush fund payments could be tracked--the
remaining 98.6% of the relevant $668 million was directed in
ways that were undisclosed.\13\
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\10\Id.
\11\See, e.g., 2 C.F.R. Part 200, et seq.
\12\Improper Third-Party Payments, supra. Note 1, at 9-10.
\13\Id. At 15.
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The Trump Administration ended the practice of using
settlement slush funds.\14\ In 2017, then-Attorney General Jeff
Sessions issued a memorandum prohibiting Department of Justice
(DOJ) staff from entering into these types of agreements except
in limited circumstances.\15\ The Trump Administration further
limited the practice in 2020.\16\ Specifically, the Trump DOJ
expressly prohibited its attorneys from negotiating settlements
in environmental cases that directed funding to third parties,
and instead directed settlement funds to be placed in the U.S.
Treasury.\17\
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\14\See Memorandum from the Hon. Jeffrey Sessions on the
Prohibition on Settlement Payments to Third Parties, U.S. Dep't of
Just. (June 5, 2017) [hereinafter Sessions Memo]; see also Memorandum
from Jeffrey Clark, Assistant Attorney General, on Supplemental
Environmental Projects (``SEPs'') in Settlements with Private
Defendants, U.S. Dep't of Just. (March 12, 2020) [hereinafter Clark
Memo].
\15\Sessions Memo, supra. Note 14.
\16\See generally Clark Memo, supra. Note 14.
\17\See id.
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However, in 2022, Attorney General Merrick Garland
rescinded the Trump Administration policies that banned third-
party settlement slush fund payments.\18\ In support of the
rescission, Attorney General Garland noted that third-party
payments have certain remedial purposes and should be
permissible if they have a ``strong connection to the
underlying violation or violations of federal law at issue in
the enforcement action.''\19\ However, as one commentator
suggested, the concept of a ``remedial'' third-party payment is
misguided: the courts already provide a legitimate and unbiased
avenue for remedial damages.\20\ Left unabated and subject to
administrative discretion, this practice can lead to corruption
in government.\21\
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\18\Memorandum from the Hon. Merrick Garland on Guidelines and
Limitations for Settlement Agreements Involving Payments to Non-
Governmental Third Parties, U.S. Dep't of Just. (May 5, 2022).
\19\Id. At 2.
\20\See generally Letter from Michael Buschbacher, supra note 1, at
3-4.
\21\See id. at 17-18.
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On June 6, 2023, Mr. John Shu, an attorney and legal
commentator, testified on the issue of settlement slush funds
at a hearing before the Subcommittee on the Constitution and
Limited Government. Mr. Shu testified that this tactic has been
used by the executive branch across party lines, and he argued
that reform should therefore receive bipartisan support.\22\
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\22\See Government Litigation and the Need for Reform: Hearing
Before the Subcomm. On the Const. and Limited Gov't of the H. Comm. On
the Judiciary, 118th Cong. (2023) (Testimony of John Shu).
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Hearings
For the purposes of clause 3(c)(6)(A) of House rule XIII,
the following hearing was used to develop H.R. 788:
``Government Litigation and the Need for Reform'' a hearing
held on June 6, 2023, before the Subcommittee on the
Constitution and Limited Government of the Committee on the
Judiciary. The Subcommittee heard testimony from the following
witnesses:
Ms. Kirby West, Attorney, Institute for
Justice
Mr. Andrew Grossman, Partner, Baker
Hostetler
Mr. John Shu, Attorney and Legal Commentator
Mr. Todd Phillips, Principal, Phillips
Policy Consulting, LLC
The hearing addressed how different aspects of government
litigation, including settlement slush funds, require reform.
Committee Consideration
On June 14, 2023, the Committee met in open session and
ordered the bill, H.R. 788, favorably reported with an
amendment in the nature of a substitute, by a roll call vote of
15 to 10, a quorum being present.
Committee Votes
In compliance with clause 3(b) of House rule XIII, the
following roll call votes occurred during the Committee's
consideration of H.R. 788:
1. Vote on Amendment #1 to H.R. 788 ANS offered by Mr.
Nadler--failed 8 ayes to 11 nays.
2. Vote on favorably reporting H.R. 788, as amended--passed
15 ayes to 10 nays.
Committee Oversight Findings
In compliance with clause 3(c)(1) of House rule XIII, 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 does not apply where a cost estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974 has been timely submitted prior to filing of the report
and is included in the report. Such a cost estimate is included
in this report.
Congressional Budget Office Cost Estimate
With respect to the requirement of clause 3(c)(3) of rule
XIII of the Rules of the House of Representatives and section
402 of the Congressional Budget Act of 1974, the Committee has
received the enclosed cost estimate for H.R. 788 from the
Director of the Congressional Budget Office:
H.R. 788 would prohibit government agencies from entering
or enforcing any civil settlement agreement that requires the
other party to the settlement (such as a corporation) to make a
donation to a third party. That prohibition would not include
payments to provide restitution or other remedies associated
with the harm caused by the responsible party. In recent
settlements with federal agencies, large corporations have
sometimes been required to donate funds to nonprofit
institutions as a part of their restitution in lieu of paying
those amounts to the government in the form of a penalty. The
prohibition in H.R. 788 would sunset seven years after
enactment.
Based on conversations with officials from the Department
of Justice, CBO expects that, by precluding any such donations
in civil settlements, enactment of H.R. 788 would likely reduce
the number of civil settlements reached in the future and
result in more litigation by federal agencies. Such settlements
are typically recorded as revenues to the government. While
most revenues are deposited in the General Fund of the
Treasury, some are deposited in specific funds, such as the
Assets Forfeiture Fund, from which they can be spent without
appropriations action.
Accordingly, CBO expects that enacting H.R. 788 would
affect both revenues and direct spending. However, CBO has no
basis to estimate the direction or magnitude of those effects
because we cannot predict the number or content of future
settlements that would be precluded by the legislation,
decisions made by federal agencies (including about whether and
how to prosecute individual cases), or the outcome of future
litigation. CBO expects that, under the bill, more cases would
go to trial instead of being settled out of court, but we
cannot determine whether the penalties awarded from a trial
would be larger or smaller, on average, than the amounts that
would be agreed to under the type of settlements the bill would
preclude.
The bill also would require federal agencies to submit an
annual report to the Congress, as well as to the Congressional
Budget Office, if certain settlement agreements were entered
into during that year by the agency in violation of the
prohibitions in H.R. 788. 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.
In addition, enacting the bill could affect direct spending
by some agencies that are allowed to use fees, receipts from
the sale of goods, and other collections to cover operating
costs. CBO estimates that any net changes in direct spending by
those agencies would be negligible because most of them can
adjust amounts collected to reflect changes in operating costs.
The CBO staff contact for this estimate is Jon Sperl. The
estimate was reviewed by H. Samuel Papenfuss, Deputy Director
of Budget Analysis.
Phillip L. Swagel,
Director, Congressional Budget Office.
Committee Estimate of Budgetary Effects
With respect to the requirements of clause 3(d)(1) of rule
XIII of the Rules of the House of Representatives, the
Committee adopts as its own the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of House rule XIII, no provision
of H.R. 788 establishes or reauthorizes a program of the
federal government known to be duplicative of another federal
program.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
House rule XIII, H.R. 788 would eliminate the practice of slush
fund settlements by prohibiting the federal government from
entering into any settlement agreement that provides a payment
to a person or entity other than the United States, with
certain exceptions.
Advisory on Earmarks
In accordance with clause 9 of House rule XXI, H.R. 788
does not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits as defined in clauses
9(d), 9(e), or 9(f) of House rule XXI.
Federal Mandates Statement
Pursuant to section 423 of the Unfunded Mandates Reform
Act, the Committee has determined that the bill does not
contain federal mandates on the private sector. The Committee
has determined that the bill does not impose a federal
intergovernmental mandate on state, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act (Pub. L. 104-
1).
Section-by-Section Analysis
Section 1. Short title
This section sets forth the short title of the bill as the
``Stop Settlement Slush Funds Act of 2023.''
Section 2. Limitation on donations made pursuant to settlement
agreements to which the United States is a party
This section includes the following reforms:
Subsection (a), Limitation on required donations
Prohibits officials or agents of the United States
from entering into or enforcing settlement agreements that
direct payment to any person or entity other than the United
States, except for payments that directly remedy actual harm,
or constitute payment for services rendered in the case.
Subsection (b), Penalty
Applies the same penalties for violations of this
Act that apply to a violation 31 U.S.C. Sec. 3302.
Subsection (c), Effective date
Specifies that (a) and (b) apply only to
settlement agreements entered on or after the date of
enactment.
Subsection (d), Definition
The term ``settlement agreement'' means a
settlement agreement resolving a civil action or potential
civil action.
Subsection (e), Reports on settlement agreements
Requires the head of each Federal agency to submit
an annual report to the Congressional Budget Office detailing
certain settlement agreements entered into by the agency;
provides that no additional funds are authorized to carry out
the subsection; and sunsets the subsection seven years after
the date of enactment.
Subsection (f), Annual audit requirement
Requires the Inspector General of each Federal
agency to submit an annual report to the House and Senate
Judiciary, Budget, and Appropriations committees detailing any
settlement agreement that violates this section; provides that
no additional funds are authorized to carry out the subsection.
Dissenting Views
H.R. 788, the ``Stop Settlement Slush Funds Act of 2023''
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 law and agency practice, the
legislation prohibits settlement agreements that authorize
payments to parties not ``directly and proximately'' harmed by
the unlawful conduct of the settling defendant. This would
undermine the ability of federal agencies to provide civil
relief to victims of systemic misconduct and would prevent such
agencies from tailoring remedies to address generalized
societal injuries related to public health and safety, the
environment, and financial fraud, among areas.
For these reasons and others discussed below, I strongly
oppose H.R. 788 and respectfully dissent from the Committee's
views on this legislation.\1\
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\1\I incorporate by reference into my views the extensive
dissenting views to the Committee report for H.R. 5063 from the 114th
Congress, a bill that is substantially identical to H.R. 788. See H.R.
Rep. No. 114-694 at 19-43 (2016) (dissenting views of Democratic
Members of the House Committee on the Judiciary to the Committee report
for H.R. 5063 from the 114th Congress).
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DESCRIPTION AND BACKGROUND
H.R. 788, the ``Stop Settlement Slush Funds Act of 2023,''
prohibits an ``officer or agent of the Government'' from
entering or enforcing a settlement agreement on behalf of the
United States that requires a donation to a third party who is
not ``directly and proximately'' harmed by the unlawful conduct
of the settling defendant. A violation of this legislation
would constitute a violation of the Miscellaneous Receipts Act,
which prohibits the augmentation of agency appropriations
through enforcement policy.\1\ The bill's proponents claim that
it is necessary to stop the practice of the Department of
Justice (DOJ) and other civil enforcement agencies of entering
settlement agreements that direct funds to non government
organizations, which, these proponents claim, circumvents
Congress's appropriations power under article I, section 9,
clause 7 of the U.S. Constitution.\3\
Although proponents of this legislation argue that
settlement payments to third parties are effectively ``slush
funds'' paid to ``activist groups,''\2\ there is no evidence to
substantiate such concerns. For example, for several years
beginning in 2014, Republicans conducted an extensive
investigation into settlement agreements that the DOJ entered
with major banks, including Bank of America and Citigroup,
concerning their mortgage lending practices. The Bank of
America and Citigroup settlements required donations to third-
party charitable organizations, including legal aid
organizations, community development financial institutions,
and housing counseling groups.\3\ The Republicans'
investigation of these settlements ultimately failed to
establish any credible facts showing that these settlements
included so-called ``slush funds'' otherwise subject to
appropriations, despite voluminous document production by these
federal agencies and private parties. The bill's 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),\4\ and which the Republicans themselves admit is
lawful.\5\
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\2\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); 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''].
\3\H.R. Rep. No. 114-694, at 23-24 (2016).
\4\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).
\5\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.'').
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Not surprisingly, the DOJ, in its strenuous opposition to a
substantively identical version of the legislation considered
in the 114th 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.\6\ Several leading environmental and banking law
experts similarly opposed that legislation because it would
undermine the restitution of generalized harm in various
cases.\7\ 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.''\8\
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\6\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).
\7\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.
\8\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).
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Despite the complete lack of evidence for the settlement
practices alleged by Republicans, in 2017, during the Trump
Administration, then-Attorney General Jeff Sessions issued a
memorandum prohibiting settlement payments to third parties,
with three exceptions like those proposed in H.R. 788, and
ordering the Justice Manual to be revised accordingly.\9\
Notably the memo makes no assertion that the settlements that
included such payments violated federal law or the U.S.
Constitution.\10\
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\9\See Memorandum from Jeff Sessions, U.S. Att'y General, Dep't of
Justice, Prohibition on Settlement Payments to Third Parties (Jun. 5,
2017).
\10\Id.
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On May 5, 2022, Attorney General Merrick Garland issued a
memo revising the current Justice Manual provisions, observing
that ``it has been the consistent view of the Office of Legal
Counsel, including in 2020 when the Justice Department's
current regulation was promulgated [at the direction of the
2017 Sessions Memo], that settlements involving payments to
non-governmental third parties, if properly structured, do not
violate the Miscellaneous Receipts Act.''\11\ Nonetheless,
Attorney General Garland's memorandum instructed that some
limitations on settlement agreements should remain, stating
that the ``current policy is more restrictive and less tailored
than necessary to address concerns that these agreements could
be used to inappropriately fund projects unrelated to the harm
involved in the matter.''\12\ The limitations and guidelines
outlined in the 2022 Garland Memo include:
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\11\See Memorandum from Merrick Garland, U.S. Att'y General, Dep't
of Justice, Guidelines and Limitations For Settlement Agreements
Involving Payments to Non-Governmental Third Parties (May 5, 2022).
\12\Id.
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Any such settlement agreement shall define
with particularity the nature and scope of the specific
project or projects that the defendant has agreed to
fund.
All such projects must have a strong
connection to the underlying violation or violations of
federal law at issue in the enforcement action.
The Justice Department and its client
agencies shall not propose the selection of any
particular third party to receive payments to implement
any project carried out under any such settlement nor
propose a specific entity to be the beneficiary of any
projects carried out (but may specify the type of
entity and reject any implementer or beneficiary
proposed by the defendant so long as disapproval is
based upon objective criteria for assessing
qualifications and fitness outlined in the settlement
agreement).
Prohibiting such settlements to require
payments to non-governmental third parties solely for
general public education or awareness projects; solely
in the form of contributions to generalized research;
or in the form of unrestricted cash donations.
The Subcommittee on the Constitution and Limited Government
held a hearing on June 6, 2023, entitled ``Government
Litigation and the Need for Reform.'' At the hearing,
Democratic witness Todd Phillips testified that H.R. 788
``would place arbitrary limits on how the federal agencies may
enter into settlement agreements that arise from enforcement
actions brought against companies that have violated federal
laws'' and that ``[i]ts cumulative effect would be to deter
agencies from the efficient resolution of civil complaints
through settlement agreements.''\13\
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\13\Government Litigation and the Need for Reform: Hearing before
the Subcomm. on the Constitution and Limited Government of the H. Comm.
on the Judiciary, 118th Cong. 4 (2023) (statement of Todd Phillips,
Principal, Phillips Policy Consulting).
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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--have opposed this legislation in the past.\14\
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\14\Letter from Public Citizen to H. Comm. on the Judiciary (Feb.
1, 2017); Letter from Marc H. Morial, President, the National Urban
League, to Chairman Goodlatte & Ranking Member Conyers, H. Comm. of the
Judiciary (Feb. 1, 2017); Letter from Americans for Financial Reform,
et al. (Sept. 7, 2016)
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CONCERNS WITH H.R. 788
I. H.R. 788 Is a Dangerous Solution to a Non-Existent Problem
H.R. 788 is yet another Republican solution in search of a
problem that is rife with unintended consequences. Longstanding
appropriations law and agency policy--as the GAO and CRS
recognized--prevent civil enforcement agencies from directing
funds to politically- favored groups or circumventing
Congress's appropriations role. The DOJ has broad enforcement
discretion when settling litigation, including substantial
flexibility in crafting settlement agreements within its
statutory enforcement authority.\15\ Donations under settlement
agreements are a lawful exercise of the DOJ's enforcement
discretion. GAO has issued several opinions clarifying that
settlement donations are not ``for the Government'' within the
meaning of the MRA, which prohibits augmentation of agency
appropriations through enforcement policy.\16\ Rather,
according to GAO, an agency's enforcement discretion includes
the use of settlement donations as long as the remedies have a
nexus to the correction of an underlying violation and the
agency's prosecutorial objectives. There is absolutely no
evidence that any settlement included so-called slush funds,
despite voluminous document production by these federal
agencies and private parties.
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\15\H.R. Rep. 114-694, at 27-28 (2016).
\16\Id. at 28.
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The cumulative effect of H.R. 788's provisions would be to
deter agencies from the efficient resolution of civil
complaints through settlement agreements. By forcing agencies
into needless litigation, the bill would waste agency time and
resources as well as taxpayer dollars and delay the timely
enforcement of the law and the provision of full relief for
victims. In the context of a veto threat, the Obama
Administration stated that a substantively identical version of
the bill considered in the 114th Congress was ``unnecessary and
would harm the public interest.''
As with other anti-regulatory bills, a broad coalition of
public-interest organizations, including Alliance for Justice,
Americans for Financial Reform, EarthJustice, Sierra Club, and
Public Citizen.\17\ In their letter opposing substantially the
same bill as H.R. 788 the House passed on largely partisan
lines during the 115th Congress, the coalition wrote:
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\17\Letter from Alliance for Justice et al., to Members of the
United States House of Representatives (Oct. 23, 2017).
This bill would be a gift to lawbreakers at the
expense of families and communities suffering from
injuries that cannot be addressed by direct restitution
because the bill would prevent federal law enforcement
agencies from negotiating forms of relief that would
address injuries to the public that may be either non-
quantifiable or indeterminate. These forms of relief
are crucial when harm is difficult to monetize, such as
damage to the environment, the collateral consequences
to communities resulting from predatory lending by
financial institutions, or unknown health outcomes to
individuals resulting from chemical exposures in the
workplace.
Under current law, the legitimacy and utility of
federal enforcement settlements that include payments
to third parties is clear, as long as such payments
bear a nexus to the prosecutorial objectives of the
agency. This bill would supplant the wisdom of federal
law enforcement official to craft appropriate remedies.
[This legislation] is unnecessary because the
practice of providing relief to the public through
payments to non-profits and other community
organizations was discontinued by the current
Department of Justice. Thus, the bill is just another
example of Congressional overreach into executive
branch decision-making. Not only does it disregard the
needs of future Administrations, but the bill is
sloppily crafted, failing to provide even a basic
definition of the ``donations'' or payments in
question.\18\
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\18\Id.
As these organizations noted, this legislation is
completely unnecessary. Worse yet, if enacted, it threatens to
inflict harm on society by hamstringing agencies' ability to
enforce public health and safety protections.
II. H.R. 788 Eliminates Critical Public Interest Protections
H.R. 788 applies to all civil enforcement settlements,
thereby potentially affecting the enforcement of a broad range
of civil rights, environmental, consumer protection, and
servicemember relief laws. In 2016, DOJ stated in its strenuous
opposition to a substantively identical version of the bill
that it 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. Civil enforcement functions as
a means of providing general compensation to society,
particularly where a party's unlawful conduct involves diffuse
or systemic harms, or injures an unidentifiable victim, the
public health, or the environment.
Because H.R. 788 undermines the government's ability to
engage in this critical enforcement function, I offered an
amendment that would exempt from the legislation settlements
related to the enforcement of the Clean Air Act and the
regulation of hazardous air pollutants, which include
greenhouse gases. The Committee, however, rejected the
amendment by a party-line vote of 8 to 11.
III. Ambiguous Drafting Will Create Needless Litigation and Impose
Draconian Penalties on Any Federal Official, Including Federal
Judges
As ordered reported by the Committee, H.R. 788 is
inherently ambiguous and will invite legal challenges to
proposed settlements, deter agencies from pursuing settlements,
and ultimately force courts to define key areas of the bill's
provisions. For example, the bill does not define what
constitutes a ``payment.'' As Professor David Uhlmann of the
University of Michigan Law School explained in testimony before
the Subcommittee on Regulatory Reform, Commercial, and
Antitrust Law, ``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.''\19\ Moreover, the legislation fails to define
``official or agent of the Government,'' meaning that even a
Federal judge could hesitate to enforce clearly valid
settlements in actions involving the government to avoid the
bill's prohibition. As a result of the bill's wide-ranging
punitive provisions, the bill would have a chilling effect on
the efficient resolution of civil cases through settlement
agreements.
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\19\H.R. 5063 Hearing (statement of David Uhlmann, Professor,
University of Michigan Law School, at 4).
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CONCLUSION
Similar to the multitude of anti-regulatory bills that our
Committee has considered during this and prior Republican-
controlled Congresses, H.R. 788 is a solution in search of a
problem that will result in unintended consequences detrimental
to the public welfare. It has been well over a decade since
this legislation was first introduced, yet Republicans have
still produced 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.
Contrary to this tired argument, longstanding
appropriations law and agency policy 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, Republicans
continue to advance this legislation, which 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. 788's ambiguously drafted
provisions and draconian penalties will generate needless
litigation and dissuade the timely resolution of civil
complaints through settlement.
Accordingly, I strongly oppose H.R. 788 and urge my
colleagues to join me in opposition.
Jerrold Nadler,
Ranking Member.