Cause of Action Institute (“CoA Institute”) applauds Attorney General Jeff Sessions’ prohibition on settlement agreements that include a payment or loan to non-governmental entities that are not parties to the dispute. On June 5, 2017, AG Sessions issued a memorandum entitled “Prohibition on Settlement Payments to Third Parties” to senior Department of Justice (“DOJ”) officials.[1] The memorandum prevents all DOJ attorneys from “enter[ing] into any agreement on behalf of the United States in settlement of federal claims or charges, including settling civil litigation[.]”[2] AG Sessions has taken an important first step to reign in agency overreach that impels private companies to foot the bill for an administration’s otherwise unfunded policy objectives.
Cause of Action Institute President and CEO John Vecchione: “I applaud Sec. Sessions for his bold reversal of the previous administration’s unwise pattern of using settlements with private companies to fund favored political projects. These deals were negotiated behind closed doors and wound up funneling money to third party groups rather than to the victims of the Defendant’s alleged misconduct. The government should not abuse the settlement process to fund favored political causes, often in direct contravention of Congress’ appropriation authority. The Trump administration’s strong stance against these ill-conceived deals is a step in the right direction, but this policy should be codified in statute as well.”
For years, CoA Institute has raised concerns about these settlement practices. Two years prior to the DOJ memorandum, CoA Institute began investigating DOJ’s multi-million dollar, closed-door settlements with banks over their alleged faulty mortgage practices. The opaque settlement process provided no accountability and prevented congressional oversight of what should be taxpayer funds.[3] We submitted a FOIA request and a petition for rulemaking to seek clarity from DOJ regarding its statutory authority to enter into these settlement agreements that require private companies to allocate significant settlement funds to third-party groups.[4] We also raised concerns about how—and who—selected the third-party recipients of the payouts. If DOJ required the payouts go to specific third-parties, then the administration could direct millions of dollars to any administration-favored organization. The bank settlements also provided an incredible incentive for the banks to “donate” the money to such favored causes—a 2-to-1 penalty forgiveness provision. In the bank settlement cases the settlement funds were being directed to liberal groups approved by the Department of Housing and Urban Development and the Department of the Treasury.
CoA Institute has continued to monitor this issue as other agencies, often in conjunction with DOJ, entered into settlement agreements providing money to third-party groups unrelated to the alleged violations.[5] Recently, we wrote a letter to EPA Administrator Scott Pruitt regarding an Obama-era settlement with Harley-Davidson, Inc. that funneled $3 million to a project unrelated to the alleged violations.[6] The Harley-Davidson consent decree follows the same pattern of abuse: an agency brings an enforcement action against a company that is settled quickly behind closed doors and provides for a payout to a politically aligned organization. In the Harley-Davidson case, EPA required a $3 million “Emissions Mitigation Project” to remedy the alleged violations of the Clean Air Act.
While the DOJ memorandum provides a carve-out for payouts that “directly remed[y] the harm sought to be redressed,” the Harley-Davidson agreement fails to connect the alleged violation—excess gas and nitrogen oxides emissions—to the project—replacing wood-burning appliances in the northeast. Given the lack of the required nexus, EPA overstepped its authority by requiring Harley-Davidson to fund the changeout project and should look to replace that project with one that remedies the alleged violations. Further, the project replaces these appliances by having a third-party group distribute funds to individuals that buy new appliances.
In 2009, Congress increased a tax credit to help fund wood-burning appliance changeouts, but in 2011, the following Congress slashed that tax credit. EPA’s requirement that Harley-Davidson fund the wood-burning appliance project essentially supplants the congressional appropriations process by providing funding for a program that Congress defunded.
Congress has also raised concerns about this usurpation of its authority to spend funds. In order to prevent these projects from reemerging under a new administration, Rep. Bob Goodlatte (R-Va.) has introduced the Stop Settlement Slush Funds Act of 2017 which has passed out of committee to be taken up by the full House.[7] This legislation will prevent all agencies, not just DOJ, from entering into these slush-fund settlement agreements with non-governmental entities that are not parties to the litigation. This bill will remove agencies’ ability to divert funds to politically-aligned third parties and allow them to be disbursed to actual victims of the alleged violations or deposited in the Treasury, as required by law.
[1] Memorandum from Jeff Sessions, Attorney Gen., U.S. Dep’t of Justice, to U.S. Attorneys et al. (June 5, 2017), available at https://www.justice.gov/opa/press-release/file/971826/download.
[2] Id.
[3] See Dan Epstein, Obama DOJ Channels Bank Shakedown Money to Private Groups, Investor’s Bus. Daily (July 7, 2015), http://www.investors.com/politics/perspective/justice-department-says-bank-shakedowns-public-service/.
[4] Press Release, Cause of Action Inst., Cause of Action Launches Investigation into the Justice Department’s Settlements with Large Financial Firms (June 17, 2015), https://causeofaction.org/cause-of-action-launches-investigation-into-the-justice-departments-settlements-with-large-financial-firms/.
[5] See generally Congress to Consider a Bill to Halt Government Slush Funds, Cause of Action Inst. (Sept. 7, 2016), https://causeofaction.org/growing-concern-over-controversial-mortgage-settlements/.
[6] Press Release, Cause of Action Inst., Pruitt Should Reconsider Obama-Era Settlement with Harley-Davidson that Funnels Millions to an Unrelated, Politically-Favored Project (June 1, 2017), https://causeofaction.org/pruitt-reconsider-obama-era-settlement-harley-davidson-funnels-millions-unrelated-politically-favored-project/.
[7] Stop Settlement Slush Funds Act of 2017, H.R. 732, 115th Cong. (2017).