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06/7/2017

Cause of Action Institute Applauds AG Sessions’ Termination of Settlement Fund Payouts to Third-Party Groups

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).

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05/19/2017

Court of Appeals Rules Vehicle Tech Company Has Right to Pursue Relief After Unfair Treatment by DOE on Renewable Loans

Washington, D.C. – The U.S. Court of Appeals for the District of Columbia today reversed the District Court’s ruling, siding with Cause of Action Institute’s (CoA Institute) client, Limnia Inc., an advanced vehicle technology company that alleged it was unfairly passed over for a government-backed loan and loan guarantee through the Department of Energy’s (“DOE”) politically-driven  programs.

CoA Institute President and CEO John Vecchione: “We are very gratified for the Court’s decision. The Circuit saw things our client’s way. We look forward to further advancing this case upon remand. But this is an important precedent laying out the parameters of voluntary remand to an agency.”

CoA Institute filed a lawsuit in 2013 on behalf of Limnia Inc. after the Department of Energy (“DOE”) failed to give the company fair treatment and the honest opportunity to compete for a government-backed loan under the agency’s controversial loan guarantee program to build advanced technology vehicles and components.

In 2008 and 2009, Limnia submitted two loan applications for $15 million in funding through DOE’s Advanced Technology Vehicles Manufacturing (“ATVM”) program. Limnia specializes in the production of battery systems for electric cars and applied for funding to develop a new advanced vehicle energy storage system. The DOE rejected both of Limnia’s applications.

Limnia sued DOE in the District Court alleging that the rejection of its applications was unlawful under the Administrative Procedure Act. In its complaint, Limnia argued it was passed over in favor of politically-favored competitors, such as Tesla Motors Inc., which had close connections to the Obama administration. Tesla received hundreds of millions in loans from the ATVM in early 2010.

Before the District Court could decide Limnia’s case on the merits, however, DOE requested that the case be remanded back to the agency. The District Court granted DOE’s request, returning Limnia’s case to the agency and closing Limnia’s judicial action. In today’s opinion, the Court of Appeals found that the District Court’s decision functioned as a dismissal of Limnia’s claims and authorized further judicial proceedings.

Limnia Inc. Chairman and Vice President of Product Innovation Scott Douglas Redmond: “We fought this fight on behalf of everyone who is sick of cronyism and corruption in Washington DC and tired of having their tax dollars used against them by corrupt political insiders. This is part one of a victory, not only for our team, but for the average citizen who doesn’t want their tax dollars going to politically connected projects.”

The full opinion is available here
Visit our blog for analysis of the opinion and more information about the case here

For information regarding this press release, please contact Zachary Kurz, Director of Communications: zachary.kurz@causeofaction.org

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05/19/2017

D.C. Circuit Rules Department of Energy May Not Use “Voluntary” Remand to Evade Judicial Review

In a victory for Cause of Action Institute’s client Limnia, Inc., the Court of Appeals for the District of Columbia Circuit ruled today that a district court erred in allowing the Department of Energy (“DOE”) to use a so-called “voluntary” remand to evade judicial review of its denial of Limnia applications for a renewable energy loan and loan guarantee.

The agency attempted to escape review of its actions after Limnia had prevailed on a motion to dismiss its Administrative Procedure Act (“APA”) claim that DOE arbitrarily and capriciously rejected its applications because of political favoritism.  DOE sought a “voluntary” remand to send the case back to the agency, but instead of seeking remand to reconsider its initial decision to deny Limnia’s applications, DOE required (and the district court agreed) that Limnia must submit brand new applications and pay significantly higher application fees.  This was the agency’s downfall.

The Court of Appeals made clear that “a voluntary remand request made in response to a party’s APA challenge may be granted only when the agency intends to take further action with respect to the original agency decision on review.  Otherwise, a remand may instead function, as it did in this case, as a dismissal of a party’s claims.”

Because DOE refused to reconsider the original decision, the district court’s decision to “close the judicial action left Limnia stuck between a remand and a hard place: Without any means – judicial or administrative – to obtain review of the Department’s 2009 application decisions . . . .  As a result, the District Court’s voluntary remand order was a ‘remand’ in name only.  Limnia’s position was the same as if its case had been dismissed on the merits.”

The decision also addressed whether the district court’s remand order was a final appealable order.  The Court of Appeals held that it was because it marked the end of the district court’s consideration of the case and because Limnia would be unable to seek review of the denied applications if the remand were permitted.  See pages 9–12.

Limnia also had asked the Court of Appeals to clarify the standard of judicial review for district court grants of contested remand motions.  The parties agreed that the standard should be for an abuse of discretion, but the Court of Appeals had not previously ruled on that question.  In a footnote, the Court said that, “[e]ven assuming that the standard of review is abuse of discretion rather than de novo, a question we need not decide, we agree with Limnia that the District Court’s decision must be reversed.”  Although this does not definitively resolve the question, the Court effective said that even under the more lenient abuse-of-discretion standard, the district court erred.  That is, the question presented was not close enough that the district court would have been affirmed under abuse-of-discretion review but reversed if the Court of Appeals considered the issue de novo.

The case now returns to the district court for further proceedings.

The Court’s decision continues CoA Institute’s string of victories on important administrative law issues in front of the D.C. Circuit.  Other significant wins include:

CoA Institute President and CEO John Vecchione argued the case; on brief with him were Josh Schopf and James Valvo.

James Valvo is Counsel & Senior Policy Advisor at Cause of Action Institute and you can follow him on Twitter @JamesValvo.

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05/9/2017

It’s Time to End the Federal Government’s Cash-for-Visas Program

The Washington Post rightly called on the Trump Administration yesterday to end the government’s controversial EB-5 visa regime and, in particular, its Regional Center Program, which was recently extended until the end of September 2017. In most cases, the “Immigrant Investor Program,” or Employment-Based Preference Five (“EB-5”) cash-for-visa program, permits foreign nationals to apply for a conditional visa by investing $500,000 in an area of “high unemployment.”  Once certain job creation requirements are satisfied, the visa holder can apply for a green card (i.e., for permanent residence).  Although advocates contend that EB-5 is good for the economy, the program has been beset with controversy.  Most recently, President Trump’s son-in-law, Jared Kushner, came under scrutiny for his family’s efforts to “push” EB-5 visas to wealthy Chinese investors.

Cause of Action Institute’s (“CoA Institute”) investigation into various aspects of the EB-5 cash-for-visa program and the Regional Center Program have shown that these initiatives are continually abused for political or fraudulent purposes—a fact now acknowledged by the Government Accountability Office.

  • CoA Institute published a comprehensive report detailing how Virginia Governor Terry McAullife’s former company, GreenTech Automotive, used his political connections to garner millions of taxpayer dollars in loans and tax incentives. GreenTech remains embroiled in an investigation by the Securities and Exchange Commission for its involvement with EB-5. The Inspector General for the Department of Homeland Security reported that McAuliffe and friends—including Anthony Rodham, brother of former Secretary of State Hillary Clinton—benefited from political favoritism in the administration of the visa program.
  • CoA Institute’s report on Forest City Enterprises explained how corporate interests and state and local government worked together to take advantage of weak and ambiguous regulations governing EB-5—manipulating census data to create “targeted employment areas” and relying on questionable job prediction models to meet green card conditions. CoA Institute also discovered that Forest City contracted the same immigration lawyer and economist as GreenTech.
  • CoA Institute filed an ethics complaint against former Senator Harry Reid, who contacted officials at the U.S. Citizenship and Immigration Services in an attempt to influence the approval of EB-5 visa applications for a casino development project owned by Reid’s donors and represented by his son. The Senate Ethics Committee ignored the request, claiming that it never received a copy despite evidence to the contrary.
  • In the wake of the DHS Inspector General’s report, CoA Institute called on the Department of Justice to investigate a number of government officials for violation of federal laws.

Simply stated, the EB-5 Program operates as a cash-for-visa scheme. Whatever economic advantage it might offer is outweighed by the corruption it engenders and negative influence it has on national security and good government.  Congress should end the program or work to reform its governing rules to prevent continued abuse by the political class.

Ryan Mulvey is Counsel at Cause of Action Institute

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07/15/2015

Federal Judge Issues Landmark Ruling on Cronyism in Energy Loan Guarantee Program

Ruling marks the first time a court has allowed a claim under the Administrative Procedure Act on the basis of cronyism or political favoritism in federal discretionary spending.

In response to a legal complaint filed by Cause of Action (CoA), a federal judge has declared that U.S. Department of Energy discretionary spending tainted by alleged cronyism and political favoritism is subject to legal challenge.

Read the Opinion Here

Read the Order Here

Cause of Action represents XP Vehicles (XPV) and Limnia, two green energy companies that were denied loans and a loan guarantee in favor of politically-connected corporations.

XPV is a now-dissolved company that had applied for a loan under the DOE’s Advanced Technology Vehicle Manufacturing (ATVM) Loan Program in order to manufacture a lightweight, energy-efficient sport utility vehicle. XPV partnered with Limnia, a company that developed an energy storage system to power XPV’s proposed vehicle. Limnia had applied for an ATVM loan, as well as a loan under DOE’s Section 1703 Loan Guarantee Program (LGP).

The ATVM Loan Program is designed to provide direct loans to manufacturers of energy-efficient vehicles, while the LGP allows the agency to guarantee loans for advanced technology projects that result in the avoidance or reduction of air pollutants. This is the same program that awarded Solyndra $535 million in taxpayer funds.

During and after the loan application process, XPV and Limnia learned that these loan programs were being run for the benefit of politically-connected insiders.  For example, DOE provided application assistance to Tesla and Fisker that it refused to provide to XPV and Limnia (and others), and then large taxpayer-funded loans. A member of Tesla’s board, who was also a bundler during President Obama’s campaigns, was on a key DOE advisory board, and another bundler who was a Tesla investor and advisor had a primary role in the DOE’s Loan Program Office. In addition, individuals tied to Fisker had made large donations to the Obama campaign and other Democratic causes.  Also, there were emails suggesting that the DOE’s review of a loan applicant was sped up as a result of pressure from then-House Majority Leader Steny Hoyer; that the White House made an effort to encourage DOE to hasten review of another loan application; and that DOE bent its own rules to play favorites. CoA also relied upon two Government Accountability Office reports about these programs that highlighted the potential for abuse.

Judge Ketanji Brown Jackson on the United States District Court for the District of Columbia agreed with CoA, ruling that Limnia has adequately alleged that the DOE’s denials of Limnia’s ATVM Loan Program and LG Program applications were the result of arbitrary and capricious agency action in violation of the APA.

Judge Jackson has thereby allowed Limnia’s claims to proceed. This is significant because prior to this ruling, no court had ever held that cronyism or political favoritism could result in a grant or loan program being administered in an arbitrary and capricious manner.

Cause of Action Executive Director Dan Epstein issued the following statement on the ruling:

“When politicians and agencies allow companies to purchase government access, the basic foundation of our free market economy is compromised. For the first time, a federal district court has confirmed there is a legal remedy when cronyism influences federal administrative discretionary spending. This groundbreaking opinion establishes that the government owes everyone – not just Presidential campaign donors – a fair shake when awarding government funds. Judge Ketanji Brown Jackson’s common-sense judgment that government decisions tainted by cronyism and political favoritism are ‘arbitrary and capricious’ is a victory for individuals and businesses everywhere.”

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04/23/2014

Court Holds That Challenge Brought in Fuel Cell Energy, et al v. Markell, et al Can Continue

FOR IMMEDIATE RELEASE                                                                                                 CONTACT:      

April 23, 2014                                                Mary Beth Hutchins, 202-400-2721

Court Holds That Challenge Brought in Fuel Cell Energy, et al v. Markell, et al Can Continue

WASHINGTON – On April 17, 2014, Magistrate Judge Christopher J. Burke held in Fuel Cell Energy, et al v. Markell, et al that a competitor disadvantaged by the Delaware Public Service Commission’s tariff to Bloom Energy can continue its challenge under the U.S. Constitution, which prohibits state laws that discriminate against out-of-state competition.  The decision affirms that the plaintiff does have standing to claim that Delaware’s 2011 amendments to its Renewable Energy Portfolio Standards Act (REPSA) are unconstitutional. As Judge Burke stated, “Plaintiffs have sufficiently demonstrated the causal connection between the tariff and the competitive disadvantage that FuelCell alleges it will suffer.”   FuelCell is represented by Cause of Action, a nonprofit government accountability group based in Washington, D.C.

The decision can be found here.

Some highlights from the decision include:

  • Page 32: “FuelCell makes sufficient allegations of injury in fact as to another relevant market.  Pursuant to this argument, FuelCell asserts that the 2011 Amendments will cause it significant competitive injury in the “mid-Atlantic area” or on the “East Coast[.]”  That is, when FuelCell complains that, via the 2011 Amendments, Bloom will be “protect[ed]” by “subsidies” affecting future fuel cell transactions, FuelCell is referencing the harm caused by these alleged “subsidies” not only to its future ability to compete with Bloom in Delaware, but also as to energy sales in other mid-Atlantic or East Coast states such as New Jersey, New York and Connecticut.  As noted below, there is record evidence supporting this latter type of claimed future injury.” (internal citations omitted).
  • Page 33: “it is easier to conceive of a business opportunity gained by Bloom in a market as one that comes at the expense of FuelCell (and not one whose outcome is also subject to the action or inaction of numerous other third parties)-so long as there is some indication that the two companies are actually both likely to target that particular relevant market.”
  • Pages 34-35: “FuelCell has, therefore, sufficiently demonstrated injury in fact in this type of East Coast market.”
  • Page 38: “[A] challenged government action (here, the tariff) is said to be subsidizing the future energy production capability of Bloom, FuelCell’s “direct competitor” in a given market.  Similarly, FuelCell alleges that the funds from this tariff will allow a Bloom to increase the amount of that future production (or that absent those funds, it would have generated no such production at all).  The challenged tariff thus is said to “ease” a “competitive  burden” on Bloom, but not FuelCell, in a way that “plainly disadvantages [FuelCell’s] competitive position in the relevant marketplace.” . . . Plaintiffs have sufficiently demonstrated the causal connection between the tariff and the competitive disadvantage that FuelCell alleges it will suffer.”
  • Page 39: “FuelCell argues that “this Court has the authority to void the … tariff[, and Bloom] would thereby lose the unfair infrastructure-related  competitive advantages it enjoys in Delaware[,]” and that “enjoining [the] collection and disbursement of the tariff-subsidy will level the economic playing field vis-a-vis [Bloom] and [FuelCell].”  (D.I. 22 at 12-13)  The Court agrees that FuelCell has sufficiently met its burden as to the “redressability” prong of the analysis.”
  • Page 39, Footnote 21: “FuelCell seeks declaratory and injunctive relief barring future use of (1) the provisions requiring that a QFCP have in-state manufacturing capabilities and (2) the provisions providing for a tariff for a QFCPP.  And it argues, citing to evidence of record, that the “in-state manufacturing requirement and the tariff … [are] inextricably int[er]twined.”  The Court has articulated above how the challenged tariff is sufficiently likely to cause future competitive injury to FuelCell; FuelCell is required to show no more at this stage.“ (internal citations omitted).
  • Page 40: “Having concluded earlier that a sufficient causal connection exists between the tariff and FuelCell’s alleged competitive harm, it follows that this harm is capable of being redressed by the tariff­ related relief that Plaintiffs seek.”

About Cause of Action:

Cause of Action is a non-profit, nonpartisan government accountability organization that fights to protect economic opportunity when federal regulations, spending and cronyism threaten it. For more information, visit www.causeofaction.org.

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Mary Beth Hutchins,  202-400-2721.

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04/23/2014

Related Documents: John Nichols and Fuel Cell Energy v Jack Markell Governor of Delaware

United States District Court for the District of Delaware

April 17, 2014

Opinion & Order & (April 17, 2014)

Complaint (June 20, 2012)

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