Improper Third-Party Payments in U.S. Government Litigation Settlements
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Improper Third-Party Payments in U.S. Government Litigation Settlements Authored by: John Allison James Conde Charles Cooper Elliot Gaiser C. Boyden Gray Adam Gustafson Jason Johnston Cleta Mitchell John Shu Annie Donaldson Talley George Terwilliger The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. This paper was the work of multiple authors, and no assumption should be made that any or all of the views expressed are held by any individual author except where stated. The views expressed are those of the authors in their personal capacities and not in their official or professional capacities. To cite this paper: J. Allison, et al., “Improper Third-Party Payments in U.S. Government Litigation Settlements,” released by the Regulatory Transparency Project of the Federalist Society, February 22, 2021 (https://regproject.org/wp-content/uploads/RTP-Enforcement-and-Agency-Coercion-Working-Group-Paper-Improp er-Third-Party-Payments-In-US-Government-Litigation-Settlements.pdf). 22 February 2021 Introduction Imagine that (1) the U.S. Department of Justice (“DOJ”)in a “Democratic Socialist” administration sued the largest publicly traded oil companies in the world, a.k.a. “Big Oil,” alleging securities law violations over global warming; (2) the DOJ settled with Big Oil for $100 billion; (3) as part of that settlement, the DOJ mandated that Big Oil pay $50 billion to the U.S. Treasury, $25 billion to the Freedom Road Socialist Organization, and $25 billion to the Earth Liberation Front; (4) in actuality, the DOJ reduced Big Oil’s total amount of fines becauseof the money paid to those organizations. Now imagine that (1) the DOJ in a Republican administration sued the largest publicly traded Silicon Valley companies in the world, a.k.a. “Big Tech,” alleging Title VII sex discrimination violations;1 (2) the DOJ settled with Big Tech for $100 billion; (3) the DOJ mandated that Big Tech pay $50 billion to the U.S. Treasury, $25 billion to the National Rifle Association, and $25 billion to the Colcom Foundation; (4) in actuality, the DOJ reduced Big Tech’s total amount of fines because of the money paid to those organizations. These hypotheticals should trouble everyone, especially because something very similar actually happened. This paper outlines the moral, legal, and constitutional problems of executive agencies forcing litigants who settle their cases to pay monies to unrelated, politically-allied third parties as part of the settlements. Further research is neededto uncover the details of such politically-motivated settlement third-party disbursements. Future government settlement monetary disbursements must comport with the Constitution and the law, be specific and transparent, be rare, and truly remedy harm and benefit actual victims. I. The Recent History of Federal Third-Party Payments A. The Executive Branch forced settling defendants to pay settlement monies directly to unrelated third parties who were politically allied with the Executive Branch in new and improper ways, thus circumventing the Treasury and Congress. The Obama administration, primarily the DOJ, negotiated settlements which required the settling defendants to pay “donations” to hundreds of its favored,politically-friendly third parties such as, for example, the National Council of La Raza, theNational Fish & Wildlife Foundation, and the National Community Reinvestment Coalition.2 These third parties were not parties to the litigations nor victims of the alleged misbehavior. Moreover,the Obama DOJ offered to reduce the overall settlement monetary amount depending on how much the charged/settling party paid to the favored third parties, calling the quid pro quo reduction an “enhanced credit.”3 In fact, for every dollar the 1 See, e.g., Maya Kosoff, Silicon Valley’s Sexual-Harassment Crisis Keeps Getting Worse, VANITY FAIR (Sept. 12, 2017), available at https://tinyurl.com/y7zv3po3; and Zoë Corbyn, Why Sexism Is Rife In Silicon Valley, THE GUARDIAN (Mar. 17, 2018), available at https://tinyurl.com/yco2xyqm. 2 See, e.g., Ian Tuttle, Good Riddance To The Obama DOJ’s Scandalous Settlement ‘Slush Fund’ Policy, NATIONAL REVIEW (June 7, 2017), available at https://tinyurl.com/wel5p6n; and Jessica Karmasek, Judiciary Chair Claims Internal Docs Reveal Obama DOJ ‘Slush Fund,’ FORBES (Oct. 24, 2017), available at https://tinyurl.com/yclhnozs. 3 Id. 1 banks “donated,” they received two dollars credited towards their settlement reductions.4 Worse, these third-party political allies successfully lobbied the Obama DOJ for settlement monies, and the Obama DOJ also made sure that organizations which were not aligned with the administration’s political preferences, such as the Pacific Legal Foundation, did not receive nor secondarily benefit from these monies.5 As Bob LeClair, head of the HawaiiLegal Aid Foundation and Executive Director of the Hawaii Justice Foundation, wrote inan email, “I would be willing to have us build a statue [to Obama DOJ Associate Attorney General Tony West] and then we could bow down to this statue each day after we get our $200,000+.”6 The Environmental Protection Agency (“EPA”), Department of Housing and Urban Development (“HUD”), and the Department of the Interior (“Interior”),in addition to the DOJ, are examples of other agencies in the Obama administration which participated in the improper practice of forcing settling litigants to pay settlement monies to unrelated, politically-allied third parties. These agencies routinely violated their own internal guidelines.7 For example, the EPA’s guidelines state that settlements: (a) cannot be inconsistent with any underlying statute, (b) must have a nexus with the violations, (c) cannot be managed or controlled by the agency, (d) must have its scope and type defined before the agreement is signed, i.e. the defendant cannot agree to a sum of money or projects to be determined later, and (e) cannot be used to perform an activity for which Congress specifically appropriated funds.8 The guidelines do not specifically define “nexus.”9 The problem was so bad that the House Judiciary Committee, at the end of 2014, demanded that the Obama DOJ turn over documents regarding its settlements with the six largest U.S. banks over their mortgage-backed securities failures which contributed to the 2008-2009 financial crisis. The Obama administration fined these banks a total of $109.96billion; $38.99 billion of that went to Fannie Mae, Freddie Mac, and other federal housing-related entities, and $14.49 billion went to the Treasury Department.10 Hundreds of millions went to thingslike warm-water equestrian washing stations, propping up underfunded state pension funds, and a “Real Housewives of New Jersey” cast member.11 The specifics as to how the money was allocated, spent, and who decided the allocation remain unknown and perhaps unknowable. 4 Sean Higgins, Obama's Big Bank Slush Fund, WASHINGTON EXAMINER (Jan. 18, 2016), available at: https://tinyurl.com/ybn99vxd. 5 Id. 6 U.S. Congress, House Judiciary Committee, H. Rept. 114-694, available at https://www.congress.gov/114/crpt/hrpt694/CRPT-114hrpt694.pdf. 7 Faith Christine Vander Voort, an Interior spokesperson under Secretary Ryan Zinke, said that since 2008, companies had paid $152 million in compensatory mitigation to the Bureau of Land Management and “approved third parties.” Publicly available information does not show which settlements included such third-party payments and which parties the Obama administration considered “approved.” Vander Voort’s statement raises the concern that the third-party payments were not voluntary and that Interior potentially directed how, where, and to whom the settlement funds were disbursed. Nichola Groom, Diane Craft, U.S. To Stop Taking Payments From Drillers, Miners For Damage To Public Land, REUTERS (Jul. 24, 2018), available at: https://tinyurl.com/ybspzfbk. 8 Steven A. Herman Memorandum (Apr. 10, 1998); Final Supplemental Environmental Project Policy, ENVIRONMENTAL PROTECTION AGENCY (1998), available at https://www.epa.gov/sites/production/files/2018-10/documents/fnlsup-hermn-memtab1.pdf. 9 Id. 10 Christina Rexrode and Emily Glazer, Big Banks Paid $110 Billion in Mortgage-Related Fines. Where Did the Money Go? THE WALL STREET JOURNAL (Mar. 9, 2016), available at https://www.wsj.com/articles/big-banks-paid-110-billionin-mortgage-related-fines-where-did-the-money-go-145755 7442. 11 Id. 2 The Obama DOJ ignored the committee’s document demand. In February 2015, committee chairman Bob Goodlatte (R-VA) emphasized that he was serious about obtaining the documents and stated his concern that the Obama DOJ “may be systematically subverting Congress’s budget authority by using settlements to funnel money to activist groups.”12 Congressman Goodlatte retired in December 2018. Attorney General Jeff Sessions issued a June 7, 2017memo prohibiting the DOJ from directing or requiring settlement payments to non-governmental third parties that were “neither victims nor parties to the lawsuits,” thus ending the Obama administration’s practices.13 Sessions said that “[w]hen the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people – not to bankroll third-party special interest groups or the political friends of whoeveris in power.”14 Sessions’ memo did not appear to be controlling over the EPA, HUD, Interior, or any other agency. B. Politically-friendly third-party groups aggressively