End Government Reimbursement of Excessive Executive Disbursements (End GREED) Act

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

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

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.

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.

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.

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. 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.

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.

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.

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. 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.)

Mr. Speaker, I have no further speakers.

I reserve the balance of my time.

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. 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.

I yield back the balance of my time.

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.

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.

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. Speaker, I will be the remaining speaker on this side.

I will reserve the balance on my side.

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.

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. Speaker, on that I demand the yeas and nays.

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

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. 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

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.