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…
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.