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…
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.