Third-Party Payments in Government Litigation Settlements
In June of 2017, then-Attorney General Jeff Sessions issued a memo prohibiting the Department of Justice from directing settlement payments to non-governmental third parties that are “neither victims nor parties to the lawsuits” when the Department is engaged in litigation. The memo halted a practice that was utilized by the Bush and Obama administrations and now may make a return under the Biden administration.
Some view these third-party payments in government litigation settlements as an unconstitutional encroachment on Congress’s spending power that should remain proscribed, but some see them as a legitimate measure to advance policy goals, particularly when it comes to environmental enforcement.
On April 14, the Federalist Society’s Regulatory Transparency Project and Practice Groups hosted a webinar featuring experts on both sides of the issue discussing the practice and whether it will – and should – be utilized once again by the new administration.
Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.
Nate Kaczmarek: Hello and welcome to today’s Regulatory Transparency Project webinar. I’m Nate Kaczmarek, Vice President and Director of RTP. As always, please note that all views and opinions on the program are those of our guests.
In February, RTP’s Enforcement & Coercion working group released a new white paper titled “Improper Third-Party Payments in U.S. Litigation Settlements.” If you haven’t read the paper, I invite you to do so in the notices for today’s event and on our website. It’s certainly a timely and important topic, and we are looking forward to a great discussion with our experts this afternoon.
To help us navigate the conversation, we are please to have a great moderator in Annie Donaldson Talley. Annie is a partner at Luther Strange & Associates. She previously served at the White House as Deputy Assistant to the President and Deputy Counsel to the President, advising on important matters from regulatory reform to executive nominations. Prior to her government service, she has counseled a wide range of clients with Jones Day and Patton Boggs. If you’d like to learn more about Annie’s accomplished background and the full bios of all our guests today, you can visit our website, www.regprogect.org.
In a moment, I’ll turn it over to Annie. Once our panel has completed their discussion, we’ll go to audience Q&A, so please think of the questions you’d like to ask them. Audience questions can be submitted via the Zoom chat function at the bottom at any time during the program, and Annie will do her best to get them answered by our experts within the hour. With that, Annie, John, Justin, and Ryan, thank you all very much for being with us today. Annie, the floor is yours.
Annie Donaldson Talley: Thank you, Nate. Thank you for that kind introduction. And thank you all out there, even though we can’t see you, for joining us today for this virtual panel. Since Nate has set the stage already, and you’ve all found your way to this webinar yourselves, rather than spending more time introducing the topic, I’m going to dive right in and introduce our panelists today so we can spend more time having a robust conversation about this important topic.
First, we have in store for you John Shu, who is an attorney and legal commentator as well as an alum of both Bush administrations. He’s also one of the co-authors of the paper “Improper Third-Party Payments in U.S. Government Litigation Settlements,” which was released in February, which Nate spoke about.
Next, Justin Savage is Global Co-Leader of Sidley Austin’s Environmental Practice Group where he represents executives, companies, and boards in civil and criminal environmental enforcement matters. He will be sharing his perspective from working with industry clients and from his service for nearly a decade in the environmental enforcement section of the United States Department of Justice.
Finally, joining us today is Ryan Newman, who has spent his most recent years in his career serving in various senior positions in the federal government, including as Counselor to the Attorney General, the Deputy General Counsel for the Department of Defense, and Acting Assistant Attorney General for the Office of Legal Policy where, most relevantly for our purposes here on this panel, he helped develop Attorney General Sessions’ policy restricting third-party payments and settlements with the government. He also served as Chief Counsel to Senator Ted Cruz on the Senate Judiciary Committee.
I’ve introduced our panelists in the order that they’re planning to speak this morning. Gentlemen, I’m going to go ahead and turn it over to you for opening remarks.
John Shu: Hello, everybody. Thank you very much. Thanks to the Regulatory Transparency Project, and of course, my colleague Annie for moderating. She and I were co-authors on this paper about third-party settlements. And although it may sound like your standard dry and academically boring issue that people like me regularly lecture, it actually is a very important issue, and I’ll tell you why.
The Obama administration was very aggressive in using its authority in the DOJ, the EPA, HUD, Department of the Interior, to force companies with whom the government was settling to pay monies not to the Treasury in settling, but to specific third-party groups. These are groups that are not part of the government. They’re often special interest groups, often non-profits.
And oftentimes, they would give these companies who probably did some kind of wrongdoing, for example, the big banks in the 2008 and 2009 financial crisis, they would give them credits. So for example, they would say, “Okay, well, instead of $100 million in fines, we’ll give you $50 million.” This is just an example. “We’ll only fine you $50 million, but if you dole out $10 million to these following groups, which you can then write off as a charitable donation because they’re non-profits, then we’ll give you credit for that.”
If that sounds a little shady, that’s because it is. And Congressman Goodlatte, who is now retired, certainly examined this issue in the House. Unfortunately, Congressman Goodlatte didn’t seem to specifically pass on this issue to any one of his younger House members, but we’ll have to see if that happens.
If it seems to you, our illustrious audience, that it’s okay because this is all in the name of righting wrongs, and social justice, and protecting the environment, helping the communities, I want you to imagine if an administration, oh, I don’t know, let’s say the Trump administration, found somebody had done something wrong, let’s say big tech, for, I don’t know, Title VII and sexual harassment violations, and forced them — because there are several instances of the bro culture in Silicon Valley here in California.
And let’s say that they say, “Okay, well, instead of paying $100 million in fines, we’d like you to pay $50 million in fines, but we’d like for you to donate $10 million to the NRA and $10 million to Catholic Charities for Life.” I think probably if you were on the Biden and Obama side of the fence, you probably wouldn’t agree with that. And certainly, I would agree with you that it’s wrong to do that, not just because of an abuse of executive power.
The Congress is the one that’s supposed to assign where the monies are supposed to go. In fact, in the 2011 budget, Congress specifically stripped out HUD and Interior funding to groups like La Raza and environmental groups because they didn’t feel that it should be the public fisc that are funding these organizations. And so when the Obama administration did an end run around that, forcing the big banks like JPMorgan Chase and Bank of America to fund these groups on the side, well, that really brings up an appropriations issue, a spending issue, and also, for those of you who are real lawyers, the Miscellaneous Receipts Act, my goodness.
When I mention that to my students, they’re like, “What is that? All receipts are sent to us electronically now.” It’s not that kind of receipt. Really, any kind of monies that the government gets, whether it’s, oh, I don’t know, let’s say Jeff Bezos decides, “You know, I really am a bad person. I don’t donate enough to charities. I’m worth $150 billion. I’m going to give $100 billion of it to the United States Treasury because I’m going to rough it and live only on $50 billion.”
Well, okay, then. The government has to account for that money. They just can’t take the money and spend it willy-nilly from the Treasury. Only the Congress can appropriate money, and that’s the way that it should be. And unfortunately, these kinds of third-party settlements go around that.
So I hope that you’ll find this important because it is. And if you think that, “Well, the Obama administration is over. These kinds of things aren’t happening anymore because General Sessions in 2017 issued a memo saying that these payments will no longer happen. It made its way into the CFR, and woo-hoo, that’s it.” I would say no. The Biden administration is now in. Many of the same people are back.
And as a matter of fact, on January 20th, one of the executive orders says that all agency heads—it’s disguised under the protect the environment title—but it says all agency heads are to review all of these executive orders, all executive orders from January 20, 2017. And one of them specifically says in the Justice Department that the Attorney General, presumably Judge Garland, must review all provisions and settlement agreements directing or providing for a payment or loan to a non-governmental person or entity that is not a party to the dispute, meaning exactly these third-party settlements that we’re talking about.
So my friends Ryan Newman and Justin Savage will cover more of this in more detail. But thank you for being here. And please do read the paper, and please do join us in trying to fight for some transparency in the executive branch for any administration and all administrations.
Annie Donaldson Talley: Thank you so much, John. I’m going to turn it over to Justin as our next panelist with opening comments.
Justin Savage: Thanks, Annie. And thanks, John, and Ryan, and the rest of the panel. I enjoyed reading the paper and appreciate the opportunity to be here today and talk about what I view as an important issue.
Let me just give a little bit more about my background. I’m a defense lawyer, and about 15 years of my career have been as a defense lawyer, and for about 10 years at the Justice Department. So I’ve seen these third-party settlements primarily from an environmental settlement perspective from both sides of the table. And hope today I can offer you some perspective that may be helpful in aligning on some ways we can address what I think everyone shares as a concern. When you have large amounts of funds, whether they’re from the federal government, the state government, or a private party, there’s a potential for abuse. So the question we have to ask is how do we ensure against waste, fraud, and abuse of taxpayer dollars, at least for me.
And let me just share some thoughts or perspectives on it. I think if you read this excellent paper that John and others wrote, it acknowledges that they have concerns, but it says further research is needed to identify the details of politically motivated third-party settlements. When you read the paper, it has some publications I enjoy reading in my personal time like The National Review. I enjoy some of the columnists in Forbes. But it doesn’t really dig into the details of these settlements.
And so as a lawyer who practices and represents companies and executives and boards, I think one thing that this project should consider is maybe some further digging into court dockets via PACER, maybe some Freedom of Information Act requests and settlements to see how is this actually playing out at a more detailed or granular level instead of the high level, I’ll call it theatrical concerns that maybe have been expressed. But I think it is an important issue, and one you need to look at.
I will just say, as someone who’s done this in the real world for decades, that I have not seen these instances where people have abused settlements for politically motivated purposes. Have I seen people try? Absolutely. I was at the Justice Department, and people would call and say, “I’d really like to get this set of funding,” or this or that. My answer was always no. And I want to talk to you today about some of the ways the Justice Department controls that and some other things they might be able to do. But I don’t see this as a significant concern. This seems more like a solution in search of a problem.
And it’s just speaking for the business community, which is always dangerous. I have my own clients. These types of settlements are seen as better than a fine or a penalty. They benefit the community generally. And I think the government, particularly in the environmental sector, sees this as a way to address some harm that may have occurred due to an alleged violation. So it’s one of those rare things where if you got business folks together and the government together, at least in the environmental context, I think there’s some support behind this. And I think historically, I just have not seen these kinds of abuses or concerns.
I guess my theme would be as we think about this, let’s have a scalpel, not a butcher knife. There’s a couple things to keep in mind. When you have a settlement with the United States that requires a third-party payment or gives the option of a third-party payment, it’s generally going to be done pursuant to a consent decree. Those consent decrees invoke Article III powers of judges, and so there’s some level of fairness review, whether in a fairness hearing or a review on the papers. And the standard judges employ is whether the settlement is fair, reasonable, in the public interest, and furthers the objectives in the statute.
In the environmental context, and I think in other contexts, there’s opportunities to participate. The Department of Justice has regulations on filing comments on some of these settlements. If a party is very concerned, they could try to intervene and share some thoughts that way. But there is a level of judicial scrutiny to this area. It’s not as if people can just run wild in it because judges are looking over their shoulder, or they should be.
I think that the second point is institutionally, at least with respect to environmental settlements, there are additional requirements in these settlements that address some of these concerns. And I’ll give you a few examples. So environmental settlements, and I think I did the last settlement of a supplemental environmental project, which is one of these third-party party payment options, before the environment division cut them off last year.
But to give you some examples, these settlements typically say that the money — it says a couple things. One, the defendant has the obligation. So if a company settles or an individual, they have to take an obligation, but instead of doing it, they can pay a third party. And an example would be a lead paint remediation settlement.
So we’ve got a lot of impoverished homes near a site where there’s been an alleged environmental violation for air quality or other things. The defendant can do the work, or they can give it to a third party. But if it goes to a third party, there are limits on what are the eligible costs? What can the money be spent on? There’s a limit on overhead. There’s also limits on who can get the money. They have to be qualified. And then there’s a reporting out of it.
Look, I think it’s a nice sound bite to say, “Oh, there’s these slush funds, and groups are getting it.” That’s certainly not my experience. But from my experience, I think it’s a good idea to have settlements structured so that the money is legitimately spent on whatever the project goal is and not lining some politico’s pockets or somebody who’s connected, and that it actually goes toward the community or whatever harm you’re trying to address.
In terms of the legal issue, just to briefly touch on it, this has been litigated in two circuit court of appeals and at least two district courts with respect to citizen suits on environmental law, which are very similar to government enforcement suits. The money is supposed to be to the Treasury. And those courts have held that the Miscellaneous Receipts Act that John mentioned and these other constitutional concerns about Congress controlling the purse are not implicated because the money does not come into the government’s hands. It’s instead going from one private party into another private party.
I commend everybody to take a look at a 2006 OLC opinion, Office of Legal Counsel opinion at DOJ. They’re the attorney for all of the United States and have very smart people who work there. And this is a 2006 opinion from the second Bush administration in the Softwood Lumber settlement. And it basically says that there are not constitutional or statutory concerns as long as the money does not reach the government’s hands and it doesn’t direct where the money is spent.
And that’s something that’s very important, as I mentioned, in the environmental context. Yes, there can be third parties who get money to perform settlements, but EPA doesn’t control, or other agencies don’t control, who gets the money. The company does that. The only control is that the money is actually spent on what it’s supposed to be spent on, the projects instead of just lining some connected person’s pocket.
So those are really my thoughts. I’m happy to engage. And I think we all agree that when you have expenditures, particularly federal expenditures, there need to be controls on it. And I’m happy to share my perspective. Back to you, Annie.
Annie Donaldson Talley: Thanks so much, Justin. Ryan, I’m going to turn it on over to you, especially for the perspective of the last four years and from your experience on the Hill as well.
Ryan Newman: Great. Thanks, Annie. And thanks, John and Justin. It’s great to join with you on this webinar. I’d like to focus my comments really on the various efforts that have been undertaken over the years to try to restrict, limit, or address what is increasingly being seen as a problematic practice. And I might have a little bit of a unique perspective here because this really picked up some steam in the 114th congress. And at the time, I was on the Hill working for Senator Cruz as his chief counsel.
Now, this has been an issue, actually, going back to the Reagan years. But it really gained traction in the Obama administration because of the administration’s very aggressive use of this practice. And it certainly got the attention of a lot of folks on the Hill, including then Chairman of the House Judiciary Committee Bob Goodlatte, who really took the lead in the House, and Senator Lankford took the lead in the Senate. And they both introduced companion legislation in the 114th Congress in 2016, the Stop Settlement Slush Funds Act, to address this problem.
You can already get a sense that this is taking on a bit of a partisan flavor because the Senate bill had about six co-sponsors—Senator Cruz was one of them, so I’ll just put that out there—but no Democrats. And then the House bill had 32 co-sponsors. Remarkably, there was one Democratic co-sponsor, Collin Peterson of Minnesota, but everybody else was Republican.
The bills would have prohibited federal agencies from enforcing any settlement that directed, and I’ll just quote the language, “a payment to any person or entity other than the United States, other than a payment that provides restitution for or otherwise directly remedies actual harm, including to the environment, directly and proximately caused by the party making the payment or constitutes payment for services rendered in connection with the case.”
Now, this prohibition only applied to civil actions. It didn’t apply to criminal actions. And it required the agencies to report on their settlement agreements that included payments to third parties and required the ITs to conduct audits and to report any violations of the bill.
Now, the bill actually passed the House in 2016. It was reintroduced in 2017 and passed the House again that year, but as I’m sure no one here is surprised, it went nowhere in the Senate. And then, of course, remarkably and unexpectedly, President Trump was elected president. I actually came from the Hill over to the administration, took over the Office of Legal Policy for the first eight months. And having some awareness of this issue, we got the ball rolling in what eventually became the Sessions memo, a prohibition on settlement payments to third parties, which was issued on June 5, 2017.
That memo largely tracked the legislation that had been introduced in Congress. It prohibited DOJ attorneys from entering into any agreement on behalf of the United States in settlement of federal claims or charges, including agreements settling civil litigation, accepting plea agreements, or deferring or declining prosecution in a criminal matter that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.
Now, one important distinction is that it went beyond just civil actions and included criminal actions as well. But it was also limited to the extent that it only applied to DOJ. It didn’t apply to EPA or other agencies except insofar as DOJ was representing them in a particular matter.
And the prohibition had three important exceptions. One is that the payments — it was acceptable if the payments provided restitution to a victim or otherwise directly remedied the harm that is sought to be redressed. That’s one exception. Second exception was payments for legal services or other professional services. So the idea there was to get at monitors, outside monitors. And then, of course, the third exception are payments that are expressly authorized by statute.
Now, ENRD actually followed up in January of 2018 with further guidance to really clarify what it means to directly remedy the harm. And so they provide a little bit more content to the policy. And over the years, actually, ENRD subsequently issued further guidance broadening the policy in a lot of ways, including an outright prohibition, at least for the most part, on supplemental environmental projects.
And then in December of just last year, in the waning weeks of the Trump administration, DOJ issued a final rule in the federal register, a prohibition on settlement payments to non-governmental third parties, which basically memorializes and implements the principles in Attorney General Sessions’ memo. But what caught my attention there was that unlike the AG’s memo, the final rule specifically pointed out the Miscellaneous Receipts Act problem, so it came out right away and sort of laid down the marker that DOJ would regard compelled donations to constitute constructive receipt for purposes of the Miscellaneous Receipts Act.
It also tweaked the exceptions a little bit. So for instance, one exception became a payment of restitution or compensation to victims, but specifically excluded supplemental environmental projects. It did away with the direct harm or direct remedy language. It also specified that payments to trusted third parties to facilitate the repatriation and use of funds to directly benefit those harmed by foreign corruption, that that was allowable. And then it kept the exceptions for legal and other professional services, as well as payments that are expressly authorized by statute.
Now, the policy was really aimed at addressing three concerns. One, of course, is the constitutional concerns that John has already alluded to, the problem that these monies are in satisfaction of federal claims, and therefore, they really are, at the end of the day, public monies and shouldn’t be expended except pursuant to appropriation.
But even setting aside the Appropriations Clause problem, I think there’s also the problem of just that the executive branch going around pursuing remedies and relief that’s nowhere authorized by statute, or would certainly go beyond what we would traditionally regard as maybe an inherent executive power, or something along the lines of that the executive branch is going to enforce federal law to deter or punish wrongdoing to compensate the victim, or to otherwise redress the harm.
But to the extent that the executive branch is actually pursuing policy objectives that are beyond that, that are broader than that, we’re in the realm now not of executing the law but of just outright policymaking. And so in that sense, you could view this as just ultra vires executive branch action. And then, of course, there are the statutory concerns of the Miscellaneous Receipts Act.
But I have to say, what was really motivating us at the time was just our policy concerns with this practice. There’s utter lack of transparency. The average citizen would be hard-pressed to figure out where the money is going and how exactly the money is being used. And that leads to the second problem, which is just the appearance of corruption. Even if the government’s doing everything just right, it still lends an appearance of corruption because a lot of this money is going to groups that are perceived by the public as politically and ideologically aligned with the administration. And that’s just not good government.
There’s also the problem of this practice completely circumvents how the government normally manages its money. And there are tons of grant programs out there, but they’re all governed by procedures and rules that ensure that the money is being used and expended and allocated in an evenhanded way and consistent with what Congress requires.
And then the third policy concern, at least from my perspective—and I’ll be a little provocative here, I guess—is on one hand, it looks kind of like a shakedown. We’ve got — the government really wants to settle. It doesn’t want to turn the screws too hard on the regulated entity for fear that it might actually go to a trial or something, which the government might not be too interested in, so it really offers something that is kind of a sweetheart deal that no company in its right mind would ever turn down. “Hey, go pay these outside third parties. You’ll get some great PR. You might even pay less than you would otherwise pay if we were just going to fine you. And you might even get some tax benefits from doing it that you wouldn’t otherwise get with a fine.”
But then on the other hand, if these companies really were doing what the government’s alleging, then this amounts to weak, lax enforcement for all the reasons I just pointed out. And that’s why industry loves — look, industry doesn’t like to part with any money, I’m sure. But when faced with the alternative of fines, they would much prefer this route. They’ll pay less, they’ll pay to groups and get some PR benefit out of it, and they might even get some tax benefits as well. So on the whole, this just seems like a really bad way of doing business, and certainly seems out of alignment with basic constitutional principles as well.
And so I think with that, I’ll go ahead and stop.
Annie Donaldson Talley: Great. Thanks so much, Ryan. And thanks, all three of you. I’m going to — before I start moderating this conversation a little bit more, John, just a heads up, I’m going to turn it back over to you on a couple of issues probably first, especially because you kept your introductory remarks so short, I’m sure you want an option to respond to some of this stuff.
But I will also go ahead and encourage all of you in the audience to please start submitting your questions via that chat function while we continue our conversation here. I may look like I’m of the generation that can operate Zoom second nature, but I would appreciate it if everybody gets their chats in early so I can parse through them and make sure that we have time to address your questions.
John, going back to you, I know both Justin and Ryan mentioned a couple things about restitution and transparency. I thought maybe you wanted to supplement your initial remarks to talk about how this might be different than restitution on the first hand, and then on the second hand, any attempts at giving information that you may want to share so that we understand how transparent or non-transparent. Since I’m the co-author of the paper, I think you know where I stand on this, but I’ll try to keep it evenhanded for you. So I’ll turn it back over to you for a couple of minutes for a quick rebuttal.
John Shu: Thank you very much. Thanks to Ryan and Justin as well. As an academic, I like to think that everything moves along as smoothly and as appropriately as it should. However, we’re dealing with the United States government here. That means nothing moves as smoothly and properly as it should. That’s just the way it is.
I wish that the private sector attorneys, whether on the defense side or the plaintiff side, I wish they were all as ethical as Justin, and I wish those clients were all as ethical as Justin’s. Justin is one of the attorneys, especially for a big, evil, corporate firm, but he’s one of those attorneys that does it the right way. Unfortunately, not everybody is like that.
I think, Annie and Ryan, when you bring up the issue of restitution, that’s a problem because as we know it, and as any textbook will tell you in first year law courses, restitution is making the victim whole. If the United States is the plaintiff, as it is in these cases, then the idea is to make the government, i.e., the people of the United States, whole. Forcing a big company, especially a big, evil oil company, to give money to the, oh, I don’t know, the Hug the Tree Foundation—that’s a made up foundation—that is not making the United States whole. It’s not making the people whole.
And if, let’s say, the environmental disaster happened here in my home state of California, and we’re home to Chevron and all kinds of other big, evil energy companies. Well, my goodness, if the event happened here, but the Hug the Tree Foundation is based on K Street — anyway, so I think that’s a problem with the restitution side. We’re not really making — and certainly with the big banks, my goodness. They were paying all kinds of community groups that really had nothing to do with the mortgage situation or the mortgage failure.
Interestingly enough, one of those groups, the LCCHR, their head was a former AAG, Vanita Gupta, whom President Biden nominated to be the Associate Attorney General. And the Assistant Attorney General at the time who was managing these third party settlements, very talented lawyer named Tony West. Tony went on to replace Larry Thompson at Pepsi and is now the general counsel at Uber here in California. And just by chance, solely by chance, Tony West is the brother-in-law of the Vice President of the United States, former Senator Harris. Now, that’s just all a coincidence. None of this ever happens on purpose. And so I understand that.
And I also get Justin’s point that what we know from Congressman Goodlatte and what we can prove are two different things. But hopefully, we’ll have a change to do that. But the reason no one’s ever able to prove it is because no one can monitor where the money went. That’s a problem.
And besides, if these big, evil, corporate clients are really okay with third-party settlements, let’s see what happens when someday an administration says, “Okay, for all the problems that you’ve done, we’re going to reduce your fines. We’re going to give you a $2 to $1 credit, and therefore, you can claim that you donated to charity. But we want you to donate to the imaginary Make Everybody Show a Drivers’ License Foundation based in, oh, I don’t know, Georgia, Michigan, Pennsylvania, and Wisconsin,” just hypothetically speaking. Let’s see how happy those CEOs of Coca-Cola and the CFO of Delta Airlines are willing to pay those kinds of fines or third-party settlements. I mean, it’s for community purposes, after all.
Annie Donaldson Talley: Justin, your name was invoked. I’ll give you the floor if you’d like to respond.
John Shu: But in a good way. In a good way.
Justin Savage: Well, listen, after that, I expect an invitation to Malibu to hang out.
Look, I enjoyed hearing John talk. I enjoyed hearing Ryan’s different perspectives. Ryan was a high-level policymaker. John’s in academia. But again, these are based on fears, cartoons of how things might work. How do they really work? I think the reality is that most of the projects, and this is my experience in the environmental sector, actually go to address what the government, and ultimately a company, agrees was harm from an alleged violation, whether that’s providing clean drinking water, cleaning up emissions, doing something for waste, whatever.
I enjoy listening to all this. It sounds good rhetorically. But I think the reality is there are ways you can draft these settlements to guard against the abuse. And if those safeguards were codified in a regulation or a statute, I’d be fine with it. But you can do things like having a settlement say, “Here are the eligible costs. You have to report on what you’re spending, and it has to actually go toward whatever project is selected or monies are selected in the settlement instead of just wasted.” So there’s ways to do that. It’s not a shakedown. It’s not corruption. You’re making this sound much more exciting than it actually is.
And in most cases, I think companies are not interested in this because they’re shaken down or their arms are twisted. They see there is a benefit to the communities where they operate, where these projects are done, and it assists things. And I get it. From your perspective — I do this day in and day out. It’s obvious to me. But if you’re not in this practice, it may not be.
I would just commend to you most of these settlements have reporting obligations. Reports have to be filed with the Justice Department or the agencies. Ask for copies. Take a look at them. It’s a form of accounting. If you’re interested in a court case, there’s generally an opportunity to comment or get involved. God bless you. That’s America. And most judges, like the Good Book says, love settlements. Blessed are the peacemakers.
But I completely agree that we don’t want corruption, shakedowns, backhanded deals. I don’t want to do a settlement that just gives some politically connected group money because of who they know. I think that’s completely wrong. It’s not our justice system. And I agree that kind of thing is corrosive to people’s faith in our legal system, which, by the way, having worked in many other countries, is just a treasure, and it’s the reason why we are the City on the Hill.
So, yeah, I agree with the concerns. I guess what I’m saying is there are some other measures to get at it other than completely cutting these projects off or accusing people of corruption or shakedowns. But it does make my day job seem much more interesting than it actually is. Back to you, Annie.
Annie Donaldson Talley: Great. Justin, just a quick follow up. I think one of the things that the paper identifies and is underlying some of the concerns both of Ryan and John, although I won’t speak for them, is the transparency issue.
And the question is, knowing that DOJ has a little bit of a reputation for not responding to oversight for some of these specifics, and also knowing that there are some serious limitations of what you can get from FOIA, what would be your suggestion on how to — if everything’s great, then let’s open the kimono and see what’s there. What would be your suggestion on how to get about that? Is it through Congress? Is it through the courts?
Justin Savage: I think it’s all of the above. So when I was at the Justice Department, I’m old, so I remember Congressman John Dingell from Michigan. I used to send the Dingell-grams. And we had someone who left the Justice Department, the environment division, and went to work for him. We had a GAO audit of all these kind of third-party payments. That’s one way. Having been on the staff then, it’s extremely painful. I had to look through a lot of boxes of documents. So I think Congress is certainly oversight. I support that. I don’t want people to be wasting this money for political reasons.
I think another thing is if you look, if you dig in — and I think this report was a great start. If you dig in and you look at these settlements, they should have terms that require the defendant to provide information on where the money is going. So I think it’s appropriate to ask the Justice Department to provide those, so I think it’s appropriate to ask a court to provide those. To me, it’s good government. Maybe some people think that’s an oxymoron. I’m a little optimistic about our country.
But those are the things I would do. You have recourse to Congress. I’ve been through one of these audits. You have recourse through the Justice Department or the agencies. And then, finally, the courts. If you get stifled and they ignore you, I think it’s appropriate. You can write a letter to a judge or whatever and just say, “I’d like to see how these funds are being spent.” And I think the easiest way to get involved is when you’ve got a settlement. Most of the time, these are proposed settlements or a consent decree. And then there’s an opportunity for the public to weigh in through written comments or contacting the court.
Look, are companies thrilled or law firms thrilled when people do that? No, because they want to get the deal done. But as a citizen, speaking in my personal capacity, I think it’s a good thing that there’s transparency. And I certainly wouldn’t want to be personally involved in a deal that had a slush fund. I just think it’s antithetical to everything I believe in.
Annie Donaldson Talley: Actually —
John Shu: — Annie?
Annie Donaldson Talley: Yes, go ahead, John. And then I’ve got a relevant question from the audience to follow up on this topic. So go for it, John, and then I’ll follow up with you.
John Shu: Just very quickly on the issue of transparency, Congressman Goodlatte, who at the time was the chairman of his committee, Congressman Goodlatte found about transparency the hard way when he specifically requested records and documents from the Holder DOJ about these third-party payments. Some would very meanly call them slush fund payments, but I would never do that. And General Holder and AAG West and others told them to go pound sand because they gave them exactly nothing, not even those famous documents where every other line is redacted and the only thing you see is the word “maybe.” So that’s a problem.
With respect to transparency also, as a former securities lawyer, I wonder if these public companies ever put down in their public documents, their 10-Ks or whatnot, exactly where these monies are going. In other words, we’re paying the Hug the Tree Foundation, or we’re paying the Voting Rights Need Drivers’ Licenses Foundation. I’ve never seen that in a 10-K. And I wonder if somebody asked a big corporation, “Hey, where — exactly to whom and how are these monies being paid?” Why is it that only the DOJ has to release the information? I should think that a public corporation, if they’re doling out money because of a voluntary third party settlement, I would think that they should release that information as well.
And my apologies to our audience member who was going to ask a question. Sorry about that.
Annie Donaldson Talley: No, I’ll go — go ahead.
Justin Savage: Annie, just briefly, the settlements I have worked on, most, all, require the defendant when there’s a third party expenditure to periodically report on the performance of that third party. I think that’s a good thing. So to me, that’s the way if you’re going to design a study to see if there’s been issues, I would gather those reports. And if someone wants to ask a company directly, that’s their business. But there should be a reporting. I think there should be transparency.
Annie Donaldson Talley: Great. Ryan?
Ryan Newman: Well, I was just going to say I’m glad that Justin is on board with the Stop Settlement Slush Funds Act. That makes me feel good. The problem is, though, nobody on the other side of the aisle, nobody on the Democratic side of the aisle, is going to be for that. And so I don’t know why that is, and it just lends credibility to the notion that maybe they’re up to no good after all. Maybe it’s not enough just to directly harm — or directly remedy the harm caused. And they really want to use these monies to pursue larger, broader policy objectives that Congress never signed off on, that Congress never approved, never authorized. And that’s what’s really going on here.
And a good example of that is some of these settlement agreements that the Obama administration enforced. So for instance, as part of the Dieselgate settlement in 2016, Volkswagen was required to invest $2 billion in zero-emission vehicles, charging infrastructure, and in the promotion of zero-emission vehicles. That’s not directly remedying any harm. That is pursuing an agenda.
Or how about in 2016, a cruise line was ordered to pay $7 million to the National Fish and Wildlife Foundation, which was directed, quote, “to fund projects and initiatives benefitting the maritime environment and marine and coastal natural resources,” end quote, and $3 million to the South Florida National Parks Trust, which was directed to use funds, quote, “ to promote education, training, public outreach, and resource protection and preservation by funding programs, projects, enforcement efforts, and initiatives benefitting the maritime environment and marine and coastal natural resources.” This is so broad it’s hard to know even what this means as a specific matter, but it’s obviously going well beyond directly remedying the harm at issue in the enforcement action.
Annie Donaldson Talley: All right. It sounds to me like, Justin, you have the endorsement of both John and Ryan both for a run for Congress and as a virtuous lawyer, both in the public and private sectors. So congratulations on that agreement.
I am going to break in and make sure that we get to some of these audience questions. They’re very good questions. The first question is about the trial lawyers and their relationship to all of this. And the question suggests that the trial bar is very enthusiastic about the return of these slush funds and might be an expansion of what they saw in the Obama administration, so for example, forcing a company to give funds to a public interest group that are allies of trial lawyers. So the question with that setup is who has standing to sue to stop such abuse? What would that lawsuit look like? How do you see that shaking down? And I will turn it over to whoever wants to jump in first.
John Shu: I think it depends on who is doing the suing. So for example, a defendant corporation, it would certainly have standing to sue if it felt like it was being unduly pressured to give money to a third party that it didn’t want to. The other, I believe, because of the Miscellaneous Receipts act, the structural problems of the spending power and the appropriations power, and even because of the Antideficiency Act, I think that the Congress would have the standing to sue. I think it’s highly unlikely that with this Speaker that would ever happen.
But I think your questioner is right with respect to the trial bar and these third-party groups because from my experience in all of these third-party settlements that I’ve seen, as Ryan was mentioning about very broad language, it certainly would include attorneys fees. Sometimes these settlements actually do include attorneys fees, and they’re not limited to the attorneys who might work specifically for the Hug the Tree Foundation. It’s a very broad thing. It could be any attorney who’s remotely affiliated, and that’s a problem.
And also, almost all of these settlements are going towards left wing affiliated groups. That’s not a political judgement, but that does raise some suspicion. If third-party settlements were so great, there should be some kind of balance, some kind of equal distribution of monies, which we don’t see.
But with respect to standing, I think if an individual citizen tried to sue, I don’t think that suit would go very far. We don’t have taxpayer standing, we don’t have citizen standing, and that’s just the way it is. And I don’t think it’s going to change under this court.
Ryan Newman: And I’ll just add to that with respect to either House of Congress. If either House flips in the next election, and the Biden administration picks up the same way the Obama administration did and aggressively pursues this practice, then I definitely think you could see one of the Houses, as an institution, not individual senators or individual House members, but a House as a body, as an institution, could perhaps bring a lawsuit and would be able to rely on recent precedent out of the D.C. Circuit on this issue that arises from litigation over Trump’s border wall on this point where the D.C. Circuit just signed off on — or greenlighted the House legislative standing to bring suit to vindicate its appropriations authority.
Justin Savage: All right. Annie, may I briefly respond?
Annie Donaldson Talley: I was going to say I saw you unmute, so please go ahead.
Justin Savage: I appreciate the thoughtful comments from Ryan and from John. As for Ryan’s point, well, what about the VW or these other settlement goes beyond. I know for a fact VW, that was challenged, and the challenge lost. So we have courts in our country to settle these kinds of disputes. The challenge did not work, people. The judge, I think, thought the settlement was fair, reasonable, in the public interest, furthered the objectives in the statute. So there is law around this. It’s not some political hack just running around deciding this.
I have not seen a trial bar settlement. If there are slush funds in settlements for trial bar, maybe I’ll switch sides. But I just haven’t seen it. And again, there are checks within the judiciary. And at least on the environmental side, they’re very picky about these settlements, and there are terms that require reporting, require it actually be spent. So I’d be shocked.
And to me — look, maybe I’m old school Republican. I don’t think environmental protection is partisan. It’s one of the great things about our country. And having travelled around a lot in the world, I’m really proud of what’s been done, not only with Richard Nixon starting the EPA, but there’s some great things done under our Republican presidents.
Is there ideological parity in where the money is going? I have no idea. It’d be an interesting thing to look at. I just know on the environmental side, there’s a high, high expectation that whoever gets the money better be able to perform the project because you’ve got to remember, as a company, if you sign a deal that gives money for a third party to do a project and they don’t perform, you’re on the hook. You have to submit a sworn certification saying the project will be performed, and there’s usually stipulated penalties attached.
So in theory, this all sounds good, there’s this abuse out there. I commend you for investigating this. In reality, I think most companies, or all, are not going to throw the money and then have executives on the hook for submitting a false statement or be subject to penalties because it went into a trust fund. It’s just not how the business community would approach this.
Annie Donaldson Talley: Great. I’m going to let that lead into another one of the questions from our audience, which is outside of the experience in environmental enforcement and defense. I think that some of your points, Justin, that there is redressability in some of these, and you can actually deal with some restitution issues in the environmental space. But outside of that space, where do you see this being used in the next four years? Are some of the defenses that Justin has offered of the practice true in other types of settlements? And then the best part of this question is how do I get my or my group’s cause on the list of the third-party payees?
But we’ll take the rest of the question directly. Ryan or John, do you have any thoughts on where this might be going and how it applies outside of the environmental space?
John Shu: Well, a lot of my experience as a former securities and antitrust practitioner is the big bank settlements of ’08 and ’09, which are not environmental settlements, and so perhaps those banks are more evil than Justin’s clients. But they certainly — the administration, the Obama administration, certainly did that. And by saying that, by the way, I was just joking. I didn’t mean to imply in any way that Justin’s clients are bad or evil in any way because they’re not They do what they have to do, and if they get caught, they get punished. But the bottom line is that the transparency that Justin talks about, and I think with which everyone agrees that more transparency in government, the sunlight that the Supreme Court has talked about, is a good thing.
The other thing about how do you get a group on the list of third-party payers, from my research and my experience in the government, there’s no list per se. As a matter of fact, there were several community groups such as Voice and LCCHR during the big bank fiasco that they actually actively lobbied, Tony West at the Department of Justice, Liz Taylor at the Department of Justice, and Vanita Gupta herself. So that’s a problem too, where you’re — most people associate lobbying with Congress, but there’s quite a bit of lobbying that goes on in the administration as well.
But this kind of lobbying where you’re actively lobbying the Justice Department or some other agency to put the squeeze on a private company so that the company then funds your non-profit and the lawyers that you may hire, either internally or externally, to me, that’s a problem. And so there’s no list. If you want to be on the list, you’ve got to know the right people, and you’ve got to have the good stakes at the palm. That’s generally how it works, not that I am cynical or anything.
Annie Donaldson Talley: Well, gentlemen, we’re about six minutes from the end of the hour. I will give everyone a round robin, just 30 seconds, if anybody wants to share any parting comments with us before we have to end this webinar. Ryan or Justin? I think, John, that was a fantastic parting comment about the palm.
Ryan Newman: Well, I guess I’ll just add — talk a little politics, maybe, in terms of how this thing will play out in the Biden administration. It’s interesting because I think that we’re starting to see on the populist right an effort to go after big business.
And so in a strange way, this settlement practice serves both the interests of a Democratic administration and corporate America in the sense that the administration will be able to claim that it’s vigorously enforcing these laws against corporate America. And then corporate America will say, “Thank you very much. We very much prefer that it be enforced this way, and we’ll take all the benefits from it.” And then that will leave, of course, the right just blasting both big business for these sweetheart deals and the Biden administration for the practice that lacks transparency and that offends our constitutional principles.
But it’s going to be partisan, and I don’t expect anything to pass through Congress on this at all, although it’s conceivable, I guess, if Republicans take over both Houses, they might be able to throw a rider on must-pass legislation and to try to sneak it through that way. Or if it doesn’t look like they could get through something as strong as the Stop Settlement Slush Funds Act, maybe just a transparency provision. Not something that prohibits the practice per se, but that just requires more transparency. Maybe that’s something that could be slipped through a Congress in the future.
Annie Donaldson Talley: Thank you. Justin, do you have — I’ve got about 80 seconds.
Justin Savage: Yes. I appreciate being here. I think from a legal perspective, there’s four cases out there, GAO opinions, DOJ OLC. This is not a constitutional issue. I think it’s a policy and political question. And for me, we’re all aligned on transparency. But it’s not a slush fund. You don’t have to get on a payee list, at least in the environmental space, not speaking of other spaces. You have to be able to perform if you get the money. And I think that’s a paradigm that could be applied more broadly across the spectrum. Thank you.
Annie Donaldson Talley: Gentlemen, thank you so much. I’m going to turn it back over to Nate briefly before the end of the hour. It’s been a pleasure to be with all of you and have this robust conversation on this topic.
Nate Kaczmarek: Yes, absolutely. We’re certainly grateful to all of you for your insightful discussion this afternoon, and I have a feeling that we haven’t completely settled the issue, so we’ll be looking to come back to it in the months and years to come. And we certainly look forward to having each of you appear once more and provide your valuable expertise. We also welcome from our audience feedback by email at [email protected] Thank you all for joining us and have a great day.
Former Acting Assistant Attorney General
Office of Legal Policy, United States Department of Justice
Global Co-Lead, Environmental Team
Sidley Austin LLP
Attorney and Legal Commentator
Luther Strange and Associates
Federalist Society’s Practice Groups
The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speaker(s). To join the debate, please email us at [email protected]gproject.org.