An important — and expensive — incentive for legal action involving the Department of Justice will come to an abrupt end. The DoJ announced this morning that it would end the practice of crafting settlements to lawsuits that resulted in significant financial awards to activists groups, a practice that had flourished in Barack Obama’s administration. A memo from Attorney General Jeff Sessions rejects this policy, saying any punitive and restorative damages collected in lawsuits should go to American taxpayers:
In a memo sent to 94 U.S. attorneys’ offices early Wednesday, Attorney General Jeff Sessions said he would end the practice that allowed companies to meet settlement burdens by giving money to groups that were neither victims nor parties to the case.
Sessions said the money should, instead, go to the Treasury Department or victims.
“When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people—not to bankroll third-party special interest groups or the political friends of whoever is in power,” Sessions said in a statement.
While the practice existed before the Obama administration, it flourished under Attorneys General Eric Holder and Loretta Lynch. The DoJ would pursue a case against a big-pocketed defendant, and then push them into a settlement that suddenly included contributions to any number of Democratic Party interest groups. Not only was this an inappropriate politicization of the DoJ and of attorney-client interests, it was also a big incentive to sue people so as to pay off constituencies. The DoJ’s announcement called it a “slush fund,” but it operated more like a shakedown.
In another sense, CEI’s Ted Frank testified two years ago, this amounts to a usurpation of Congress’ power of the purse. The executive branch used this mechanism to spend billions on outside groups without Congressional authorization by laundering it through lawsuits:
When the Justice Department negotiates settlements that send money to third parties instead of to the United States Treasury or to the primary victims of the challenged conduct without legislative authority, they violate separation of powers by effectively using executive-branch enforcement authority to create legislative spending power. The spending may evade laws and regulations limiting or controlling federal spending, or create or fund programs that Congress never would have agreed to spend. …
If the Justice Department cannot take money from the U.S. Treasury to fund new programs and third parties without Congressional approval, it should not be able to ignore those checks on its power by structuring litigation settlements to bypass the Treasury and have defendants to spend that money on the executive branch’s preferred priorities—priorities that might never be authorized by Congress.
Second, the de facto slush fund created by such Justice Department settlements evades Congressional oversight; neither courts nor the Justice Department are well situated to ensure that cy pres is effectively or efficiently used, and there is no evidence that the Justice Department has ever performed that oversight function itself.
Third, such settlements create a conflict of interest that permits Justice Department officials to reward cronies and political allies at the expense of taxpayers. For example, Professor Richard Epstein criticized a Bush administration settlement with Bristol-Myers Squibb requiring them to endow a chair of ethics at the District of New Jersey U.S. Attorney’s alma mater, Seton Hall Law School; Investors Business Daily criticized the recent Bank of America settlement32 as a “raft of political payoffs to Obama constituency groups.
Congress should have intervened long ago to put an end to this end-run, but Republicans have already been working on a statutory prohibition on this practice in the current session. The House Judiciary Committee still has that legislation on its docket, and it’s not clear if this will have any impact on the passion to pursue this reform, but it shouldn’t. Sessions changed policy to eliminate this back-door political financing of friendly activists by administrations, but that will only last as long as this administration, or maybe even this AG.
Now that the practice has been suspended, it’s up to Congress to defend its separation-of-powers status and impose laws that will prevent this corruption from a later revival …. by presidents of either party, and for any constituencies.