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Judicially Supervised Plunder

Prison bars and a hallway 3d rendering

The unexpected retirement of Judge Janice Rogers Brown, 68, from the U.S. Court of Appeals for the D.C. Circuit will trigger a well-deserved celebration of her extraordinary judicial career, both as a federal appellate judge (since 2005) and previously as a member of the California Supreme Court (1996 to 2005).  It will be difficult for President Donald Trump to appoint a replacement that comes anywhere close to filling the shoes of the of the forceful, fearless, and independent Brown, whose nomination by President George W. Bush to the nation’s second most influential court in 2003 was delayed for two years by Democratic opposition. Despite a filibuster in the U.S. Senate, Brown was ultimately confirmed in 2005 by a 56 to 43 vote, when the so-called Gang of 14 reached an agreement to avoid Republicans’ invocation of the “nuclear option.” Hopefully, Brown will continue to serve on the D.C. Circuit as a judge with “senior status.”

One of Brown’s recent decisions is illustrative of her unflinching commitment to the rule of law. In Keepseagle v. Perdue (2017), the parties to a class-action settlement sought court approval for the distribution of $380 million of federal tax revenues to certain nonprofit organizations that were not parties to the litigation. The settlement was upheld by a 2 to 1 vote; Brown wrote a remarkable 43-page dissent.

Here’s the background: The lawsuit was filed in 1999 by Native American farmers who claimed that the U.S. Department of Agriculture had discriminated against them when they applied for credit and benefits under various government programs. In 2010, after more than a decade of “discovery”—meaning plaintiffs’ lawyers fishing for supporting evidence through laborious, expensive-to-respond-to document requests, interrogatories, and depositions—the federal government agreed to settle the case. The settlement, to be funded by the U.S. Treasury, provided for payments to class members starting at $50,000 if they satisfied a minimum evidentiary standard, and ranging up to $250,000 if they met a higher standard of proof.

The “settlement fund” was calculated to be $680 million, although the precise amount of payments to qualifying class members wouldn’t be known until the claims process was completed. It was expected that at least 10,000 claims would be filed, and that most of the claims would be successful.[1] Claimants had 180 days from the effective date of the settlement in which to file a claim. Instead of specifying that any unused monies in the settlement fund would revert to the Treasury, the settlement agreement provided that any “leftover funds” be paid to nonprofit organizations that served Native American farmers.

As it turned out, the fund was grossly excessive. In the words of the Keepseagle majority, “Far fewer people made claims than anticipated. At the conclusion of the claims process, only $300 million of the $680 million settlement fund had been paid out.” Just 5,191 claims were received, and only 3,605 were successful—far fewer than expected. The discrepancy was astonishing in light of the length and amount of factual discovery conducted prior to settlement, for which class counsel received a $60.8 million payday.

Surprised by the magnitude of the unused balance, which exceeded the compensation paid to the qualifying class members, the parties to the litigation renegotiated the settlement agreement. Again, instead of agreeing that the “leftover funds” would revert to the Treasury, the parties reached a “compromise” pursuant to which each claimant would receive an additional $18,500 (and a payment on their behalf to the Internal Revenue Service to cover the tax liability), and the balance would be paid to third-party charities. The payment of settlement funds to third parties was referred to in the litigation as a “cy-près distribution.”

The federal district court approved the modification of the settlement. But a disgruntled class member appealed, contending that the “leftover funds” should be distributed to the successful claimants, not third parties.

The D.C. Circuit upheld the district court. Applying an “abuse of discretion” standard, the majority concluded that “the negotiated compromise fairly balances the parties’ competing positions.” The majority declined to consider an argument made by the disgruntled class member for the first time on appeal, challenging the payment of “leftover funds” to third parties as a violation of the U.S. Constitution’s “appropriations clause” (Article I, Section 9, Clause 7), on the ground that it would expend Treasury funds to non-litigants without a specific appropriation by Congress.

The majority held that the failure to raise this objection in a timely manner constituted a waiver. Enter Judge Brown, whose devastating dissent began with these words:

$380,000,000 is, to use the late Senator Dirksen’s wry phrase, “real money.” That is what has been left on the table for private disbursement in this case. Perhaps one day, I will possess my colleagues’ schadenfreude toward the Executive Branch raiding hundreds-of-millions of taxpayer dollars out of the Treasury, putting them into a slush fund disguised as a settlement, and then doling the money out to whatever constituency the Executive wants bankrolled. But, that day is not today.

Brown’s colleague, Judge Robert Wilkins (appointed by President Barack Obama), joined the majority but wrote a separate concurring opinion responding to Brown’s dissent, which he accurately (but probably sarcastically) characterized as “a tale of corruption and conspiracy, in which the plaintiffs and the Government were complicit in bilking the nation’s taxpayers to pay a political ransom.” For 43 pages, Brown denounced the settlement agreement as an unconstitutional appropriation without congressional approval, a defect that cannot be waived.

Citing the Federalist Papers, Brown observed:

The Executive Branch may wish to favor certain interests on the taxpayer’s dime. It may wish to use the Judicial Branch’s enforcement of settlement agreements to avoid asking Congress for an appropriation. But the Constitution’s design gives the People’s elected representatives a means to thwart these “overgrown prerogatives.” . . . By limiting the “judicial Power” to resolving “Cases” and “Controversies,” . . . the Constitution ensures the Judicial Branch has “no influence over . . . the purse.” . . . Expenditures toward the fulfilment of public policy are integral to policymaking itself, and policymaking is left to the legislature. . . . In short, congressional control over the People’s purse is a structural limit on both the Executive and Judicial Branches.

Enforcing collusive class-action settlements that enrich third parties at the expense of taxpayers constitutes an egregious distortion of the doctrine known as cy-près, which originated in the field of trusts and estates. (It means “as near as possible,” a reference to amending the terms of a trust as closely as possible to the original intention of the settlor or testator.) It’s also an irresistible temptation for abusive litigation, and a fundamental usurpation of constitutional authority. Wrote Brown:

If the Government wishes to achieve certain purposes by expending taxpayer money to people with no monetary claims against the United States, a legislative appropriation is required. No such appropriation exists here. Neither authorizing nor policing a cy pres distribution scheme in a class action settlement with the United States is consistent with constitutional limitations. Because the money was appropriated to pay claims, and those claims have been compensated, the more than $380,000,000 that remains here should be returned to the American People.

Brown closed her dissent with a warning about the dangers of government officials spending “other people’s money” in violation of the Constitution’s system of checks and balances:

Those allegedly discriminated against have been compensated by the public fisc, and that payment occurred via a process that—while ripe with politics and folly—was ultimately permitted by law. But, to the extent the Government would like to additionally account for this discrimination by funding nonprofits and charities that work to end discrimination against Native Americans, this should be the decision of the People and their elected representatives. It should not be the decision of Justice Department lawyers, class counsel, and the judiciary.

This is originalism at its finest.

Perhaps prompted by Brown’s dissent, on June 5, 2017 Attorney General Jeff Sessions announced that, with limited exceptions, Department of Justice lawyers may no longer enter into agreements that provide for payments to third parties, including cy-près agreements. Judge Brown will be missed.

[1] Keepseagle v. Vilsack, 118 F. Supp. 3d 98, 102 (D.D.C. 2015).

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on July 18, 2017 at 09:44:29 am

Nice essay AND excellent reasoning by Judge Brown.

I suspect her warning will go unheeded as it seems apparent that the Black Robes of the various circuits have recognized the amazingly transformative properties of class action (and NGO originated) lawsuits to provide the Judiciary with Legislative grants of authority (or should that read: *arrogations* of authority).

There is never a shortage of *clever* lawyers / jurists, is there?

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gabe
on July 18, 2017 at 12:18:44 pm

Nice article. Just curious, what are the "exceptions" contained in AG Sessions' directing an end to this practice? I'm delighted to hear Sessions is taking action against what is at bottom corruption (in which judges are complicit if not active players), but always leery of anything that has exceptions.

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Mitch
on July 18, 2017 at 12:31:26 pm

There is a DOJ press release. I don't have the link handy. The exceptions seem reasonable.

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Mark Pulliam
on July 18, 2017 at 13:57:40 pm

Judge Brown seem to think that if things had been done right, the public purse would have been $380 million richer. I don’t see how she reaches this conclusion.

Maybe the court would void all the settlements—in which case government might expect a refund of the $680 million held in trust after the first settlement (plus potential liability for all the now un-settled claims).

Or maybe the court would void the revision to the settlement—in which case the initial settlement would remain, and the $680 million would be distributed according to the terms of the first settlement, including paying $380 million to a third party entity. Because if you uphold the first settlement, then there is no more $380 million in public money; instead, there was $680 million held in trust to be disbursed to private parties according to the terms of the settlement, with a $380 million balance remaining. But the fact that the funds had not yet been disbursed did not convert them back into public funds.

Instead, Brown seems to think that the court should arrogate part but not all of the settlement, appropriating the undistributed $380 million for public purposes. But If she objected to cy pres arrangements, I can’t imagine what theory she would advance to re-write the terms of a settlement and then impose it on the parties after-the-fact. In short, it appears that Brown rejects the idea that the litigating parties settled their disputes in part IN RELIANCE ON the idea that the specified third party NGO would derive some benefit. But I don't know what basis she would have for such a conclusion.

In any event, given how often this blog celebrates the sanctity of contracts and trusts, it's nice to read an alternative point of view.

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nobody.really
on July 18, 2017 at 14:20:31 pm

This settlement--reached by the Obama DOJ after a decade of litigation--stinks to high heavens. The number of claimants was greatly over-estimated. The amount of damages was greatly exaggerated. If the eligible claimants were "only" entitled to $300 million (with a grotesque $60 million going to the "class counsel"), the "left over" funds should never have been agreed to, and as a payment to third-parties could NOT have been agreed to without congressional appropriation. Class action settlements are hardly consensual, arm's length "contracts"; lawsuits are government coercion, beginning with the marshall serving a summons and often ending with the sheriff collecting the judgment. And when the taxpayers are footing the bill, the lawyers are literally playing with "other people's money."

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Mark Pulliam
on July 18, 2017 at 15:28:27 pm

So your point is…?

1. Government engaged in a boondoggle wasting $380 million or so? Not good, but by the standards of government boondoggles, that’s a bargain.

2. You oppose class action lawsuits? Then the remedy should be with the Supreme Court in establishing rules authorizing class actions, or with Congress to repeal its delegation of authority to the courts to establish their own rules. It’s not clear what role the circuit court has here.

3. “[W]hen the taxpayers are footing the bill, the lawyers are literally playing with ‘other people’s money.’” So you oppose the federal Settlement Fund and think that government should have to litigate all matters to the end, or that all settlement should receive independent Congressional authorization? Again the remedy is with Congress, not the circuit court.

4. You don’t like the terms of this particular settlement? Fine. A presumably disinterested district judge who had actual jurisdiction over the matter disagreed; everyone’s got an opinion.

Governments are settling claims all the time. So what standard should an appellate court use to evaluate the merits of a settlement—an “unconscionable/shock the conscience” standard? And when a court finds a settlement unconscionable, are you arguing that a court should it have the unilateral authority to amend the settlement and cram it down onto the litigants, as in bankruptcy?

This strikes me as a disagreement of law, not policy. In any event, I still don’t see the theory that would result in the Treasury recouping $380 million.

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nobody.really
on July 18, 2017 at 16:08:19 pm

The constitutional objection is paying money to third parties who were not injured by the wrongful conduct of government officials (which therefore requires an appropriation by Congress) vs. compensating the "victims" of government wrongdoing (which is a legitimate goal of the legal system, administered by the judiciary). I am not quarreling with the fact of the settlement (although I remain very skeptical that a hard-fought case would be settled so abruptly and for such an excessive amount of money), or the amount of the payment to the "victims" (with the same caveat). I find no persuasive rationale for paying $380 million in taxpayer funds to well-connected non-profits who experienced no harm at the government's hand, simply because an Obama functionary made an agreement with a plaintiffs' lawyer that was rubber-stamped by a district judge eager to get a case off his docket. The "left over" money belonged to the taxpayers and should not have been handed over to a third party without congressional appropriation. This strikes me as a self-evidently sleazy payoff in the guise of a "settlement," which is precisely why A.G. Sessions has halted the tawdry practice. The Constitution contains checks and balances precisely to prevent these types of abuses.

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Mark Pulliam
on July 18, 2017 at 16:20:25 pm

Mark:

Why bother - just agree to give it to nobody.really and one of his favorite *charitable* organizations. I am certain that he is far better able to dispense the funds - far better than the taxpayers of the Legislative, which incidentally is the ONLY entity with a SPECIFIC grant of authority to disburse the taxpayers money - not know-it-alls which, of course, includes our Black Robed Brethren.

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gabe
on July 18, 2017 at 16:41:52 pm

Cool. Let's say everything you allege is true.

1. What process should apply? In this case, no party had raised any issue about paying money to third parties when the initial settlement was made. Should parties be able to raise such claims initially on appeal? Or should courts have to rely on litigants at all? That is, should appellate courts be able to raise them on their on motion? Should appellate courts be able to initiate review of government settlements on their on motion?

2. What standard should prevail? Are we employing an I-Know-It-When-I-See-It standard?

I'm not opposed to the "no payments except to litigating (or injured?) parties (or trusts for their behalf)" standard; that seems relatively clean and enforceable. If a private litigating party wants a third party to benefit, let the money flow through the litigating party's hands. Conceptually, the parties might have created the same outcome as the Keepseagle settlement created. The Native Americans would refuse to settle unless their pay-outs were twice as much--and when they received their pay-outs, they could choose to donate half the amount to the third party. Same outcome, but a procedurally better result.

3. I'm better acquainted with examples that are the inverse of this: A state attorney general sues Big Corp on behalf of the state. The AG then settles the suit on favorable terms, including the term that Big Corp. donate funds to build a park in the middle of Constituentville. The AG then throws a party in the middle of the park and announces to the cheering crowds that he's running for governor, with the aid of a sizable contribution from Big Corp.

In short, government agents exercise a lot of discretion, and may seek to do so in a way that aids themselves and their friends. It's not clear to me that the the Keepseagle case is really so distinguishable (except perhaps in magnitude?) I'm quite enthusiastic about policing such matters--but I'm still looking for a workable standard.

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nobody.really
on July 18, 2017 at 18:07:20 pm

Here's that memo!

There are only three limited exceptions to this policy. First, the policy does not apply to
an otherwise lawful payment or loan that provides restitution to a victim or that otherwise
directly remedies the harm that is sought to be redressed, including, for example, harm to the
environment or from official corruption. Second, the policy does not apply to payments for legal
or other professional services rendered in connection with the case. Third, the policy does not
apply to payments expressly authorized by statute, including restitution and forfeiture.

Note that the policy applies to "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...." I assume "settling civil litigation" includes declining to pursue a civil claim?

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nobody.really
on July 18, 2017 at 20:41:25 pm

No - it seems to me that what you are alleging (or, more aptly, *PREMISING* is this:

1: Government agents, typically of your political persuasion, are better able, and suited, to "disburse" the peoples money than is the Legislative.

2: that the specific limits on governmental prerogative are to be considered nullities when a determination is made by an NGO (in collusion with like-minded Jurists) that the Guvmn;t OUGHT to make these disbursements.

3: More fundamentally, that the specific limits on grants of authority to the central guvmn't, are to be brushed aside, considered to be non-operative, when confronted with a countervailing claim by either Juristsor NGO's. In the most basic sense, your premise is that modern jurists and litigants have a more persuasive argument than that permitted by the Founders who scrupulously devised a system to limit this form of governmental overreach, misplaced pursuit of *ambition* (see Madisonian definition and limits thereto) by the Judiciary, and collusive factional behavior by both the Judiciary (of a certain political persuasion) and litigants (also of a similar persuasion).

4: In short, YOUR premise is that the Founders were WRONG in limiting WHO could disburse the Peoples monies.

As I have said before, no matter how logical, no matter the level of *factual* exposition, the underlying premise MUST be correct. Nobody.really believes that he can posit entirely new premises upon which this government was initiated - but apparently nobody believes this Happy Horseshit! Indeed, the exposition of *supposed* facts / case law / logical argument is often sufficient in itself to expose the underlying premise.

Hey, what did you want to spend the money on! The promotion of Indian Gambling Casinos and associated Golf courses in Washington State where white folks have a rather difficult time operating- and oops, the monies from Indian gambling goes to the Tribal Elders not the poor buggers raising their kids in crummy schools Go for it, brudda! Their casinos are second rate BUT their golf courses ain't all that bad!

Once again - EXPERT opinion is off the mark!

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gabe
on July 18, 2017 at 20:43:08 pm

BTW, Boyos:

Let us star expounding upion the underlying *premises* of nobody's arguments.

It could be fun!

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gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.