b'Application of the Miscellaneous Receipts Act to the\nSettlement of False Claims Act Suits Concerning\nContracts With the General Services Administration\nThe Miscellaneous Receipts Act allows the General Services Administration to retain as a \xe2\x80\x9crefund to\nappropriations\xe2\x80\x9d the entire amount representing actual damages paid by the Sprint Corporation and\nWorldcom, Inc. in settlement for overcharging the federal government for telecommunications\nservices under contracts with GSA.\n\nJanuary 10, 2006\n\nMEMORANDUM OPINION FOR THE ACTING GENERAL COUNSEL\nGENERAL SERVICES ADMINISTRATION\nThe Sprint Corporation (\xe2\x80\x9cSprint\xe2\x80\x9d) and Worldcom, Inc. (known as \xe2\x80\x9cMCI\xe2\x80\x9d) have\nsettled claims for overcharging the federal government for telecommunications\nservices under contracts with the General Services Administration (\xe2\x80\x9cGSA\xe2\x80\x9d). The\nJustice Department has remitted to GSA the amount of the settlement received by\nthe United States that represents the actual damages. You have asked whether the\nMiscellaneous Receipts Act, 31 U.S.C. \xc2\xa7 3302(b) (2000), allows GSA to retain\nthis amount in its Information Technology Fund (\xe2\x80\x9cIT Fund\xe2\x80\x9d or \xe2\x80\x9cFund\xe2\x80\x9d), or\nwhether, instead, GSA should remit the money to the general fund of the Treasury\nor seek a means of allocating some or all of it among the numerous agencies that\nreceived telecommunications services pursuant to the GSA contracts. We conclude\nthat the IT Fund may retain this entire settlement amount as a \xe2\x80\x9crefund to appropriations.\xe2\x80\x9d\nI.\nGSA is charged with \xe2\x80\x9cprocur[ing] and supply[ing] personal property and nonpersonal services for executive agencies to use in the proper discharge of their\nresponsibilities,\xe2\x80\x9d which includes authority to \xe2\x80\x9ccontract for public utility services\xe2\x80\x9d\nas the representative of executive agencies. 40 U.S.C. \xc2\xa7 501(b)(1) (Supp. II 2002);\nsee id. \xc2\xa7 501(c). To finance GSA\xe2\x80\x99s provision of \xe2\x80\x9cinformation technology resources\nto federal agencies,\xe2\x80\x9d Congress established the IT Fund, a revolving fund operating\n\xe2\x80\x9cwithout fiscal year limitation.\xe2\x80\x9d 40 U.S.C. \xc2\xa7 322(c) (Supp. II 2002). 1 The Admin1\nWhat is now known as the IT Fund dates from 1962. See Pub. L. No. 87-847, 76 Stat. 1117 (1962)\n(codified at 5 U.S.C. \xc2\xa7 630g-1 (Supp. IV 1959\xe2\x80\x9362)). Congress capitalized the initial fund with an appropriation of $10,000,000, see Appendix to the Budget of the United States Government for the Fiscal Year\nEnding June 30, 1964, at 728 (1963), and provided that the fund would be maintained by \xe2\x80\x9cadvances and\nreimbursements\xe2\x80\x9d from agencies using telecommunications services \xe2\x80\x9cat rates determined by the [GSA]\nAdministrator to approximate the costs [of the fund],\xe2\x80\x9d and by any \xe2\x80\x9crefunds or recoveries resulting from\noperations of the fund,\xe2\x80\x9d including \xe2\x80\x9creceipts from carriers and others for loss of or damage to property,\xe2\x80\x9d 76\n\n53\n\n\x0cOpinions of the Office of Legal Counsel in Volume 30\n\nistrator of GSA is authorized, \xe2\x80\x9c[i]n operating the Fund,\xe2\x80\x9d to \xe2\x80\x9center into multiyear\ncontracts, not longer than 5 years, to provide information technology hardware,\nsoftware, or services,\xe2\x80\x9d as long as certain conditions are met, 40 U.S.C. \xc2\xa7 322(e)(1)\n(Supp. II 2002), and also retains his authority under section 501, see id.\n\xc2\xa7 322(e)(2).\nThe GSA Administrator must determine the Fund\xe2\x80\x99s cost and capital requirements for each fiscal year, and these requirements \xe2\x80\x9cmay include\xe2\x80\x9d (1) amounts\n\xe2\x80\x9cneeded to purchase . . . information processing and transmission equipment,\nsoftware, systems, and operating facilities necessary to provide services\xe2\x80\x9d; (2)\namounts \xe2\x80\x9cresulting from operations of the Fund, including the net proceeds from\nthe disposal of excess or surplus personal property and receipts from carriers and\nothers for loss or damage to property\xe2\x80\x9d; and (3) any money \xe2\x80\x9cappropriated, authorized to be transferred, or otherwise available to the Fund.\xe2\x80\x9d Id. \xc2\xa7 322(b)(1). The\nAdministrator must submit a plan concerning these requirements to the Director of\nthe Office of Management and Budget (\xe2\x80\x9cOMB\xe2\x80\x9d) \xe2\x80\x9cfor review and approval.\xe2\x80\x9d Id.\n\xc2\xa7 322(b)(2). If the Director approves the plan, the Administrator must establish\n\xe2\x80\x9crates, consistent with the approval, to be charged to agencies for information\ntechnology resources provided through the Fund.\xe2\x80\x9d Id. \xc2\xa7 322(d). You have\nexplained that \xe2\x80\x9c[r]ates in the cost and capital plan are set at levels to ensure a fair\nand equitable allocation of GSA\xe2\x80\x99s costs,\xe2\x80\x9d both \xe2\x80\x9cdirect costs for services acquired,\nand GSA\xe2\x80\x99s overhead and internal costs of operations.\xe2\x80\x9d Letter for Steven Bradbury,\nPrincipal Deputy Assistant Attorney General, Office of Legal Counsel, from\nGeorge N. Barclay, Acting General Counsel, General Services Administration at 5\n(May 12, 2005) (\xe2\x80\x9cBarclay Letter\xe2\x80\x9d). \xe2\x80\x9cAfter the close of each fiscal year,\xe2\x80\x9d GSA\nmust \xe2\x80\x9ctransfer[] to the Treasury as miscellaneous receipts\xe2\x80\x9d \xe2\x80\x9cany uncommitted\nbalance remaining in the Fund, after making provision for anticipated operating\nneeds\xe2\x80\x9d as determined by OMB. 40 U.S.C. \xc2\xa7 322(f).\nIn 1998 and 1999, GSA\xe2\x80\x99s Federal Technology Service entered into contracts,\nknown collectively as the FTS2001 contracts, with Sprint and MCI to provide\ntelecommunications services. The contracts provided for the delivery of services to\nagencies government-wide and nation-wide. GSA negotiated and executed the\ncontracts; was responsible for any dispute or discrepancy between a customer\nagency and a provider; provided customer support; and supplied legal, accounting,\nand technical services to the agencies. See Barclay Letter at 1\xe2\x80\x932, 6.\nThe FTS2001 contracts allowed GSA\xe2\x80\x99s customer agencies to place orders for\nservices directly with the telecommunications providers. GSA set rates for these\nagencies pursuant to its authority under section 322(d), and these rates consisted of\nthe charges imposed by the providers plus a percentage fee to cover GSA\xe2\x80\x99s\nexpenses for \xe2\x80\x9coverhead\xe2\x80\x9d associated with the contracts and \xe2\x80\x9ccapital maintenance of\nStat. at 1117. The current version of the IT Fund statute dates from 2002. See Pub. L. No. 107-217, \xc2\xa7 322,\n116 Stat. 1062, 1076\xe2\x80\x9377 (2002).\n\n54\n\n\x0cApplication of Miscellaneous Receipts Act to Settlement of False Claims Act Suits\n\nthe IT Fund.\xe2\x80\x9d Id. at 2. The agencies could choose to be either \xe2\x80\x9ccentrally billed\xe2\x80\x9d by\nGSA or \xe2\x80\x9cdirectly billed\xe2\x80\x9d by the providers. For centrally billed agencies, GSA\nwould pay the providers from the IT Fund; the percentage fee was imbedded in\nGSA\xe2\x80\x99s invoices to each agency. For directly billed agencies, the providers\nincluded the percentage GSA fee in their bills and remitted this amount to GSA.\nApproximately 91% of the services for the relevant time period were centrally\nbilled. The remaining 9% were directly billed. See id.\nSprint and MCI were sued by a relator under the False Claims Act, 31 U.S.C.\n\xc2\xa7 3729(a) (2000), for overcharging the government for charges that the providers\nincurred for use of local telephone networks. The Department of Justice intervened\nin the suit on behalf of GSA to recover the overcharges. \xe2\x80\x9cThe precise amount of\nactual damages is not known,\xe2\x80\x9d you have explained, \xe2\x80\x9cbecause of the number of\nagencies participating under the contracts and the way in which the billing was\nperformed. The contracts covered the entire nation, and [the relevant local\ncharges] vary between counties and even within counties depending on time of\nday and type of line. Charges also changed depending on the contract year . . . .\xe2\x80\x9d\nBarclay Letter at 2\xe2\x80\x933. Likewise, although there are \xe2\x80\x9cinvoices and underlying data\nfor each agency,\xe2\x80\x9d these \xe2\x80\x9cwere not susceptible to individual analysis to determine\nthe specific overcharge related to each line and service,\xe2\x80\x9d and it is therefore\n\xe2\x80\x9cimpossible to determine the exact amount by which each customer agency was\novercharged.\xe2\x80\x9d But the Justice Department (acting on behalf of GSA), the providers, and the relator negotiated a settlement in which the providers agreed to pay\nboth actual and exemplary damages, and the parties agreed on an estimate of\nactual damages \xe2\x80\x9cbased on averages and negotiations.\xe2\x80\x9d Just as the precise overall\namount of actual damages is not known, so also is it \xe2\x80\x9cimpossible to determine . . .\nthe proportion of the settlements attributable to individual agencies.\xe2\x80\x9d After\ndeducting the relator\xe2\x80\x99s share and an amount to cover its own costs, the Department\nremitted to GSA approximately $24.5 million from the settlement amount\nrepresenting actual damages. Id. at 3. GSA wishes to retain this amount in the IT\nFund \xe2\x80\x9cto apply to [future] government-wide telecommunications needs.\xe2\x80\x9d Id. at 1.\nNeither OMB nor \xe2\x80\x9cthe user agency representatives on the Interagency Management Council\xe2\x80\x9d objected to this plan. Id. at 3. You are not seeking to retain in the\nIT Fund the portions of the settlement attributable to exemplary damages. Id. at 3\nn.1.\nII.\nFor the reasons explained below, the Miscellaneous Receipts Act (\xe2\x80\x9cMRA\xe2\x80\x9d or\n\xe2\x80\x9cAct\xe2\x80\x9d) does not prohibit GSA from retaining in the IT Fund the settlement amount\nrepresenting actual damages. Although no other statute specifically supersedes the\nAct\xe2\x80\x99s generally applicable requirements in this context, so as to justify GSA\xe2\x80\x99s\nretaining the settlement money in the Fund, GSA may nevertheless retain this\namount under the \xe2\x80\x9crefunds\xe2\x80\x9d exception to the Act.\n\n55\n\n\x0cOpinions of the Office of Legal Counsel in Volume 30\n\nA.\nThe Miscellaneous Receipts Act requires that \xe2\x80\x9can official or agent of the Government receiving money for the Government from any source shall deposit the\nmoney in the Treasury as soon as practicable without deduction for any charge or\nclaim.\xe2\x80\x9d 31 U.S.C. \xc2\xa7 3302(b). The reference to depositing \xe2\x80\x9cin the Treasury\xe2\x80\x9d could\nbe considered ambiguous because it does not specify whether the money should be\ndeposited into the general fund of the Treasury or instead into an agency-specific\nfund. See Apportionment of False Claims Act Recoveries to Agencies, 28 Op.\nO.L.C. 25, 27 n.5 (2004) (\xe2\x80\x9cFCA Recoveries\xe2\x80\x9d). But the longstanding view of the\nExecutive Branch, shared by the Comptroller General, 2 has been that it requires\nthe former. As early as 1909, the Comptroller of the Treasury, interpreting an\nearlier version of the Act, opined that \xe2\x80\x9c[d]epositing [moneys] in the Treasury to\nthe credit of an appropriation would not be paying them into the Treasury within\nthe meaning of this section.\xe2\x80\x9d Letter for the Secretary of the Navy from the\nComptroller of the Treasury, 50 MS. Comp. Dec. 1, 4 (July 2, 1909); see also FCA\nRecoveries, 28 Op. O.L.C. at 27 n.5. The Comptroller General similarly takes the\nview that \xe2\x80\x9cagencies ordinarily are required to deposit moneys they receive for the\nuse of the United States in the general fund of the Treasury as miscellaneous\nreceipts.\xe2\x80\x9d Federal Emergency Management Agency\xe2\x80\x94Disposition of Monetary\nAward Under False Claims Act, 69 Comp. Gen. 260, 261 (1990) (\xe2\x80\x9cFEMA\xe2\x80\x9d).\nCongress in the Act was \xe2\x80\x9ccurb[ing] Executive discretion in the handling of\npublic moneys and . . . ensur[ing] that all expenditures would be authorized by\nCongress.\xe2\x80\x9d Memorandum for the Attorney General, from John M. Harmon,\nAssistant Attorney General, Office of Legal Counsel, Re: Legislation Regarding\nFBI Undercover Operations at 5 (July 27, 1978) (\xe2\x80\x9cFBI Operations\xe2\x80\x9d). The original\nversion of the Act \xe2\x80\x9cwas expressly designed to ensure that the Executive did not\nreduce the congressional prerogative over public funds.\xe2\x80\x9d Memorandum for Carol\nE. Dinkins, Assistant Attorney General, Land and Natural Resources Division,\nfrom Theodore B. Olson, Assistant Attorney General, Office of Legal Counsel,\nRe: Effect of 31 U.S.C. \xc2\xa7 3302(b) on the Settlement Authority of the Attorney\nGeneral at 13 n.8 (Mar. 25, 1983). We have particularly noted that it was Congress\xe2\x80\x99s purpose to codify the \xe2\x80\x9canti-augmentation principle\xe2\x80\x9d\xe2\x80\x94the principle that an\nagency may not augment its appropriations from outside sources without statutory\nauthority. E.g., Memorandum for James G. McAdams, III, Counsel for Intelligence Policy, from Richard L. Shiffrin, Deputy Assistant Attorney General, Office\nof Legal Counsel, Re: Disposition of Funds at Conclusion of Joint FBI/DOD\nUndercover Operations at 2\xe2\x80\x933 (June 27, 1997); see also FCA Recoveries, 28 Op.\n2\nThe Comptroller General is an agent of Congress. Therefore, as we have repeatedly stated,\nalthough his views often provide helpful guidance on appropriations matters and related issues, they are\nnot binding upon departments, agencies, or officers of the Executive Branch.\n\n56\n\n\x0cApplication of Miscellaneous Receipts Act to Settlement of False Claims Act Suits\n\nO.L.C. at 27 n.5 (discussing \xe2\x80\x9cthe anti-augmentation principle,\xe2\x80\x9d \xe2\x80\x9cderived from the\nConstitution,\xe2\x80\x9d that \xe2\x80\x9can agency may not augment its appropriations from outside\nsources without statutory authority\xe2\x80\x9d).\nConsistent with these principles, the Executive Branch has for many years\nrecognized two situations in which the Act would not require an agency to deposit\nmoney received \xe2\x80\x9cfor the Government\xe2\x80\x9d into the general fund: (1) when Congress\nhas specifically authorized the agency to retain such money, or (2) when the\nmoney can be considered a refund. In the first situation, Congress simply supersedes its own general statute with a specific statute\xe2\x80\x94\xe2\x80\x9ccreat[ing] an exception to\nthe MRA\xe2\x80\x9d that gives \xe2\x80\x9can agency . . . statutory authority to direct funds elsewhere.\xe2\x80\x9d\nMiscellaneous Receipts Act Exception for Veterans\xe2\x80\x99 Health Care Recoveries, 22\nOp. O.L.C. 251, 251, 254 (1998) (\xe2\x80\x9cVeterans\xe2\x80\x99 Health Care\xe2\x80\x9d); see id. at 254\n(concluding that Congress created such an exception for the Veterans Affairs\nMedical Care Collections Fund by providing that certain \xe2\x80\x9c\xe2\x80\x98[a]mounts recovered or\ncollected\xe2\x80\x99\xe2\x80\x9d under the Federal Medical Care Recovery Act \xe2\x80\x9c\xe2\x80\x98shall be deposited in\nthe fund\xe2\x80\x99\xe2\x80\x9d) (quoting 38 U.S.C. \xc2\xa7 1729A(b)); see also FBI Operations at 6 (recognizing the \xe2\x80\x9cusual Congressional practice of formulating an explicit exception to\nthe broad reach of [the MRA] on those occasions where [Congress] believes one\nnecessary\xe2\x80\x9d).\nThe second situation involves an exception for \xe2\x80\x9crefunds to appropriations,\xe2\x80\x9d\nrecognized by the Executive Branch since at least 1950. FCA Recoveries, 28 Op.\nO.L.C. at 27. The Treasury Department in that year defined \xe2\x80\x9c[r]efunds to appropriations\xe2\x80\x9d as \xe2\x80\x9camounts collected from outside sources for payments made in error,\noverpayments, or adjustments for previous amounts disbursed, including returns of\nauthorized advances.\xe2\x80\x9d Treasury Department\xe2\x80\x94General Accounting Office Joint\nRegulation No. 1, \xc2\xa7 2(b) (Sept. 22, 1950), reprinted in 30 Comp. Gen. 595 (1950);\nsee also Veterans\xe2\x80\x99 Health Care, 22 Op. O.L.C. at 254 (recognizing exception\nunder Act \xe2\x80\x9cwhen receipts qualify as \xe2\x80\x98repayments\xe2\x80\x99 to an appropriation\xe2\x80\x9d). Similarly,\nin the practice of the Comptroller General, \xe2\x80\x9c\xe2\x80\x98[t]he term \xe2\x80\x9crefund\xe2\x80\x9d . . . embraces a\ncategory of mostly nonstatutory exceptions in which the receipt is directly related\nto, and is a direct reduction of, a previously recorded expenditure.\xe2\x80\x99\xe2\x80\x9d FCA Recoveries, 28 Op. O.L.C. at 27 (quoting 2 General Accounting Office, Principles of\nFederal Appropriations Law 6-109 (2d ed. 1992) (\xe2\x80\x9cGAO Redbook\xe2\x80\x9d)). More\nbroadly, the Comptroller General has \xe2\x80\x9cdefined refunds to include refunds of\nadvances, collections for overpayments made, adjustments for previous amounts\ndisbursed, or recoveries of erroneous disbursements from appropriation or fund\naccounts that are directly related to, and reductions of, previously recorded\npayments from the accounts.\xe2\x80\x9d FEMA, 69 Comp. Gen. at 262 (internal quotation\nmarks and emphasis omitted). The refunds exception mitigates the force of\nrequiring deposits into the general fund of the Treasury. The exception is grounded\nin, guided by, and furthers the anti-augmentation principle: An agency that\nrecovers an amount it erroneously paid from an appropriation or fund account\nessentially returns to the position it had occupied based upon the authorization of\n\n57\n\n\x0cOpinions of the Office of Legal Counsel in Volume 30\n\nCongress. See FCA Recoveries, 28 Op. O.L.C. at 27 n.5; see also Department of\nEnergy\xe2\x80\x94Disposition of Interest Earned on State Tax Refund Obtained by Contractor, B-302366, 2004 WL 1812721, at *3 (Comp. Gen. July 12, 2004) (refunds\n\xe2\x80\x9csimply restore[] to the appropriation amounts that should not have been paid from\nthe appropriation\xe2\x80\x9d).\nB.\nOne provision in 40 U.S.C. \xc2\xa7 322 might be invoked to support the view that\nCongress has specifically authorized GSA to retain the settlement amounts at\nissue. Section 322(b)(l)(B) states that the IT Fund\xe2\x80\x99s cost and capital requirements\n\xe2\x80\x9cmay include amounts . . . resulting from operations of the Fund, including the net\nproceeds from the disposal of excess or surplus personal property and receipts\nfrom carriers and others for loss or damage to property.\xe2\x80\x9d 40 U.S.C. \xc2\xa7 322(b)(l)(B)\n(emphasis added). We do not see a basis for reading the general reference to\n\xe2\x80\x9camounts . . . resulting from operations of the Fund\xe2\x80\x9d as sufficient authorization to\nretain damages recovered in a settlement, but one might read the more specific\nreference to \xe2\x80\x9creceipts from carriers and others for loss\xe2\x80\x9d as broadly including\nwithin the Fund\xe2\x80\x99s cost and capital requirements from its operations any reimbursement for erroneously paid amounts of money, and thus necessarily contemplating that such amounts received as damages in litigation would be paid into the\nFund. See Barclay Letter at 3\xe2\x80\x935.\nWe doubt, however, that the language will bear that construction. At the very\nleast, the language is insufficiently clear to establish an exception for such\nreimbursements from the Miscellaneous Receipts Act\xe2\x80\x99s general requirement. First,\nthe phrase \xe2\x80\x9creceipts . . . for loss or damage to property\xe2\x80\x9d may refer to compensation\nreceived (for example, from shippers) for loss of or damage to the government\xe2\x80\x99s\nproperty. Although this meaning would be clearer if Congress had instead referred\nto \xe2\x80\x9closs of or damage to property,\xe2\x80\x9d as the statute establishing the IT Fund did until\n1986, see Pub. L. No. 99-591, sec. 821(a)(1), \xc2\xa7 110(a)(2)(B), 100 Stat. 3341,\n3341-341 (1986) (emphasis added); see also supra note 1, the difference is not\nmaterial. The immediately preceding language of section 322(b)(l)(B) refers to\nproceeds from disposal of the Fund\xe2\x80\x99s \xe2\x80\x9cpersonal property,\xe2\x80\x9d suggesting that the\nsubparagraph as a whole addresses property rather than all funds. And other\nstatutes appear to use interchangeably the phrases \xe2\x80\x9closs of or damage to property\xe2\x80\x9d\nand \xe2\x80\x9closs or damage to property.\xe2\x80\x9d See, e.g., 49 U.S.C. \xc2\xa7 13906 (2000) (emphasis\nadded). 3 Second, the phrase \xe2\x80\x9ccarriers and others\xe2\x80\x9d does not in context clearly\ninclude providers of telecommunications services, such that reimbursement by a\nprovider for a false claim could be considered a \xe2\x80\x9creceipt\xe2\x80\x9d from a \xe2\x80\x9ccarrier.\xe2\x80\x9d Rather,\n3\nIn addition, we are aware of no indication that Congress, in revising the IT Fund statute in 1986,\nintended to change its meaning.\n\n58\n\n\x0cApplication of Miscellaneous Receipts Act to Settlement of False Claims Act Suits\n\nthe phrase may well refer to common carriers or \xe2\x80\x9cothers\xe2\x80\x9d similarly charged with\ntransporting or handling government property. The word is used in that sense in\nthe related 40 U.S.C. \xc2\xa7 501(c) (discussed in Part I), where \xe2\x80\x9ccarriers\xe2\x80\x9d are described\nas those who provide \xe2\x80\x9ctransportation . . . services.\xe2\x80\x9d\nThus, the reference in section 322(b)(1)(B) to \xe2\x80\x9creceipts from carriers and others\nfor loss or damage to property\xe2\x80\x9d is reasonably read in context to refer to receipts for\ngovernment property lost or damaged by, or while in the custody of, government\ncontractors. The Comptroller of the Treasury, in the opinion discussed above in\nPart II.A, used such language in this sense, referring to \xe2\x80\x9cthe amount collected from\ncarriers for loss or damage to freight while in transit.\xe2\x80\x9d 50 MS. Comp. Gen. at 1;\nsee id. at 3 (referring to \xe2\x80\x9cmoneys received from carriers for loss or damages to\nfreight lost while in transit\xe2\x80\x9d). More recently, the Government Accountability\nOffice has treated the phrase \xe2\x80\x9closs or damage to property\xe2\x80\x9d as interchangeable with\nthe phrase \xe2\x80\x9closs of or damage to property,\xe2\x80\x9d and understood both as referring to\nreceipts that could be used \xe2\x80\x9cto repair or replace the property.\xe2\x80\x9d GAO Redbook at 6123. We therefore read section 322(b)(1)(B) as not creating an exception to the\nMiscellaneous Receipts Act that would permit GSA to retain the settlement\namount in the IT Fund.\nC.\nGSA may nevertheless retain in the Fund the false-claims settlement for actual\ndamages under the Act\xe2\x80\x99s exception for refunds. This entire settlement amount\nplainly constitutes a collection for overpayments within the definition of \xe2\x80\x9crefund\xe2\x80\x9d\ndiscussed above, and that amount therefore need not be deposited into the general\nfund of the Treasury. We recently determined in a similar case that, \xe2\x80\x9cin the context\nof false claims paid out of a revolving fund . . . , the \xe2\x80\x98collections for overpayments\nmade\xe2\x80\x99 prong of the refund exception allows the agency to retain single damages.\xe2\x80\x9d\nFCA Recoveries, 28 Op. O.L.C. at 27 (quoting FEMA, 69 Comp. Gen. at 262). We\nagreed with the conclusion in the Comptroller General\xe2\x80\x99s FEMA decision that\nFEMA could retain in its revolving National Insurance Development Fund \xe2\x80\x9cthat\nportion of a damage award or settlement obtained pursuant to the False Claims Act\nthat would reimburse the Fund for losses suffered as a result of a policyholder\xe2\x80\x99s\nfalse claims.\xe2\x80\x9d FEMA, 69 Comp. Gen. at 260; see also Tennessee Valley Authority\xe2\x80\x94False Claims Act Recoveries, B-281064, 2000 WL 230221, at *1 (Comp. Gen.\nFeb. 14, 2000) (\xe2\x80\x9cTVA\xe2\x80\x9d) (\xe2\x80\x9cTVA should deposit into the [TVA] Fund any recoveries\nof actual damages it incurred as a result of a false claim (i.e., single damages), as\nwell as any costs it incurred in investigating the false claim.\xe2\x80\x9d).\nMoreover, the IT Fund is the most appropriate account to receive the refund. It\nwas the IT Fund from which GSA directly paid the charges, and thus any overcharges, for the vast majority of services\xe2\x80\x94the approximately 91% of services that\nwere centrally billed. The Fund\xe2\x80\x99s retention of the settlement amount for actual\ndamages is therefore a collection of an overpayment by that Fund at least to the\n\n59\n\n\x0cOpinions of the Office of Legal Counsel in Volume 30\n\n(unknown but presumably large) extent that that lump sum represents overcharges\nof centrally billed services, see FCA Recoveries, 28 Op. O.L.C. at 27 (discussing\ncollections for overpayments made by revolving funds); such retention is likewise\na \xe2\x80\x9crecover[y]\xe2\x80\x9d by the IT Fund of \xe2\x80\x9cerroneous disbursements\xe2\x80\x9d and is \xe2\x80\x9cdirectly\nrelated to, and [a] reduction[] of, previously recorded payments from the account[],\xe2\x80\x9d FEMA, 69 Comp. Gen. at 262 (internal quotation marks and emphasis\nomitted).\nIt is immaterial that GSA, as part of the rates it imposed on its customer agencies pursuant to section 322(d), charged the centrally billed agencies for the\ntelecommunications services provided to them under the contracts, and thus that\nthe IT Fund presumably was reimbursed by these customer agencies for many of\nthe payments to the providers. The applicability of the refund exception is not\neliminated simply because a fund may have recouped its losses from another\nsource. Indeed, a contrary view would mean, notwithstanding our own and the\nComptroller General\xe2\x80\x99s precedents, that the refund exception would not apply to\nrevolving funds that are permitted to set the rates of contributions and deposit the\ncontributions into the fund. Moreover, in this particular case, the rate-setting\nauthority in section 322(d) does not require (even if it might allow) GSA to\nreimburse agencies for, essentially, an unexpected reduction in costs. Rather,\nconsistent with practice in other situations when rates were set too high, see\nBarclay Letter at 5, the agencies will benefit from the settlement in the future from\nthe ability of the IT Fund to provide more services or charge lower rates. (Similarly, when rates are too low, the Fund generally absorbs the shortfall in the short\nterm. Id.)\nThe situation is similar to that in FEMA, where the Comptroller General held\nthat, under the refund exception, FEMA could deposit into its revolving National\nInsurance Development Fund amounts from a False Claims Act suit that reimbursed it for improper payments from the Fund to holders of FEMA\xe2\x80\x99s insurance\npolicies. Yet the Fund was funded by, among other sources, \xe2\x80\x9cinsurance premiums,\nfees and related charges,\xe2\x80\x9d 69 Comp. Gen. at 261, and the Comptroller General thus\nrecognized that \xe2\x80\x9c[i]n practice, the losses the Fund suffers and the administrative\ncosts FEMA incurs to administer the crime insurance and riot reinsurance\nprograms are borne by program beneficiaries,\xe2\x80\x9d id. at 263; see also FCA Recoveries, 28 Op. O.L.C. at 28 (recognizing that revolving funds at issue \xe2\x80\x9cauthorize[ed]\npayments both into and out of [the funds] with no fiscal year limitation\xe2\x80\x9d). The\nComptroller General did not suggest that the award must be directly provided to\nthe program beneficiaries. Similarly, the Comptroller General has held that the\nTennessee Valley Authority could, under the refund exception, retain in its TVA\nFund awards representing the losses from false claims, and recognized that such\nretention would \xe2\x80\x9cfully reimburse\xe2\x80\x9d both the TVA \xe2\x80\x9cand its customers for their\nlosses.\xe2\x80\x9d TVA, 2000 WL 230221, at *3. He did not suggest that the TVA Fund must\ndirectly pass on any of the recovery to its customers. So also here, the IT Fund, by\nretaining amounts representing a refund for excessive payments made to the\n\n60\n\n\x0cApplication of Miscellaneous Receipts Act to Settlement of False Claims Act Suits\n\nproviders, is made whole and, as a result, also benefits its customer agencies, for\nwhich the Fund exists.\nIn addition, as in FEMA and TVA, and as suggested by the discussion above of\nrates and cost fluctuations, GSA was not a mere conduit for payments under the\nFTS2001 contracts: GSA negotiated and executed the contracts (being the only\ngovernmental entity that was a party to the contracts); guaranteed payment from\nthe IT Fund (and thus was liable whether or not the customer agency paid the\nFund); actually made the initial payment for the overwhelming majority of\nservices, without regard to whether it had received any reimbursement from the\nrelevant customer agency; and provided customer and technical support to the\ncustomer agencies, including, as noted, assisting the Justice Department in the\nlitigation. GSA did not simply pass through the providers\xe2\x80\x99 charges, but rather\ncharged the customer agencies rates that it \xe2\x80\x9cset at levels to ensure a fair and\nequitable allocation of GSA\xe2\x80\x99s costs of operating FTS programs (direct costs for\nservices acquired, and GSA\xe2\x80\x99s overhead and internal costs of operations) as well as\nproviding sufficient capital maintenance.\xe2\x80\x9d Barclay Letter at 5. Although, in\nRebates From Travel Management Center Contractors, 65 Comp. Gen. 600\n(1986), and Accounting for Rebates From Travel Management Center Contractors, 73 Comp. Gen. 210 (1994), the Comptroller General concluded that rebates\nreceived by GSA from travel management centers must be provided to the federal\nagencies that had used the centers, in both of those cases, GSA apparently was\nnothing more than a mediator. GSA did negotiate with the travel centers to collect\nrebates on travel, but was not itself party to any of the travel center contracts, and\ndid not even serve as a conduit for payment for the agencies that were. 65 Comp.\nGen. at 601. Each federal agency arranged its own travel directly with the travel\ncenters and, pursuant to its own contract, paid the centers directly from its own\nappropriations. Id. Indeed, each agency\xe2\x80\x99s rebate was tied directly to that agency\xe2\x80\x99s\nvolume of travel. Barclay Letter at 7. *\nIt does not alter our conclusion that some of the settlement amount might be\nconsidered to represent overcharges for the 9% of services for which payment was\nmade directly by agencies, rather than the IT Fund. The mere fact that these\nmoneys were not directly paid out by the IT Fund is not conclusive. We have\npreviously determined that an agency may retain the portion of a False Claims Act\ndamages award representing amounts that were never actually disbursed from the\n*\nEditor\xe2\x80\x99s Note: In preparing this opinion for publication, we noticed errors in the description of the\ntwo Comptroller General opinions discussed in this paragraph. Notably, GSA was a party to the\ncontracts with the travel management centers and did serve as a conduit for payment by the agencies in\ncertain cases. 65 Comp. Gen. at 601. Although the specific descriptions of the opinions should\ntherefore not be relied on, the errors do not affect the paragraph\xe2\x80\x99s conclusion that the Comptroller\nGeneral opinions are distinguishable because GSA\xe2\x80\x99s role in both of those cases was more limited than\nin the matter addressed in this opinion. The agencies, not GSA, were ultimately responsible for the\npayments to the travel management centers and made those payments out of their own appropriations.\n\n61\n\n\x0cOpinions of the Office of Legal Counsel in Volume 30\n\nagency\xe2\x80\x99s revolving fund, where those amounts could still be considered losses to\nthe fund. See FCA Recoveries, 28 Op. O.L.C. at 27\xe2\x80\x9328 (reduced interest income,\nas well as additional interest expense, and administrative, investigative, and\nlitigation costs caused by the false claim). The ultimate question for fulfilling the\npurpose of the refund exception is how the agencies affected by the overcharges\ncan best be made whole and returned to the position that Congress intended for\nthem; or, to put it differently, the question is whether any improper augmentation\nwould occur if the refund were allocated in a particular way. See id. at 28 (\xe2\x80\x9callowing the agency to retain interest on single damages and the administrative costs of\nfalse claims would not be an improper augmentation of the agency\xe2\x80\x99s appropriation\xe2\x80\x9d); FEMA, 69 Comp. Gen. at 263 (\xe2\x80\x9conly by allowing FEMA to credit the Fund\nwith an amount that will cover all of its losses, including the principal amount of\nthe false claims that were paid, interest on that amount, plus any administrative\nexpenses that the Fund incurred in paying or recovering these amounts, will the\nFund be \xe2\x80\x98made whole\xe2\x80\x99 for its losses in this case\xe2\x80\x9d); Bureau of Prisons\xe2\x80\x94Disposition\nof Funds Paid in Settlement of Breach of Contract Action, 62 Comp. Gen. 678,\n682 (1983) (holding that Bureau of Prisons could use moneys recovered from\nbreach of contract that exceeded amount paid under the contract, in order to fund a\nreplacement contract, because the agency would be \xe2\x80\x9cmade whole at no additional\nexpense to the taxpayer\xe2\x80\x9d).\nHere, the purpose of the refund exception is best served if the entire amount of\ndamages is allowed to be retained by the IT Fund. Although, as noted, there are\ninvoices for each agency, it appears that, because of the peculiarity of the overcharges and the nature of the settlement, it is not possible to determine how much\n(if at all) any given agency was overcharged, or even how much (if any) of the\novercharges involved the small number of directly billed agencies. See Barclay\nLetter at 2\xe2\x80\x933. The settlements \xe2\x80\x9cwere negotiated on behalf of the government as a\nwhole,\xe2\x80\x9d not agency by agency, \xe2\x80\x9cand given the methodology of determining\nsettlement amounts, it is not possible to assign exact amounts to individual\nagencies.\xe2\x80\x9d Id. at 6; see also id. at 7\xe2\x80\x938 (\xe2\x80\x9cgiven that the settlements were reached\nbased on negotiation and statistical evidence, there is no way to determine what\neach individual agency\xe2\x80\x99s exact percentage of the total overpayment was\xe2\x80\x9d). Thus,\nthere is no reason to believe, as far as we are aware, that 9% of the settlement\nwould represent overcharges for the 9% of services that were directly billed, and\nin any event the settlement agreements themselves do not make such a division.\nWhat is clear, however, is that the entire settlement amount for actual damages\nrepresents a refund to the government for overcharges of telecommunications\nservices. Where there is no credible way to allocate any specific portion to the\ndirectly paying agencies, it is more consistent with the policy of the refund\nexception\xe2\x80\x94i.e., making the agencies whole pursuant to the anti-augmentation\nprinciple\xe2\x80\x94for the portion of any overcharges that might be allocable to them to be\nused by the government as a refund of telecommunications overcharges in some\nfashion, by being retained by the IT Fund, than to be deposited into the general\n\n62\n\n\x0cApplication of Miscellaneous Receipts Act to Settlement of False Claims Act Suits\n\nfund of the Treasury. The funds retained in the IT Fund will by statute be used for\nthe benefit of these agencies: \xe2\x80\x9cto efficiently provide information technology\nresources to federal agencies and to efficiently manage, coordinate, operate, and\nuse those resources.\xe2\x80\x9d 40 U.S.C. \xc2\xa7 322(c)(1). GSA therefore seeks to retain this\nsettlement amount in the Fund \xe2\x80\x9cto apply to government-wide telecommunications\nneeds,\xe2\x80\x9d Barclay Letter at 1, and \xe2\x80\x9clower future costs for all customer agencies,\xe2\x80\x9d id.\nat 3. This use of the recovered funds is ensured\xe2\x80\x94and any augmentation concern is\nfurther mitigated\xe2\x80\x94by section 322(f), which, as noted in Part I, requires that at the\nclose of each fiscal year the IT Fund must transfer any excess funds to the\nTreasury as miscellaneous receipts.\nFurthermore, even, for agencies directly billed by the providers, it was GSA\nrather than the agencies that was the party to the contracts with the providers, and\nit was the GSA\xe2\x80\x99s IT Fund that \xe2\x80\x9cpaid the bills to the companies\xe2\x80\x9d \xe2\x80\x9cif an agency\nfailed to meet its obligation.\xe2\x80\x9d Barclay Letter at 6. Even when the directly billed\nagencies did pay the providers, they were paying the rates that had been set by\nGSA and thus were benefiting from GSA\xe2\x80\x99s services. And even though this small\nminority of agencies left it to the providers to forward the percentage fee to GSA,\ntheir rate payments were still part of the overall scheme of the IT Fund and the\nFTS2001 contracts that the Fund financed. Correspondingly, refunds retained by\nthe IT Fund will benefit the directly billed agencies in the future just as they will\nbenefit the centrally billed agencies. They are among \xe2\x80\x9call [the] customer agencies\xe2\x80\x9d\nthat will benefit from \xe2\x80\x9clower future costs.\xe2\x80\x9d Id. at 3. We therefore conclude that the\nIT Fund may retain the entirety of the approximately $24.5 million settlement it\nhas received from the Justice Department that represents actual damages.\nC. KEVIN MARSHALL\nDeputy Assistant Attorney General\nOffice of Legal Counsel\n\n63\n\n\x0c'


b"July 11, 1979\n\n79-51\n\nMEMORANDUM OPINION FOR THE\nATTORNEY GENERAL\nConstitutional Law\xe2\x80\x94Article I, Section 6, Clause\n2\xe2\x80\x94Appointment o f Member of Congress to a Civil\nOffice\n\nThis responds to the informal request of the Senate Judiciary Commit\xc2\xad\ntee for the opinion of the Department of Justice regarding an unsigned\nmemorandum dated July 2, 1979, taking the position that Article I, Sec\xc2\xad\ntion 6, Clause 2, of the Constitution bars Representative Abner Mikva\nfrom appointment during the present Congress as a judge of the U.S.\nCourt of Appeals for the District of Columbia Circuit. That position rests\non untenable factual assumptions and on a constitutional analysis that, in\nour opinion, is at odds with the plain language and settled interpretation\nof Clause 2. The clause reads as follows:\nNo Senator or Representative shall, during the Time for which he\nwas elected, be appointed to any civil Office under the Authority\no f the United States, which shall have been created, or the\nEmoluments whereof shall have been encreased during such\ntime; and no Person holding any Office under the United States,\nshall be a Member of either House during his Continuance in\nOffice.\n\nI.\nThe memorandum argues that wisdom dictates that Representative\nMikva\xe2\x80\x99s appointment as a judge be deferred beyond the expiration of his\ncurrent congressional term, which began in January 1979. Its core premise\nis that \xe2\x80\x9c existing law will operate to increase the compensation of circuit\njudges during Representative Mikva\xe2\x80\x99s present term of office.\xe2\x80\x9d However,\nthe premise\xe2\x80\x94namely, that the compensation o f Federal judges must in\nfact increase during the present Congress\xe2\x80\x94is speculative.\nFederal appellate judges are compensated at rates determined under\n286\n\n\x0c\xc2\xa7 225 of the Federal Salary Act of 1967, Pub. L. No. 90-206, 81 Stat. 643,\nas amended, 2 U.S.C. \xc2\xa7\xc2\xa7 351-361, and adjusted pursuant to the Executive\nSalary Cost-of-Living Adjustment Act, Pub. L. No. 94-82, 89 Stat. 422,\n28 U.S.C. \xc2\xa7 461. Pursuant to \xc2\xa7 205(a)(1) of the Executive Salary Cost-ofLiving Act, the salary rate of Federal judges is to be adjusted by a percent\xc2\xad\nage of the salary rate equal to the overall percentage of adjustments made\nin the rates of pay under the General Schedule. Adjustments in the rates of\npay under the General Schedule are governed by the Federal Pay Com\xc2\xad\nparability Act of 1970, Pub. L. No. 91-656, 84 Stat. 1946, 5 U.S.C. \xc2\xa7 5305\net seq. It provides that the President is to direct his agent to prepare an\xc2\xad\nnually a report comparing rates of pay in the statutory pay system with\nrates of pay for the same levels of work in the private sector, and recom\xc2\xad\nmending appropriate adjustments of the former. After considering the\nreport and the findings of the Advisory Committee on Federal Pay, the\nPresident is to adjust statutory rates of pay accordingly. That adjustment\nbecomes effective in October of the applicable year. Alternatively, the\nPresident, in view of economic conditions affecting the general welfare,\nmay prepare and transmit to Congress before September 1 of each year an\nalternative plan incorporating salary adjustments that he considers ap\xc2\xad\npropriate. Such an alternative also becomes effective in October, and it is\nto continue in effect unless, within a stated period, either House of Con\xc2\xad\ngress adopts a resolution disapproving the alternative plan. If a disap\xc2\xad\nproval resolution is adopted, the salary adjustments for the statutory pay\nsystem recommended by the Advisory Committee on Federal Pay are to\nbecome effective.\nA fundamental element of the foregoing statutory scheme is that salary\nadjustments are triggered by action of the President, which for 1979 has\nnot yet occurred and will not necessarily occur under the statutory scheme\nuntil September. Moreover, once a Presidential decision is transmitted to\nCongress, it is possible that Congress will act to the contrary by legisla\xc2\xad\ntion, as it has in the past, preventing upward salary adjustments. In short,\nit is incorrect to assert that, at the present time, it is known as a fact that\nthe salary of Federal appellate judges will increase this year or, indeed,\nduring this Congress.\n\nn.\nThus, the issue at this time is not whether Congressman Mikva may be\nappointed to a judgeship the emoluments o f which have already been in\xc2\xad\ncreased, but rather whether he may be appointed to a judgeship as\nto which the emoluments may be increased subsequent to his appoint\xc2\xad\nment. To hold that in the latter situation he is precluded from appoint\xc2\xad\nment, it would be necessary to construe Clause 2 as barring the appoint\xc2\xad\nment of a Member of the Congress to a civil office during the term for\nwhich he has been elected before the emoluments of the office have been\nincreased. That interpretation is plainly at odds with the language o f the\n287\n\n\x0cconstitutional provision itself, stating that no Member of Congress\n\xe2\x80\x9c shall * * * be appointed\xe2\x80\x9d to a civil office the emoluments of which\n\xe2\x80\x9cshall have been increased\xe2\x80\x9d during the term for which the Member-was\nelected. [Emphasis added.] By using the future tense in referring to an ap\xc2\xad\npointment, while employing the future perfect tense to refer to an increase\nin emoluments, the provision on its face plainly shows an intention of\npreventing an appointment only when an increase in the emoluments of an\noffice precedes an appointment to that office.\nThe importance of carefully construing the literal language of the con\xc2\xad\nstitutional provision is underscored in the opinion of Attorney General\nRamsey Clark, 42 Op. A tt\xe2\x80\x99y Gen. 381 (1969), which concluded that it did\nnot disqualify Representative Laird from appointment as Secretary of\nDefense. The essential foundation of the Clark opinion was the language\nof the constitutional proscription, which, he held, \xe2\x80\x9c clearly does not apply\nto an increase in compensation which is proposed subsequent to the ap\xc2\xad\npointment.\xe2\x80\x9d Furthermore, he held that it did not apply where \xe2\x80\x9c it is possi\xc2\xad\nble but not certain at the time of the appointment that a proposed salary\nincrease for the appointee may receive final approval at a future date.\xe2\x80\x9d 42\nOp. A tt\xe2\x80\x99y Gen., at 382. The reasoning, which is directly applicable to the\npresent case, is as follows:\nIt is my view that, notwithstanding submission of any salary in\xc2\xad\ncrease recommendations in the Budget message, the salaries in\nquestion will not \xe2\x80\x98have been increased\xe2\x80\x99 within the meaning of the\nconstitutional prohibition so long as Congress may still exercise\nits power of disapproval. Assuming that you [Representative\nLaird] are, in the normal practice * * * nominated, confirmed,\nand appointed as Secretary of Defense within a few days follow\xc2\xad\ning the inauguration, i.e., during the period in which it remains\nuncertain whether Congress may disapprove the Presidential\nsalary recommendations, I believe your appointment will not be\nprecluded by this constitutional clause. [Id. at 382-83.]\nJust as Attorney General Clark concluded that before an increase is cer\xc2\xad\ntain an appointment is valid, so in the present circumstances, until such an\nincrease has become an accomplished fact, Representative Mikva\xe2\x80\x99s ap\xc2\xad\npointment is permissible.\nThe memorandum attempts to distinguish the Clark opinion on the\nground that the salary statute in effect at that time is different from the\npresent salary statute because under the current arrangement, some salary\nadjustment will go into effect unless the Congress as a whole, as opposed\nto one House alone, takes affirmative legislative action to prevent it. The\nnotion is that present law makes it somewhat more difficult for Congress\nto prevent a salary increase. However, whatever else may be said about the\ndistinction, it is simply not germane to the reasoning of the Clark opinion.\nThe opinion, in summarizing the applicable statutory scheme, emphasized\nthat \xe2\x80\x9c * * * it will be uncertain whether there will be any increase in\nCabinet salaries until March 1, or such earlier date as Congress may\n288\n\n\x0ctake definitive action manifesting that it will not disapprove such\nincrease.\xe2\x80\x9d [Emphasis added.] 42 Op. A tt\xe2\x80\x99y Gen., at 382. The precise\nnature of \xe2\x80\x9c definitive action\xe2\x80\x9d by Congress was not an issue in the Clark\nsituation. Rather, the crucial point was the uncertainty of a salary increase\nat the time of Mr. Laird\xe2\x80\x99s appointment. Furthermore, nothing in the\nlanguage of the constitutional provision suggests that it operate only when\nit may be relatively less difficult for. Congress to prevent an increase.\nRather, the critical point is whether there has been an \xe2\x80\x9c appointment of a\nlegislator to an office the compensation of which \xe2\x80\x98shall have been' in\xc2\xad\ncreased prior to the making of such appointment.\xe2\x80\x9d [Emphasis in original.]\n42 Op. A tt\xe2\x80\x99y Gen. at 381-82.\nThe memorandum also asserts that the present case is covered by the\n1882 opinion of Attorney General Brewster, 17 Op. A tt\xe2\x80\x99y Gen. 365,\nholding that a former member of Congress could not be appointed to an\noffice because of the proscription of Clause 2. However, the memoran\xc2\xad\ndum neglects to note that the situation underlying the Brewster opinion is\nfundamentally distinguishable from the present case. The Brewster\nopinion involved a former Senator, whose term was to expire in March\n1883; he resigned from the Senate in 1881 to accept appointment as\nSecretary of the Interior, subsequently resigned from that position, re\xc2\xad\nturned to private life, and was being considered for appointment to the of\xc2\xad\nfice of tariff commissioner created by legislation enacted on May 15, 1882.\nIt is obvious that he could not have been appointed to the newly created\nposition until after it had in fact been created. Thus, as Attorney General\nClark stressed in his opinion in discussing the Brewster holding, it rested\non a crucial distinguishable factual foundation, and as such it \xe2\x80\x9c has no\nbearing on [the present] situation.\xe2\x80\x9d 42 Op. A tt\xe2\x80\x99y Gen. at 383.1\nIn short, the language and settled interpretation of Clause 2 establish\nthat Representative Mikva is not barred from appointment.\n\nm.\nIt should be further noted that, contrary to the view expressed in the\nmemorandum, even if a salary increase for Federal judges generally were\nto occur, Congress could, by legislation, exempt from coverage the office\nto which Representative Mikva may be appointed. Such action was taken\nin the past. In 1909 President Taft sought to appoint Senator Knox as\nSecretary of State, although in the prior year the compensation for that\n\n1 Moreover, it should be noted that if the opposite interpretation were followed, and it\nwere held that a sitting Member o f Congress could not be appointed to an office the\nemoluments o f which were increased after his appointm ent, then Congress, by enacting a\nsalary increase after the President had appointed him a Federal judge, would thereby retroac\xc2\xad\ntively invalidate the appointm ent. This would, in effect, am ount to his removal and thus\nwould circumvent the constitutionally m andated process o f impeachm ent as the only existing\nmethod for removing Federal judges.\n\n289\n\n\x0coffice had been increased. A bill was enacted reducing the salary of the of\xc2\xad\nfice to the previous level in order to avoid the constitutional problem. See\n43 C o n g r e s s i o n a l R e c o r d 2205, 2390-2403. The same action was taken\nwith respect to the appointment of Senator Saxbe to the office of Attorney\nGeneral. See Pub. L. No. 93-178, 87 Stat. 697 (Dec. 10, 1973). Accord\xc2\xad\ningly, even if a salary increase were to become effective prior to the ap\xc2\xad\npointment of Representative Mikva, which is not the situation presently\nexisting, he would not thereby be necessarily barred from appointment.\nJ o h n M. H a r m o n\nAssistant Attorney General\nOffice o f Legal Counsel\n\n290\n\n\x0c"


b'Mandatory Registration of Credit Rating Agencies\nThe Administration\xe2\x80\x99s proposal for mandatory registration of credit rating agencies\xe2\x80\x94\nwhich would exempt an agency if (1) it does not provide ratings of securities in\nexchange for fees or other forms of compensation from the securities\xe2\x80\x99 issuers; and\n(2) it issues credit ratings only in any bona fide newspaper, news magazine or business\nor financial publication of general and regular circulation\xe2\x80\x94would comply with the\nFirst Amendment.\nOctober 22, 2009\n\nLETTER OPINION FOR THE\nASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS\nDEPARTMENT OF THE TREASURY\nYou have asked us to assess whether the Administration\xe2\x80\x99s proposal\nfor mandatory registration of credit rating agencies, which would include\nan exemption designed to address First Amendment concerns, would be\nconstitutional. For the reasons given below, we conclude that the Administration\xe2\x80\x99s registration proposal would satisfy the First Amendment\xe2\x80\x99s\nrequirements. 1\nUnder existing law, a credit rating agency may \xe2\x80\x9celect[] to be treated as\na nationally recognized statistical rating organization\xe2\x80\x9d by furnishing an\napplication demonstrating that it meets certain criteria. 15 U.S.C. \xc2\xa7 78o7(a)(1)(A) (emphasis added). A registered credit rating agency receives\ncertain benefits by being a \xe2\x80\x9cnationally recognized rating organization\xe2\x80\x9d\nand must abide by certain statutory requirements. See id. \xc2\xa7 78o-7. As\nwe understand it, the Administration wishes to amend the law to make\nOur conclusion assumes that application of the particular requirements and limitations that would be required of registered agencies would be tailored in accord with First\nAmendment requirements so that there would be no unconstitutional constraints imposed\non the speech of registered agencies. We have not had sufficient time to consider the\nvarious particular regulatory requirements, either under the existing statute or in the\nAdministration\xe2\x80\x99s proposal, and we express no view on whether any particular requirement\nwould be constitutionally permissible as applied to the publication or conveyance of\nparticular credit ratings. It is our understanding that, under the Administration\xe2\x80\x99s proposal,\nthose requirements and limitations would only take effect once the Securities and Exchange Commission issues regulations implementing the new statute\xe2\x80\x94regulations that\nthat would have to reflect any exemptions or limitations the First Amendment may\nrequire.\n1\n\n330\n\n\x0cMandatory Registration of Credit Rating Agencies\n\nit mandatory for credit rating agencies to register as nationally recognized\nstatistical rating organizations\xe2\x80\x94to the extent consistent with the Constitution. The current definition of \xe2\x80\x9ccredit rating agency\xe2\x80\x9d is any person\n(A) engaged in the business of issuing credit ratings on the Internet\nor through another readily accessible means, for free or for a reasonable fee, but does not include a commercial credit reporting company;\n(B) employing either a quantitative or qualitative model, or both,\nto determine credit ratings; and\n(C) receiving fees from either issuers, investors, or other market\nparticipants, or a combination thereof.\nId. \xc2\xa7 78c(a)(61).\nA requirement that all \xe2\x80\x9ccredit rating agen[cies]\xe2\x80\x9d so defined register\nwith the federal government would implicate the First Amendment because such a requirement may impose at least some burden on their\nspeech activities\xe2\x80\x94namely, \xe2\x80\x9cissuing credit ratings on the Internet or\nthrough another readily accessible means, for free or for a reasonable\nfee.\xe2\x80\x9d \xe2\x80\x9cAs a matter of principle,\xe2\x80\x9d the Supreme Court has explained, \xe2\x80\x9ca\nrequirement of registration in order to make a public speech would seem\ngenerally incompatible with an exercise of the rights of free speech and\nfree assembly.\xe2\x80\x9d Thomas v. Collins, 323 U.S. 516, 539 (1945); see also id.\nat 540 (\xe2\x80\x9cIf the exercise of the rights of free speech and free assembly\ncannot be made a crime, we do not think this can be accomplished by the\ndevice of requiring previous registration as a condition for exercising\nthem and making such a condition the foundation for restraining in advance their exercise and for imposing a penalty for violating such a restraining order.\xe2\x80\x9d).\nIn light of these First Amendment concerns, analogous registration\nrequirements in other financial regulatory statutes include exemptions\ndesigned to avoid constitutional problems. The Investment Advisers Act,\nfor example, contains an exemption from its registration requirement for\n\xe2\x80\x9cthe publisher of any bona fide newspaper, news magazine or business or\nfinancial publication of general and regular circulation.\xe2\x80\x9d 15 U.S.C. \xc2\xa7 80b2(a)(11). And the Commodity Futures Trading Commission has adopted\nby regulation an exemption from the registration requirement of the\n331\n\n\x0c33 Op. O.L.C. 330 (2009)\n\nCommodity Exchange Act for any person that \xe2\x80\x9cdoes not engage in . . .\n[d]irecting client accounts; or . . . [p]roviding commodity trading advice\nbased on, or tailored to, the commodity interest or cash market positions\nor other circumstances or characteristics of particular clients; or . . . [i]f,\nas provided for in section 4m(1) of the Act, during the course of the\npreceding 12 months, it has not furnished commodity trading advice to\nmore than 15 persons and it does not hold itself out generally to the public\nas a commodity trading advisor.\xe2\x80\x9d 17 C.F.R. \xc2\xa7 4.14(a)(9), (10).\nThe Administration\xe2\x80\x99s proposal mirrors these other financial regulatory\nstatutes. The proposal would exempt from the registration requirement\nany credit rating agency that satisfies two criteria: (i) it does not provide\nratings of securities in exchange for fees or other forms of compensation\nfrom the securities\xe2\x80\x99 issuers; and (ii) it issues credit ratings only in any\nbona fide newspaper, news magazine or business or financial publication\nof general and regular circulation. 2\nAlthough the precise line for First Amendment purposes is not absolutely clear in this area, we believe that a mandatory registration requirement for credit rating agencies that contained such an exemption\nwould comply with the First Amendment. We begin with the prong of\nthe exemption that would require credit rating agencies to issue credit\nratings only in any bona fide newspaper, news magazine or business or\nfinancial publication of general and regular circulation. This prong of\nthe exemption derives from the Supreme Court\xe2\x80\x99s treatment of the similar\nInvestment Advisers Act exemption in Lowe v. Securities and Exchange\nCommission, 472 U.S. 181 (1985).\nIn that case, the Securities and Exchange Commission had sought to\nenjoin Lowe from publishing an investment advice newsletter because it\nhad previously revoked his registration as an investment adviser under the\nAct, due to his conviction for a series of financial crimes. Particularly in\nlight of the \xe2\x80\x9cimportant constitutional question\xe2\x80\x9d raised by such a bar on\npublication, the Court read the Act\xe2\x80\x99s exemption for the \xe2\x80\x9cpublisher of any\nbona fide newspaper, news magazine or business or financial publication\nThe second criterion is adapted from the current Investment Advisers Act, which, as\nwe explain below, the Supreme Court has construed so as to avoid First Amendment\nconcerns. We assume the criterion in the proposed exemption would be given a similar\nconstruction.\n2\n\n332\n\n\x0cMandatory Registration of Credit Rating Agencies\n\nof general and regular circulation\xe2\x80\x9d broadly to shield Lowe\xe2\x80\x99s newsletter,\nwhich reached an audience of between 3,000 and 19,000 subscribers. Id.\nat 188, 185. The Court further held that although Lowe\xe2\x80\x99s publication of\nhis securities newsletters had not been \xe2\x80\x9cregular\xe2\x80\x9d in the sense of consistent\ncirculation\xe2\x80\x94in that the newsletters had not been published on a regular\nsemimonthly basis as advertised\xe2\x80\x94they were nevertheless \xe2\x80\x9cregular\xe2\x80\x9d for\npurposes of the Investment Advisers Act because there was \xe2\x80\x9cno indication\nthat they have been timed to specific market activity, or to events affecting or having the ability to affect the securities industry.\xe2\x80\x9d Id. at 209. The\nCourt explained that its reading of the Act was informed by \xe2\x80\x9cthe apparent\nintent of Congress to keep the Act free of constitutional infirmities.\xe2\x80\x9d Id. at\n207. The majority contrasted the character of Lowe\xe2\x80\x99s newsletter publishing, which it implied was entitled to strong First Amendment protection,\nwith professional services involving speech that may be subjected to\nregulation without offending the First Amendment, such as the provision\nof legal advice by lawyers to their clients. The former, the Court emphasized, involved \xe2\x80\x9ccommunications [with] subscribers [that] remain entirely\nimpersonal and,\xe2\x80\x9d unlike the latter, \xe2\x80\x9cdo not develop into the kind of fiduciary, person-to-person relationships that were discussed at length in the\nlegislative history of the Act and that are characteristic of investment\nadviser-client relationships.\xe2\x80\x9d Id. at 210; see also id. at 210 n.57 (noting\nthat it was \xe2\x80\x9csignificant\xe2\x80\x9d that Lowe did not engage in \xe2\x80\x9cindividualized,\ninvestment-related interactions\xe2\x80\x9d with his subscribers).\nIn a separate opinion in Lowe by Justice White, three Justices found\nthat the Act\xe2\x80\x99s statutory \xe2\x80\x9cpublisher\xe2\x80\x9d exemption could not be construed to\napply to Lowe\xe2\x80\x99s irregular publication, and therefore addressed the First\nAmendment question directly. They observed that the \xe2\x80\x9cpower of government to regulate the professions is not lost whenever the practice of a\nprofession entails speech,\xe2\x80\x9d id. at 228, \xe2\x80\x9c[b]ut the principle that the government may restrict entry into professions and vocations through licensing schemes has never been extended to encompass the licensing of\nspeech per se or of the press. . . . At some point, a measure is no longer a\nregulation of a profession but a regulation of speech or of the press;\nbeyond that point, the statute must survive the level of scrutiny demanded\nby the First Amendment.\xe2\x80\x9d Id. at 229\xe2\x80\x9330. In attempting to \xe2\x80\x9clocate the point\nwhere regulation of a profession leaves off and prohibitions on speech\nbegin,\xe2\x80\x9d Justice White wrote,\n333\n\n\x0c33 Op. O.L.C. 330 (2009)\n\n[o]ne who takes the affairs of a client personally in hand and purports to exercise judgment on behalf of the client in the light of the\nclient\xe2\x80\x99s individual needs and circumstances is properly viewed as\nengaging in the practice of a profession. Just as offer and acceptance\nare communications incidental to the regulable transaction called a\ncontract, the professional\xe2\x80\x99s speech is incidental to the conduct of the\nprofession. If the government enacts generally applicable licensing\nprovisions limiting the class of persons who may practice the profession, it cannot be said to have enacted a limitation on freedom of\nspeech or the press subject to First Amendment scrutiny. Where the\npersonal nexus between professional and client does not exist, and a\nspeaker does not purport to be exercising judgment on behalf of any\nparticular individual with whose circumstances he is directly acquainted, government regulation ceases to function as legitimate\nregulation of professional practice with only incidental impact on\nspeech; it becomes regulation of speaking or publishing as such, subject to the First Amendment\xe2\x80\x99s command that \xe2\x80\x9cCongress shall make\nno law . . . abridging the freedom of speech, or of the press.\xe2\x80\x9d\nId. at 232 (emphasis added); see also Thomas, 323 U.S. at 544\xe2\x80\x9345 (Jackson, J., concurring) (\xe2\x80\x9cThough the one may shade into the other, a rough\ndistinction always exists, I think, which is more shortly illustrated than\nexplained. A state may forbid one without its license to practice law as a\nvocation, but I think it could not stop an unlicensed person from making a\nspeech about the rights of man or the rights of labor, or any other kind of\nright, including recommending that his hearers organize to support his\nviews. Likewise, the state may prohibit the pursuit of medicine as an\noccupation without its license, but I do not think it could make it a crime\npublicly or privately to speak urging persons to follow or reject any\nschool of medical thought.\xe2\x80\x9d).\nIn accord with the majority and concurring opinions in Lowe regarding\nthe line between impermissible regulations on speech and \xe2\x80\x9cmerely permissible regulation of a profession,\xe2\x80\x9d we think the First Amendment concerns that a mandatory registration requirement may raise are addressed\nby an exemption for agencies that supply ratings tailored to meet the\nneeds of individual clients. The Court has adopted a somewhat similar\nline in determining whether credit reports constitute matters of public\nconcern warranting heightened protection in defamation actions. See\n334\n\n\x0cMandatory Registration of Credit Rating Agencies\n\nDun & Bradstreet v. Greenmoss, 472 U.S. 749, 761\xe2\x80\x9363 (1985) (plurality\nopinion) (concluding that a credit report issued confidentially to five\nsubscribers did not constitute speech about a matter of public concern\nrequiring a plaintiff to show \xe2\x80\x9cactual malice\xe2\x80\x9d in a defamation suit). 3 The\ndistinction between the provision of advice tailored to meet the needs of\nindividual clients, on the one hand, and publication of opinions to a wide\naudience, on the other, supports the second prong of the Administration\xe2\x80\x99s\nproposed exemption, i.e., that credit rating agencies would be exempt\nfrom registration only if they \xe2\x80\x9cissue credit ratings only in any bona fide\nnewspaper, news magazine or business or financial publication of general\nand regular circulation.\xe2\x80\x9d If a credit rating agency provides ratings to select\ninvestor clients, tailoring the speech it undertakes to those clients\xe2\x80\x99 needs,\nit is engaged in the sort of speech akin to that of other professionals when\nIn accord with Dun & Bradstreet, lower courts considering credit rating agencies\xe2\x80\x99\nFirst Amendment defenses to claims for defamation, fraud, and various other business\ntorts (as well as breach of contract in at least one instance) have looked in part to whether\nthe reports were distributed to a public audience or tailored to a discrete group of clients.\nSee, e.g., Compuware Corp. v. Moody\xe2\x80\x99s Investors Servs., Inc., 499 F.3d 520, 525\xe2\x80\x9334 (6th\nCir. 2007) (affirming grant of summary judgment in favor of credit rating agency defendant on defamation and breach of contract claims based on \xe2\x80\x9cactual malice\xe2\x80\x9d requirement\nwhere ratings were made available to the public); Abu Dhabi Commercial Bank v. Morgan\nStanley & Co., No. 08-Civ-7508 (SAS), 2009 WL 2828018, *9 (S.D.N.Y. Sept. 2, 2009)\n(rejecting First Amendment defense to various common law tort claims, including fraud,\nin part because \xe2\x80\x9cplaintiffs have plainly alleged that the . . . ratings were never widely\ndisseminated, but were provided instead in connection with a private placement to a select\ngroup of investors\xe2\x80\x9d); In re Nat\xe2\x80\x99l Century Fin. Enters., Inc., Inv. Litig., 580 F. Supp. 2d\n630, 640 (S.D. Ohio 2008) (rejecting First Amendment defense to securities fraud and\nvarious common law claims in part because ratings disseminated to a \xe2\x80\x9cselect class of\ninvestors\xe2\x80\x9d); In re Enron Corp., 511 F. Supp. 2d 742, 820 (S.D. Tex. 2005) (finding that\nthe First Amendment shielded credit rating agency from negligent misrepresentation\nclaim where the \xe2\x80\x9ccredit rating reports regarding Enron by national credit rating agencies\nwere not private or confidential, but distributed \xe2\x80\x98to the world\xe2\x80\x99 and were related to the\ncreditworthiness of a powerful public corporation that operated internationally\xe2\x80\x9d). At least\none court of appeals has invoked the same consideration as one of its reasons for ruling\nthat a credit rating agency could not avail itself of a statutory state-law journalist\xe2\x80\x99s\nprivilege to refuse to comply with a subpoena. In re Fitch, Inc., 330 F.3d 104, 109 (2d\nCir. 2003) (\xe2\x80\x9cUnlike a business newspaper or magazine, which would cover any transactions deemed newsworthy, Fitch only \xe2\x80\x98covers\xe2\x80\x99 its own clients.\xe2\x80\x9d); see also id. at 110\n(\xe2\x80\x9cFitch\xe2\x80\x99s information-disseminating activity does not seem to be based on a judgment\nabout newsworthiness, but rather on client needs. We believe this weighs against Fitch\nbeing able to assert the privilege for the information at issue.\xe2\x80\x9d).\n3\n\n335\n\n\x0c33 Op. O.L.C. 330 (2009)\n\nthey advise their clients\xe2\x80\x94speech that is constitutionally distinct from the\npublication of facts or opinions to the public at large. See Taucher v.\nBorn, 53 F. Supp. 2d 464 (D.D.C. 1999) (Commodity Exchange Act\nrequirement that commodity trading advisors register with Commodity\nFutures Trading Commission was unconstitutional as applied to publishers of general commodity trading information strategy and advice, and\ntrading systems, who made general buy and sell recommendations not\ntailored to any specific individuals, and never had contact with individual\ninvestors).\nIndeed, federal courts have repeatedly rejected First Amendment challenges to professional licensing statutes as applied to persons who provide\nservices to particular clients, and do not simply offer published advice or\ninformation to the general public. See, e.g., Nat\xe2\x80\x99l Ass\xe2\x80\x99n for the Advancement of Psychoanalysis v. Cal. Bd. of Psychology, 228 F.3d 1043, 1053\xe2\x80\x93\n55 (9th Cir. 2000) (psychologists/psychoanalysts); Lawline v. Am. Bar\nAss\xe2\x80\x99n, 956 F.2d 1378, 1386 (7th Cir. 1992) (lawyers); Accountant\xe2\x80\x99s Soc\xe2\x80\x99y\nof Va. v. Bowman, 860 F.2d 602, 603\xe2\x80\x9305 (4th Cir. 1988) (accountants);\nFidelity Nat\xe2\x80\x99l Info. Solutions, Inc. v. Sinclair, No. Civ. A. 02-6928, 2004\nWL 764834 (E.D. Pa. Mar. 31) (real estate appraisers); see also Planned\nParenthood of Se. Pa. v. Casey, 505 U.S. 833, 884 (1992) (plurality\nopinion) (rejecting doctors\xe2\x80\x99 argument that they had a First Amendment\nright not to provide information to their patients about the risks of abortion, and childbirth, in a manner mandated by state statute; \xe2\x80\x9c[t]o be sure,\nthe physician\xe2\x80\x99s First Amendment rights not to speak are implicated, . . .\nbut only as part of the practice of medicine, subject to reasonable licensing and regulation by the State\xe2\x80\x9d). These precedents provide support for\nthe application of the registration requirement to credit rating agencies\nthat do not limit their issuance of credit ratings only to any bona fide\nnewspaper, news magazine or business or financial publication of general\nand regular circulation.\nThe same reasons that support the constitutionality of mandatory registration for credit ratings agencies that do not satisfy the general publication criterion described above also support application of that registration\nrequirement to any credit rating agency that receives fees or other forms\nof compensation from issuers of securities in return for its provision of\nratings. Just as a credit ratings agency may be required to register, in\naccord with the distinction set forth in Lowe, if it provides individualized\n336\n\n\x0cMandatory Registration of Credit Rating Agencies\n\nadvice to client investors, so too can registration be required if the agency\nprovides its ratings (even to a public audience) as a professional service\non behalf of individual issuers of securities. When a credit rating agency\nis hired by a particular issuer to rate a particular security, it is providing a\nparticular client with a valuable professional service tailored to that client\xe2\x80\x99s needs, one for which the issuer-client is willing to pay, presumably\nbecause it believes the agency will \xe2\x80\x9cexercise judgment on behalf of the\nclient,\xe2\x80\x9d Lowe, 472 U.S. at 232 (White, J., concurring), in order to advance\nthe issuer\xe2\x80\x99s own commercial goals. Cf. Commercial Fin. Servs., Inc. v.\nArthur Andersen LLP, 94 P.3d 106, 110 (Okla. Civ. App. 2004) (rating\nagencies sued by issuer that hired it not protected by First Amendment\nagainst liability for negligent misrepresentation because \xe2\x80\x9c[w]hile the\nRating Agencies gave \xe2\x80\x98opinions,\xe2\x80\x99 they did so as professionals being paid\nto provide their opinions to a client\xe2\x80\x9d). 4\nThis conclusion is bolstered by our understanding, based on information provided by officials at the Treasury Department, that a payment\nby an issuer to a credit rating agency in exchange for issuance of a rating\nordinarily entails receipt of the rating by the issuer in advance of public\ndisclosure, and the opportunity for discussion and exchange between the\nissuer and agency during the development of the rating. In this respect,\nthis criterion of the proposed exemption would appear to be similar to an\nelement of the exemption under the Commodity Exchange Act for \xe2\x80\x9ccommodity trading advice based on, or tailored to, the commodity interest or\ncash market positions or other circumstances or characteristics of particular clients.\xe2\x80\x9d 17 C.F.R. \xc2\xa7 4.14(a)(9). To be sure, in developing the rating\nfor the client, the credit rating agency may provide a neutral and candid\nassessment, using professional methods. But the same is true of accountants and other professionals when they give their clients advice, and yet\n\nWe recognize that at least two lower courts, in determining whether a credit rating\nagency was entitled to the benefit of a statutory journalist\xe2\x80\x99s privilege, have rejected the\nsignificance of the fact that the agency had been hired by the issuer. See In re Pan Am\nCorp., 161 B.R. 577 (S.D.N.Y. 1993); In re Scott Paper Co., 145 F.R.D. 366 (E.D. Pa.\n1993). But the lower courts are divided on that issue, even in the context of that analogous\nstatutory question. See Fitch, 330 F.3d 104 (discussed supra note Error! Bookmark not\ndefined.). Moreover, the considerations relevant to the application of the statutory\njournalist\xe2\x80\x99s privilege may differ from those that determine the constitutional permissibility of a registration requirement.\n4\n\n337\n\n\x0c33 Op. O.L.C. 330 (2009)\n\nthose professionals may be required to register consistent with the First\nAmendment. Admittedly, even issuer-paid agencies typically convey their\nratings to the public. But other professionals who may be required to\nregister also may subsequently convey to a wider audience some of the\ninformation the client has retained them to provide. It is the fact of the\nindividualized provision of a service to a client that supports the registration requirement in either case. Although widespread publication of their\nratings may be more central to the service provided by credit rating agencies than is the less frequent public speech by members of regulated\nprofessions acting on behalf of their clients (such as when a lawyer publicly discloses an advice of counsel letter), this appears to us to be a\ndifference of degree rather than of kind. Cf. Lowe, 472 U.S. at 231\n(White, J., concurring) (\xe2\x80\x9cthe distinguishing factor was whether the speech\nin any particular case was \xe2\x80\x98associat[ed] . . . with some other factor which\nthe state may regulate so as to bring the whole within official control\xe2\x80\x99\xe2\x80\x9d\n(quoting Thomas, 323 U.S. at 547)). In light of the context-specific analysis courts have followed in assessing First Amendment protections in such\ncases, we believe findings reflecting the realities of how credit rating\nagencies operate in providing ratings, such as those that would support the\nrepresentations made to us by the Treasury Department, would bolster the\nlegal basis for a mandatory registration requirement.\nDAVID J. BARRON\nActing Assistant Attorney General\nOffice of Legal Counsel\n\n338\n\n\x0c'


b'Resolution of Legal Dispute Between the Department of\nEnergy and the Tennessee Valley Authority\nThe Tennessee Valley Authority is a part o f the Executive Branch. The members of its board of\ndirectors serve at the pleasure o f the President. In a legal dispute between two Executive\nagencies w hose heads serve at the pleasure of the President, Executive Order No. 12146\nrequires that the dispute be referred to the Attorney General for resolution.\n\nJuly 8, 1987\nM\n\nem orandum\n\nO\n\np in io n f o r t h e\n\nDepartm ent\n\nof\n\nG eneral C o un sel,\n\nE nergy\n\nThis responds to your request of June 30, 1987 for the opinion of the\nAttorney General on whether a dispute between the Department of Energy\n(DOE) and the Tennessee Valley Authority (TVA) is subject to resolution\nunder Executive Order No. 12146, 3 C.F.R. 409 (1979 Comp.).1 We believe\nthat Executive Order No. 12146 requires that the dispute be submitted to the\nAttorney General for settlement.\nExecutive Order No. 12146 provides the President\xe2\x80\x99s orders to his subordi\xc2\xad\nnates regarding inter-agency disputes. Section 1-4 states:\n1\xe2\x80\x944. Resolution of Interagency Legal Disputes.\n1\xe2\x80\x94401. Whenever two or more Executive agencies are unable to\nresolve a legal dispute between them, including the question of\nwhich has jurisdiction to administer a particular program or to\nregulate a particular activity, each agency is encouraged to\nsubmit the dispute to the Attorney General.\n1 T he TV A and D O E disagree on the am ount o f money D OE owes the TV A for certain electric power. The\nTV A has filed suit against DO E. Dean v. Herrington , No. 3 -8 7 \xe2\x80\x94436 (E.D. Tenn. filed June 16, 1987).\nN O TE: A fter this opinion w as issued by the O ffice o f Legal C ounsel, the D istrict C ourt held that Executive\nO rder N o. 12146 did not apply to the TV A . See Dean v. Herrington, 668 F. Supp. 646, 652-53 (E.D. Tenn.\n1987). W ithout deciding \xe2\x80\x9cw hether TVA\xe2\x80\x99s head \xe2\x80\x98serves at the pleasure o f the President,\xe2\x80\x9d \xe2\x80\x99 id. at 653, the court\nfound th at E xecutive O rder No. 12146 w as intended to coordinate the legal resources o f agencies represented\nby the Justice D epartm ent and therefore did not apply to agencies such as TVA that have independent\nlitig atin g authority. Id. The Claims C ourt rejected that conclusion after the district court had transferred the\ncase to it. A lthough finding the case ju sticiab le, the C laim s C ourt held that Executive O rder No. 12146 did\napply, see Dean v. Herrington, 13 Cl. Ct. 6 9 2 ,7 0 0 -0 2 (1987), and therefore tem porarily suspended the action\nand ordered the parties to subm it the d ispute to the A ttorney G eneral for adm inistrative resolution Id. at 703.\n\n70\n\n\x0c1\xe2\x80\x94402. Whenever two or more Executive agencies whose heads\nserve at the pleasure of the President are unable to resolve such a\nlegal dispute, the agencies shall submit the dispute to the Attor\xc2\xad\nney General prior to proceeding in any court, except where there\nis specific statutory vesting of responsibility for a resolution\nelsewhere.\n3 C.F.R. 411 (1979 Comp.). Because we believe that both DOE and the TVA\nare headed by individuals who serve at the pleasure of the President, we believe\nthat \xc2\xa7 1-402 requires that the TVA-DOE contract dispute be submitted to the\nAttorney General prior to any court resolution.\nThe Secretary of Energy is appointed by the President with the advice and\nconsent of the Senate. 42 U.S.C. \xc2\xa7 7131. The statute places no limit on the\nPresident\xe2\x80\x99s power to remove the Secretary, and there is no question that the\nSecretary serves at the pleasure of the President within the meaning of \xc2\xa7 1- 402.2\nThe TVA is a government corporation established by Congress and gov\xc2\xad\nerned by a board of directors. 16 U.S.C. \xc2\xa7\xc2\xa7 831, 832(a).3 Its board of directors\nis \xe2\x80\x9ccomposed of three members, to be appointed by the President, by and with\nthe advice and consent of the Senate.\xe2\x80\x9d 16 U.S.C. \xc2\xa7 832(a). In the absence of any\nother guidance, we are of the view that the President may remove board\nmembers in his discretion because, as with the Secretary of Energy, the statute\nplaces no limit on his removal authority.\nThe historical record supports this proposition. Shortly after the TVA was\ncreated in 1933, it was enveloped in scandal. As the board members quarreled\nover responsibility, President Roosevelt asked the chairman, Dr. A. E. Morgan,\nto provide evidence to support his charges of corruption among his fellow\nboard members. When Dr. Morgan refused to do so, the President held a\nhearing and dismissed Dr. Morgan from office.4 Attorney General Robert\nJackson subsequently issued an opinion that concluded that the TVA was an\nexecutive agency and that, therefore, the President could remove its members.\n39 Op. Att\xe2\x80\x99y Gen. 145 (1938).\nThis view was not confined to the Executive Branch. Dr. Morgan sought\nrelief in court, charging that the TVA was a quasi-legislative body responsible\nto Congress. The U.S. Court of Appeals for the Sixth Circuit rejected his claim:\nIt requires little to demonstrate that the Tennessee Valley Au\xc2\xad\nthority exercises predominantly an executive or administrative\nfunction. To it has been entrusted the carrying out of the dictates\nof the statute to construct dams, generate electricity, manage\nand develop government property. Many of these activities,\nprior to the setting up of the T. V.A., have rested with the several\n2See generally Myers v. United States, 272 U.S. 5 2 (1 9 2 6 ),Shurtleffv. United States, 189 U.S. 311 (1903);\nIn re Hennen, 38 U.S. (13 Pet.) 230 (1839); Kalarts v Donovan, 697 F.2d 376, 389 (D.C. C ir ), cert, denied,\n462 U.S. 1119(1983).\n3 G overnm ent corporations are agencies o f the U nited States. Rainwater v. United Stales, 356 U S 590,\n5 9 1 -9 2 (1 9 5 8 ).\n"83 Cong. Rec. 3917-18, 3951-53 (1938).\n\n71\n\n\x0cdivisions of the executive branch of the government.. . . [The\nTVA] is not to be aligned with the Federal Trade Commission,\nthe Interstate Commerce Commission, or other administrative\nbodies mainly exercising clearly quasi-legislative or quasi-judi\xc2\xad\ncial functions \xe2\x80\x94 it is predominantly an administrative arm of\nthe executive department.\nMorgan v. TVA, 115 F.2d 990 (6th Cir. 1940), cert, denied, 312 U.S. 701\n\n(1941). This decision, upholding the President\xe2\x80\x99s authority to dismiss TVA\ndirectors, has remained the law for the last forty years.5\nBecause the Secretary of Energy and the members of the board of directors\nfor the TVA carry out executive functions and serve under the direction and\ncontrol of the President, the dispute between these two agencies must be\nsubmitted to the Attorney General for resolution. This would bring the two\nagencies into compliance with the Executive order and comply with the consti\xc2\xad\ntutional requirements pertaining to the separation of powers, which necessarily\nrender judicial resolution of a dispute between two agencies in the Executive\nBranch, both of which are headed by officers answerable to the President of the\nUnited States, non-justiciable.6\nD o u g l a s W . K m ie c\n\nDeputy Assistant Attorney General\nOffice o f Legal Counsel\n\ns See also TVA v. Kinzer , 142 F.2d 833, 837 (6lh Cir. 1944); 1959 Pub. Papers 566 (Aug. 6, 1959) (\xe2\x80\x98T V A\nis, how ever, part o f the Executive Branch o f the G o v e rn m e n t/\') (statem ent o f President Eisenhow er on\nsigning bill am ending T V A \xe2\x80\x99s authorizing statute).\n6 See United States v. Easement &. Right o f Way Over Certain Land in Bedford County, Tennessee, 204 F.\nSupp. 837 (E.D . Tenn. 1962).\n\n72\n\n\x0c'