b"Disclosure to the Government, During the Guilt Phase of a\nTrial, of the Results of a Court-Ordered Mental Examination\nT h e F ifth A m e n d m e n t p riv ile g e ag ain st s e lf-in c rim in a tio n d o e s n o t p ro h ib it d is c lo su re to the g o v e rn \xc2\xad\nm e n t, d u rin g th e g u ilt p h a se o f a trial, o f th e resu lts o f a c o u rt-o rd e re d m ental e x am in atio n .\n\nSeptember 21, 1998\nM e m o r a n d u m O p in io n f o r t h e A s s is t a n t A t t o r n e y G e n e r a l\nC r im in a l D iv is io n\n\nThis memorandum responds to the Criminal Division\xe2\x80\x99s request for our opinion\nwhether certain limitations on the disclosure of results of a court-ordered mental\nexamination in a capital case are required to protect a defendant\xe2\x80\x99s Fifth Amend\xc2\xad\nment privilege against compelled self-incrimination. In particular, the limitations\nwould prevent disclosure, during the guilt phase of a capital trial, of the results\nof a mental examination ordered upon a defendant\xe2\x80\x99s notice of intent to introduce\nevidence of a mental condition bearing upon sentencing. As discussed below, prin\xc2\xad\ncipally because the Fifth Amendment\xe2\x80\x99s privilege against self-incrimination pro\xc2\xad\ntects against the prosecution\xe2\x80\x99s direct or indirect use of compelled statements in\na criminal case, not against the prosecution\xe2\x80\x99s possession of or access to such state\xc2\xad\nments, we do not believe that a rule lacking such limitations would be facially\ndefective. Nevertheless, in any given case, adherence to such limitations may aid\nthe prosecution in establishing that, during the guilt phase of a capital trial, it\nmade no use of statements, or the fruits of statements, obtained through a courtordered mental examination of the defendant.\n\nI. Background\nThis memorandum supplements our earlier advice regarding proposed amend\xc2\xad\nments to Rule 12.2 of the Federal Rules of Criminal Procedure. See Memorandum\nfor John C. Keeney, Acting Assistant Attorney General, Criminal Division, from\nTodd David Peterson, Deputy Assistant Attorney General, Office of Legal\nCounsel, Proposed Revisions to Rule 12.2 (Apr. 20, 1998). The Advisory Com\xc2\xad\nmittee on Criminal Rules has voted to approve in concept two amendments to\nRule 12.2. The first would clarify that Rule 12.2(c) empowers a district court\nto order a mental examination of a defendant who gives notice under Rule 12.2(b)\nof an intent to offer expert testimony relating to a mental condition bearing on\nthe issue of guilt. The second would amend Rules 12.2(b) and 12.2(c) to require\nreasonable notice to the government when the defendant in a capital case intends\nto offer expert testimony on a mental condition relevant to the issue of capital\npunishment and to allow the court to require the defendant to submit to a mental\nexamination when such notice is given. The Department of Justice offered amend222\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\natory language for consideration at the Advisory Committee\xe2\x80\x99s April 27-28, 1998,\nmeeting.1 See Letter for David A. Schlueter, Professor of Law, St. Mary\xe2\x80\x99-s Univer\xc2\xad\nsity School of Law, from Mary Frances Harkenrider, Counsel to the Assistant\nAttorney General, Criminal Division and Roger A. Pauley, Director of Legislation,\nOffice of Policy and Legislation, Criminal Division at 1-2 (Dec. 8, 1997)\n( \xe2\x80\x9c Criminal Division Letter\xe2\x80\x9d ).\nIn our previous advice concerning the proposed amendments, we concluded (1)\nthat the prosecution\xe2\x80\x99s use of evidence from a compelled psychiatric examination\nto rebut a defendant\xe2\x80\x99s testimony on mental status would not infringe a defendant\xe2\x80\x99s\nFifth Amendment privilege against self-incrimination; and (2) that a federal court\ncan constitutionally compel such an examination upon the defendant\xe2\x80\x99s filing of\na notice to present evidence bearing upon guilt or capital sentencing, so long as\nthe results of the examination are used solely in rebuttal and properly limited\nto the issue raised by the defense. We observed that current Rule 12.2(c) expressly\nmeets this requirement: It provides that no statement made by the defendant during\na court-compelled examination, no expert testimony based on the statement, and\nno other fruits of the statement shall be admitted in evidence against the defendant\n\xe2\x80\x9c except on an issue respecting mental condition on which the defendant has intro\xc2\xad\nduced testimony.\xe2\x80\x9d We noted that proposed Rule 12.2(c) included an additional\nsafeguard for cases in which a capital defendant provides notice of intent to intro\xc2\xad\nduce expert testimony concerning a mental condition bearing upon sentencing:\nAmended Rule 12.2(c) generally would prohibit the disclosure of the results of\na court-compelled examination to any attorney for the government \xe2\x80\x9c unless and\nuntil the defendant is found guilty of one or more capital crimes and confirms\n1The D epartment's proposed rule is set forth below (with new matter italicized):\nRule 12.2\n(b) E x p ert Testim ony o f D efendant\xe2\x80\x99s M ental C ondition. If a defendant intends to introduce expert\ntestimony relating to a mental disease or defect or any other mental condition bearing upon (I) ihe issue\nof guilt o r (2) whether in a capital case, a sentence o f capital p u n ish m en t sh o u ld be im p o sed , the defendant\nshall, within the time provided for the filing of pretrial motions or at such later time as the court may\ndircct, notify the attorney for the government in writing of such intention and file a copy of such notice\nwith the clerk The court may for cause shown allow late filing of the notice or grant additional time\nto the parties to prepare for trial or make such other order as may be appropriate\n(c) M ental Exam ination of D efendant. In an appropriate case p u rsu a n t to sta tu to ry a u th o rity or\nin w hich n o tice bv ihe defendant has been given u n d er subdivision (a) o r (b), the court may. upon motion\nof the attorney for the government, order the defendant to submit to an examination The exa m ination\nsh all be con d u cted pursuant to 18 U S .C 4241 et seq or, in a ca se involving notice under subdivision\n(b). as o therw ise ordered by the court The results o f an exam ination co n d u cted solely pursu a n t to notice\nu n d er subdivision (b)(2) sh a ll not be d isclo se d to a n y attorney f o r th e governm ent unless a n d un til the\nd efendant is fo u n d g u ilty o f one o r m ore capital crim es a n d co n firm s his o r h e r in ten t to o ffer m en ta l\ncondition evidence in m itigation at the sentencing phase, e.xeept that su ch results m ay b e earlier d isclo sed\nto an attorney f o r the governm ent i f the court determ ines (! ) such atto rn ey is not, a n d w ill n ot com m u n ica te\nthe results to. an attorney responsible j o r conducting the prosecutio n on the issue o f guilt, o r (2) such\nd isclosure w ill not te n d to incrim inate the defendant on the issue o f gu ilt No statement made by the\n\ndefendant in the course o f any examination provided for by this rule, whether the examination be with\nor without the consent of the defendant, no testimony by the expert based upon such statement, and no\nother fruits of the statement shall be admitted in evidence against the defendant in any criminal proceeding\nexcept on an issue respecting mental condition on which the defendant has introduced testimony\n\n223\n\n\x0cOpinions o f the Office o f Legal Counsel in Volume 22\n\nhis or her intent to offer mental condition evidence in mitigation at the sentencing\nphase.\xe2\x80\x9d Criminal Division Letter at 2. Disclosure before the defendant is found\nguilty would be permitted, however, if the district court determines (1) that the\nattorney for the government \xe2\x80\x9c is not, and will not communicate the results to,\nan attorney responsible for conducting the prosecution on the issue of guilt\xe2\x80\x9d or\n(2) that disclosure \xe2\x80\x9c will not tend to incriminate the defendant on the issue of\nguilt.\xe2\x80\x9d Id. Our previous memorandum expressed no view on whether these disclo\xc2\xad\nsure limitations are constitutionally required. Following the April 27-28 meeting\nof the Advisory Committee, you asked us to consider whether these disclosure\nlimitations are necessary to protect a defendant\xe2\x80\x99s Fifth Amendment privilege\nagainst self-incrimination.\n\nII. Discussion\nAs noted, current Rule 12.2(c) provides that no statement made by the defendant\nduring a court-compelled examination, no expert testimony based on the statement,\nand no other fruits of the statement shall be admitted in evidence against the\ndefendant \xe2\x80\x9c except on an issue respecting mental condition on which the defendant\nhas introduced testimony.\xe2\x80\x9d There appears to be no proposal to eliminate this\nprovision. Accordingly, for all cases in which the court is authorized to order\nan examination of the defendant\xe2\x80\x94including, under the proposed amendment, cases\ninvolving a capital defendant who intends to introduce mental health evidence\nsolely at sentencing\xe2\x80\x94proposed Rule 12.2(c) would prohibit the use at trial of\na defendant\xe2\x80\x99s statement or its fruits, except in rebuttal to the defendant\xe2\x80\x99s presen\xc2\xad\ntation of evidence. The question, then, is whether the defendant\xe2\x80\x99s Fifth Amend\xc2\xad\nment privilege against self-incrimination protects against more than the prosecu\xc2\xad\ntion\xe2\x80\x99s use at trial of the defendant\xe2\x80\x99s statement or its fruits\xe2\x80\x94 that is, whether the\ndefendant\xe2\x80\x99s Fifth Amendment privilege protects against the prosecution\xe2\x80\x99s mere\npossession of or access to the results of a court-ordered mental examination.\nA.\nFor purposes of this section, we assume that any waiver of a defendant\xe2\x80\x99s privi\xc2\xad\nlege against self-incrimination occurs when the defendant in fact introduces mental\nstatus testimony, rather than when the defendant gives notice of an intent to do\nso. On this theory, the statements the defendant makes at a pretrial court-ordered\nexamination are in some sense \xe2\x80\x9c compelled.\xe2\x80\x9d Kastigar v. United States, 406 U.S.\n441 (1972), the leading Supreme Court case on the constitutionality of the federal\nwitness immunity statute, 18 U.S.C. \xc2\xa76002 (1994), offers some guidance on the\nextent to which the prosecution may make use of compelled statements. Under\n\xc2\xa7 6002, a court may compel a witness to testify over a claim of the privilege\nagainst self-incrimination, \xe2\x80\x9c but no testimony or other information compelled\n224\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\nunder the order (or any information directly or indirectly derived from such testi\xc2\xad\nmony or other information) may be used against the witness in any criminal case,\nexcept a prosecution for perjury, giving a false statement, or otherwise failing\nto comply with the order.\xe2\x80\x9d Id. at 448-49. In Kastigar, the petitioners, individuals\nfound in contempt of court for failing to testify before a grand jury after the\ndistrict court ordered them to testify under a grant of immunity pursuant to \xc2\xa7 6002,\nclaimed that their refusal to comply with the district court\xe2\x80\x99s order was justified\nby the fact that the statute\xe2\x80\x99s grant of immunity was not coextensive with the Fifth\nAmendment privilege against self-incrimination. The Court rejected this claim:\nThe statute\xe2\x80\x99s explicit proscription of the use in any criminal case\nof \xe2\x80\x9c testimony or other information compelled under the order (or\nany information directly or indirectly derived from such testimony\nor other information)\xe2\x80\x9d is consonant with Fifth Amendment stand\xc2\xad\nards. We hold that such immunity from use and derivative use is\ncoextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim\nof the privilege. . . . [The] sole concern [of the privilege] is to\nafford protection against being \xe2\x80\x9c forced to give testimony leading\nto the infliction of penalties affixed to . . . criminal acts.\xe2\x80\x9d Immu\xc2\xad\nnity from the use of compelled testimony, as well as evidence\nderived directly and indirectly therefrom, affords this protection.\nKastigar, 406 U.S. at 453 (second ellipsis in original) (footnote omitted). The\nlanguage of Kastigar thus suggests that an infringement of the Fifth Amendment\nprivilege against self-incrimination occurs not by virtue of the prosecution\xe2\x80\x99s mere\npossession of or access to compelled testimony, but by the \xe2\x80\x9c use and derivative\nuse\xe2\x80\x9d of such compelled testimony. Indeed, in dictum in United States v. VerdugoUrquidez, 494 U.S. 259 (1990), the Court relied on this passage in Kastigar to\ndistinguish between the operation of the Fifth Amendment\xe2\x80\x99s privilege against self\xc2\xad\nincrimination and the Fourth Amendment\xe2\x80\x99s prohibition on unreasonable searches\nand seizures: \xe2\x80\x9c Although conduct by law enforcement officials prior to trial may\nultimately impair [the defendant\xe2\x80\x99s privilege against self-incrimination], a constitu\xc2\xad\ntional violation occurs only at trial. The Fourth Amendment functions differently.\nIt prohibits unreasonable searches and seizures whether or not the evidence is\nsought to be used in a criminal trial, and a violation of the Amendment is fully\naccomplished at the time of an unreasonable governmental intrusion.\xe2\x80\x9d 494 U.S.\nat 264 (internal quotation marks and citation omitted).2\n2 In the recent case of United States v Balsys, the Court assumed for purposes of its analysis that the Fifth Amend\xc2\xad\nment protects \xe2\x80\x9c against the Government\xe2\x80\x99s very intrusion through involuntary interrogation \xe2\x80\x9d 524 U S 666, 691\n(1998). The Court rejected a defendant\xe2\x80\x99s claim that such protection is unconditional and therefore prevents the govern\xc2\xad\nment from interrogating one who fears prosecution abroad In connection with us assumption, however, the Court\nContinued\n\n225\n\n\x0cOpinions o f the Office o f Legal Counsel in Volume 22\n\nThe Fifth Circuit recently recognized this distinction between a prosecutor\xe2\x80\x99s\npermissible access to compelled information and the unconstitutional use of such\ninformation against a defendant at trial. In United States v. Hall, 152 F.3d 381\n(5th Cir. 1998), cert, denied, 526 U.S. 1117 (1999), the district court required\na capital defendant to submit to a psychiatric examination by the government if\nthe defendant wished to present his own psychiatric evidence in mitigation of\npunishment. Hall claimed on appeal that the district court should not have required\nhim to submit to the government\xe2\x80\x99s examination absent an order denying the\nprosecution access to the results of the examination by requiring that those results\nremain under seal until the trial\xe2\x80\x99s penalty phase, noting that such a safeguard\nhad been imposed in previous cases. Id. at 399 (citing United States v. Beckford,\n962 F. Supp. 748, 761 (E.D. Va. 1997); United States v. Haworth, 942 F. Supp.\n1406, 1408-09 (D.N.M. 1996); United States v. Vest, 905 F. Supp. 651, 654 (W.D.\nMo. 1995)). The Fifth Circuit rejected the claim. While the court acknowledged\nthat requiring that the results of a mental examination remain under seal until\nthe penalty phase served \xe2\x80\x9c interests of judicial economy\xe2\x80\x9d by making it unneces\xc2\xad\nsary for the court to determine whether the prosecution had made use of that\nmaterial, it nonetheless concluded that \xe2\x80\x9c such a rule is not constitutionally man\xc2\xad\ndated.\xe2\x80\x9d Id. The court based this conclusion in part on the fact that the current\nversion of Rule 12.2\xe2\x80\x94 which protects a defendant who is compelled to undergo\na psychiatric examination by prohibiting the government from introducing the\nresults of the examination as evidence before the defendant actually places his\nsanity in issue but does not forbid the prosecutor to obtain access to the results\nbefore that time\xe2\x80\x94 has \xe2\x80\x9c consistently been held to comport with the Fifth Amend\xc2\xad\nment.\xe2\x80\x9d Id. at 400 (citing United States v. Lewis, 53 F.3d 29, 35 n.9 (4th Cir.\n1995); United States v. Stockwell, 743 F.2d 123, 127 (2d Cir. 1984)).\nSimilarly, several courts of appeals have considered, in the context of civil suits\nagainst state or local officials, whether use of a compelled statement in a criminal\nproceeding is a necessary element of a claimed infringement of the privilege\nagainst self-incrimination. The weight of authority suggests that, to claim a viola\xc2\xad\ntion of the privilege, a plaintiff must allege the use of a statement in a criminal\nproceeding. See Riley v. Dorton, 115 F.3d 1159, 1164 (4th Cir.) (\xe2\x80\x9c [F]ollowing\nthe plain text of the Amendment that \xe2\x80\x98[n]o person . . . shall be compelled in\nany criminal case to be a witness against himself,\xe2\x80\x99 most courts refuse to find\na Fifth Amendment violation even where statements were made, but were not\nactually used in a criminal proceeding\xe2\x80\x9d (alterations in original)), cert, denied,\n522 U.S. 1030 (1997); Weaver v. Brenner, 40 F.3d 527, 535-36. (2d Cir. 1994)\n(rejecting the view that act of compelling a statement from the defendant is alone\nsufficient to state a Fifth Amendment violation; adopting view that \xe2\x80\x9c use of the\nacknowledged and did not question Verdugo-Urquidez' s statement that a violation of the pnvilege against selfincnm ination occurs at trial, not when the testimony is taken. Id at 692 n 12 Accordingly, we do not take the\nCourt\xe2\x80\x99s discussion in Balsys to cast doubt upon K asiigar's focus on use and derivative use of compelled testimony\nin a criminal case or upon the C ourt\xe2\x80\x99s reliance upon this focus in Verdugo-Urquidez.\n\n226\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\ncompelled statements against the maker in a criminal proceeding\xe2\x80\x9d and finding\nthat statements were improperly used before the grand jury (internal quotation\nmarks and citation omitted)); Mahoney v. Kesery, 976 F.2d 1054, 1061 (7th Cir.\n1992) ( \xe2\x80\x9c Fifth Amendment does not forbid the forcible extraction of information\nbut only the use of information so extracted as evidence in a criminal case\xe2\x80\x9d (cita\xc2\xad\ntion omitted)); Davis v. City of Charleston, 827 F.2d 317, 322 (8th Cir. 1987)\n(finding no Fifth Amendment violation where suspect\xe2\x80\x99s statements were not used\nagainst her during trial). The Ninth Circuit alone has held otherwise. See Cooper\nv. Dupnik, 963 F.2d 1220 (9th Cir.) (en banc) (holding that \xc2\xa7 1983 claim for\ninfringement of privilege against self-incrimination was stated by allegations that\nthe plaintiffs statements were compelled, although the statements were never\nused), cert, denied, 506 U.S. 953 (1992). See generally Guiffre v. Bissell, 31 F.3d\n1241, 1256 (3d Cir. 1994) (in qualified immunity context, concluding that plain\xc2\xad\ntiffs Fifth Amendment claim against county officers who interrogated him did\nnot rely on clearly established law; noting that the Ninth Circuit \xe2\x80\x9c broke new\nground\xe2\x80\x9d in Cooper and that \xe2\x80\x9c [t]he dissenting judges in Cooper presented a\npersuasive argument that the Fifth Amendment privilege against self-incrimination\nis not violated until evidence is admitted in a criminal case\xe2\x80\x9d ); Arnold H. Loewy,\nPolice-Obtained Evidence and the Constitution: Distinguishing Unconstitutionally\nObtained Evidence from Unconstitutionally Used Evidence, 87 Mich. L. Rev. 907,\n921 (1989) (arguing that \xe2\x80\x9c unlike fourth amendment rights, fifth amendment rights\nare not violated unless and until the statement is used against the person making\nit\xe2\x80\x9d ).\nIf a violation of a defendant\xe2\x80\x99s Fifth Amendment privilege against self-incrimination occurs through the use in a criminal case of the defendant\xe2\x80\x99s compelled state\xc2\xad\nments or the fruits of such statements, it follows that a limitation on the use of\nstatements obtained through a court-ordered mental examination of the defendant,\nor the fruits of such statements, is sufficient to protect the Fifth Amendment\ninterests of a defendant who intends to raise a mental status defense. Put another\nway, even if statements made at a court-ordered mental examination following\na notice of intent to introduce mental status evidence are properly viewed as\n\xe2\x80\x9c compelled\xe2\x80\x9d statements, it is the prosecution\xe2\x80\x99s use of such statements or their\nfruits at a criminal proceeding, not the fact that such statements were acquired\nor the prosecution\xe2\x80\x99s mere possession of them, that triggers any infringement of\nthe defendant\xe2\x80\x99s Fifth Amendment privilege against self-incrimination.\nWe note that there is presently some tension among the circuits on a related\nissue that arises in connection with \xc2\xa7 6002: whether the statute and the Fifth\nAmendment\xe2\x80\x99s privilege against self-incrimination prohibit so-called \xe2\x80\x9c nonevidentiary\xe2\x80\x9d uses of compelled testimony. Courts\xe2\x80\x99 treatment of this question may\nreflect how expansively they define the category of nonevidentiary uses. At least\nfour courts of appeals have concluded that the Fifth Amendment privilege against\nself-incrimination does not prohibit nonevidentiary uses of compelled testimony,\n227\n\n\x0cOpinions of the Office o f Legal Counsel tn Volume 22\n\nwhere nonevidentiary use is described essentially as use by the prosecution in\nshaping its general trial strategy.3 Other circuits, discussing an arguably broader\ncategory of possible nonevidentiary uses, have held that the Fifth Amendment\nbars such uses.4\nW e do not believe that cases concerning nonevidentiary uses of immunized testi\xc2\xad\nmony call into question the conclusion that the prosecution\xe2\x80\x99s possession of or\naccess to statements obtained through a mental health examination ordered pursu\xc2\xad\nant to Rule 12.2 is permissible under the Fifth Amendment. No court has held\nthat the mere knowledge by the prosecution o f compelled statements violates the\nFifth Amendment. Any disagreement within the case law on what constitutes an\nimpermissible \xe2\x80\x9c use\xe2\x80\x9d of a compelled statement does not bear upon the constitu\xc2\xad\ntional question whether a prosecutor may gain access to the results of a courtordered psychiatric examination before the defendant seeks to place his mental\ncondition in issue at trial. Rather, the conflicting authority bears upon whether\na restriction on the prosecution\xe2\x80\x99s access should be adopted as a matter of policy.\nIn those jurisdictions in which the tangential, nontestimonial \xe2\x80\x9c use\xe2\x80\x9d of compelled\nstatements is deemed to violate the Fifth Amendment, the fact that a prosecutor\nhas not had access to the results o f a court-ordered examination will plainly make\nit easier to prove that the results of the examination have not been put to any\nimproper use. See Hall, 152 F.3d at 399. In contrast, as a practical matter, a pros\xc2\xad\necutor who has had such access may be unable to prove that no improper use\noccurred.\n3 S e e U nited States v Serra n o , 870 F2d 1, 17-18 (1st Cir 1989) (rejecting the view that Fifth Amendment is\nviolated \xe2\x80\x9c merely because the immunized testimony might have tangentially influenced the prosecutor\xe2\x80\x99s thought proc\xc2\xad\nesses in preparing the indictment and preparing for trial\xe2\x80\x9d (internal quotation marks omitted)). U nited States v\nM a ria ni, 851 F 2d 595, 601 (2d Cir. 1988) (tangential influence o f immunized testimony on trial preparation does\nnot constitute an impermissible use, \xe2\x80\x9c In view o f the government\xe2\x80\x99s convincing proof that the evidence upon which\nit based its prosecution o f M anani came from legitimate independent sources, we cannot see how the government\nprosecutors\xe2\x80\x99 knowledge o f M anani\xe2\x80\x99s immunized testimony could be considered an impermissible use of that testi\xc2\xad\nmony \xe2\x80\x9d ), ce rt d e n ie d , 490 U.S 1011 (1989), U n ite d States v V elasco , 953 F 2 d 1467, 1474 (7th Cir 1992) (assuming\nthat prosecution used defendant\xe2\x80\x99s proffer of testimony, made pursuant to an agreement under which government\ncould not use the proffer against the defendant, \xe2\x80\x9c to shape [its] trial strategy,\xe2\x80\x9d but concluding that K a stigar does\nnot prohibit such use \xe2\x80\x9c [MJere tangential influence that privileged information may have on the prosecutor\xe2\x80\x99s thought\nprocess in preparing for trial is not an impermissible \xe2\x80\x98use\xe2\x80\x99 of that information \xe2\x80\x99\xe2\x80\x99), U nited S ta tes v Byrd, 765 F 2d\n1524, 1531 (1 1th C ir 1985) (examining whether \xe2\x80\x9c advertent[] or inadvertent[J\nbenefit\xe2\x80\x9d that prosecutor would\nderive \xe2\x80\x9c by virtue o f consulting with investigative agents\nor others who have been exposed to the immunized\ntestimony dunng the course o f the . . investigation\xe2\x80\x9d would constitute an improper use under K astigar, concluding\nthat \xe2\x80\x9c a violation o f the pnvilege against self-incnmination would not occur in any event unless such \xe2\x80\x98use\xe2\x80\x99 of the\nimmunized testimony resulted in the introduction o f evidence not obtained wholly from independent sources\xe2\x80\x9d ); see\na lso U n ite d S ta te s v. C ro w so n , 828 F.2d 1427, 1431-32 (9th Cir. 1987) (declining to decide whether nonevidentiary\nuse com es within the prohibition o f \xc2\xa76002, but suggesting that, so long as government proves a pnor, independent\nsource for its evidence, any nonevidentiary use will be harmless), ce rt denied, 488 U S 831 (1988)\n4 S e e U nited S ta tes v M cD a n iel, 482 F 2d 305, 311 (8th Cir 1973) (reasoning that prosecutor\xe2\x80\x99s exposure to\nimmunized testimony could assist the prosecutor in \xe2\x80\x9c focusing the investigation, deciding to initiate prosecution,\nrefusing to plea-bargain, interpreting evidence, planning cross-examination, and otherwise generally planning tnal\nstrategy\xe2\x80\x9d ; finding such uses impermissible). U n ite d States v Sem kiw , 712 F 2 d 891, 894 (3d Cir 1983) (following\nM cD aniel)', see a lso U nited States v North, 910 F 2 d 843, 856 (D C . Cir.) (discussing tension among circuits on\nwhether nonevidentiary uses o f immunized testimony are permissible, assuming without deciding that such uses\nare imperm issible), m o d ifie d in p a r t, 920 F 2d 940 (D C. C ir 1990), cert, denied, 500 U S 941 (1991)\n\n228\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\nIn sum, because the Fifth Amendment privilege against self-incrimination pro\xc2\xad\ntects against the use in a criminal case of a defendant\xe2\x80\x99s compelled statements\nor the fruits of such statements, not against the prosecution\xe2\x80\x99s mere possession\nof or access to such statements, a limitation on the use of statements obtained\nthrough a court-ordered mental examination of the defendant, or the fruits of such\nstatements, is sufficient to protect the Fifth Amendment interests of a defendant\nwho intends to introduce testimony on mental status. A rule lacking safeguards\nrestricting the prosecution\xe2\x80\x99s access to the results of a court-ordered mental exam\xc2\xad\nination would not appear to be facially invalid under the Fifth Amendment.\nB.\nThe conclusion that a rule lacking safeguards restricting the prosecution\xe2\x80\x99s access\nto the results of a court-ordered mental examination would not be facially defec\xc2\xad\ntive under the Fifth Amendment does not necessarily end the inquiry. In any given\ncase, adherence to safeguards such as those proposed in Rule 12.2(c) may aid\nthe prosecution in establishing that, during the guilt phase of a capital trial, it\nmade no use of statements, or the fruits of statements, obtained through a courtordered mental examination of the defendant in connection with a notice of intent\nto introduce mental status testimony at sentencing. The importance of such safe\xc2\xad\nguards depends largely on what kind of burden a court would place upon the\nprosecution in connection with a defendant\xe2\x80\x99s claim that the prosecution directly\nor indirectly used statements to which it was exposed by virtue of the sentencingrelated mental examination.\nThe Fifth Circuit\xe2\x80\x99s analysis in Hall provides some guidance on this question.\nIn Hall, the defendant claimed that an order sealing the results of the court-ordered\nmental examination was required to protect his Fifth Amendment privilege against\nself-incrimination. Otherwise, the defendant argued, \xe2\x80\x9c he could have no guarantee\nthat the government would not utilize the results of the examination or the fruits\nthereof as evidence in the guilt phase of his trial.\xe2\x80\x9d 152 F.3d at 399. In rejecting\nthis claim, the Court of Appeals concluded that a defendant contending that there\nhad been improper use of the fruits of a mental examination \xe2\x80\x9c \xe2\x80\x98must go forward\nwith specific evidence demonstrating taint,\xe2\x80\x99 upon which the government \xe2\x80\x98has the\nultimate burden of persuasion to show that its evidence is untainted.\xe2\x80\x99 \xe2\x80\x9d Id.\n(quoting Alderman i>. United States, 394 U.S. 165, 183 (1969)). This evidentiary\nframework, the court concluded, \xe2\x80\x9c provides all of the protection against the\nintroduction of the fruits of the government psychiatric examination prior to Hall\xe2\x80\x99s\nintroduction of psychiatric evidence that the Constitution requires.\xe2\x80\x9d Id.\nIn theory, the requirement that the defendant provide \xe2\x80\x9c specific evidence dem\xc2\xad\nonstrating taint\xe2\x80\x9d before the government is put to the burden of establishing that\nits evidence is untainted would distinguish cases involving prosecution access to\na court-ordered mental examination from cases involving prosecution access to\n229\n\n\x0cOpinions o f the Office o f Legal Counsel m Volume 22\n\nimmunized testimony. Under Kastigar, a defendant \xe2\x80\x9c need only show that he has\ntestified under a grant of immunity [to matters related to the charges in the case]\nto shift to the government the heavy burden of proving that all of the evidence\nit proposes to use was derived from legitimate independent sources.\xe2\x80\x9d 406 U.S.\nat 461-62; see id. at 460 ( \xe2\x80\x9c A person accorded [use and derivative-use] immunity\n. . . and subsequently prosecuted, is not dependent for the preservation of his\nrights upon the integrity and good faith of the prosecuting authorities. . . . \xe2\x80\x98[T]he\n[prosecuting authorities] have the burden of showing that their evidence is not\ntainted by establishing, that they had an independent, legitimate source for the\ndisputed evidence.\xe2\x80\x99 This burden of proof . . . is not limited to a negation of taint;\nrather, it imposes on the prosecution the affirmative duty to prove that the evi\xc2\xad\ndence it proposes to use is derived from a legitimate source wholly independent\nof the compelled testimony.\xe2\x80\x9d ) (citations omitted). To the extent that Kastigar\nrequires the government to bear the \xe2\x80\x9c heavy burden\xe2\x80\x9d of establishing the sources\nof its evidence upon a relatively low threshold showing by the defendant, a policy\npreventing a prosecutor handling a particular criminal case from obtaining access\nto previous immunized testimony might be desirable because it would help the\ngovernment in making the required showing. If a defendant who undergoes a\ncourt-ordered mental examination must make a higher threshold showing before\nthe government is required to demonstrate an independent source for its evidence,\na policy insulating a prosecutor from the results of the examination may take\non less importance.\nH all appears to be the sole case directly addressing the proper evidentiary\nframework for a capital defendant\xe2\x80\x99s claim that the prosecution has improperly\nused the fruits of a court-ordered mental examination during the guilt phase of\nthe trial. A handful of district courts have in capital cases imposed safeguards\nto ensure that the prosecution does not acquire the results of a mental health exam\xc2\xad\nination prior to the ju ry \xe2\x80\x99s verdict in the guilt phase, although it is unclear whether\nthose safeguards were imposed for constitutional or prudential reasons. See Beckford, 962 F. Supp. at 764 (requiring the submission of results of examination\nunder seal; \xe2\x80\x9c The results of any examination by the Government experts and the\ndefense experts shall be released to the Government only in the event that the\njury reaches a verdict of guilty on a capital charge as to that defendant, and only\nafter that defendant confirms his intent to offer mental health or mental condition\nevidence in mitigation.\xe2\x80\x9d ) (footnote omitted); Haworth, 942 F. Supp. at 1408\n(ordering that results of independent examination be filed under seal and released\nonly after jury reaches guilty verdict); Vest, 905 F. Supp. at 654 (ordering that\nthe results of mental health examination be released to the government \xe2\x80\x9c at the\nCourt\xe2\x80\x99s discretion, and only in the event that the jury reaches a verdict of guilty\nas to that defendant\xe2\x80\x9d ). One of these courts justified its order in part on the fact\nthat \xe2\x80\x9c [m]aking the report of the examination available to the prosecution before\n[the] conclusion of the guilt phase would . . . lead to difficult problems respecting\n230\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\nthe source of prosecution evidence and questioning in the guilt phase.\xe2\x80\x9d Beckford,\n962 F. Supp. at 762 n.l 1.\nIt is difficult to predict whether other courts will adopt the evidentiary frame\xc2\xad\nwork that the Fifth Circuit found appropriate in Hall. The resolution of the issue\nmay turn in part on the validity of an assumption made earlier in our discussion,\nthat testimony provided at a court-ordered examination is \xe2\x80\x9c compelled\xe2\x80\x9d in the\nsame sense as testimony given under a grant of use and derivative-use immunity.\nSee supra p. 225. The Fifth Amendment problem would not arise if a court\ndecided that a defendant\xe2\x80\x99s notice of an intent to introduce mental health evidence\nis similar to a defendant\xe2\x80\x99s notice that he will present an alibi defense: The\ninformation that the defendant is required to provide in connection with the notice\nis not properly viewed as \xe2\x80\x9c compelled.\xe2\x80\x9d In Williams v. Florida, 399 U.S. 78\n(1970), the Supreme Court upheld a Florida notice-of-alibi statute against a claim\nthat the statute infringed the Fifth Amendment\xe2\x80\x99s privilege against self-incrimination. The Florida rule required the defendant to disclose to the prosecution the\nwitnesses he proposed to use to establish his alibi defense. The Court reasoned\nthat the information a defendant relying on a defense of alibi would ultimately\nhave to reveal to carry the defense could not be viewed as \xe2\x80\x9c compelled\xe2\x80\x9d within\nthe meaning of the Fifth Amendment (as applied to the states through the Four\xc2\xad\nteenth):\nThe defendant in a criminal trial is frequently forced to testify him\xc2\xad\nself and to call other witnesses in an effort to reduce the risk of\nconviction. . . . That the defendant faces such a dilemma\ndemanding a choice between complete silence and presenting a\ndefense has never been thought an invasion of the privilege against\ncompelled self-incrimination. The pressures generated by the\nState\xe2\x80\x99s evidence may be severe, but they do not vitiate the defend\xc2\xad\nant\xe2\x80\x99s choice to present an alibi defense and witnesses to prove it,\neven though the attempted defense ends in [a] catastrophe for the\ndefendant. However 'testimonial\xe2\x80\x99 or \xe2\x80\x98incriminating\xe2\x80\x99 the alibi\ndefense proves to be, it cannot be considered \xe2\x80\x98compelled\xe2\x80\x99 within\nthe meaning of the Fifth and Fourteenth Amendments.\nId. at 83-84 (emphasis added). The Court attached no significance to the fact\nthat the Florida notice-of-alibi rule required the defendant to disclose in advance\nof trial the witnesses he intended to use to establish the alibi defense:\nAt most, the rule only compelled petitioner to accelerate the timing\nof his disclosure, forcing him to divulge at an earlier date informa\xc2\xad\ntion that the petitioner from the beginning planned to divulge at\ntrial. Nothing in the Fifth Amendment privilege entitles a defendant\n231\n\n\x0cOpinions o f the Office o f Legal Counsel in Volume 22\n\nas a matter of constitutional right to await the end of the State\xe2\x80\x99s\ncase before announcing the nature of his defense. . . . We decline\nto hold that the privilege against compulsory self-incrimination\nguarantees the defendant the right to surprise the State with an alibi\ndefense.\nId. at 85-86. The Williams Court\xe2\x80\x99s conclusion that there is no constitutional\nsignificance to requiring that a defendant disclose, prior to trial, the information\non which he will rely in his alibi defense suggests that the information the defend\xc2\xad\nant must provide in connection with his alibi notice is not \xe2\x80\x9c compelled.\xe2\x80\x9d By\nanalogy, it could be argued that the testimony elicited at a court-ordered mental\nexamination is not \xe2\x80\x9c compelled,\xe2\x80\x9d because that examination simply provides\ninformation that the prosecution must necessarily acquire to have an opportunity\nto rebut a defense on which the defendant intends to rely.5\nThe analogy to notice-of-alibi cases is not perfect, however. What the defendant\nis required to provide to the prosecution in connection with his notice of alibi\nis the information that he will ultimately present at trial, if in fact he chooses\nto go through with an alibi defense. What the defendant provides during a courtordered mental health examination may go beyond what he will ultimately present\nat trial, if in fact he chooses to go through with a mental status defense. Put\nanother way, in a notice-of-alibi case, the information that the government\nacquires is consistent with the scope of the waiver of the defendant\xe2\x80\x99s self\xc2\xad\nincrimination privilege that will occur at trial if the defendant pursues an alibi\ntheory. In a case involving notice o f a mental status defense, even if the defendant\nintroduces mental health evidence at trial and thereby waives his privilege against\nself-incrimination as to that evidence, the government may have acquired, through\nthe examination, information that goes beyond the scope of the waiver. Moreover,\nit is unclear whether a court might distinguish the notice-of-alibi context on the\nground that the government cannot be prejudiced at the guilt phase of a capital\ns The Supreme C ourt\xe2\x80\x99s conclusion that the rule requiring a defendant to disclose alibi information does not\n\xe2\x80\x9c com pel\xe2\x80\x9d the defendant to be a witness against him self within the meaning of the Fifth and Fourteenth Amendments,\nand the arguably analogous application in the context o f psychiatric examinations under Rule 12.2, is not inconsistent\nwith the ruling in E stelle v Sm ith, 451 U.S 454 (1981) In the latter case, the defendant was required to submit\nto a psychiatric exam without having been w arned o f his M iranda nghts and without having placed his mental\nstate, in issue The Court held that the introduction at the penalty phase of the defendant\xe2\x80\x99s statements dunng the\nexamination violated the Fifth and Fourteenth Amendments In so ruling, the Court stated that \xe2\x80\x9c [a] criminal defend\xc2\xad\nant, who neither initiates a psychiatnc evaluation nor attempts to introduce any psychiatnc evidence, may not be\ncompelled to respond to a psychiatnst if his statements can be used against him at a capital sentencing proceeding.\xe2\x80\x9d\nId at 468 This holding is consistent with the decision in W illiam s because in the context of the alibi rule\xe2\x80\x94 and,\narguably, in the context o f a mental examination under Rule 12 2\xe2\x80\x94 the defendant is deemed to make a voluntary\ndisclosure in order to preserve his nght to present certain evidence in his defense In E stelle v Sm ith, by contrast,\nthe defendant did nothing to prompt the mental examination Indeed, the Supreme Court emphasized that the constitu\xc2\xad\ntional violation arose because the trial court had ordered the examination sua sponte, and it quoted with apparent\napproval the Fifth C ircuit\xe2\x80\x99s acknowledgment o f \xe2\x80\x9c the possibility that a defendant who wishes to use psychiatnc\nevidence in his own behalf .\ncan be precluded from using it unless he is [also] willing to be examined by\na psychiatnst nominated by the state \xe2\x80\x9d 451 U S at 466 n 10 (quoting Sm ith v Estelle, 602 F 2d 694, 705 (5th\nCir 1979)) (alteration in onginal)\n\n232\n\n\x0cDisclosure to ihe Government, During the Guilt Phase o f a Trial, o f the Results o f a Court\xe2\x80\x99Ordered\nMental Examination\n\ncase by the denial of access to information about the defendant\xe2\x80\x99s mental condition\nthat would not be introduced, if at all, until the sentencing phase. Finally, we\nnote that the Fifth Circuit\xe2\x80\x99s observation in Hall that the defendant \xe2\x80\x9c did not waive\nhis Fifth Amendment privilege against self-incrimination merely by giving notice\nof his intention to submit expert psychiatric testimony at the sentencing hearing,\xe2\x80\x9d\n152 F.3d at 398, itself may be in tension with a conclusion that the analogy to\nthe notice-of-alibi context is appropriate.\nEven if the prosecution in a case involving a mental status defense acquires\ninformation going beyond the scope of the evidence that the defendant ultimately\nintroduces, it is not clear that the government should, without a defendant pro\xc2\xad\nviding specific evidence of taint, bear the burden of demonstrating an independent\nsource for the evidence it seeks to present. In a Kastigar-typs case, the prosecu\xc2\xad\ntion, not the defendant, has set in motion the chain of events leading to the com\xc2\xad\npelled testimony. The prosecution seeks an order granting immunity and compel\xc2\xad\nling testimony over a claim of privilege, and the prosecution therefore bears the\nburden in a later criminal case of demonstrating that it has not improperly used\nthe testimony. When a defendant seeks to introduce mental status evidence, the\ndefendant, not the prosecution, has set in motion the chain of events leading to\nthe court-ordered examination.6 Even accepting the theory that testimony provided\nat a court-ordered examination is properly viewed as \xe2\x80\x9c compelled,\xe2\x80\x9d to require\nthe prosecution to establish an independent source for its evidence once a courtcompelled examination occurs could lead to an odd result: A defendant could\nuse a notice of an intent to introduce mental status evidence, coupled with a subse\xc2\xad\nquent mental health examination, as a strategic device to put the prosecution to\nthe burden of proving an independent source for its evidence, even though the\ndefendant ultimately chooses not to introduce any mental status evidence at trial.\nAs this discussion suggests, it is difficult to predict with certainty (1) whether\ncourts would treat statements made during a court-ordered mental examination\nrelated to sentencing as \xe2\x80\x9c compelled\xe2\x80\x9d statements; and (2) whether courts would\nimpose upon the prosecution in a capital case a burden to demonstrate that it\nmade no use of such statements during the guilt phase, without first requiring\nthe defendant to come forward with specific evidence of taint. Safeguards such\nas those contained in proposed Rule 12.2 would, of course, aid the government\n6 The proposition that the defendant sets the process in motion is somewhat less obvious in a capital case where\nthe defendant seeks to preserve the nght to introduce psychiatric evidence only in mitigation of sentence in the\nevent he is found guilty, a circumstance not addressed under the current rule However, even in such circumstances,\nthe psychiatnc examination would be set in motion by virtue of the defendant\xe2\x80\x99s strategic choice rather than the\nprosecution\xe2\x80\x99s demand for affirmative evidence supporting a finding o f guilt or of an aggravating sentencing factor\nFurther, as with the current version of Rule 12 2 as well as the alibi notice rule, the strategic choice the defendant\nmust make is predicated on an assumption that the government\xe2\x80\x99s proof will suffice to support a finding of guilt.\nTherefore, we believe that there is no greater reason to impose the burden of proof on the government in a case\nwhere the defendant seeks to preserve his ability to introduce evidence of his mental condition only at the penalty\nhearing than there is in other cases where current law allows for a court-ordered psychiatnc examination pn o r to\ntnal\n\n233\n\n\x0cOpinions of the Office o f Legal Counsel m Volume 22\n\nin meeting a burden, similar to that imposed in Kastigar, to show that its case\nagainst the defendant is based on evidence obtained from independent sources.\nWe note, however, that a requirement that the prosecution establish in a capital\ncase that it made no use of statements obtained through a court-ordered examina\xc2\xad\ntion would be based on a theory that would apply equally in noncapital cases\xe2\x80\x94\nthat the defendant is at risk by virtue of the prosecution\xe2\x80\x99s access, prior to the\ndefendant\xe2\x80\x99s presentation of mental status evidence, to the results of the examina\xc2\xad\ntion of the defendant. For example, if a court orders a pretrial mental health exam\xc2\xad\nination based on a defendant\xe2\x80\x99s notice of intent to raise an insanity defense or\na mental condition bearing on guilt, and the prosecution obtains the results of\nthat examination, the prosecution may be exposed to the defendant\xe2\x80\x99s statements\nbefore the defendant presents his case and actually introduces testimony on mental\ncondition. Cases discussing the Fifth Amendment implications of a court-ordered\nexamination of defendants who intend to raise the insanity defense or to introduce\ntestimony on a mental condition bearing upon guilt do not appear to suggest that\nthe prosecution must, by virtue o f its exposure to the defendant\xe2\x80\x99s statements, bear\nthe burden of demonstrating an independent source for the evidence it intends\nto introduce against the defendant. See, e.g., United States v. Byers, 740 F.2d\n1104, 1114\xe2\x80\x9415 (D.C. Cir. 1984) (en banc) (plurality opinion of Scalia, J.)\n(rejecting dissenting judges\xe2\x80\x99 view that protection of self-incrimination privilege\nrequires \xe2\x80\x9c intermediate safeguards\xe2\x80\x9d to \xe2\x80\x9c protect the values underlying the privi\xc2\xad\nlege\xe2\x80\x9d id. at 1155 (Bazelon, J., dissenting); concluding that \xe2\x80\x9c such fiats would be\nappended to, rather than contained within, the self-incrimination clause of the Fifth\nAmendment,\xe2\x80\x9d id. at 1115); see also Kelly v. Withrow, 25 F.3d 363, 369 (6th\nCir.) (holding that requirement that defendant submit to pretrial mental examina\xc2\xad\ntion, following notice of intent to raise insanity defense, did not infringe defend\xc2\xad\nant\xe2\x80\x99s privilege against self-incrimination; \xe2\x80\x9c [A] defendant\xe2\x80\x99s right not to incriminate\nhim self is not violated per se by requiring him, in an appropriate case, to submit\nto a mental examination.\xe2\x80\x9d (internal quotation marks omitted; alteration in\noriginal)), cert, denied, 513 U.S. 1061 (1994); Giarratano v. Procunier, 891 F.2d\n483, 488 (4th Cir. 1989) (concluding that, since defendant had announced intention\nto introduce psychiatric evidence in mitigation at the sentencing phase of capital\ntrial, prosecution could introduce psychiatric evidence even before defendant\xe2\x80\x99s\nexpert testified), cert, denied, 498 U.S. 881 (1990); Vardas v. Estelle, 715 F.2d\n206, 210 (5th Cir. 1983) (holding that introduction of evidence from pretrial\nmental examination did not infringe privilege against self-incrimination, where\ntestimony of state psychiatrist was \xe2\x80\x9c offered solely in rebuttal to a defense of\ninsanity, and . . . properly limited to that issue\xe2\x80\x9d ), cert, denied, 465 U.S. 1104\n(1984); United States v. Madrid, 673 F.2d 1114, 1121 (10th Cir.) (holding that\nadmission o f statements obtained during pretrial mental examination did not\ninfringe defendant\xe2\x80\x99s privilege against self-incrimination where the defendant gave\nnotice of his intent to raise the insanity defense before the examination occurred\n234\n\n\x0cDisclosure to the Government, During the Guilt Phase o f a Trial, o f the Results o f a Court-Ordered\nMental Examination\n\nand subsequently presented \xe2\x80\x9c substantial\xe2\x80\x9d psychiatric evidence), cert, denied, 459\nU.S. 843 (1982). If a Kastigar burden applies to court-compelled mental examina\xc2\xad\ntions in capital cases, we believe that it would apply in other cases as well, but\nwe have identified no noncapital cases concluding that it is appropriate to impose\nsuch a burden.\n\nConclusion\nIn sum, we do not believe that the Fifth Amendment\xe2\x80\x99s privilege against self\xc2\xad\nincrimination requires safeguards designed to prevent the prosecution from being\nexposed, during the guilt phase of a capital trial, to the results of a mental health\nexamination ordered following a defendant\xe2\x80\x99s notice of intent to introduce evidence\non a mental condition bearing upon sentencing. Even if statements made during\nsuch an examination are properly viewed as \xe2\x80\x9c compelled\xe2\x80\x9d statements, the Fifth\nAmendment\xe2\x80\x99s privilege against self-incrimination only precludes the prosecution\nfrom improperly using such statements, or the fruits of such statements, at trial.\nThe prosecution\xe2\x80\x99s mere possession of or access to the results of the mental health\nexamination would not implicate the Fifth Amendment\xe2\x80\x99s privilege against self\xc2\xad\nincrimination. It is unclear whether, in the absence of safeguards designed to with\xc2\xad\nhold the results of a mental examination from the prosecution, a court would\nimpose a burden on the prosecution to establish an independent source for its\nevidence without first requiring the defendant to demonstrate specific evidence\nof taint. Courts do not appear to impose such a burden outside of the capital\ncontext, even though the danger that the prosecution would directly or indirectly\nuse statements provided during a mental health examination exists there as well.\nNevertheless, if a court required the prosecution to establish that, at the guilt phase\nof a capital trial, it made no direct or indirect use of statements obtained through\na sentencing-related mental examination of the defendant, the safeguards of pro\xc2\xad\nposed Rule 12.2(c) would facilitate the government\xe2\x80\x99s showing.\nRANDOLPH D. MOSS\nActing Assistant Attorney General\nOffice o f Legal Counsel\n\n235\n\n\x0c"


b'Issuance of a Preferred Stock Dividend\nby the Federal Home Loan Mortgage Corporation\nThe Federal Home Loan M ortgage C orporation is authorized, under 12 U S.C. \xc2\xa7 1 4 5 5 (0 .to *ssue\na dividend o f preferred stock to its shareholders, the Federal Home Loan Banks. The Federal\nHome Loan Banks are further authorized to distribute that stock as a dividend to their\nshareholders.\n\nJanuary 25, 1985\nM\n\nem orandum\n\nO f f ic e\n\nO\n\np in io n f o r t h e\n\nof m anagem ent and\n\nC o un sel\n\nBudget,\n\nto the\n\nand the\n\nD ir e c t o r ,\n\nC h a ir m a n ,\n\nF ederal H om e Loan Bank B oard\n\nThis responds to the request of the Counsel to the Director, Office of\nManagement and Budget (OMB), for the opinion of this Office concerning the\nissuance by the Federal Home Loan Mortgage Corporation (FHLMC) of a\npreferred stock dividend to its shareholders, the twelve Federal Home Loan\nBanks (FHL Banks).\nOMB contends that the preferred stock dividend was unlawful because the\nFHLMC is statutorily authorized only to sell preferred stock and not to issue a\npreferred stock dividend. In contrast, the FHLMC and the Federal Home Loan\nBank Board take the position that the preferred stock dividend should be\nconsidered as two separate transactions, the preferred stock dividend from the\nFHLMC to the FHL Banks, and the separate dividend of this FHLMC preferred\nstock declared by the FHL Banks to their shareholders. The FHLMC argues\nthat each of these transactions was permissible under the applicable statutes.\nThe FHLMC\xe2\x80\x99s outside counsel has also taken the position that the transaction\nwas authorized by statute.\nWe conclude that the FHLMC\xe2\x80\x99s analysis is correct, and that the FHLMC was\nstatutorily authorized to issue the preferred stock and to distribute it as a stock\ndividend.1 We are aware of no facts or legal authorities that even remotely\nsupport the conclusion that the preferred stock transaction was unlawful.\n1 W e take no position w ith respect to w hether the FHLMC w as financially in a position to pay such a\ndividend. That factual question is beyond the expertise o f this O ffice and, in any case, w e do not understand\nthat this issue has been raised as a question o f either fact o r law.\n\n19\n\n\x0cI. Background\nThe FHLMC is a corporate instrumentality of the United States created by\nthe Federal Home Loan Mortgage Corporation Act (FHLMC Act), 12 U.S.C.\n\xc2\xa7\xc2\xa7 1451-1459. The FHLMC was established primarily for the purpose of\nincreasing the availability of mortgage credit for housing by assisting in the\ndevelopment of secondary markets for conventional mortgages, which in turn\nincreases the liquidity of residential mortgage investments. The FHLMC car\xc2\xad\nries out this task principally through the purchase of first lien, conventional\nresidential mortgages from mortgage lending institutions and the resale of\nthese mortgages in the form of guaranteed mortgage securities.\nThe FHLMC is governed by a Board of Directors that consists of the\nmembers of the Bank Board, who also have responsibility for overseeing the\nFederal Savings and Loan Insurance Corporation. See id. \xc2\xa7 1452(a). The FHL\nBanks provided the FHLMC\xe2\x80\x99s initial capital of $100 million and now own all\nof the FHLMC\xe2\x80\x99s common stock. See id. \xc2\xa7 1453. Since 1981, the Board of\nDirectors of the FHLMC has paid cash dividends periodically to the FHL\nBanks. The FHL Banks are all separate corporate instrumentalities of the\nUnited States, which were created pursuant to the Federal Home Loan Bank\nAct, id. \xc2\xa7\xc2\xa7 1421-1436. Each FHL Bank is governed by a board of directors, the\nmajority of which is elected by the FHL Bank stockholders, with the remainder\nbeing appointed by the Bank Board. See id. \xc2\xa7 1427. The stockholders of each\nFHL Bank are various financial institutions (principally savings and loan\nassociations) that have subscribed for and own stock in that FHL Bank. See id.\n\xc2\xa7 1426.\nWe understand that the FHL Banks historically have paid dividends to their\nstockholders in the form of both cash and shares of stock in the FHL Bank. See\n12 C.F.R. \xc2\xa7 522.6. We also understand that cash dividends paid by the FHLMC\nto the FHL Banks generally have been passed through by each FHL Bank to its\nstockholders. The transaction at issue was initiated when the Board of Direc\xc2\xad\ntors of the FHLMC adopted resolutions creating the preferred stock and autho\xc2\xad\nrizing the issuance and distribution of the preferred stock to the FHL Banks in\nproportion to their respective holdings of the FHLMC\xe2\x80\x99s common stock. In\nDecember 1984, each FHL Bank declared a dividend, consisting of the shares\nof the preferred stock issued to that FHL Bank, to its members of record as of\nthe close of business on December 31, 1984. These FHL Bank dividends were\nsubsequently approved by a resolution of the Bank Board.\n\nII. Analysis\nWe concur with the position of the FHLMC that the question presented\nraises two separate legal issues: (1) whether the FHLMC was statutorily\nauthorized to issue a preferred stock dividend to the FHL Banks; and (2)\nwhether the FHL Banks were authorized to pass this preferred stock on as a\ndividend to their shareholders.\n20\n\n\x0cA. The Validity o f the FHLMC Preferred Stock Dividend\nOMB does not dispute that the FHLMC is statutorily authorized to issue\ndividends to the holders of its common stock.2 See 12 U.S.C. \xc2\xa7 1453(d). Thus,\nthe only question is whether the dividend may be in the form of preferred stock.\nBoth OMB and the FHLMC agree that the only directly relevant statutory\nauthority with respect to the first issue is contained in 12 U.S.C. \xc2\xa7 1455(f).3\nThis section was added to the FHLMC Act in 1982 as \xc2\xa7 6 of an act that\nextended a number of federal housing programs. See Pub. L. No. 97-289, \xc2\xa7 6,\n98 Stat. 1230, 1232 (1982 Act). In 1984, further language was added to this\nprovision by \xc2\xa7 211 of the Secondary Mortgage Market Enhancement Act of\n1984. See Pub. L. No. 89^40, \xc2\xa7 211, 98 Stat. 1689, 1697 (1984 Act). These\nenactments will be considered separately below.\n1. The 1982 Act\nAs originally enacted, \xc2\xa7 1455(f) read: \xe2\x80\x9cThe Corporation may have preferred\nstock under such terms and conditions as the Board of Directors shall prescribe.\nAny preferred stock shall not affect the status of the capital stock issued under\n\xc2\xa7 1453 as nonvoting common stock.\xe2\x80\x9d This statute sets forth a broad and\nunambiguous delegation of authority to the Board of Directors of the FHLMC\nto issue preferred stock \xe2\x80\x9con such terms and conditions as the Board of Directors\nshall prescribe.\xe2\x80\x9d There is no restriction stated in the statute on what the\nFHLMC may do with the preferred stock once it is issued.4 Given this broad\nstatutory power granted to the FHLMC by \xc2\xa7 1455(f) with respect to the\nissuance of preferred stock, and its subsequent disposition, there seems to be\nample power to issue the preferred stock in the form of a dividend to holders of\nits common stock, as the FHLMC has done in this case.\nThis conclusion is supported by the general rule that the issuance of stock\ndividends is generally within the power of a corporation:\nIn the absence of a constitutional or statutory prohibition, if the\ndirectors of the corporation, acting in good faith, are of the\nopinion that it is for the best interests of the corporation and its\nstockholders to retain profits in the business of the corporation,\nor as a surplus fund to meet future needs, instead of dividing\nthem among the stockholders as a dividend in cash or property,\nit is within their discretion to do so and to pay a dividend by\nissuing reserved or additional stock.\n2 In fact, OMB urges the paym ent in these circum stances o f a cash dividend instead o f a stock dividend.\n3 W e note that the FHLMC A ct states that, except as otherw ise provided by the Act or by subsequent laws\n\xe2\x80\x9cexpressly in lim itation o f the provisions" o f the Act, \xe2\x80\x9cthe pow ers and functions of the C orporation and o f the\nB oard o f D irectors shall be exercisable, and the provisions o f this chapter shall be applicable and effective,\nw ithout regard to any other law.*\' Id. \xc2\xa7 14S9.\n4 OM B takes the position that \xe2\x80\x9c [t]he issue is not the legality o f having such stock outstanding \xe2\x80\x94 w e fully\nconcede this; the issue, rather, is the terms and conditions upon which such stock may be issued.\xe2\x80\x9d OMB\nfurther concedes that \xc2\xa7 1455(0 authorizes the FHLMC to sell the preferred stock to the public, notw ithstand\xc2\xad\ning that the statute does not specifically discuss what the FHLM C may d o w ith the stock once it is issued.\n\n21\n\n\x0c11 M. Wolf, Fletcher Cyclopedia o f the Law o f Private Corporations \xc2\xa7 5360, at\n742 (1971) (footnote omitted).\nDespite the apparent clarity o f this statutory authorization, OMB contends\nthat the legislative history of the 1982 Act demonstrates that the provision was\nnot intended to authorize a preferred stock dividend. OMB points to the\nremarks of Representative Gonzalez, who made the following statement on the\nfloor of the House with respect to the provision that became \xc2\xa7 1455(f):\nThe resolution would also provide the Federal Home Loan\nMortgage Corporation with the authority to issue preferred stock.\nThe intent of this provision is to enable the Mortgage Corpora\xc2\xad\ntion to contribute to a housing recovery by allowing it to in\xc2\xad\ncrease its purchases of newly originated mortgages during the\nhoped for housing recovery in 1983. It will also enable the\nMortgage Corporation to continue its highly successful SWAP\nProgram at current volume levels should this need continue.\n128 Cong. Rec. 25946 (1982). OMB argues that this statement demonstrates\nthat the preferred stock provision was enacted only for the purpose of raising\ncapital and therefore that preferred stock may only be sold and not issued as a\ndividend. We disagree with this conclusion for a number of reasons.\nFirst, a fair reading of Representative Gonzalez\xe2\x80\x99s statement does not neces\xc2\xad\nsarily support the conclusion for which it has been cited by OMB. Representa\xc2\xad\ntive Gonzalez simply stated that raising or preserving capital was the principal\npurpose for which the provision was adopted; his statement does not evince an\naffirmative intent to deny the authority to issue preferred stock for other\nreasons. It is frequently the case that a statute enacted for a particular purpose\nor to meet a particular need is subsequently utilized for additional purposes\nbecause of its broad language. See 2A C. Sands, Sutherland Statutory Con\xc2\xad\nstruction \xc2\xa7 49.02 (3d ed. 1973). Thus, the mere description of this provision\xe2\x80\x99s\nprincipal purpose does not limit its use to that purpose, in contravention of the\nclearly applicable broad language of the statute itself.\nSecond, even if Representative Gonzalez\xe2\x80\x99s statement supported the restric\xc2\xad\ntion of the broad language of the statutory authorization to the purpose of\nraising or preserving capital, the declaration of a preferred stock dividend\nwould not necessarily be inconsistent with such a purpose. Given the decision\nof the Board of Directors to issue some form of dividend, the logical alternative\nto a stock dividend would have been a cash dividend. In fact, the issuance of a\ncash dividend is precisely the alternative that OMB recommends that the\nFHLMC adopt. By issuing a dividend of preferred stock rather than cash, the\nFHLMC is preserving capital for the expansion of its programs in a manner that\nis consistent with Representative Gonzalez\xe2\x80\x99s statement of the purpose of the\nprovision. If one assumes that the FHLMC decided to issue a dividend of some\nkind, the issuance of that dividend in the form of preferred stock had essentially\nthe same effect of enhancing the capital position of the FHLMC as would the\nsale of preferred stock. For these reasons, not only is the legislative history not\n22\n\n\x0cinconsistent with the clear language of the statute, but it supports the import of\nthe language that the FHLMC has authority to issue a preferred stock dividend.\nFinally, even if the legislative history were clearly contrary to the FHLMC\xe2\x80\x99s\nposition, it would not overcome the unambiguous statutory language. As the\nSupreme Court recently emphasized:\nWhile we now turn to the legislative history as an additional tool\nof analysis, we do so with the recognition that only the most\nextraordinary showing of contrary intentions from these data\nwould justify a limitation on the \xe2\x80\x9cplain meaning\xe2\x80\x9d of the statu\xc2\xad\ntory language. When we find the terms of a statute unambigu\xc2\xad\nous, judicial inquiry is complete, except in \xe2\x80\x98\xe2\x80\x9c rare and excep\xc2\xad\ntional circumstances.\xe2\x80\x99\xe2\x80\x9d\nGarcia v. United States, 469 U.S. 70,75 (1984) (quoting TVA v. Hill, 437 U.S.\n153, 187 n.33 (1978)). The use of legislative history is \xe2\x80\x9conly admissible to\nsolve doubt and not to create it.\xe2\x80\x9d Railroad Comm\'n v. Chicago, B. & Q. R.R.,\n257 U.S. 563,589 (1922). Moreover, the cited legislative history is not even in\nthe form of a committee report, but is the statement of a single legislator on the\nfloor of one House. \xe2\x80\x9cThe remarks of a single legislator, even the sponsor, are\nnot controlling in analyzing legislative history.\xe2\x80\x9d Chrysler Corp. v. Brown, 441\nU.S. 281,311 (1979). Thus, the legislative history does not alter our conclusion\nthat the transaction was authorized by the clear language of the statute.\nAlthough OMB does not argue that any other statutory provision expressly\nprohibits the FHLMC from declaring and paying a preferred stock dividend,\nOMB contends that the transaction is prohibited by the purpose of the FHLMC\nAct as derived from other provisions. OMB argues that the FHLMC was\nprohibited from issuing the preferred stock dividend because the purpose of the\nstock dividend was primarily to enhance the capital of the member thrift\ninstitutions, which OMB regards as inconsistent with the FHLMC\xe2\x80\x99s statutory\nfunction. OMB argues that the FHLMC is authorized only to provide second\xc2\xad\nary mortgage market liquidity and not to boost the financial position of member\nthrift institutions, relying upon 12 U.S.C. \xc2\xa7 1454 and Association o f Data\nProcessing Service Organizations v. Federal Home Loan Bank Board, 568\nF.2d 478, 486-89 (6th Cir. 1977). Therefore, the argument goes, any action\n(such as the payment of a preferred stock dividend) that is directed toward the\nlatter purpose is beyond the power of the FHLMC.\nIn this instance, however, nothing in the statute or in the legislative history\nrestricts the discretion of the Board of Directors in the manner suggested by\nOMB. The problem with OMB\xe2\x80\x99s argument is that the purpose of the issuance of\na dividend is to benefit the stockholders. Because OMB concedes the FHLMC\xe2\x80\x99s\nauthority to issue dividends, it must also concede the validity of that purpose.\nThus, even if the preferred stock dividend were intended to support the balance\nsheets of member institutions, it would not be. improper on that basis alone.\nSection 1454, which OMB cites as a limitation on the purposes of the FHLMC,\n23\n\n\x0cis simply an authorization to engage in the purchase and sale of mortgages, and\nnot a restriction on the purposes for which preferred stock may be issued.5\nData Processing Service Organizations is similarly inapposite. In that case,\nthe United States Court of Appeals for the Sixth Circuit held that because of the\nexpress statutory restriction against an FHL Bank engaging in outside business,\nit was improper for an FHL Bank to sell data processing services to savings and\nloan institutions. In that case, however, not only was there no express statutory\nauthorization to undertake the questioned activity, there was a specific prohibi\xc2\xad\ntion against the FHL Bank engaging in that business. In the present instance,\nthe FHLMC has authority to issue dividends and has express statutory author\xc2\xad\nity to issue preferred stock on such terms as the Board of Directors prescribes,\nand utilizing such preferred stock to pay a dividend to the common sharehold\xc2\xad\ners is not inconsistent with any of the authorized purposes or responsibilities of\nthe corporation.\nOMB also argues that the dividend transaction is an unlawful effort to\ncircumvent the statutory provisions that establish a particular capital structure\nfor the FHLMC. Specifically, OMB contends that the preferred stock is essen\xc2\xad\ntially common stock without the express statutory requirements imposed by\nCongress on FHLMC common stock. See 12 U.S.C. \xc2\xa7 1453. OMB notes that\nFHLMC common stock may be issued only to FHL Banks and may be recalled\nfor retirement by the FHLMC, but that no such restrictions apply to the\npreferred stock. OMB then argues that, because the preferred stock is entitled\nto receive the first $10 million in dividends declared by the FHLMC and 90\npercent of any additional dividends, and because preferred shareholders would\nreceive, in any liquidation of the FHLMC, 90 percent of the remaining assets of\nthe corporation, the preferred stock amounts in essence to common stock\nissued without compliance with the statutory restrictions that must accompany\nthe FHLMC\xe2\x80\x99s common stock. This argument is based upon OMB\xe2\x80\x99s under\xc2\xad\nstanding that these terms and conditions vest \xe2\x80\x9cthe principal attribute of com\xc2\xad\nmon stock \xe2\x80\x94 the right to enjoy the unrestricted earnings (and, in liquidation,\nthe unrestricted assets) of the enterprise \xe2\x80\x94 on this \xe2\x80\x98preferred\xe2\x80\x99\xe2\x80\x9d stock.\nThis argument is ill-founded because it simply challenges the discretionary\njudgment vested in the Board of Directors to establish the terms and conditions\nunder which the FHLMC may issue preferred stock. OMB has not suggested\nany reason to doubt that the stock issued as a dividend is in fact preferred stock.\nMoreover, \xc2\xa7 1455(f) specifically empowers the FHLMC to issue preferred\nstock \xe2\x80\x9con such terms and conditions as the Board of Directors shall prescribe,\xe2\x80\x9d\nas long as the preferred stock does not affect the status of the capital stock\nissued under \xc2\xa7 1453 as nonvoting common stock. The statute does not require\nthat preferred stock have the same restrictions as common stock.\n5 Section 1454 does not contain any statem ent o f the purpose o f the FHLM C. It authorizes the purchase of\nm ortgages, ju s t as \xc2\xa7 1455 authorizes the FH L M C to create certain obligations and securities. If OMB were\nco rrect in its argum ent, the FH L M C would a lso be precluded from paying a cash dividend as w ell, rather than\nusing the funds to purchase mortgages. O M B concedes, how ever, that the issuance o f a cash dividend is\nperm issible. M oreover, OM B has not questioned w hether the issuance o f a dividend under the present\ncircum stances is contrary to good business ju dgm ent.\n\n24\n\n\x0cIn this instance, the terms and conditions established by the Board provide a\npreference to dividends to the holders of the preferred stock over the holders of\ncommon stock, the very essence of a preferred stock issue. See 11 M. Wolf,\nFletcher Cyclopedia o f the Law of Private Corporations \xc2\xa7 5283, at 526 (1971).\nThe common stock remains unchanged in all other aspects. We are not aware of\nany evidence that the Board in this transaction has abused the broad discretion\nvested by this statutory provision with respect to the prescription of the terms\nand conditions upon which preferred stock will be issued.6\nThus, based upon the clear statutory language of \xc2\xa7 1455(0, as originally\nadopted in 1982, the issuance of a preferred stock dividend seems to be fully\nwithin the authority of the FHLMC.\n2. The 1984 Amendment\nSection 1455(f) was amended in 1984 by the addition of the language\nhighlighted below:\nThe Corporation may have preferred stock on such terms and\nconditions as the Board of Directors shall prescribe. Any pre\xc2\xad\nferred stock shall not affect the status of the capital stock issued\nunder \xc2\xa7 1453 of this title as nonvoting common stock and shall\nnot be entitled to vote with respect to the election o f any member\no f the Board o f Directors. Such preferred stock, or any class\nthereof, may have such terms as would be required fo r listing o f\npreferred stock on the New York Stock Exchange, except that\nthis sentence does not apply to any preferred stock, or class\nthereof, the initial sale of which is made directly or indirectly by\nthe Corporation exclusively to any Federal Home Loan Bank or\nBanks.\n98 Stat. at 1697.\nOMB argues that the last sentence indicates that \xc2\xa7 1455(f) \xe2\x80\x9ccontemplates the\nsale only of preferred stock \xe2\x80\x94 a result which expressly proscribes the proposed\ntransaction.\xe2\x80\x9d In our view, however, the amendment contains no clearly ex\xc2\xad\npressed intent to alter the broad authority of the 1982 Act with respect to the\nissuance of a preferred stock dividend. Because we have concluded that the\n1982 Act authorized the FHLMC to issue a preferred stock dividend, it would\nhave been necessary for Congress expressly to eliminate that authorization in\nthe 1984 Act in order to preclude the transaction at issue.7 We find no such\nevidence of congressional intent in either the language of the statute or its\n6 W e note, in addition, that the term s and conditions o f the preferred stock also provide the Board with\ndiscretion to issue additional preferred stock, which could be either junior, senior, or equal to the outstanding\npreferred stock.\n7 It is axiom atic that the views o f a subsequent legislature are not probative legislative history w ith respect\nto the meaning o f a previously adopted statute. See U nited States v. P hiladelphia N a t\'l Banky 374 U.S. 321,\n34 8 -4 9 (1963). Thus, unless the am endm ent w ere actually intended to alter the authority granted in the 1982\nAct, it would not prohibit the preferred stock dividend.\n\n25\n\n\x0clegislative history. First, the language of the amendment itself does not even\nremotely suggest that only the sale of preferred stock is permitted. The word\n\xe2\x80\x9csale\xe2\x80\x9d appears in the amendment only as part of the exception to the provision\nthat FHLMC preferred stock may meet New York Stock Exchange (NYSE)\nlisting standards.8 This one reference in the amendment is hardly sufficient to\nimpose a significant restriction on the authority granted in 1982.\nMoreover, the legislative history of the provision indicates precisely the\nopposite of OMB\xe2\x80\x99s argument. The Senate report on the bill referred to the\namendment as \xe2\x80\x9cfollow-on provisions to authority granted in earlier legislation\npermitting the FHLMC to issue preferred stock. The earlier legislation failed to\nprescribe any standards or conditions for issuance of such stock.\xe2\x80\x9d S. Rep. No.\n293, 98th Cong., 1st Sess. 10 (1983). This statement suggests both that Con\xc2\xad\ngress recognized that it had authorized the FHLMC to \xe2\x80\x9cissue\xe2\x80\x9d preferred stock\nand not simply to sell it, and that the grant of such authority was exceptionally\nbroad and unrestricted. Nothing in the legislative history of the 1984 Act\nsuggests an intent to preclude the issuance of the preferred stock dividends.\nB. The Validity o f the FHL Bank Dividends\nThe final question that remains with respect to the preferred stock dividend\ntransaction is whether the individual FHL Banks were statutorily authorized to\npass on the FHLMC preferred stock to their stockholders as a dividend.\nAlthough OMB has not challenged this aspect of the transaction, we discuss\nthis issue in order to provide a complete response.\nThis question is governed by 12 U.S.C. \xc2\xa7 1436, which sets forth the terms\nand conditions under which the FHL Banks may pay dividends to their stock\xc2\xad\nholders. This section generally authorizes the FHL Banks to pay dividends to\ntheir shareholders, with the following restrictions: (1) all dividends must be\napproved by the Bank Board; and (2) dividends may be paid only out of net\nearnings remaining after all reserves and charge-offs required by the statute\nhave been provided for, except that if the Bank Board \xe2\x80\x9cdetermines that severe\nfinancial conditions exist threatening the stability of member institutions, the\nBoard may suspend temporarily these requirements and permit each Federal\nHome Loan Bank to declare and pay dividends out of undivided profits.\xe2\x80\x9d 12\nU.S.C. \xc2\xa7 1436(b).\nAll of these requirements seem to have been fulfilled with respect to the FHL\nBanks\xe2\x80\x99 dividends of FHLMC preferred stock. First, we understand that the\n8 T he language o f the am endm ent might be read to p e rm it the issuance o f preferred stock with term s that\nw ould allow listing on the N Y SE (NYSE term s) except w hen the stock is sold to FHL Banks. If that w ere true,\nthen there m ight be som e question whether th e FHLMC w as authorized to issue this stock to the FH L Banks\nw ith the N Y SE term s. T he Senate report states, how ever, that the provision was intended to \xe2\x80\x9crequire" that\npreferred sto ck include the N Y SE terms and that the exception w as intended to indicate that \xe2\x80\x9c[p referre d\nstock sold by the FH LM C exclusively to any Federal H om e Loan B ank o r Banks will not be required to meet\notherw ise a p p licab le New Y ork Stock Exchange requirem ents and can be sold upon w hatever term s and\nconditions [the FH L M C \xe2\x80\x99s] B oard o f Directors chooses to include.\xe2\x80\x9d S. Rep. No. 2 9 3 ,98th Cong., 1st Sess. 10\n(1983). T hus it seem s cle ar that the inclusion o f the N Y SE terms w as perm issible.\n\n26\n\n\x0cBank Board has expressly approved all of the preferred stock dividends de\xc2\xad\nclared by the FHL Banks. Second, we also understand that the Bank Board has\ndetermined, by formal resolution, that severe financial conditions exist threat\xc2\xad\nening the stability of member institutions. OMB has not suggested that this\nfinding was in any way improper. Therefore, this finding satisfied the require\xc2\xad\nments of \xc2\xa7 1436 and permitted the FHL Banks to transfer the FHLMC pre\xc2\xad\nferred stock as a dividend to their shareholders.\nConclusion\nIn conclusion, we find that the two preferred stock dividend transactions\nwere authorized under applicable statutes. First, the FHLMC acted pursuant to\nclear statutory authority in granting a preferred stock dividend to the FHL\nBanks. Second, the FHL Banks were similarly empowered to transfer that\npreferred stock as a dividend to their shareholders.\nR a lph W . T arr\n\nActing Assistant Attorney General\nOffice o f Legal Counsel\n\n27\n\n\x0c'