Statement Of Senator Patrick Leahy,

Chairman, Senate Judiciary Committee,

On Legislative History Of Judicial Review Provisions

October 1, 2008

 

Responding to the national economic crisis has been the focus of our efforts here in the Senate for over a week.  I have been consulted by Senator Christopher Dodd, Chairman of the Banking Committee, on the financial bailout proposal.  I thank him for all of his hard work to address this complex problem.  As Chairman of the Senate Judiciary Committee, I wish to inform all my fellow Senators about the intent with which the judicial review provisions were drafted.  I believe it is especially important for Senators to have this understanding before Members of the Senate vote on this legislation. 

 

From the very moment I received the administration’s proposal, I have objected to any measure that strips the courts from playing their indispensible role as a check on executive power.  I have insisted at every stage in the negotiations that the traditional Administrative Procedures Act review apply to the Secretary of Treasury’s actions, as well as any constitutional review that our courts are charged with in our democracy. 

 

It was of utmost importance to me to see that judicial review has been maintained in the version that we will be considering in light of the authority this legislation will give to the Treasury Secretary.  This review is primarily based on traditional court review under the Administrative Procedures Act.  In that section, the word "law" means any State or Federal law, or common law interpreting such State and Federal laws.  This is a crucial distinction and it is not the intent of the drafters of these provisions to allow the Secretary of the Treasury to vitiate any private right of action on behalf of shareholders based on Federal statute or judicial interpretation of a Federal statute.  With this legislation, Congress does not intend to allow any financial institution that participates in this plan to gain immunity from suit, nor permit the Secretary to confer such immunity on any participant.    

 

As Chairman of the Senate Judiciary Committee, my other top priority for this legislation has been that the Secretary not be able to interfere with or impair the claims or defenses available to any other person.  Americans harmed by corruption on Wall Street should not have their causes of action affected by the Secretary in any way.  Truth in Lending Act claims should be allowed to proceed in due course.  Shareholders who have been injured by the misconduct of corporate board members or executives should be able to file and continue their claims against those corporations.  It is my understanding and intention that none of these causes of action should be harmed or otherwise affected by our bailout legislation. This is why we included a savings clause to make this explicit.   

 

We heard repeatedly from the administration that they were concerned that rogue judges would award injunctions and thwart the emergency actions needed for the Secretary to calm the financial crisis.  By agreeing to the administration’s request on injunctions we intend for damages actions to be the avenue of relief for any misconduct, should it occur, on the part of the Secretary.  We were assured that existing waivers of sovereign immunity under the Tucker Act, the Contracts Dispute Act, the Little Tucker Act, the Federal Tort Claims Act and relevant civil rights laws would apply to the Treasury Department’s new responsibilities, just as these laws have applied to the Treasury Department’s actions prior to the bailout measure.

 

We have also insisted on protection for consumers who are parties to mortgage agreements by including a provision to make sure that any rights or claims held by a consumer in relation to those loans, whether under the terms of the mortgage or Federal or state law, are preserved in the event those loans are transferred to the Federal government.  It is not the intent of Congress to deprive homeowners of recourse against those lenders who, through greed, irresponsible lending, or outright fraud, led people into taking out unadvisable loan products and who were responsible for contributing to those homeowners’ current mortgage struggles.  Once again, it is imperative that the extraordinary authority Congress has given to the Treasury Secretary not be at the expense of the rights of American citizens to enforce the terms of their contracts, or to rely upon state and Federal laws that protect against fraudulent lending practices or other deceptive behavior.

 

Even in emergencies, it is important that the Federal government exercise its authority consistent with the rule of law.  Congressional negotiators were aware of the administration’s call for immediate reaction, but I believe we acted responsibly by taking the time to ensure that adequate legal protections were provided in the legislation.  The courts play a fundamental role in our democratic system of government, and will be especially important in ensuring that these new authorities are used responsibly.

 

Americans must have the confidence that those harmed by the conduct of any financial institution can access their courts for redress, despite this legislation.  The Congress is aware of civil litigation brought by shareholders, or by or on behalf of financial institutions that purchased troubled assets, against officers, directors and in some cases counterparties whose alleged misconduct caused or contributed to their losses.  The Congress is also aware of media reports of criminal investigations.  These matters are for the justice system to resolve on an individual basis, but the Secretary and the Executive Branch should generally cooperate with public and private efforts to recover losses from wrongdoers in the financial markets, whether brought by a governmental entity, securities purchasers, the corporation itself, or asserted on behalf of the corporation derivatively.  Nothing in this Act is meant to detract from any rights or recovery against private parties to redress wrongdoing that exist under Federal or state law.

 

I thank the leadership for consulting me during the drafting and redrafting process and for incorporating my language into the provisions providing for judicial review.

 

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