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Tuesday, January 17, 2012

The Rise of Executive (Branch) Compensation

Better late than never is what I always say.  Last month, shortly before the winter break, Gerard Magliocca at Concurring Opinions raised several interesting questions about "The Increasing Use of Compensation Funds" -- that is, government-created funds that compensate victims of a disaster in exchange for their decision to forego litigation, like the September 11 Victim Compensation Fund, the Minnesota Bridge Collapse Fund, the National Vaccine Injury Compensation Program, or more recently, the fund for a stage collapse at the Indiana State Fair.  Among other things, he asks why legislators choose to create these otherwise ad-hoc, workers compensation-like funds in some cases, but not in others. (Consider the victims of the bombing of the Alfred P. Murrah Federal Building in Oklahoma City who did not receive compensation through a special legislative fund). 

Better late than never, I responded over the winter break.  My view is that, even though legislative-based compensation funds date back to the Revolutionary War, legislators rarely create them because they require intense political capital and must appeal to a deep, moral narrative to justify spending funds on those "deserving" of compensation.  It is also for that reason, in part, that the real action for publicly-created funds is taking place not in Congress, but in another branch of our political system: the executive branch.

I offer my thoughts about the history of legislative funds, the political hurdles they face, and some implications for the rise of what I call "Executive Branch Compensation," after the jump.

 Some History.  Michelle Landis Dauber has written extensively on the history of legislative compensation funds. See Michele L. Landis, “Let Me Next Time Be ‘Tried By Fire’”: Disaster Relief and the Origins of the American Welfare State 1789–1874, 92 Nw. U. L. Rev. 967 (1998).  As she notes, large compensation funds are not unique to the Twentieth Century, but rather, share a history almost as long as the development of  Tort law in the United States.  Compare Landis supra with, e.g., G. Edward White, Tort Law in America: An Intellectual History 14-15 (1999); 1 Francis Hillard, The Law of Torts, or Private Wrongs 82 (1859) (“the liability to make reparation” rests upon the “original moral duty, enjoined upon every person, so to conduct himself or exercise his own rights as not to injure another”).  In the early 1800s, Congress passed individual bills to compensate victims for specific harms suffered in the wake of the Revolutionary War.  See, e.g., Landis, supra 978-79; An Act for the relief of John Stewart and John Davidson, ch. 37, 6 Stat. 3 (1790) (remission for duties on salt destroyed by flood).  When that process of case-by-case legislation became unworkable, Congress passed laws designed to compensate victims of natural disasters, the Revolutionary War, and other calamities by relying on commissioners who oversaw public funds that resembled modern administrative agencies.  Those commissioners assumed broad authority to evaluate claims, accept evidence and distribute money according to well-defined rules. Early examples include public funds created in the wake of the Whiskey Rebellion, the Haitian “slave insurrection,” and the War of 1812. Tracing the history of large funds, Dauber explores the underlying policies, motivations and moral dimensions of the public’s decision to compensate people for collectively felt harm. 

Some Patterns and Problems in Legislative Compensation.  I can't do justice to Dauber's facinating and nuanced argument, but among other things, Dauber found that the decision to create such funds turned on sudden, catastrophic, inexplicable harm, to very discrete classes of "deserving" victims.  I suppose even this pattern doesn't explain why Congress did not compensate victims of the 1998 embassy bombings in Dar es Salaam, Tanzania and Nairobi, Kenyra.  But it does suggest that, in addition to the difficult political obstacles to any form of compensation that resembles social insurance, large legislative funds require a powerful moral narrative.  See, e.g., Robert L. Rabin, The Renaissance of Accident Law Plans Revisited, 64 Md. L. Rev. 699 (2005) (observing the unique political difficulties associated with creating legislative compensation funds); Robert L. Rabin, The September 11th Victim Compensation Fund: A Circumscribed Response or an Auspicious Model?, 53 DePaul L. Rev. 769 (2003); see also, Franklin, Rabin, & Green, Tort Law and Alternatives 874-890 (9th ed 2011). In other words, large funds require a kind of "corrective justice" writ large. 

But even that kind of collective, corrective justice is no guarantee. The recent near-demise of the James Zadroga Act, which re-opened the September 11 Fund for the discrete claims of a very sympathetic class of people, and the failed efforts to create a legislative fund to resolve asbestos claims, despite repeated calls by the Supreme Court to do so, demonstrates that the stars really have to align for a legislature to create a fund.  See, e.g., James Stengel, The Asbestos End-Game, 62 N.Y.U. Ann. S. Am. L. 223 (2006) (describing obstacles to the creation of national asbestos fund in Congress). I guess that’s one reason why our Tort system remains so durable; it’s our only remaining default system designed to serve very similar values as public compensation funds; that is, it attempts to compensate narrow, discrete and "deserving" claims for compensation, and it does so, generally, without the same obstacles of a political process.

The Rise of Executive Branch Compensation.  The resistance to legislative-compensation funds also explains why the real action for public funds is taking place not in Congress, but in another branch of our political system: the executive branch.  Over the past ten years, in a variety of high profile corporate scandals, members of the executive branch -- prosecutors, states attorneys general, and agencies (like the SEC, OCC, FTC, and FDA) -- have sought billions of dollars in restitution for crimes and regulatory violations ranging from environmental dumping and consumer scams to financial fraud. (And in the cases of the British Petroleum Oil Spill Fund, the Holocaust Victim Settlement Fund, and the Libyan Airline Settlement, even the President has become involved.)  Those government actors then distribute that money to groups of victims like a civil class action, through large public compensation funds. Because these “executive branch” compensation funds may act more quickly than Congress, and because they enjoy a more powerful moral narrative (they take money directly from wrongdoer for the benefit of a victim), they have been growing with far more frequency than legislative funds.  Adam S. Zimmerman, Distributing Justice, 86 N.Y.U. 500 (2011) (observing that agency based funds collected over $10 billion over the past decade); Adam S. Zimmerman & David M. Jaros, The Criminal Class Action, 159 U. Pa. L. Rev. 1385 (2011) (tracing the rise of massive criminal restitution funds in deferred and non-prosecution agreements between corporate defendants and federal prosecutors).

But, the overlap of public funds with our private litigation system creates new problems of duplication, transparency and fairness. Private attorneys, regulatory agencies, state attorneys general, and criminal prosecutors often commence duplicative actions seeking the same funds against the same defendant, for the same conduct, and on behalf of the same set of victims. Moreover, many of these kinds of executive branch funds lack critical safeguards for victims entitled to compensation. While public actors are encouraged, and in some cases, required by statute, to provide victim restitution, they often lack adequate rules to (1) hear victims’ claims, (2) identify conflicts between different parties, and (3) divide the award among victims.    

There may be important reasons for the executive branch to continue to play a role in compensating victims for widespread harm. As Myriam Gilles and Gary Friedman explain in a forthcoming article in the Universityof Chicago Law Review, for example, state attorneys general may provide the only antidote to the loss of the small claim class action after AT&T v. Concepcion and Walmart v. Dukes.  However, when members of the executive branch compensate multiple victims, they should consider how to balance their own interests in deterrence with rules to ensure that the victims receive fair and efficient compensation. The trick is to give victims more voice in their own redress while preserving prosecutorial discretion.  Four potential solutions include: (1) that government actors coordinate overlapping settlements before a single federal judge, (2) that government actors find ways to involve representative stakeholders in distribution-plan discussions through a mediation-like process; (3) that courts subject government and private distribution plans to independent review to police potential conflicts of interest, and (4) that government officials adopt the distribution guidelines the American Law Institute developed for large-scale civil litigation to balance victims’ competing interests and avoid strategic forum-shopping.  Adam S. Zimmerman, Distributing Justice, 86 N.Y.U. 500 (2011) (describing potential solutions).  Only by holistically coming to terms with the increasingly dynamic, convergence of executive, legislative and judicial compensation can we better understand the scope of the state's responsibility  to provide compensatory justice to the victims of mass harm.

Posted by Adam Zimmerman on January 17, 2012 at 11:46 AM | Permalink


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