4-3.000
COMPROMISING AND
CLOSING
4-3.100 Authority of the Attorney
General
4-3.110 Delegations of the
Attorney General's
Authority to Compromise and Close
4-3.120 General Redelegation of
the Attorney
General's Authority to Compromise and Close
4-3.130 Ad Hoc Redelegations of
the Attorney
General's Authority to Compromise and Close
4-3.140 Exceptions to the
Redelegation of the
Attorney General's Authority
4-3.200 Bases for the Compromising
or Closing
of Claims Involving the United States
4-3.210 Compromising Claims
Against a Going
Business Concern
4-3.220 Claims in Conjunction With
Bankruptcy
Code Proceedings
4-3.230 Bases for Closing Claims
Arising Out of
Judgments in Favor of the United States by Returning Those Claims
to the Client
Agencies
4-3.231 Monitoring of Payment
Agreements by the
Department of Veterans Affairs Debt Management Center (DMC)
4-3.300 Memoranda by United States
Attorney
Explaining the Compromising or Closing of Claims Within the United
States
Attorney's Authority
4-3.320 Memoranda Containing the
United States
Attorney's Recommendations for the Compromising or Closing of
Claims Beyond
His/Her Authority
4-3.400 Consummation of Compromise
of Claims of
the United States -- Generally
4-3.411 Issuance of a Receipt
Where Suit Has Not
Been Filed
4-3.412 Dismissal Where Suit Has
Been Filed
4-3.420 Consummation of Compromise
of Judgments
in Favor of the United States
4-3.430 Payment of Compromises --
Compromise
Payable by Client Agency or Insurer
4-3.432 Payment of Compromises --
Federal Tort
Claims Act Suits
The Attorney General has the inherent authority to dismiss
any
affirmative action and to abandon the defense of any action insofar
as it
involves the United States of America, or any of its agencies, or
any of its
agents who are parties in their official capacities. See
Confiscation
Cases, 7 Wall. 454, 458 (1868) (action brought by an informer
with
expectation of financial gain); Conner v. Cornell, 32 F.2d 581,
585-6 (8th Cir.),
cert. denied, 280 U.S. 583 (1929) (dismissal of suit on
behalf of
restricted Indian wards of the United States); Mars v. McDougal, 40
F.2d 247, 249
(10th Cir.), cert. denied, 282 U.S. 850 (1930); 22 Op. Att'y Gen.
491, 494; 38
Op. Att'y Gen. 124, 126; see United States v. Throckmorton, 98 U.S.
61, 70
(1878); United States v. Newport News Shipbuilding & Dry Dock Co.,
571 F.2d 1283
(4th Cir.), cert. denied, 439 U.S. 875 (1978). This authority may
be exercised
at any time during the course of litigation.
The Attorney General also has the inherent authority to
compromise any
action insofar as it involves the United States of America, its
agencies, or any
of its agents who are parties in their official capacities. See
Halbach v.
Markham, 106 F. Supp. 475, 479-480 (D.N.J. 1952), aff'd, 207
F.2d 503 (3rd
Cir. 1953), cert. denied, 347 U.S. 933 (1954); 38 Op. Att'y
Gen. 124, 126.
This authority is not dependent upon any express statutory
provision. See
38 Op. Att'y Gen. 98, 99. To the contrary, it exists to the extent
that it is
not expressly limited by statute. See Swift & Co. v. United
States, 276
U.S. 311, 331-2 (1928).
Note the additional authority delegated to the Attorney
General by the
second paragraph of section 5 within Executive Order 6166.
The Attorney General has delegated settlement authority in
civil cases
to the several Assistant Attorneys General and certain other
officials. The
controlling regulations, found at 28 C.F.R. § 0.160, et
seq., should
be consulted before authorization is sought to compromise or close
a case, but
it may be helpful to note that generally:
- The Assistant Attorney General for the Civil
Division can
compromise an affirmative claim when the difference between the
gross amount of
the original claim and the proposed settlement does not exceed $2
million or 15%
of the original claim, whichever is greater, 28 C.F.R. §§
0.160(a)(1),
0.169;
- He/she can compromise (or settle administratively) a defense
claim when the
principal amount of the proposed settlement does not exceed $2
million, 28 C.F.R.
§ 0.160(a)(2).
- He/she can compromise all nonmonetary cases, 28 C.F.R. §
0.160(a)(3);
- He/she can reject most offers, 28 C.F.R. § 0.162;
- He/she can close (other than by compromise or by entry of
judgment) an
affirmative claim when the gross amount of the original claim does
not exceed $2
million, 28 C.F.R. §§ 0.164, 0.169;
- The Solicitor General must approve compromise in all Supreme
Court cases
and in many other appellate matters, 28 C.F.R. § 0.163;
- The compromising or closing of cases beyond these limits must
be approved
by the Deputy Attorney General, or Associate Attorney General, as
appropriate,
28 C.F.R. §§ 0.160(c), 0.161, 0.164(b), 0.165, 0.167; and
- The Deputy Attorney General or Associate Attorney General, as
appropriate,
is further specifically authorized to exercise the settlement
authority of the
Attorney General as to all affirmative and defensive civil claims,
28 C.F.R.
§ 0.161(b).
The Assistant Attorney General for the Civil Division has
redelegated
portions of the Attorney General's authority to United States
Attorneys, and also
to Deputy Assistant Attorneys General, branch directors, the
Director of the
Appellate Staff, the Director of the Office of Foreign Litigation,
the Director
of the Office of Consumer Litigation, the Director of the Office of
Immigration
Litigation, and Attorneys-in-Charge of field offices of the Civil
Division.
Civil Division Directive No. 14-95, published in the Appendix to
Subpart Y
immediately following 28 C.F.R. § 0.172, 60 Fed. Reg. 17456
(1995), presently
details those redelegations. See Civil Division Directive No.
14-95, 28 CFR Part
0.
While the United States Attorneys should study that
published Directive
before compromising, closing, or seeking authorization for the
compromising or
closing of a civil claim, it may be generally said that, subject to
the
exceptions noted in USAM 4-3.140:
- The Deputy Assistant Attorneys General of the
Civil Division
are authorized to act for, and to exercise the authority of, the
Assistant
Attorney General with respect to the institution of suits, and
acceptance or
rejection of compromise offers, and the closing of claims or cases,
unless any
such authority is required by law to be exercised by the Assistant
Attorney
General personally or has been specifically delegated to another
Department
official.
- Civil Division Branch, Office and Staff Directors, and
Attorneys in charge
of field offices, are authorized, with respect to matters assigned
to their
respective components, (and subject to 28 C.F.R. §§
0.160(c), and
0.164(a) and section 4 of Directive 14-95, and the authority of the
Solicitor
General set forth in 28 C.F.R. § 0.163), to reject any offer in
compromise,
to accept offers in compromise against the United States where the
amount to be
paid by the United States does not exceed $500,000, or to accept
offers in
compromise on behalf of the United States, or close cases, where
the gross amount
of the original claim does not exceed $500,000, or where the gross
amount of the
original claim was between $500,000 and $5,000,000, so long as the
difference
between the gross amount of the original claim and the proposed
settlement does
not exceed $500,000 or 15 percent of the original claim, whichever
is greater.
- United States Attorneys may reject any offer in compromise,
accept offers
in compromise against the United States where the amount to be paid
by the United
States does not exceed $1 million, or accept offers in compromise
on behalf of
the United States, or close cases, where the gross amount of the
original claim
does not exceed $1 million, or where the gross amount of the
original claim does
not exceed $5 million and the difference between the gross amount
of the original
claim and the proposed settlement does not exceed $1 million or 15
percent of the
original claim, whichever is greater.
By virtue of section 4(b) of Directive 14-95, upon the
recommendation
of the appropriate Director, the Assistant Attorney General for the
Civil
Division may delegate to United States Attorneys any claims or
suits involving
amounts up to $5 million, where the circumstances warrant such
delegation.
See Civil Division Directive No. 14-95, 28 CFR Part 0.
All delegations pursuant to section 4(b) must be in
writing, and no
United States Attorney has authority to compromise or close any
such redelegated
case or claim except as is specified in the required written
redelegation or in
section 1(c) of the Directive. The limitations of section 1 of the
Directive,
discussed at USAM 4-3.140, also
remain applicable
in any case or claim redelegated under section 4(b). See
Civil Division
Directive No. 14-95, 28 CFR Part 0.
By virtue of section 1 of Directive 14-95 and
notwithstanding the
redelegations of authority to compromise cases, file suits,
counterclaims, and
cross-claims, or to take any other action necessary to protect the
interests of
the United States discussed above, such authority may not be
exercised, and the
matter must be submitted to the Assistant Attorney General for the
Civil
Division, when:
- For any reason, the proposed action, as a
practical matter,
will control or adversely influence the disposition of other claims
totaling more
than the respective amounts designated;
- Because a novel question of law or a question of policy is
presented, or
for any other reason, the proposed action should, in the opinion of
the officer
or employee concerned, receive the personal attention of the
Assistant Attorney
General;
- The agency or agencies involved are opposed to the proposed
action (the
views of an agency must be solicited with respect to any
significant proposed
action if it is a party, if it has asked to be consulted with
respect to any such
proposed action, or if such proposed action in a case would
adversely affect any
of its policies);
- The United States Attorney involved is opposed to the proposed
action and
requests that the decision be submitted to the Assistant Attorney
General for
decision, or
- The case is on appeal, except as determined by the Director of
the
Appellate Staff.
See Civil Division Directive No. 14-95, 28 CFR Part 0.
A United States Attorney should compromise or close a
claim (the term
"claim" is used in its broadest sense to include, for example, a
claim that
arises out of a judgment entered for or against the United States)
pursuant to
the authority described in USAM
4-3.120 only when
one or more of the following bases for such action are present:
- The United States Attorney believes that a claim of
the United
States is without legal merit (see 16 Op. Att'y Gen. 248
(1879); 23 Op.
Att'y Gen. 631 (1902); 38 Op. Att'y Gen. 98 (1934));
- The United States Attorney believes that a claim of the United
States
cannot be factually proven in court (see 16 Op. Att'y Gen.
259 (1879); 23
Op. Att'y Gen. 631 (1902); 38 Op. Att'y Gen. 98 (1934));
- The United States Attorney believes that a different claim of
the United
States should be selected for the purpose of resolving an open
issue of law;
- The United States Attorney believes that the full amount of a
claim of the
United States cannot be collected in full due to the financial
condition of the
debtor.
- There must be a real doubt as to the government's ability
to collect
in full. See 12 Op. Att'y Gen. 543 (1868); 16 Op. Att'y
Gen. 248 (1879);
16 Op. Att'y Gen. 259 (1879); 36 Op. Att'y Gen. 40 (1929).
- Uncertainty as to the price which property will bring on
execution sale may
be treated as an uncertainty as to collection. See 38 Op.
Att'y Gen. 194
(1935). However, claims secured by a mortgage should not be
compromised until
after sale of the mortgaged property, since the government is
generally entitled
to both the amount the property will sell for and a deficiency
judgment. In the
rare instance in which such a compromise may be appropriate, a
thorough appraisal
by an impartial appraiser is indicated, to determine the value of
the mortgaged
property and avoid criticism from those who may later say they
would have offered
more for the property.
- A valid and provable claim, which can be collected, cannot be
voluntarily
relinquished. See 16 Op. Att'y Gen. 248 (1879); 21 Op.
Att'y Gen. 50
(1894); 36 Op. Att'y Gen. 40 (1929).
- Compromise requires some mutuality of concession. There must
be room for the
play of give and take. See 16 Op. Att'y Gen. 248 (1879); 23
Op. Att'y
Gen. 18 (1900); 36 Op. Att'y Gen. 40 (1929); 38 Op. Att'y Gen. 94
(1933). The
adequacy of the concession is to be determined by the exercise of
sound
discretion. See 38 Op. Att'y Gen. 98 (1934).
- Hardship, which does not involve inability to pay, is not a
proper basis
for settlement. See 23 Op. Att'y Gen. 18 (1900); 38 Op.
Att'y Gen. 94
(1933).
- The United States Attorney believes that the cost of
collecting a claim in
favor of the United States will exceed the amount recoverable (see
4 C.F.R. §
103.4);
- The United States Attorney believes that compromising or
closing a claim
of the United States is necessary to prevent injustice (see
38 Op. Att'y
Gen. 98 (1934); 38 Op. Att'y Gen. 94 (1933));
- The United States Attorney believes that the enforcement
policy underlying
a claim of the United States will be adequately served by a
compromise (see 17
Op. Att'y Gen. 213 (1881); 29 Op. Att'y Gen. 217 (1911); 31 Op.
Att'y Gen. 459
(1919); as restricted by 21 Op. Att'y Gen. 264 and 36 Op. Att'y
Gen. 40);
- The United States Attorney believes that it is less costly to
compromise
a claim against the United States than to undertake further legal
action in
defense against the claim;or
- The United States Attorney believes that a compromise of a
claim against the
United States is substantially more favorable than the verdict or
judgment that
would probably result from further litigation.
If a compromise with a going business concern necessitates
the
acceptance of payments over a period of time, the United States
Attorney should
obtain adequate security for deferred payments. It is also
generally advisable
for the United States Attorney to require a waiver of any and all
claims which
such a business concern has against the United States, including
rights under the
net operating loss carry forward and carry back provisions of the
Internal
Revenue Code, at least insofar as these are affected by the
compromise proposal.
In some situations, it may be advisable to require written consent
for the audit
of the concern's books and records. Consideration should also be
given to having
an independent appraisal of business assets as "forced sale" and
"fair market"
value, conducted at the concern's expense by an appraiser whose
selection is
subject to the approval of the United States Attorney. The United
States
Attorney should not accept a percentage of net profits in set
tlement or partial settlement of a claim. Cf. 4 C.F.R. § 103.9.
Such
arrangements are speculative at best; policing is difficult; and
there are too
many ways in which the affairs of the debtor concern can be
manipulated to avoid,
minimize, or postpone realization of a net profit. Corporate stock
should
generally not be accepted in settlement or payment of a claim in
favor of the
United States. Id. Managing such stock holdings places unusual
burdens on
client agencies. Letters of credit provide an excellent method for
securing
payment.
A United States Attorneys' acceptance of a plan for
reorganization
under the Bankruptcy Code amounts to the compromise of a claim in
favor of the
United States and is governed by the same limitations and
standards. For
purposes of determining the United States Attorneys' authority to
accept a plan,
the term gross amount of the original claim as used in Civil
Division Directive
No. 14-95, 60 Fed. Reg. 17456 (1995), means liquidation value.
Liquidation value
is the forced sale value of the collateral, if any, securing the
claims plus the
dividend likely to be paid for the unsecured portion of the claims
in an actual
or hypothetical liquidation of the bankruptcy estate. If the
debtor fails to
provide the information needed to consider the plan, or if
inadequate time is
allowed to obtain any required Department of Justice approvals for
the
compromise, the United States Attorney should file an objection to
the plan with
the bankruptcy court.
Claims arising out of judgments in favor of the United
States which
cannot be permanently closed as uncollectible (see USAM 4-3.200) should be returned to
the referring
federal agency whenever:
- All other claims arising out of the same transaction
have also
been reduced to judgment;
- All monies collectible upon the claim(s) are payable to a
single referring
federal agency; and
- The claim is uncollectible except by installment payments which
debtors agree
to make to the referring agency, or the claim can be enforced by
other means, but
such enforcement is forborne in consideration of the promise for
installment
payments; or the claim is presently uncollectible but has future
collection
potential, and the United States Attorney is not in a better
position than the
agency to keep the matter under surveillance.
Return is also subject to the following caveats:
- The United States Attorney should be satisfied that,
as a
practical matter, the transfer will not adversely affect the
chances of
collection or the amount that will be collected.
- The agency must be willing to accept the transfer and must
understand that
it is not authorized to undertake final settlement, reduction, or
release of any
unpaid balance without the specific authorization of the Department
of Justice,
and all judicial proceedings to enforce or release judgments are to
be conducted
by the United States Attorney; and
- The United States Attorney should consider it unlikely that
the claim will
be returned to him/her for further proceedings.
In the event a payment agreement is reached, either prior
to, or after,
judgment in a case involving a Department of Veterans Affairs (VA)
educational
allowance claim, the United States Attorney may utilize the VA's
Debt Management
Center (DMC) in St. Paul, Minnesota, to monitor the payments and
close the file
pursuant to USAM 4-3.230. Guidance
on using the
DMC can be found in the Civil Resource
Manual at 227.
Whenever a United States Attorney compromises or closes a
claim involving
the United States, pursuant to the authority as described in USAM 4-3.120 and 4-3.130, he/she should place a
memorandum in the
office file fully explaining the basis for the action. A copy of
this memorandum
should be sent to the appropriate branch of the Civil Division.
This requirement
is set forth at § 2(a) of Civil Division Directive No. 14-95,
published in the
Appendix to Subpart Y immediately following 28 C.F.R. § 0.172, 60
Fed. Reg. 17456
(1995).
The compromising of cases or closing of claims which a
United States
Attorney is not authorized to approve should be referred to the
Civil Division
official having the requisite approval authority. The referral
memorandum should
contain a detailed description of the matter, the United States
Attorney's
recommendation, and a full statement of the reasons therefor. This
requirement
is set forth at § 2(b) of Civil Division Directive No. 14-95,
supra.
When a claim of the United States is compromised, the
compromise should
be effected and evidenced in the manner provided in USAM 4-3.300, et seq. No further
evidence of
settlement should be required, although a written settlement
agreement between
the debtor and the United States Attorney should be prepared. That
agreement
should be specifically limited to the immediate subject matter of
the claim which
was in fact compromised. In no case should a general release be
issued to the
debtor, since it is not possible to know whether the debtor owes
debts to other
agencies such as the Internal Revenue Service. If a compromise
cannot be
effected without the execution of a release, the release should be
narrowly
drawn, limited to the specific debt that is compromised, and should
contain a
specific reservation of the United States' right to proceed against
other
obligors.
If the compromise is made for the purpose of clearing
title to a
particular property, the release executed should be limited to the
release of the
United States' judgment lien or right of redemption as to that
specific property.
No release of a lien or a right of redemption should be executed
without some
appropriate consideration, even if the claim is questionable. If
a compromise
is effected with less than all obligors, care should be taken to
reserve the
United States' right to proceed against, or collect from, the
others. A covenant
not to sue, containing a specific reservation of such right, is
preferable to a
release (even when specifically limited) in this situation.
When a compromise proposal has been accepted, and the
consideration
therefor has been received, no further action is required to
consummate the
compromise if suit has not been filed. The agency should be
contacted in order
to issue an IRS Form 1099-G as appropriate.
If a compromise is agreed to in a case in which the
United States has
filed suit, dismissal of the suit with prejudice is all that is
required to
evidence the settlement. If the settlement is to be paid in
installments,
judgment may be entered, with the defendant's permission, as
security for the
deferred installments. However, if this procedure has not been
agreed upon as
part of the compromise arrangement, and it is necessary to dismiss
the suit, the
dismissal should be without prejudice. See Fed. R. Civ. P. 41(a).
Tort suits
brought on behalf of the United States should not be dismissed in
such
circumstances without a written waiver of limitations, since
partial payments do
not toll the running of the statute of limitations.
If the United States' claim has been reduced to judgment,
and the
settlement is intended by both parties to satisfy the judgment
obligation in
full, a satisfaction of judgment should be filed upon full payment
by the debtor
under the compromise. This should be sufficient to evidence the
consummation of
settlement. However, if more than one obligor is bound by the
judgment and the
settlement is only as to one obligor's debt, only a partial
satisfaction of the
judgment can be executed. It is appropriate to release the
judgment lien as to
the settling debtor's property, but not as to the property of the
nonsettling
debtors.
In a limited number of instances, compromises may be
payable by an
insurer, surety, title insurance company, or indemnitor. In such
cases, the
client agency should be asked to arrange for payment, or, with the
agency's
acquiescence, arrangements for payment can be made directly with
the insurer,
surety, or indemnitor. Some "sue and be sued" officials or
agencies can pay
claims from appropriations or revolving funds. In such cases,
payment should be
obtained from the client agency. It is preferable that compromises
of claims
arising out of the operations of certain government corporations
and the shipping
operations of the Maritime Administration be handled in the same
manner as claims
in favor of the government. Should circumstances warrant, these
claims may be
compromised by entry of an order approving the compromise.
Compromises of suits under the Tucker Act (28 U.S.C. §
1346(a)(2)) and
the Suits in Admiralty Claims Act (46 U.S.C. § 741, et seq.) may,
in unusual
circumstances, be payable from appropriated funds of the client
agency. However,
generally it will be necessary to enter a consent judgment upon
compromise, in
order to obtain payment. Compromise of suits involving minors and
other persons
under legal disability, or by executors or administrators, should
be approved by
the local probate, orphan's, surrogate's, or other court of
competent
jurisdiction, where such approval is required by applicable state
law. It is
preferable that the amount of proper attorneys' fees which are to
be paid from
the settlement proceeds be specified in the settlement agreement.
If this is not
done, a separate check cannot be issued payable to the attorney.
Arrangements
should be made for all payments of compromises to be made through
the USAO, in
order that the check may be exchanged for dismissal of su
it with prejudice, or an appropriate release or covenant not to
sue.
Compromises of suits in excess of the United States
Attorneys'
delegated authority must receive explicit and advance approval
through the Civil
Division of the Department of Justice, regardless of whether or not
the case
otherwise has been delegated for direct handling to the USAO. A
memorandum
setting forth the basis for the compromise should be forwarded to
the Civil
Division along with all material, including pleadings, necessary to
understand
the litigation and the basis for the settlement. Thereafter, the
USAO will be
advised of the action taken on the recommendation of the
settlement.
After approval, the settlement agreement may be
forwarded by the
United States Attorney directly to the Department of the Treasury
(or, 1. in
Postal Service cases, to the Postal Service; or 2. in Federally
Supported Health
Center cases, to HHS). Compromises in suits under the Federal Tort
Claims Act,
the Suits in Admiralty Act or the Public Vessels Act, are payable
in the same
manner as judgments. In no event should the settlement be
forwarded to Treasury,
the Postal Service, or HHS prior to approval from the Justice
Department, except
when cases are settled within the United States Attorneys'
delegated authority.
See Section USAM
4-10.000 of this
manual for the letters and forms to be used when sending
compromises or
settlements to the Treasury, the Postal Service, or HHS for
payment.
| October 1997
| USAM Chapter 4-3
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