[Comments on Federal Court Case]

B-247635, Mar 13, 1992, Office of General Counsel

DIGEST: GAO recommends that the Justice Department seek certiorari on the decision in Texas v. United States, No. 91-8042, Slip. Op. (5th Cir. Jan. 28, 1992), because it would unjustifiably abrogate the federal government's common law authority to assess interest on delinquent debts owed to the United States by units of state and local government.

Honorable Stuart M. Gerson Assistant Attorney General. Attention: Mr. Robert Kopp Director, Appellate Staff

This letter responds to your letter of February 12, 1992, concerning GAO's position on whether your department should seek certiorari of the decision in Texas v. United States, No. 91-8042, slip. op. (5th Cir. Jan. 28, 1992). That decision held, among other things, that section 11 of the Debt Collection Act of 1982, as amended, abrogated the federal government's long established common-law authority to assess interest on delinquent debts owed by units of state and local government. While we venture no opinion at this time with respect to other aspects of that decision, we strongly encourage your department to seek certiorari with respect to the effect of the Debt Collection Act of 1982. Section 11 of the Debt Collection Act of 1982 generally requires agencies to assess interest, late payment penalties, and administrative costs on delinquent debts owed by "persons" to the United States. Pub.L. 97-365, 96 Stat. 1749, 1755-56, codified in 31 U.S.C. Sec. 3717 (1988). The act's legislative history clearly shows that Congress enacted this provision out of alarm over the fact that, despite the urgings of GAO and the Justice Department, the agencies were not exercising their common-law authority to assess interest on delinquent debts. E.g., B-199395, July 12, 1985; B-222845, Dec. 9, 1987. Section 11 also provides that, for its purposes, "the term 'person' does not include any agency of the United States or any state or local government." 96 Stat. at 1756, codified in 31 U.S.C. Sec. 3701(c). This definitional provision was inserted on the floor of the Senate without explanation and there is no legislative history to explain its purpose or meaning. B-212222, Jan. 5, 1984.

As the officials charged by law with the interpretation and implementation of the Debt Collection Act of 1982 (and the Federal Claims Collection Act of 1966 which it amended), the Attorney General and the Comptroller General have interpreted the plain language of section 11 as exempting from its scope all debts owed by units of federal, state, and local government. Federal Claims Collection Standards, 4 C.F.R. Sec. 102.13(i); 49 Fed. Reg. 8889, 8891, 8894 (1984) (Supplementary Information Statement). See also, e.g., B-212222, Jan. 5, 1984; B-212222, Aug. 23, 1983. If that interpretation is correct, it follows that the federal government retains whatever other legal authority it might have (under other statutes or the common law) to assess interest on delinquent debts owed by state or local governments. Id. However, The decision in Texas v. United States interprets section 11 as affirmatively prohibiting the assessment of interest and other charges on delinquent debts owed by state and local governments. From this, the court concludes that the federal common law which authorizes the assessment of interest on debts owed by state and local governments has been abrogated. However, the court's reasoning offers little that is new and has not persuaded us that the GAO- Justice position either lacks a rational basis or is not entitled to considerable deference from the courts.

The impact of the decision in this case is not limited to the assessment of interest against states. Section 10 of the Debt Collection Act addresses the use of administrative offset to collect debts owed to the United States, and contains an identical definition of person. 96 Stat. at 1754-55, as codified in 31 U.S.C. Sec. 3701(c). Consequently, the decision in this case would effectively deprive the United States of the ability to use its two most important and effective collection tools with respect to a particularly large category of delinquent debts.

Texas v. United States is the fifth circuit court decision to be handed down on this issue. Of those cases, three have ruled that section 11 abrogated the federal common law with respect to interest assessments. /1/ The other two cases have supported the GAO-Justice position to the effect that the government's common law authority survived the act and may be applied to collect delinquent the debts of state and local governments. /2/ Since GAO first became aware of these cases, we have consistently urged that this issue be taken to the Supreme Court. (Copies of our previous recommendations to your department in this respect, with their detailed legal analyses, are enclosed for your consideration.)

While your department has not significantly disagreed with the substance of our recommendations or legal views in this matter, it has been concerned that the vehicle for carrying the matter to the Supreme Court be the best case in which to present the issue. We have understood and sympathized with this concern, and we have trusted and continue to trust your judgment in this regard. For this reason, our staff has worked closely with yours for several years to prepare the way for argument before the Court.

However, we respectfully suggest that the time has finally come to resolve this matter. (1) It has been nearly ten years since the Debt Collection Act was passed into law. (2) GAO and Justice are beginning to prepare revisions to the implementing regulations, the Federal Claims Collection Standards. (3) Based on the appellate court's assessment of the merits of the underlying claim, it appears that the present case offers a stable platform from which to seek the Court's attention. (4) The circuits are now in conflict. (5) The Supreme Court, itself, in West Virginia v. United States, 479 U.S.305, 312 n.6 (1987), has clearly invited the government to bring this question to it.

For these reasons we strongly recommend that Justice seek certiorari of the decision in Texas v. United States. If you or your staff have any questions regarding our position, or if we may be of further assistance to you in this matter, please do not hesitate to contact Mr. Neill Martin- Rolsky of my staff, at 275-5644.

/1/ Arkansas v. Block, 825 F.2d 1254 (8th Cir. 1987); Pennsylvania v. United States, 781 F.2d 334 (3rd Cir. 1986); Perales v. United States, 751 F.2d 98 (2d Cir. 1984) (per curiam), aff'g 598 F.Supp. 19 (S.D.N.Y.).

/2/ Gallegos v. Lyng, 891 F.2d 788 (10th Cir. 1989); County of St. Clair, Michigan v. United States, No. 83-3546, slip op. (5th Cir. Dec. 7, 1984) (unpublished).