Posted by: captainfalcon | July 31, 2011

Pondering part of the first ponderable

A couple of posts back, MM raised the interesting question whether a court could order the United States to pay damages to a contractor in the event it breached its contract because the debt ceiling prevented it from borrowing the necessary money. I think a court can, indeed, award damages against the United States for breach of contract in such circumstances, but I have no idea what additional, enforcement, powers the court has.

I. Can a court award damages in a breach-of-contract suit against the United States even if the U.S. does not have the funds to pay?

A contractor can sue the United States when it fails to pay what it promised because Congress has conferred on the federal courts subject matter jurisdiction over such suits. As a default rule, the United States has sovereign immunity; it cannot be sued under any circumstance. Congress has carved exceptions to sovereign immunity, notably the Federal Tort Claims Act and the Contracts Disputes Act.

With very few exceptions, the Contracts Disputes Act applies to “any express or implied contract … entered into by an executive agency for [goods or services].” 41 U.S.C. 602(a). The CDA authorizes contractors – once they have exhausted various agency procedures – to “bring an action directly . . . in the United States Court of Federal Claims, notwithstanding any contract provision, regulation, or rule of law to the contrary.” 41 U.S.C. 609(a)(1). The CDA also provides that “Any judgment against the United States on a claim under this chapter shall be paid promptly in accordance with the procedures provided by section 1304 of Title 31.” 41 U.S.C. 612(a). 31 U.S.C. 1304 is what the Court of Federal Claims called in Westel-Oviatt Lumber Co., Inc. v. United States a “permanent indefinite judgment fund.” It provides that “[n]ecessary amounts are appropriated to pay final judgments, awards, compromise settlements, and interest and costs specified in the judgments or otherwise authorized by law when … (1) payment is not otherwise provided for.” 31 U.S.C. 1304(a) (emphasis added). 

Thus, federal courts have subject matter jurisdiction over breach-of-contract suits against the United States, and their power to award damages against the U.S. in such suits does not run afoul of the Appropriations Clause because there is a standing appropriation for the funds necessary to pay final judgments. As the subject matter jurisdiction (and attendant remedial powers) provided for in the CDA is not limited to circumstances where the United States can actually disburse funds it has appropriated, I see no reason to think that courts cannot award damages against the United States in the event the debt ceiling prevents it from actually paying the damages.

II. Can a court declare the debt ceiling unconstitutional, and order the Treasury to obtain funds, to pay damages in a breach-of-contract suit against the United States?

I don’t really have any idea. The Supreme Court has made it clear that the judiciary cannot order an appropriation. “Our cases underscore the straightforward and explicit command of the Appropriations Clause. It means simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.” Office of Personnel Management v. Richmond, 496 U.S. 414, 424 (1990) (internal quotation marks omitted). This is the case even where the appropriation is necessary to make somebody who has been pardoned whole:

[I]f the [forfeited] proceeds have been paid into the treasury, the right to them has so far become vested in the United States that they can only be secured to the former owner of the property through an act of Congress.Moneys once in the treasury can only be withdrawn by an appropriation by law. However large, therefore, may be the power of pardon possessed by the President, and however extended may be its application, there is this limit to it, as there is to all his powers,-it cannot touch moneys in the treasury of the United States, except expressly authorized by act of Congress. Knote v. United States, 95 U.S. 149, 154 (1877).

But the case under consideration is different insofar as it is hypothesized that an appropriation has already been made, but the Treasury has no funds to satisfy it. Can a court order the Treasury to raise money by issuing debt in order to satisfy an appropriation for an award of damages under the CDA, or is the court restricted to awarding money from the (empty) appropriation, itself? The CDA and 31 U.S.C. 1304 seem not to give courts any power beyond awarding appropriated money, but that’s a little unsatisfying when the appropriated money actually still needs to be appropriated.

One possible resolution arises from reading the debt ceiling legislation as an implicit limitation on all earlier appropriations, including the 31 U.S.C. 1304. That reading shoehorns the question back into straightforward appropriations analysis. Congress has not appropriated the requisite funds e.g. to pay damages, so the courts cannot award such damages without trenching on Congress’s appropriations power.

The obvious problem with this resolution is that it creates all sorts of problems under the Anti-Deficiency Act – which prevents government agents from entering contracts in the absence of sufficient appropriations – that have hitherto been unrecognized.

As for Section 4 of the Fourteenth Amendment, I think (as MM suggested) that “public debt” does not comprehend government contracts, so it has no bearing on the issue. If “public debt” does comprehend government contracts (and, moreover, government breach of such contracts amounts to calling their “validity” into question – both very unlikely), it is still not obvious to me that courts would have standing to order the debt ceiling raised, pursuant to Section 4, in the course of exercising their remedial powers in a dispute under the CDA. The contractor’s suit would be pursuant to a set of statutes that lays out the judiciary’s jurisdiction, and remedial powers, and those powers arguably do not include the power to order an appropriation be made by the Treasury. Such a judgment would arguably be over and above  the full remedy (an award of damages from the congressional appropriation), and so an advisory opinion incidental to the concrete controversy under consideration.

On the other hand, it is possible that this reasoning is unduly formalistic, or just overlooks some piece of the puzzle.

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  1. […] bill through reconciliation to avoid the Republican filibuster or engaged provisions of the Fourteenth Amendment to short-circuit the debt ceiling debate.  However, each of these would have provoked a […]


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