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Grassley: Labor Nominee’s Actions are Extremely Troubling

Prepared Floor Statement of Senator Chuck Grassley
Ranking Member, Senate Judiciary Committee
On the Nomination of Thomas E. Perez,
Nominee to be Secretary of Labor
Wednesday, May 15, 2013

Mr. President, I would like to take a few minutes to discuss the President’s nominee for Secretary of Labor, Tom Perez.

Mr. Perez is not unknown to the Senate. His tenure as head of the Civil Rights division has been marked by controversy. And that is putting it mildly.

He was confirmed to his current post by a vote of 72-22. I was among those who supported his nomination to lead the Civil Rights Division. But unfortunately, based on the reasons I will outline today, I have come to regret that vote.

There are a number of issues about Mr. Perez’s record that should give my colleagues pause. But today I want to focus on the investigation I’ve been conducting with my colleagues in the House, Mr. Issa, Chairman of the Oversight and Government Affairs Committee, and Mr. Goodlatte, Chairman of the House Judiciary Committee.

I want to share with my colleagues the role Mr. Perez played in a quid pro quo between the City of St. Paul and the Department of Justice, where the Department agreed not to join two False Claims Act cases in exchange for the City of St. Paul withdrawing its case before the Supreme Court in a case called Magner v. Gallagher.

Mr. Perez’s actions in this case are extremely troubling for a number of reasons.

First and foremost, at this point no one disputes the fact that Mr. Perez orchestrated the entire arrangement. He manipulated the Supreme Court docket so that his favored legal theory, called the “disparate impact theory,” would evade review by the high court. In the process, Mr. Perez left a whistleblower twisting in the wind.

Those are the facts, and even Mr. Perez doesn’t dispute them.

The fact that Mr. Perez struck a deal that potentially squandered up to $200 million taxpayer dollars in order to preserve the “disparate impact” theory he favored, is of course extremely troubling in and of itself.

But in addition to the underlying quid pro quo, the evidence uncovered in our investigation revealed Mr. Perez sought to cover-up the fact that the exchange even took place.

And finally – and let me emphasize that this should concern all of my colleagues – when Mr. Perez testified under oath about this case, both to Congressional investigators and during his confirmation hearings, Mr. Perez told a different story.

The simple but unavoidable conclusion is that the story Mr. Perez told is simply not supported by the evidence.

Let me begin by briefly reviewing the underlying quid pro quo.

In the fall of 2011, the Department of Justice was poised to join a False Claims Act lawsuit against the City of St. Paul.

The career lawyers in the U.S. Attorney’s Office in Minnesota were recommending the Justice Department join the case. The career lawyers in the Civil Division of the Justice Department were recommending the department join the case. The career lawyers at the Department Housing and Urban Development (HUD) were recommending that the Department of Justice join the case.

But this was all before Mr. Perez got involved.

At about that time, the Supreme Court agreed to hear a case called Magner v. Gallagher. In Magner, the City of St. Paul was challenging the use of the “disparate impact” theory under the Fair Housing Act. The “disparate impact” theory is the mechanism Mr. Perez and the Civil Rights Division have been using in lawsuits against banks for their lending practices. If that theory were undermined by the Supreme Court, it would likely spell trouble for Mr. Perez’s lawsuits against the banks.

So, Mr. Perez approached the lawyers handling the Magner case, and he cut a deal.

The Justice Department agreed not to join two False Claims Act cases, in exchange for the City of St. Paul withdrawing Magner from the Supreme Court. In early February of 2012, Mr. Perez flew to St. Paul and finalized the deal. The next week, the Department of Justice declined to join the first False Claims Act case, called Newell. The next day, the City of St. Paul withdrew Magner from the Supreme Court.

Now, there are a couple of aspects about this deal that I want to emphasize for my colleagues.

First, as I mentioned, the evidence makes clear that Mr. Perez took steps to cover up the fact that he had bartered away the False Claims Act cases.

On January 10, 2012, Mr. Perez called the line attorney in the U.S. Attorney’s office regarding the declination memo in the Newell case.

Just to remind my colleagues, Newell was the case these same career attorneys were strongly recommending the United States join before Mr. Perez got involved.

By the time of this phone call, in January of 2012, Mr. Perez was well on his way towards orchestrating the quid pro quo.

So Mr. Perez called the line attorney, Mr. Greg Brooker, and instructed him not to discuss the Magner case in the memo that he prepared outlining the reasons for the decision not to join the case. And here is what he said:

Hey, Greg. This is Tom Perez calling you at – excuse me, calling you at 9 o’clock on Tuesday. I got your message. The main thing I wanted to ask you, I spoke to some folks in the Civil Division yesterday and wanted to make sure that the declination memo that you sent to the Civil Division – and I am sure it probably already does this – but it doesn’t make any mention of the Magner case. It is just a memo on the merits of the two cases that are under review in the qui tam context.

Approximately one hour later, Mr. Perez sent Mr. Brooker a follow-up email, writing: “I left you a detailed voicemail. Call me if you can after you have a chance to review [the] voicemail.”

Several hours later Mr. Perez sent another follow-up email, writing: “were you able to listen to my message?”

Now, Mr. Perez’s voicemail was quite clear and obvious. He told Mr. Brooker, “make sure that the declination memo” … “doesn’t make any mention of the Magner case. It is just a memo on the merits of the two cases.”

What could be more clear than that?

In fact, Mr. Perez himself sent an email less than an hour later explaining that he had left a “detailed voicemail” for Mr. Brooker.

Yet, when congressional investigators asked Mr. Perez why he left the voicemail, he told a different story.

Here is what he told investigators.

“What I meant to communicate was, it is time to bring this to closure, and if the only issue that is standing in the way is how you talk about Magner, then don’t talk about it.

Give me a break. This is just plainly not what he said in his voicemail.

He didn’t say anything about being concerned with the delay. He said, ‘Make sure you don’t mention Magner. It is just a memo on the merits.’ His intent was crystal clear.

Mr. Perez also testified that Mr. Brooker called him back the next day and refused to omit a discussion of Magner. According to Perez, he told Mr. Brooker during this call to “follow the normal process.”

But again, this story is just not supported by the evidence. One month later, after Mr. Perez flew to Minnesota to personally seal the deal with the City, a Line Attorney in the civil division emailed his superior to outline the “additional facts” about the deal. Point 6 read:
“USA-MN considers it non-negotiable that its office will include a discussion of the Supreme Court case and the policy issues in its declination memo.”

If Mr. Perez’s story were true and the issue was resolved on January 11th, then why – one month later – would the U.S. Attorney’s office need to emphatically state that it would not hide the fact that the exchange took place?

Now as I just mentioned, Mr. Perez flew to Minneapolis to finalize the deal on February 3rd.

And you would think that a deal of this magnitude would be memorialized in a detailed, written agreement. After all, you can’t even rent a car without signing a detailed agreement.

But was this agreement written down? No, it wasn’t.

After Mr. Perez finalized the deal, the career attorneys asked if there was going to be a written agreement. What was Mr. Perez’s response? He said: “No, just oral discussions; word was your bond.”

Can you believe that?

Here is Mr. Perez. He has just orchestrated a deal where the United States declined to join a case worth up to $200 million to the American taxpayer, in exchange for the City of St. Paul withdrawing a case from the Supreme Court. And when the career lawyers ask if this deal will be written down, he says: Your “No . . . word was your bond.”

Now as everyone knows, the reason you make agreements like this in writing, is so there is no disagreement down the road about what the parties agreed to. And as it turns out, there was in fact a disagreement about the terms of this unwritten deal.

The lawyer for the City, Mr. Lillehaug told Congressional investigators that on January 9, approximately one month before the deal was finalized, Mr. Perez assured him that “HUD would be helpful” if the Newell case proceeded after the Justice Department declined to intervene.
Mr. Lillehaug also told investigators that on February 4, the day after they finalized the deal, Mr. Perez told him that HUD had begun assembling information to assist the City in a motion to dismiss the Newell complaint on “original source” grounds. But, according to Mr. Lillehaug, this assistance disappeared after lawyers in the Civil Division learned of it.

Now, why is this so significant?

Mr. Perez represents the United States. Mr. Newell is bringing a case on behalf of the United States. Mr. Perez is talking to the lawyer on the other side, and he tells him, ‘After the United States declines to join the case, we will give you information to help you defeat Mr. Newell, who is bringing the case on behalf of the United States.’

In effect, Mr. Perez is offering to give the other side information to help defeat his own client.

I recognize this is a significant allegation. And Mr. Perez was asked about it under oath. His response? Mr. Perez said:

“No, I don’t recall ever suggesting that.”

So one the hand is Mr. Lillehaug, who says Perez made this offer – first in January, and then on February 4th – but the assistance disappeared after the lawyers in the Civil Division caught wind of it.

On the other hand is Mr. Perez, who testified under oath, “I don’t recall” ever making such an offer.

Who should we believe? Well, the documents support Mr. Lillehaug’s version of events.

On February 7, a Line Attorney sent an email to the Director of the Civil Fraud section and relayed a conversation the AUSA in Minnesota had with Mr. Lillehaug. According to Mr. Lillehaug, the Line Attorney wrote, there were two additional items that were part of the “deal that is not a deal.” And one of those two items was this:

“HUD will provide material to the City in support of their motion to dismiss on original source grounds.”

Internal emails show that when the career lawyers learned of this promise, they strongly disagreed with it and they conveyed their concerns to Tony West, the head of the Civil Division.

During his transcribed interview Mr. West testified that it would have been “inappropriate” to provide this material outside of the normal discovery channels. Mr. West said:

“I just know that that wasn’t going to happen, and it didn’t happen.”

In other words, when lawyers at the Civil Division learned of this offer, they shut it down.

The documentary evidence shows the events transpired exactly as Mr. Lillihaug said they did. Mr. Perez offered to provide the other side with information that would help them defeat Mr. Newell in his case on behalf of the United States.

In my opinion, that is simply stunning. Mr. Perez represents the United States. Any lawyer would tell you it is highly inappropriate to offer to help the other side defeat your client.
Now, this brings me to my final couple points that I want to highlight for my colleagues.

Even though the Department traded away Mr. Newell’s case, Mr. Perez has defended his actions, in part, by claiming that Mr. Newell still had his “day in court.”

What Mr. Perez omits from his story is that Mr. Newell’s case was dismissed precisely because the United States was not a party.

After the U.S. declined to join the case, the judge dismissed Mr. Newell’s case based on the “public disclosure bar,” finding he was not the “original source” of information to the government.

I’ll remind my colleagues, we amended the False Claims Act several years ago precisely to prevent an outcome like this. Specifically, the amendments made clear that the Justice Department can contest the “original source” dismissal, even if it fails to intervene as it did in this case.

So, the Department didn’t merely decline to intervene – which is bad enough. But, in fact, it affirmatively chose to leave Mr. Newell all alone in his case.

And that was the whole point.

That is why it was so important for the City of St. Paul to make sure that the United States did not join the case.

That is why the City was willing to trade away a strong case before the Supreme Court.

The City knew that if the United States joined the action, the case would almost certainly go forward. Conversely, the City knew if the United States did not join the case, and chose not to contest the original source, it would likely get dismissed.

Now think about that.

The Department trades away a case worth millions of taxpayer dollars. They did it precisely because of the impact the decision would have on the litigation.

They knew that as a result of their decision, the whistleblower would get dismissed based on “original source” grounds, since they didn’t contest it.

And not only that, Mr. Perez went so far as to offer to provide documents to the other side that would help them defeat Mr. Newell in his case on behalf of Mr. Perez’s client, the United States.

And yet, when Congress starts asking questions, they have the guts to say: ‘we didn’t do anything improper because Mr. Newell still had his day in court.’

Now this brings me to my last point, and that has to do with the strength of the case. Throughout our investigation, the Department has tried to defend Mr. Perez’s actions by claiming the case was “marginal” or “weak.”

Once again, however, the documents tell a far different story.

Before Mr. Perez got involved, the career lawyers at the Department wrote a Memo recommending intervention in the case. In that memo, they described St. Paul’s actions as, “a particularly egregious example of false certifications.”

In fact, the career lawyers in Minnesota felt so strongly about the case that they took the unusual step of flying to Washington, D.C. to meet with HUD officials.

And HUD, of course, agreed that the United States should intervene.

But again, that was before Mr. Perez got involved.

The documents make clear that career lawyers considered it a strong case. But, the Department has claimed that Mike Hertz – the Department’s expert on the False Claims Act – considered it a weak case.

In fact, two weeks ago Mr. Perez testified before my colleagues on the Senate HELP Committee that Mr. Hertz “had a very immediate and visceral reaction that it was a weak case.”

But the documents tell a much different story. Mr. Hertz knew about the case in November of 2011. Two months later, a Department official took notes of a meeting where the quid pro quo was discussed. That official wrote down Mr. Hertz’s reaction: She wrote:

“Mike – Odd – Looks like buying off St. Paul. Should be whether there are legit reasons to decline as to past practice.”

The next day, that same official emailed the Associate Attorney General, and said:
“Mike Hertz brought up the St. Paul “disparate impact” case in which the SG just filed an amicus brief in the Supreme Court. He’s concerned about the recommendation that we decline to intervene in two qui tam cases against St. Paul.”
These documents appear to show that Mr. Hertz’s primary concern was NOT the strength of the case, as Mr. Perez led my Senate colleagues to believe. Mr. Hertz was concerned the quid pro quo Mr. Perez ultimately arranged was improper.

Again, in his words, it “looks like buying off St. Paul.”

And, just last week the Justice Department sent my staff a critical 33 page slide show about the Department’s case against St. Paul. In that document, the career lawyers make their case for intervention. The Department failed to provide this critical document to the committees, and we only learned about it in a recent interview with a HUD employee.

Why do I say it is a critical document? Because this document makes abundantly clear that the career lawyers did not view the case as “marginal.” Nor did they view it as “weak,” as Mr. Perez testified before the HELP committee. Far from it.

Here is how the career lawyers summed up the case in one of the final slides of this document:

“The City Repeatedly and Knowingly Misrepresented its Compliance with Section 3 to Obtain Federal Funds:

“Tentative Conclusions:

-The City has long been aware of its obligations under Section 3;
-The City repeatedly told HUD and others that it was in Compliance with Section 3;
-The City has failed to substantially comply with Section 3.”

Does that sound like career lawyers describing a “marginal” or “weak” case? Of course not.

Yet, that is what Mr. Perez told my colleagues on the HELP Committee.

Mr. President, my colleagues are well aware how I feel about the Whistleblower Protection Act.

And my colleagues know how I feel about protecting whistleblowers who have the courage to step forward, often at great risk to their own careers.

But this is about much more than the whistleblower who was left dangling by Mr. Perez.

This is about the fact that Mr. Perez manipulated the rule of law in order to get a case removed from the Supreme Court’s docket.

But most importantly: this is about the fact that when Congress started asking questions about this case – and when Mr. Perez was called upon to offer his testimony under oath – he chose to tell a different story.

And the unavoidable conclusion is that the story he told is flatly not supported by the facts.

We have to demand more.

We have demand that when individuals are called upon to answer questions before the Senate, they shoot straight, regardless of the consequences.

I do not believe Mr. Perez gave us the straight story when he was called upon to answer questions about this case, and for that reason I will strongly oppose his nomination.

I yield the floor.

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