Bill Clinton’s parsing of the word is during a deposition on the Lewinsky scandal arguably became the low point in his presidency. A report on the Solyndra debacle issued Thursday by the House Energy and Commerce committee reveals a similar parsing of the word by the Department of Energy was responsible for the decision to subordinate taxpayers to the interests of private investors.
Solyndra received its first government guaranteed loan in September 2009. By late 2010, the company was running out of cash and facing the possibility of bankruptcy. DOE agreed to restructure the loan in December but there was one sticking point. And OMB rule regarding Federal credit programs appeared to say that government interests should not be subordinated to private interests. In order to restructure the loan for Solyndra, DOE would first have to find a legal rationale to get around the existing rule.
In early January 2011, lawyers at Morrison & Foerster were Department of Energy outside counsel. They held several phone meetings with lawyers for Solyndra about the legal rationale for subordinating the government’s first position loan to that of private interests willing to help keep the company afloat. In first position, the government (aka the taxpayers) would be repaid first in the case of bankruptcy, but if the government subordinated its loan to outside investors, they would be paid off first in the event of failure and the government would get whatever was left.
At issue was OMB Circular No. A-129 (Revised) which “prescribes policies and procedures for managing all Federal credit programs.” Section II of the OMB circular is explicit about subordinating loans to other lenders “The Government’s claims should not be subordinated to the claims of other creditors, as in the case of a borrower’s default on either a direct loan or a guaranteed loan. Subordination increases the risk of loss to the Government, since other creditors would have first claim on the borrower’s assets.” According to Thursday’s committee report, the DOE rationale for ignoring this was based on its interpretation of the tense of the language:
The legal theory advanced by DOE in these drafts is the same theory Ms. Richardson explained to OMB during the conference call. In short, DOE viewed the prohibition on subordination as a “condition precedent to the issuance of a loan guarantee” and not a “requirement that the guaranteed loan may never be subordinated, or as a restriction on the authority of the Secretary following the issuance of a loan.” DOE based its interpretation of the subordination provision on its placement in the statute and the “plain meaning of the words.” DOE focused on the word “is” in the subordination provision and argued that because the provision was stated in the present tense — “the obligation is not subordinate to other financing” — it applied only at a “single point in time.”
This interpretation of the law, that the tense of the memo indicated DOE was allowed to subordinate any time after the origination of the loan, was not shared by the Treasury Deptartment which told DOE it should refer to the matter to the Deptartment of Justice unless it had some legal justification of which Treasury was not aware. However, DOE declined to do that and instead relied on its own unique interpretation of the statute.
After Solyndra declared bankruptcy in 2011, Secretary Chu was called to testify on the justification to subordinate before Congress. Keep in mind that all of this is based on the meaning of the word is:
A lot like this:
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