Indemnification of Treasury Department Officers and Employees ( 1991 )

Indemnification of Treasury Department Officers and
Employees
T h e D epartm ent o f Treasury m ay use its general appropriations funds to indem nify any o f its
officers and em ployees against personal liability for conduct arising out o f actions taken
w ithin the co u rse and scope o f their em ploym ent, if the D epartm ent concludes that such
indem nification is necessary to ensure effective perform ance o f the D epartm ent’s m ission.
28 U .S.C . § 2 0 0 6 and 26 U .S.C. § 7423(2) also provide specific authority for the D epartm ent o f
the T reasury to indem nify, in certain circum stances, officers and em ployees w ho collect tax
revenue and w h o enforce federal tax laws.
March 4, 1991
M e m o r a n d u m O p i n io n f o r t h e G e n e r a l C o u n s e l
D epa rtm en t o f th e T rea su ry
This memorandum responds to your request for our opinion whether the
Department o f the Treasury (“Treasury”) may expend funds generally appro­
priated to departmental “salaries and expenses” accounts to indemnify officers
and employees against personal liability for actions taken within the course
and scope of their employment. We agree with your conclusion that the
Department of the Treasury has the authority to indemnify its officers and
employees against personal liability for such conduct if it concludes that
such indemnification is necessary to ensure effective performance of the
Department’s mission. Letter for William P. Barr, Assistant Attorney Gen­
eral, Office of Legal Counsel, from Robert M. McNamara, Jr., Assistant
General Counsel, Department of the Treasury, (Jan. 16, 1990).
Section 2006 of title 28, United States Code, and section 7423(2) of title
26, United States Code, specifically authorize Treasury to indemnify those
officers and employees who are sued for actions taken while enforcing the
Internal Revenue Code. These statutes apply equally to all Treasury em ­
ployees who collect tax revenue and who enforce federal tax laws. The
Department of the Treasury also has the authority to expend funds from its
general operating appropriations to defray necessary departmental expenses,
because the Secretary may determine, as a general matter, that effective perfor­
mance of Treasury’s duties requires the Department to adopt an indemnification
57
policy covering all Department personnel for actions taken during the course
and scope of their employment.
I.
The Department o f the Treasury currently comprises the Departmental
Offices, the Treasury of the United States, the Bureau of Engraving and
Printing, the Bureau of the Mint, the Federal Financing Bank, the Fiscal
Service, the Office of the Comptroller of the Currency, the Customs Service,
the Internal Revenue Service, the Bureau of Alcohol, Tobacco, and Firearms,
and the Secret Service. The Department performs both administrative and
law enforcement functions. See section III, infra.
Because Treasury performs an increasing amount of law enforcement work,
the personal liability of Department personnel has become a significant con­
cern.1 The Supreme Court’s decision in Bivens v. Six Unknown Named Agents,
403 U.S. 388 (1971), permits courts to award damages against a federal
employee personally if, during the course and scope of employment, the
employee violates an individual’s constitutional rights.
This Office has previously addressed the question whether the Depart­
ment o f Justice may protect its employees by indemnifying them from personal
liability for actions taken in the course and scope of their employment.2
Based upon the accepted principle that an agency may use generally appro­
priated funds to defray expenses that are necessary or incident to the
achievement of the agency’s mission and the objectives underlying the appro­
priation, we concluded that Justice is authorized to indemnify its employees
because a clear connection exists between indemnification of the agency’s
employees and achievement o f Justice’s underlying mission. See 10 Op.
O.L.C. at 8-9.3 Shortly thereafter, the Department of Justice issued a policy
statement describing the circumstances under which it would indemnify its em­
ployees. See 51 Fed. Reg. 27,021 (1986); 28 C.F.R. § 50.15 (1990).
Following the Department of Justice’s lead, and referencing its rationale
' W hen Congress enacted the Federal Tort Claims Act (“FTCA"), 28 U.S.C. §§ 2671-2680, which
waived governm ent imm unity in particular cases for torts committed by federal officers and employees,
the num ber o f tort suits against individual officers and employees decreased. In some instances, the
FTCA m akes suits against the government the only federal remedy available after a litigant has pursued
adm inistrative actions against the em ployee 28 U.S.C. § 2675. Therefore, when this memorandum
addresses indem nification o f officers and employees for actions taken within the course and scope of
em ploym ent, it necessarily excludes from coverage all of those actions for which the governm ent is
already liable under the FTCA.
2 Indem nification o f Department o f Justice Employees, 10 Op. O.L.C. 6 (1986); Memoranda for Alice
D aniel. Assistant Attorney General, C ivil Division, from John M. Harmon, Assistant Attorney General.
Office o f Legal Counsel (Aug. 15, 1980 and Aug. 22, 1980) (“Daniel Memoranda” ).
3 The Attorney G eneral’s plenary authority to litigate or otherwise resolve cases involving the United
States and its em ployees provides an alternative ground for our conclusion that the Department of
Justice can indem nify its employees. See 10 Op. O.L.C. at 6-7. See 5 U.S.C. § 3106; 28 U.S.C. §§ 516,
519; Settlem ent A uthority o f the United Stales in Oil Shale Cases, 4B Op. O.L.C. 756 (1980). However,
the prim ary rationale supporting our conclusion continues to be the authority of an agency to expend
appropriated funds in accordance with the mission of the agency and the objectives underlying the
appropriation The application of this rationale is not limited to the Department o f Justice.
58
for indemnification as reflected in Justice’s policy statement,4 eleven other
agencies and departments have instituted employee indemnification programs.5
At least two more plan to activate such programs in the near future.5
28 U.S.C. § 2006 and 26 U.S.C. § 7423(2) provide specific authority for
Treasury to indemnify those officers and employees who enforce the Inter­
nal Revenue Code. Section 2006, the narrower of these two provisions,
requires Treasury to indemnify “collectors] or other revenue officer[s]” for
judgments awarded against them personally for official actions, upon court
certification that probable cause existed for, or that the Secretary of the
Treasury directed, the action.7 If indemnification is warranted, Treasury
must pay the judgment out of the “proper appropriation.” Because any
recovery would be awarded against the individual employee, the judgment
fund, 31 U.S.C. § 3104(a), which is only available to meet judgments against
the United States, would be unavailable.8 Payment should be made from a
Treasury appropriation.
Treasury also retains discretionary authority, under 26 U.S.C. § 7423(2),
to indemnify any United States officer or employee for “[a]ll damages and
costs recovered against [him] . . . in any suit brought . . . by reason of
anything done in the due performance of his official duty under [the Internal
Revenue Code].” Because this section was intended broadly “to exempt
any Government officer or employee from liability for civil damages recov­
ered against him in the performance of his official dut[ies] [under] . . . the
internal revenue laws,”9 it omits the prerequisites for indemnification contained
4 55 Fed. Reg. 4609 (1990) (Interior); 54 Fed Reg. 25,233-34 (1989) (Commodity Futures Trading
Com m ’n); 54 Fed. Reg. 7148 (1989) (Education); 54 Fed Reg. 5613 (1989) (Veterans Admin.); 53 Fed.
Reg. 29,657 (1988) (Agency for Int’l Dev.); 53 Fed. Reg. 27,482 (1988) (N at’l Aeronautics and Space
Admin.); 53 Fed. Reg. 11,279-80 (1988) (Health and Human Services); 52 Fed. Reg. 32,533 (1987)
(Small Business Admin.).
5 12 C.F.R. § 7.5217 (1990) (N at'l Banks, as administered by the Comptroller of the Currency); 12
C.F.R. § 701.33 (1990) (Fed. Credit Unions); 13 C.F.R. §§ 114.110 (1990) (Small Business Admin.); 14
C.F.R. § 1261.316 (1990) (Nat’l Aeronautics and Space Admin.); 17 C.F.R. §§ 142 1-142.2 (1990)
(Commodity Futures Treading Com m 'n); 22 C.F.R. § 207 01 (1990) (Agency for Int’l Dev.); 32 C.F.R.
§§ 516.72, 55 Fed. Reg. 10,371-72 (1990) (Army, Dep’t of Defense); 34 C.F.R. §§ 60.1-60.2 (1990)
(Education): 38 C .F R . § 14.514(c) (1989) (Veterans Affairs); 43 C.F.R. § 22.6, 55 Fed. Reg. 4609
(1990) (Interior); 45 C.F.R. § 36.1 (1989) (Health and Human Services).
6 54 Fed. Reg. 17,549 (1989) (to be codified at 12 C.F.R. § 522.72) (Fed. Home Loan Banks); 54 Fed.
Reg. 16,613 (1989) (to be codified at 10 C.F.R. § 1012) (Dep't of Energy).
7 Congress enacted this section to combat rampant fraud against the Treasury. Act of M arch 3, 1863,
ch. 76, sec. 12, 12 Stat. 737, 741 (1863). Prior to 1863, collectors retained disputed governm ent
revenue until a court could resolve all taxpayer protests. To encourage collectors to deposit federal
revenues in the Treasury. Congress required the government to indemnify collectors against personal
liability for actions taken during collections. United States v. Kates, 314 U.S. 186, 198 (1941); Moore
Ice Cream Co. v. Rose, 289 U.S. 373, 380 (1933). Virtually unmodified since 1863, this section is used
primarily to indemnify Customs Service employees. See Kosak v. United States, 465 U.S. 848, 860
(1984); States M arine Lines, Inc. v. Shultz, 498 F 2 d 1146, 1149-51 (4th Cir. 1974)
• See United States v. Nunnally Inv. Co., 316 U.S. 258. 263-64 (1942), Kales, 314 U.S. at 198-99
(1941); Sage v. United States, 250 U.S. 33. 37 (1919).
9 56 Comp. Gen. 615, 616-17 (1977) quoting; 53 Comp. Gen. 782, 783-84 (1974); see also 40 Comp.
Gen. 95. 97 (1960).
59
in section 2006, requiring only that personal liability result from official
actions. As with section 2006, all reimbursable judgments must be rendered
personally against government personnel, and should be paid from Treasury’s
general appropriations rather than from the judgment fund.10 As a practical
matter, more indemnification will occur under this section than under sec­
tion 2006, because section 7423(2) contains less restrictive prerequisites.
However, both statutes authorize indemnification of only those Treasury em­
ployees who enforce or administer the Internal Revenue Code.
ih l
Beyond this specific indemnification authority, we also conclude, in ac­
cordance with our previous opinion regarding the Department of Justice,
that the Department of the Treasury has general authority to indemnify its
employees because it could determine that indemnification is related both to
its mission and to the objectives underlying its general appropriation. See
10 Op. O.L.C. 6; Daniel Memoranda.
As with the Department of Justice, Treasury may expend generally appro­
priated funds for indemnification only if those expenditures constitute
“necessary expenses” which advance Treasury’s broader statutory mission,
and which fall within the spending limits set by Congress. See 10 Op.
O.L.C. at 8-9; 31 U.S.C. § 1301(a) (“Appropriations shall be applied only to
the objects for which the appropriations were made except as otherwise
provided by law.”); Principles o f Federal Appropriations Law 3-2 to 3-9, 3-
12 (GAO 1982) (“Principles”). A particular expenditure satisfies these
requirem ents if it: 1) directly accomplishes the specific congressional pur­
pose underlying the appropriation; 2) incidentally accomplishes a specific
congressional purpose; or, 3) is generally “necessary” for the realization of
broader agency objectives covered by the appropriation. Principles at 3-12,
3-13; See also 68 Comp. Gen. 583, 585 (1989) (“Even though a particular
expenditure may not be specifically provided for . . ., the expenditure ‘is
perm issible if it is reasonably necessary in carrying out an authorized func­
tion or will contribute materially to the effective accomplishment of that
function.’” ) (quoting 66 Comp. Gen. 356, 359 (1987)).11
N um erous precedents recognize a general nexus between an agency’s
10 T he C om ptroller General has interpreted section 7423(2) to specifically authorize the use o f general
appropriations. 56 Com p. Gen. at 619-20 (overruling contrary decision in 40 Comp. Gen. 95, 97
(I9 6 0 )). Ft m ust be noted that, within the executive branch, decisions of the Com ptroller General, an
agent o f C ongress, are not binding, and operate only as persuasive authority. See Bowsher v. Synar, 478
U.S. 714, 728-32 (1986). Nevertheless, where possible, the executive branch will accord deference to
the C om ptroller G eneral’s opinions.
" T hrough line item s in the Treasury Appropriations Act of 1991, Congress appropriated funds to
defray departm ental salaries and expenses. Pub. L. No. 101-509, 104 Stat. 1389 (1990). Thus, Trea­
sury has m oney available in its general accounts to expend for indemnification.
60
mission and indem nification of that agency’s personnel.12 As early as 1838,
Attorney General Butler authorized the Navy to pay a judgment rendered
against a naval officer:
The recovery was for acts done by Commodore Elliot in the
performance of his official duty, and for costs occasioned by
the defence made by the United States. It is therefore one of
those cases in which the officer ought to be fully indemnified.
3 Op. Att’y Gen. 306 (1838).13 Similarly, the Comptroller General advised
the Department of the Interior to defray a personal judgment rendered against
two game wardens who had entered private land at the direction of their
superior officers:
They were required to act in the line of duty, and they in­
tended faithfully to carry out the law enforcement activity of
the Bureau. Under these circumstances, and especially since
they were directed by their superiors, the Government is obli­
gated to compensate them. . . .
. . . Accordingly, reimbursement to the claimants should be
charged to the Department of the Interior appropriation avail­
able to the B ureau for necessary expenses o f its law
enforcement program.
See Comp. Gen. B-168571-O.M. at 2-3 (1970).14
12 We agree with your conclusion that the specific indemnification statutes discussed in section II fail
to support a negative inference that indemnification is unauthorized unless expressly provided for by
law. Rather, these provisions address specific congressional objectives, and do not represent an affir­
mative congressional decision that indemnification o f Department of the Treasury em ployees is not
appropriate even if it is deem ed necessary to promote the general efficiency o f the Department. 28
U.S.C. § 2006 requires mandatory rather than discretionary indemnification when specified conditions
are met, in order to facilitate a decision to have government rather than revenue agents control the sum s
collected as government revenue. See supra note 8, 26 U.S.C. § 7423(2) is not specifically focused on
the Department o f the Treasury, but permits indemnification o f all tax enforcement personnel, whether or
not those employees work for Treasury.
15 See also Tracy v. Swartwout, 35 U.S. 80, 98-99 (1836) (“Some personal inconvenience may be
experienced by an officer who shall be held responsible in damages for illegal acts done under instruc­
tions o f a superior; but, as the government in such cases is bound to indemnify the officer, there can be
no eventual hardship.”); 53 Comp. Gen. 3 0 1, 305 (1973) (“It is well established that where an officer of
the United States is sued because of some official act done in the discharge o f an official duty the
expense of defending the suit should be borne by the United States.”).
14 The Com ptroller General has usually reached similar conclusions concerning the availability o f
general appropriations to pay for indemnification. See 10 Op. O.L.C. at 11-12. On occasion, the
Com ptroller General has suggested that indemnification requires specific statutory authorization. See
56 Comp. Gen. 615, 618 (1977); 40 Comp. Gen. 95, 97 (I960). Each o f these opinions begins from the
premise that:
[Tjhe appropriations or funds provided for regular governmental operations or activities,
out o f which a cause o f action arises, are not available to pay judgm ents o f courts in the
Continued
61
Two distinct rationales are available to support your conclusion that in­
demnification of Treasury officials is appropiate. Treasury may conclude
that its ability to attract qualified employees is threatened by applicants’
fears that they risk personal financial liability for actions taken in the course
o f government employment. See Harlow v. Fitzgerald, 457 U.S. 800, 814
(1982) (“The[] social costs [of constitutional claims against government offi­
cials] include the expenses o f litigation, the diversion of official energy from
pressing public issues, and the deterrence o f able citizens from acceptance o f
pu b lic office.") (emphasis added).
Treasury may also conclude that the willingness of its employees, once
hired, to make difficult government decisions, to perform fully the functions
assigned to them, and to follow orders issued by their superiors, will depend
upon the extent to which the employees fear personal liability imposed in “a
lawsuit arising out of the good faith performance of their jobs.” 67 Comp.
Gen. 37, 38 (1987). The Supreme Court has repeatedly recognized the chill­
ing effect which the threat o f litigation exerts on government employees:
‘In exercising the functions of his office, the head of an Ex­
ecutive Department, keeping within the limits of his authority,
should not be under an apprehension that the motives that
control his official conduct may, at any time, become the sub­
ject of inquiry in a civil suit for damages. It would seriously
cripple the proper a n d effective administration o f public af­
fa irs as entrusted to the executive branch o f the government,
if he were subjected to any such restraint.’
B arr v. M atteo, 360 U.S. 564, 570 (1959) (emphasis added) (quoting Spalding
v. Vilas, 161 U.S. 483, 498-99 (1896)). See Westfall v. Erwin, 484 U.S. 292,
295 (1988); H arlow, 457 U.S. at 814. See also Anderson v. Creighton, 483
U.S. 635, 638 (1987) (“[F]ear of personal monetary liability and harassing
litigation will unduly inhibit [FBI agents] in the discharge of their duties”).
In light of the potential threat posed to Treasury’s law enforcement and
administrative missions by the prospect of personal employee liability, Trea­
sury may conclude that, by removing this threat, personnel indemnification
facilitate s D epartm ental o b jectiv es.15 See W estfall, 484 U.S. at 295
M(....continued)
absence o f specific provision therefor.
56 Com p. Gen. at 618; 40 Comp. Gen. at 97. However, these statements are dicta because the Com ptrol­
ler G eneral was construing the specific indemnification provision in 26 U.S.C. § 7423, and thus did not
have to consider whether indemnification of officials was justified as an expense necessary to the general
efficiency o f the Departm ent.
15 T hreats o f personal liability for official conduct have confronted Treasury personnel: Internal
Revenue Service, G.M. Leasing Corp. v. United States, 429 U.S. 338 (1977), National Commodity and
B arter A s s ’n v. Gibbs, 886 F.2d 1240 (10th Cir. 1989), Liffiton v. Keuker, 850 F.2d 73 (2d Cir. 1988);
Custom s Service, Nathanson v. United States, 290 U.S. 41 (1933), Seguin v. Eide, 720 F.2d 1046 (9th
Cir. 1983); Secret Service, Peppers v. Coates, 887 F.2d 1493 (11th Cir. 1989), Galella v. Onassis, 487
F.2d 986, (2d Cir. 1973) (“The protective duties assigned the [secret service] agents under [§ 3056],
however, require the instant exercise o f judgm ent which should be protected.”).
62
(“ [E]ffective government will be promoted if officials are freed from the
costs of vexatious and often frivolous damages suits.”). Thus, Treasury’s
indemnification plan would qualify as a necessary departmental expense,
and would satisfy the prerequisites for an expenditure of funds from Treasury’s
general appropriations. Treasury may use the funds in its general appropria­
tions to indemnify all Department personnel for actions taken within the
course and scope of their employment.
IV.
There are three qualifications on this indemnification authority. First, in
order to satisfy the requirements of the Anti-Deficiency Act, 31 U.S.C. §
1341(a)(1)(A), Treasury must be certain, before obligating itself to indem­
nify a particular employee, that unexpended funds remain available in the
account which Treasury intends to use for the reimbursement.16 Second, not
every personal judgm ent rendered against an employee is reimbursable.
Where the incident which results in liability occurs during the performance
of, but not as part of, an employee’s official duties, the conduct falls outside
the scope of employment. The individual employee must bear any fines
imposed or judgments rendered because of such conduct, and Treasury must
assess each case individually to determine whether the resulting liability
was incident to the accomplishment of official Treasury business. 59 Comp.
Gen. 489, 493 (1980). See also 57 Comp. Gen. 270, 271 (1978) (traffic
violations); 31 Comp. Gen. 246, 247 (1952) (double parking to make a deliv­
ery is unauthorized conduct). Finally, although no annual or permanent
statutory limitations currently restrict Treasury’s authority to indemnify em ­
ployees, Treasury must regularly canvass new legislation to ensure that
Congress has not enacted a limiting provision which might prevent Treasury
from expending generally appropriated funds for indemnification.
CONCLUSION
The Department of the Treasury has both specific and general authority to
indemnify its officers and employees against personal liability imposed on
them for actions taken within the course and scope of their employment. 28
U.S.C. § 2006 and 26 U.S.C. § 7423(2) provide specific indemnification
authority for employees involved in income tax collection and enforcement.
For all other employees, the Department may invoke its authority to expend
funds from its “salaries and expenses” appropriations to defray “necessary
16 The Anti-Deficiency Act prohibits employees o f the United States from authorizing an “expendi­
ture o r obligation exceeding an amount available in an appropriation or fund for the expenditure or
obligation.” 31 U.S.C. § 1341(a)(1)(A).
63
expenses” of the Department in the event that it concludes that such indemni­
fication is necessary to prevent the threat of personal liability from interfering
with the effective performance of the Department’s mission.
JOHN O. MCGINNIS
Deputy Assistant Attorney General
Office o f Legal Counsel
64