Obama Administration Relied on the “Clinton Defense” to Justify DOE’s Unprecedented Maneuver that Violated Law in Solyndra Mess

July 25, 2012

WASHINGTON, DC – As the Energy and Power Subcommittee prepares to vote on the “No More Solyndras Act,” the House Energy and Commerce Committee this morning released an extensive report on the legality of the Department of Energy’s decision to move Solyndra’s wealthy investors ahead of taxpayers in the restructuring of the solar company’s $535 million loan guarantee. Energy and Commerce members have raised significant concerns over this clear violation of the Energy Policy Act of 2005. According to the committee’s findings, DOE had already agreed on the terms of the restructuring and preferential treatment of the investors before conducting a legal analysis of whether its actions were in compliance with the law.

During its 18-month investigation into the failed half billion dollar loan guarantee, the committee revealed that DOE officials moved to restructure the Solyndra loan when it became apparent that Solyndra was running out of cash. With the company’s solvency in serious doubt, the Obama administration agreed to put wealthy investors at the front of the line in exchange for the investors contributing an additional $75 million to keep the company afloat.

After conducting an exhaustive review of the facts and circumstances relating to DOE’s decision to subordinate taxpayers’ interests, as well as of the legal arguments made by DOE in an attempt to justify its decision, the committee found DOE’s actions to be a clear violation of the law. The report states, “It is clear, based on the plain language of the statute and common principles of statutory interpretation, that subordination of a guaranteed loan to other financing, at any time during the life of the loan, violates subsection 1702(d)(3) of Title XVII.  Further, Committee staff’s review of the manner in which the legal memorandum was drafted, and the reactions and opinions of other Executive Branch agencies regarding the subordination issue, demonstrate clearly that officials at DOE, OMB, and the Treasury Department did not believe that subordination was proper.”

According to the report, DOE also employed the “Clinton Defense” in distorting the definition of the word “is” in the statute to legally justify subordination. The report states, “DOE attempts to justify this reading of the provision by viewing the use of the word ‘is’ as a temporal limitation on the subordination requirement confined to the moment the Secretary issues the guarantee.  In doing so, DOE ignores the rest of the language of the statute.”

While the plain letter of the law prohibits subordination, DOE has yet to accept responsibility for its unlawful actions. During a recent committee hearing, David Frantz, Acting Executive Director of the DOE Loan Programs Office, defended DOE’s decision and explained that DOE still believes it has the authority under the Energy Policy Act to subordinate its interest in a loan guarantee to another party, and that DOE would, if necessary, subordinate the taxpayers’ interest on other loan guarantees in the future.

Rep. Steve Scalise (R-LA) grilled Frantz over the legal authority of the department to put investors ahead of taxpayers, pointing to documents and emails uncovered by the committee’s investigation showing DOE was repeatedly warned against taking such action. 

The committee report concludes, “When DOE agreed to subordinate its obligation to third-party financing, it did so in violation of the law. (T)he absence of a subordination scenario in DOE’s financial modeling assumptions strongly suggests that, prior to the restructuring, DOE and other Executive Branch agencies knew that subordination was not a legal option. The manner in which DOE’s memorandum was drafted and the reaction of other Executive Branch agencies cast further doubt on the legal conclusions of DOE.” 

To stop DOE’s legal abuse and to ensure taxpayers are never again pushed to the back of the line, full committee Chairman Fred Upton (R-MI) and Oversight and Investigations Subcommittee Chairman Cliff Stearns (R-FL) authored legislation enhancing protections against subordination of the taxpayers in the restructuring of any pending loan guarantees. In addition to phasing out the loan guarantee program, the “No More Solyndras Act” will prohibit DOE officials from restructuring the terms of any guarantee unless they first consult with Treasury. Just as with current law, the Act also prohibits the subordination of U.S. taxpayer dollars to any other investors.

To offer taxpayers further protection against subordination, Rep. Michael Burgess (R-TX) successfully attached an amendment to the draft legislation that would subject senior federal employees and federal appointees to remedial action, including suspension without pay and removal, for violations of any requirements of the Title XVII loan guarantee program.

For a copy of the committee’s report on subordination, click HERE.

For a copy of the report’s supporting documents, click HERE.