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States participating in the Food Stamp Program receive from the United States Department of Agriculture coupons that they distribute to qualified individuals and households. If they distribute the coupons through the mail, they must reimburse the Federal Government for part of the replacement cost for any coupons that are lost or stolen. Texas, which contractually bound itself to comply with all federal regulations governing the program, incurred substantial mail issuance losses and was informed that prejudgment interest would begin to accrue on its debt unless payment was made within 30 days. After being denied administrative relief, Texas filed suit against the United States, arguing, inter alia, that the Debt Collection Act of 1982 (Act) abrogated the United States' common law right to collect prejudgment interest on debts owed to it by the States. The District Court granted summary judgment in favor of the United States, but the Court of Appeals reversed.
Held:
The Act left in place the States' federal common law obligation to pay prejudgment interest on debts owed to the Federal Government. Pp. 533-539.
REHNQUIST, C.J., delivered the opinion of the Court, in which WHITE, BLACKMUN, O'CONNOR, SCALIA, KENNEDY, SOUTER, and THOMAS, JJ., joined. STEVENS, J., filed a dissenting opinion, post, p. 539.
Thomas G. Hungar argued the cause for petitioners. With him on the briefs were Solicitor General Starr, Acting Solicitor General Bryson, Assistant Attorney General Gerson, Deputy Solicitor General Roberts, William Kanter, and Bruce G. Forrest.
James C. Todd argued the cause for respondents. With him on the brief were Dan Morales, Attorney General of Texas, Will Pryor, First Assistant Attorney General, Mary F. Keller, Deputy Attorney General, Edwin N. Horne and Christopher Johnsen, Assistant Attorneys General, and Jorge Vega.
CHIEF JUSTICE REHNQUIST delivered the opinion of the Court.
In this case, we decide the question left open in West Virginia v. United States,
Texas incurred the instant debts as a result of participation in the Food Stamp Program, 78 Stat. 703, as amended, [507 U.S. 529, 531] 7 U.S.C. 2011 et seq. Under that program, the Food and Nutrition Service (FNS) of the United States Department of Agriculture provides food stamp coupons to participating States, and the States then distribute the coupons to qualified individuals and households. 2013(a), 2014. Regulations implementing the Food Stamp Program permit participating States to distribute the coupons either over the counter or through the mail. 7 CFR 274.3(a) (1986); 7 CFR 274.3(a)(3) (1992). While mail issuance generally is cheaper and more convenient, States that choose to use that distribution method must reimburse the Federal Government for a portion of the replacement cost for any lost or stolen coupons. 7 U.S.C. 2016(f). Specifically, a State must reimburse the Government for all such losses above a "tolerance level" set by regulation. 1
Texas, through its Department of Human Services, contractually bound itself to comply with all federal regulations governing the program. See 7 CFR 272.2(a)(2), 272.2(b)(1) (1986). 2 Texas incurred substantial mail issuance [507 U.S. 529, 532] losses, in part because United States Postal employees stole food stamps that had been mailed by the Texas Department of Human Services to qualified households. Because those losses exceeded the applicable tolerance level, Texas was bound to reimburse the Federal Government for the excess losses. The FNS notified Texas of its debt in the amount of $412,385, and informed it that prejudgment interest would begin to accrue on the balance unless payment was made within 30 days.
Texas sought administrative relief in the form of a waiver of liability. After the Food Stamp Appeals Board denied the requested relief, Texas sued the United States in the United States District Court for the Western District of Texas. In addition to challenging the Appeals Board's refusal to grant a waiver of liability, Texas argued that the Debt Collection Act precluded the imposition of prejudgment interest on any amount it owed the Federal Government. The District Court granted summary judgment in favor of the United States on both issues. With respect to the prejudgment interest issue, the District Court adopted the approach taken by the Court of Appeals for the Tenth Circuit in Gallegos v. Lyng, 891 F.2d 788 (1989), which held that the Government's common law right to prejudgment interest on debts owed to it by the States survived enactment of the Debt Collection Act. See Civ. Action Nos. A-87-CA-774, A-88-CA-820 (WD Tex., Nov. 13, 1990).
The Court of Appeals for the Fifth Circuit affirmed the District Court's decision concerning waiver, but reversed its
[507
U.S. 529, 533]
decision concerning prejudgment interest. 951 F.2d 645 (1992). Relying on the language of the Debt Collection Act, the Court held that the "Act is not silent concerning whether or not state obligations should be subject to prejudgment interest. The Act specifically excludes states from the payment of interest." Id., at 651. Because Congress did not impose interest through the specific provisions of the Food Stamp Act "during the time period relevant in this case, the Courts are not free to `supplement' Congress' enactment." Ibid. (quoting Mobil Oil Corp. v. Higginbotham,
It is a "longstanding rule that parties owing debts to the Federal Government must pay prejudgment interest where the underlying claim is a contractual obligation to pay money. West Virginia v. United States,
Just as longstanding is the principle that "[s]tatutes which invade the common law . . . are to be read with a familiar principles, except when a statutory purpose to the contrary is evident." Isbrandtsen Co. v. Johnson,
Texas argues that this presumption favoring retention of existing law is appropriate only with respect to state common law or federal maritime law. Although a different standard applies when analyzing the effect of federal legislation on state law, id., at 316-317, there is no support in our cases for the proposition that the presumption has no application to federal common law, or for a distinction between general federal common law and federal maritime law in this regard. We agree with Texas that Congress need not "affirmatively proscribe" the common law doctrine at issue. Brief for Respondents 3-4; see Milwaukee, supra, at 315. But as we stated in Astoria, supra, "courts may take it as a given that Congress has legislated with an expectation that the [common law] principle will apply except `when a statutory purpose to the contrary is evident.'"
The Debt Collection Act does not speak directly to the Federal Government's right to collect prejudgment interest on debts owed to it by the States. The Act states that "[t]he head of an executive or legislative agency shall charge a minimum annual rate of interest on an outstanding debt on a [507 U.S. 529, 535] United States Government claim owed by a person. . . ." 31 U.S.C. 3717(a)(1) (emphasis added). Section 3701, in turn, provides that the term "`person' does not include an agency of the United States Government, of a State government, or of a unit of general local government." 3701(c). Texas argues that this exemption clearly establishes Congress' intent to relieve the States of their common law obligation to pay prejudgment interest. We disagree.
The only obligation from which 3701 exempts the States is the obligation to pay prejudgment interest in accordance with the mandatory provisions of the Act. These impose a stringent minimum interest requirement upon private persons owing money to the Federal Government. The statute is silent as to the obligation of the States to pay prejudgment interest on such debts. We agree with the Solicitor General that "Congress's mere refusal to legislate with respect to the prejudgment interest obligations of state and local governments falls far short of an expression of legislative intent to supplant the existing common law in that area." Brief for Petitioners 16. 4 [507 U.S. 529, 536]
Our conclusion that the States remain subject to common law prejudgment interest liability is supported by the fact that the Debt Collection Act is more onerous than the common law. Section 3717(a) requires federal agencies to collect prejudgment interest against persons and specifies the interest rate.
5
The duty to pay prejudgment interest under the common law, however, is by no means automatic. Before imposing prejudgment interest, the courts must weigh the competing federal and state interests. West Virginia,
The evident purpose of the Debt Collection Act reinforces our reading of the plain language. The Act was designed "[t]o increase the efficiency of Government-wide efforts to collect debts owed the United States and to provide additional procedures for the collection of debts owed the United States." 96 Stat. 1749; S.Rep. No. 97-378 p. 2 (1982) (the Act responded to "increasing concern . . . expressed in Congress [507 U.S. 529, 537] and elsewhere over the increasing backlog of unpaid debts owed the federal government"). This suggests that Congress passed the Act in order to strengthen the Government's hand in collecting its debts. Yet, under the reading proposed by Texas and the Court of Appeals, the Act would have the anomalous effect of placing delinquent States in a position where they had less incentive to pay their debts to the Federal Government than they had prior to its passage.
The Court of Appeals reasoned that the States would not have an incentive to delay payment of their debts, because the Food Stamp Act makes state agencies liable for actual losses caused by coupon shortages or unauthorized issuances, and permits the Federal Government to recover these debts through an administrative offset procedure. 951 F.2d, at 650. But the Debt Collection Act applies to all federal agencies, not just the FNS. Thus, the existence of a mechanism in the Food Stamp Act allowing the FNS to collect its debts does nothing to encourage prompt payment of debts government-wide. That the FNS may have already possessed adequate sanctions to compel payment is not a reason to conclude that the generic language in the Debt Collection Act was meant to abrogate the existing common law obligation of the States generally.
Texas concedes that Congress intended to enhance the Government's debt collection efforts by passing the Act. It argues, however, that Congress was concerned primarily with debts owed by private persons. Accordingly, runs the argument, Congress meant to relieve the States of their duty to pay interest because the States were not the root of the debt collection problem.
Part of this argument persuades; Congress in the Act tightened the screws, so to speak, on the prejudgment interest obligations of private debtors to the Government, and not on the States. It may be inferred from this fact that the former were the root of the Government's debt collection problems which inspired the Act. But it does not at all [507 U.S. 529, 538] follow that, because Congress did not tighten the screws on the States, it therefore intended that the screws be entirely removed. The more logical conclusion is that it left the screws in place, untightened.
As a last-ditch argument, Texas contends that its liability for losses in the mail is not a contractual debt for which it owes prejudgment interest, but rather a penalty unilaterally imposed by Congress. See Rodgers v. United States,
For these reasons, we hold that the Debt Collection Act left in place the federal common law governing the obligation of the States to pay prejudgment interest on debts owed to the Federal Government.
The judgment of the Court of Appeals to the contrary is accordingly
[ Footnote 2 ] Title 7 CFR 272.2(a)(2) (1992) provides in pertinent part:
[ Footnote 3 ] The Tenth Circuit holds that the Debt Collection Act of 1982 did not abrogate the Federal Government's common law right to collect prejudgment interest against the States. Gallegos v. Lyng, 891 F.2d 788 (1989). The Second, Third and Eighth Circuits all hold to the contrary. See Perales v. United States, 751 F.2d 95 (CA2 1984) (per curiam); Pennsylvania Dept. of Public Welfare v. United States, 781 F.2d 334 (CA3 1986); Arkansas by Scott v. Block, 825 F.2d 1254 (CA8 1987).
[ Footnote 4 ] Both Texas and the Court of Appeals rely on Congress' authority to impose interest obligations on the States through specific statutes, such as the Medicaid Act, 42 U.S.C. 1396b(d)(5), and the Social Security Act, 42 U.S.C. 418(j) (1982 ed.), to support the proposition that the Debt Collection Act extinguished the Federal Government's common law right to collect prejudgment interest. Both statutes, however, codified and made mandatory the common law right to collect prejudgment interest at a specified interest rate. Like the Debt Collection Act, these statutes changed the common law. Congress' obvious desire to enhance the common law in specific, well-defined situations does not signal its desire to extinguish the common law in other situations.
Texas also relies on the recent amendment to 7 U.S.C. 2022 adding a provision requiring prejudgment interest on specific obligations arising under the Food Stamp Act of 1977. Pub.L. 100-435, 602, 102 Stat. 1674 (1988). But "subsequent legislative history is a `hazardous basis for inferring the intent of an earlier' Congress." Pension Benefit Guaranty Corp. v. LTV Corp.,
[ Footnote 5 ] The interest rate required under 3717 is "the average investment rate for the Treasury tax and loan accounts for the 12-month period ending on September 30 of each year, rounded to the nearest whole percentage point." 31 U.S.C. 3717(a)(1).
[
Footnote 6
] Both Texas and the Court of Appeals rely upon our decision in Pennhurst State School and Hospital v. Halderman,
JUSTICE STEVENS, dissenting.
As the Court correctly notes, the requirement that private parties must pay prejudgment interest on contractual debts owed to the United States is a common law rule of long standing. Ante, at 533. Over a century ago, we recognized an equally well-established exception to that rule: the United States is not entitled to recover interest from a State unless the State's consent to pay such interest has been expressed in a statute or binding contract. United States v. North Carolina,
The presumption that a sovereign State is "always ready to pay what it owes"
4
may well have been just as fictional as the presumption that the King could do no wrong, but it nevertheless was firmly embedded in the common law.
5
Moreover, even today, the tradition of according special respect to a sovereign State whenever it is subjected to the coercive powers of judicial tribunals is very much alive. See e.g., Puerto Rico Aqueduct and Sewer Authority v. Metcalf & Eddy, Inc.,
The Court is also correct in noting that we are reluctant to infer a legislative abrogation of the common law. Ante, at 534. We presume that Congress understands the legal terrain in which it operates, see Cannon v. University of Chicago,
When Congress enacted the Debt Collection Act of 1982, the question whether interest might ever be collected from a sovereign State unless explicitly authorized was undecided by this Court. We had never held that the United States could demand prejudgment interest on a debt owed to it by a State. Not until five years later, in West Virginia v. United States,
In Board of Comm'rs of Jackson County v. United States,
In fact, in West Virginia, we rejected the balancing of equities that Board of Comm'rs had suggested might be the only basis for charging a State with prejudgment interest.
8
There, the State of West Virginia had refused to reimburse the Federal Government for costs advanced to it under the Disaster Relief Act of 1970. The Court held that "any rule exempting a sovereign from the payment of prejudgment interest not only does not apply of its own force to the State's obligations to the Federal Government, cf. Library of Congress v. Shaw,
Thus, even though the Court today suggests that its decision is merely an application of Board of Comm'rs and West Virginia, it actually takes a significant and independent step toward equating the Government's right to collect prejudgment interest from the States with the Government's right [507 U.S. 529, 544] to demand prejudgment interest from all private parties in every case. 9 Even if such an equation were well-advised, which it may well be, it would say nothing about whether Congress had any reason to know in 1982 that the common law was moving in that direction, much less that it had already arrived there. Yet the Court supports today's decision because the 97th Congress did not clearly state its intention to abrogate a rule that we now make clear for the first time.
My point, in sum, is not that the States had an absolute common law immunity from a claim for prejudgment interest in 1982; it is only that the State's obligation to pay such interest was so much less than a confirmed rule that we cannot say that the 1982 enactment "left [it] in place," ante at 539. "[F]avoring the retention of long-established and familiar principles," Isbrandtsen Co. v. Johnson,
I respectfully dissent.
[
Footnote 1
] "Interest, when not stipulated for by contract, or authorized by statute, is allowed by the courts as damages for the detention of money or of property, or of compensation, to which the plaintiff is entitled; and, as has been settled on grounds of public convenience, is not to be awarded against a sovereign government unless its consent to pay interest has been manifested by an act of its legislature, or by a lawful contract of its executive officers. United States v. Sherman,
[
Footnote 2
] The individual States retain no sovereign immunity against the Federal Government. United States v. Texas,
[
Footnote 3
] "Judgments, it is true, are by the law of South Carolina, as well as by Federal legislation, declared to bear interest. Such legislation, however, has no application to the government. And the interest is no part of the
[507
U.S. 529, 540]
amount recovered. It accrues only after the recovery has been had. Moreover, whenever interest is allowed either by statute or by common law, except in cases where there has been a contract to pay interest, it is allowed for delay or default of the debtor. But delay or default cannot be attributed to the government. It is presumed to be always ready to pay what it owes." United States v. Sherman,
[ Footnote 4 ] See n. 3, supra.
[ Footnote 5 ] See, e.g., Attorney General v. Cape Fear Navigation Co., 37 N.C. 444, 454 (1843) ("[T]he general rule is, that the State never pays interest, unless she expressly engages to do so"); State v. Thompson, 10 Ark. 61 (1849).
[ Footnote 6 ] Title 31 U.S.C. 3717(a) requires the appropriate government official to charge interest "on an outstanding debt on a United States Government claim owed by a person," but 31 U.S.C. 3701(c) provides that, for purposes of this section, the term "`person' does not include an agency of the United States Government, of a State government, or of a unit of general local government."
[ Footnote 7 ] So long as we are going to credit the Congress with a post hoc understanding of the common law, we might as well refer to the post hoc comments of the author of the amendment, Senator Percy:
[
Footnote 8
] "The cases teach that interest is not recovered according to a rigid theory of compensation for money withheld, but is given in response to considerations of fairness. It is denied when its exaction would be inequitable. United States v. Sanborn,
[ Footnote 9 ] Whatever it says about reserving discretion about when interest should be imposed, and at what rate, ante, at 536, the Court has tacitly authorized an extension of the rule on which we relied in West Virginia by affirming its application to a claim for prejudgment interest on a strict liability, loss-spreading provision of the Food Stamp Program. [507 U.S. 529, 545]
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Citation: 507 U.S. 529
No. 91-1729
Argued: March 01, 1993
Decided: April 05, 1993
Court: United States Supreme Court
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