FRIDAY, MARCH 12, 1982.

OFFICE OF THE GENERAL COUNSEL

WITNESSES

A. JAMES BARNES, GENERAL COUNSEL

JOHN E. NOAKES, DEPUTY GENERAL COUNSEL

ROBERT H. SINDT, EXECUTIVE ASSISTANT TO THE GENERAL COUNSEL JEANNE M. STANEK, BUDGET OFFICER, OFFICE OF FINANCE AND MANAGEMENT

STEPHEN B. DEWHURST, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE

OPENING REMARKS

Mr. WHITTEN. The Committee will come to order.

We have with us today Mr. James Barnes, the General Counsel, his deputy, Mr. Noakes and their associates. We will be glad to hear you at this time. You may present any new witnesses to the Committee and we will insert a biographical sketch in the record. [The biographical sketches follow:]

A. JAMES BARNES

Mr. Barnes has served as General Counsel of the Department of Agriculture since May, 1981. In that capacity he is chief legal advisor to the Secretary and the Department, and is responsible for the management of approximately 225 attorneys in the Office of the General Counsel.

From 1975 until his confirmation as General Counsel, Mr. Barnes was an associate and partner in the Washington law firm of Beveridge, Fairbanks and Diamond, and was an Adjunct Professor in the School of Business Administration at Georgetown University. In 1974 Mr. Barnes served as campaign manager for the successful reelection campaign of Governor William G. Milliken of Michigan. Mr. Barnes served in several governmental capacities from 1969 through 1973. He was Assistant to the Deputy Attorney General, Assistant to the Administrator of the Environmental Protection Agency, Special Assistant to the Assistant Attorney General (Civil Division), and trial attorney in the Department of Justice.

Mr. Barnes also served as an Assistant Professor in the Graduate School of Business at Indiana University from 1967 to 1969. He has authored several textbooks on business law.

Mr. Barnes was born in Napoleon, Ohio, and was graduated with high honors from Michigan State University in 1964 where he was President of the Student Government. In 1967 he received his J.D. degree, cum laude, from the Harvard Law School. He is a member of the Indiana and District of Columbia Bars. Mr. Barnes resides in the District of Columbia with his wife and one child.

JOHN E. NOAKES

Mr. Noakes has been serving as Deputy General Counsel of the Department of Agriculture since June, 1981. Prior thereto he was engaged in private and corporate legal practice representing agricultural groups, cooperatives and dairy industry firms in the Northeast United States.

Mr. Noakes was born in Syracuse, New York, in 1920 and received a J.D. degree from the Syracuse College of Law in 1947. He is a member of the bar of the State of New York.

ROBERT H. SINDT

Mr. Sindt has served as Executive Assistant to the General Counsel of the Department of Agriculture since July, 1981. He was elected in 1978, and served from 1979 until his appointment as Executive Assistant to the General Counsel, as Buffalo County, Nebraska, Attorney. In 1977 and 1978 Mr. Sindt was a Deputy Buffalo County, Nebraska, Attorney. From 1975 to 1977 Mr. Sindt served as the agricultural aide to Senator Roman L. Hruska and as a minority counsel to the U.S. Senate Committee on the Judiciary. He also was an Instructor of Agricultural Law at the University of Nebraska in 1975.

Mr. Sindt is a native of Minden, Nebraska, and was reared on his family's farm in Franklin County, Nebraska. He received his B.S. degree in Agricultural Economics from the University of Nebraska in 1972, and received his J.D. from the University of Nebraska College of Law in 1975. He is a member of the Nebraska Bar. Mr. Sindt resides in Maryland with his wife.

Mr. WHITTEN. Proceed as you wish.

Mr. BARNES. Thank you very much, Mr. Chairman.

It is our pleasure to have the opportunity to appear before you this morning to discuss the Office of General Counsel's budget request for 1983.

INTRODUCTION OF WITNESSES

Since I have a couple of people at the table who came to the Office of General Counsel during the last year, I would like to introduce them to you at this time.

On my left is the Deputy General Counsel, Mr. John Noakes, and on my right from the State of Nebraska is Robert Sindt who is my Executive Assistant.

On my far right is Jeanne Stanek, who is the Budget Officer for my Office and on my far left is Steve Dewhurst, who is the Budget Director for the Department.

FISCAL YEAR 1983 BUDGET REQUEST

We have, of course, submitted our statement for the record. I would just note briefly that as we come before you this morning, we are asking for a budget request of $14,197,000. Basically that would maintain the office at the same level at which it is currently operating.

There is an increase in our budget request to cover pay costs absorbed during fiscal year 1982 and part of our rent increase. We have also asked for $60,000 to help us significantly upgrade our word processing capacity.

With that introduction I will stop and will be happy to respond to any questions that you or members of the Committee may have. [CLERK'S NOTE.-The General Counsel's statement appears on pages 443 to 452. The explanatory notes are on pages 453 to 483.] Mr. WHITTEN. Thank you very much. Most of our members have worked with the Department for a long time. We recognize the need for a General Counsel's Office. In view of the complex legal needs of the Commodity Credit Corporation and other Department operations, there is a real need.

We point out periodically that once you develop legally acceptable forms and set up methods of operation, you don't have to hire a new lawyer every time you have a new problem. We have mentioned that from time to time.

There is one item that I would like to go into which carries over from last year.

CONGRESSIONAL DIRECTIVE-FMHA LOAN PROGRAMS

On page 37 of the Committee report on the 1982 bill, we directed the Office of General Counsel to make a full and complete report on the questions raised about FmHA emergency loan agreements. We also asked you for a description of the procedures set in place for the systematic and expeditious correction of such questions in the future.

The 60 Minutes program on this matter was very disturbing to this Committee. We were unaware of some of the big loans to some allegedly wealthy individuals. They would lose on one operation then make a whole lot of money on other operations. When that was called to our attention it was a real surprise.

I did not see the program but I did get a copy of the transcript. It was unbelievable that anyone could have thought that Congress intended such a result.

We had a meeting with the Legislative Committee and they did not choose to change the law. They urged the Appropriations Committee to help correct the problem. Since they did not change the law, which was lax, we tried to use the appropriations process to pull things around.

We still suffer in public opinion from that situation. On page 37, of the 1982 report we pointed out that:

Contract agreement forms used by the Department are prepared by the appropriate operating agency and are then cleared by the Office of the General Counsel as legally adequate.

In the case of the Business and Industrial Program of FmHA, there is disagreement as to whether the terms of the contract agreement form are sufficiently clear and specific to be enforceable.

OGC's position is that the terms of the agreement were adequate to deny losses occasioned by negligent servicing and that OGC is willing to litigate the enforceability of the agreement.

The Committee will expect Farmers Home and the Office of the General Counsel to work together to enforce claims for losses caused by negligent loan servicing.

In the case of emergency loans, testimony indicates a number of questionable loan agreements were executed by FmHA. Testimony further shows that FmHA has tightened up its instructions to its field people who make loans of this type and has altered its regulations, but that the specific cases in question have not developed to the point that they are lawsuits.

The Committee is concerned that this matter came to the public's attention in October of 1979, and has not yet come to a conclusion.

Therefore, the Committee directs the Office of the General Counsel to submit a full and complete report of the disposition of this matter, together with a description of the procedures which have been set in place for the systematic and expeditous correction of such questions in the future.

It is my understanding that you have not yet submitted that information to the Committee.

I am also advised that, prior to this report, you took the view that you had told us enough to meet the directive. Well, this report requests very specific materials, which I have not seen. Do you have any response to this?

CONGRESSIONAL DIRECTIVE

Mr. BARNES. Mr. Chairman, you are quite correct as you have laid this matter out. There was, I believe, a misunderstanding in our office that the information had been furnished. However, on reviewing the chronology of the matter, I agree with you. We owe you a response. You will have that full, complete response by the end of March.

It is clear when you put what we submitted in time perspective with what you asked us to do that we still owe you a final report on the disposition of the matter you raised.

Mr. WHITTEN. We need to clean this up for the good of the country. You see, when one of these programs has a highly publicized problem it sours people on the whole operation and endangers activities that are highly beneficial.

Right now, with interest rates so high, the Production Credit Associations are refusing to make further loans. Everybody is in bad shape from increasing costs and declining prices. The President himself asked this Committee for a $5 billion supplemental appropriation a couple of weeks ago for loan authority because prices are below the loan rate.

I would not hold you responsible. You have not been there forever. But it is hard for me to understand this oversight because the report language is very plain.

Mr. BARNES. I absolutely agree with you, Mr. Chairman. We will have that report to you shortly. The sentiment you express is obviously very sound; preserving the integrity of the FmHA programs is critical so that those programs will remain viable for use by those who need them.

[CLERK'S NOTE.-The following letter was received subsequent to the hearing.]