United States v. Texas

1993-04-05

Headline: Food-stamp debt ruling upheld: Court allows the Government to collect prejudgment interest from states, making it harder for states to avoid interest on federal program debts.

Holding: The Debt Collection Act of 1982 did not abrogate the Federal Government’s federal common-law right to collect prejudgment interest on debts owed to it by the States.

Real World Impact:

Allows federal agencies to seek prejudgment interest from states on contractual program debts.
Makes states liable for interest when they agreed to federal program rules and lose funds.
Resolves split among federal appeals courts about states and prejudgment interest.

Topics: government debt collection, food stamp program, prejudgment interest, state liability

Summary

Background

Texas, acting through its Department of Human Services, participated in the federal Food Stamp Program and agreed to follow federal rules. Texas mailed food stamp coupons, suffered mail issuance losses (in part from postal-employee theft), and exceeded the regulatory tolerance level. The Food and Nutrition Service notified Texas of a $412,385 debt and warned that prejudgment interest would begin unless Texas paid. Texas sought an administrative waiver, was denied, sued the United States, and lost in the District Court. The Fifth Circuit agreed Texas owed the underlying debt but held the Debt Collection Act of 1982 barred prejudgment interest.

Reasoning

The main question was whether the 1982 Debt Collection Act eliminated the Government’s long-standing common-law right to collect prejudgment interest from states. The Court held the Act did not do so because its mandatory interest provisions apply to “persons,” and the statute expressly excludes state and local agencies from that definition. The majority explained that statutes that displace long-established common-law rules must speak directly to that issue, and the Act’s language and purpose showed Congress tightened rules for private debtors while leaving the common-law approach for states. The Court also emphasized that Texas’s obligation arose from a Federal/State Agreement and implementing regulations, so the debt was contractual rather than a punitive penalty.

Real world impact

The decision means federal common-law authority to seek prejudgment interest against states survives the Debt Collection Act, especially when a state has contractually accepted program rules. It resolves a split among federal appeals courts and makes it harder for states to escape interest on similar federal-program debts.

Dissents or concurrances

Justice Stevens dissented, arguing that in 1982 it was not clear the common law allowed interest from states and that Congress likely meant to exclude states when it omitted them from the Act’s definition of persons.