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Lawsuit Filed to Void Debt Ceiling: Is Jack Lew a "Default Denier"?

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Over Memorial Day Weekend, America honors those who sacrificed to defend our nation and its honor. I paid tribute by revealing my lawsuit to void the dishonorable debt ceiling. Extremist partisans have repeatedly brought our nation to the brink of a dishonorable debt default. It will happen again next March when the law's temporary suspension ends (strategically scheduled to expire after expected GOP midterm victories).

As I explained in a guest commentary on the American Constitution Society's blog, the action against Treasury Secretary Jack Lew seeks a simple declaratory judgment that the debt limit statute is unconstitutional and a permanent injunction. (In a 2011 and 2013 HuffPost commentary, I noodled the idea for such a suit.)

My lawsuit references constitutional scholarship that proves the debt limit statute violates the Fourteenth Amendment. I filed the action in the District of Columbia's federal trial court hours before the limit suspension last expired. [Williams v. Lew (DDC, No. 14-0183--RJL; Feb. 7, 2014.)]

The lawsuit is part of a larger policy/litigation endeavor - DisruptiveJustice.org
-- that I recently launched to apply Harvard Business School's market-based "disruptive innovation" strategies for reform of public markets (legal, political and governmental). Readers are invited to follow our efforts.

Why Reveal the Lawsuit over Memorial Day Weekend?

Throughout America's history, purchasing and holding government bonds has been a profoundly patriot act -- on the order of electoral participation. Proudly during peaceful times and humbly during times of war, individual American citizens have held American debt - albeit often in relatively very small amounts.

As our first Treasury Secretary, Alexander Hamilton, said in 1790, "United States debt, foreign and domestic, was the price of liberty." Particularly during times of war, our government has used a variety of media campaigns to promote the patriotic act of bond buying. In World War II, bond sales were critical as the Republic was fighting for its life, and for the whole of Western Civilization. President Franklin Roosevelt was thus video-recorded buying the first Series E Saving Bond and Stamps. "Stars Over America" bond rallies were held in 300 cities featuring Hollywood celebrities. Everyone from the Andrew Sisters to Bugs Bunny sang Irving Berlin's classic "Any Bonds Today." Norman Rockwell created illustrations to help Treasury sell bonds. (Neither Don Draper nor his fictional new boss Peggy Olson could have orchestrated a more dynamic ad campaign).

In 1946, entertainer Bing Crosby sang - "We've got another bond to buy." The Official Victory song explained: "You may think the war is won, but we can't leave the job half done. The boys have seen it through. Now the rest is up to you. Yes, we've got another bond to buy." Americans responded enthusiastically to the Crosby croon. [For an unabashed patriotic blast from the past, read the lyrics while listening to audio of the Official Victory Loan Song (copyright commons).]

With the knowledge that "the war was won," Americans could once again buy Treasury bonds relying on iron-clad insurance regarding the integrity of their investments. (In the alternative ending to our constitutional story, it is unlikely that Mussolini, Hitler, or Hirohito would have honored U.S. debt.) That insurance policy had vested since just after the Civil War ended and the Constitution was amended: Section 4 of the Fourteenth Amendment states: "The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions... shall not be questioned."

Tea Party Defaulters

Fast forward 70 years to find congressional extremists regularly voting to dishonor that very debt (and then bragging about their dishonorable act). Tea Party "extortionists" threaten to do by sophomoric obstruction what the Axis powers could not do by brutal force - default the U.S. debt and vanquish the full faith and credit of the United States.

Extortion is a strong term but is, nonetheless, exactly how Tim Geithner described the Republican tactics. In Stress Test, he describes how Republican extremists learned that: "[t]hey could strap a financial bomb to their chests and try to extort a ransom in exchange for agreeing not to blow up the economy." Geithner conservatively judges the crises and near-debt defaults to have been "brutal for business and consumer confidence." He calls for the statute's total elimination, which is what I intend with the lawsuit.

Treasury Secretary Geithner's famed 2011 reading of the Fourteenth Amendment, during a Politico Playbook interview with Mike Allen, first put the statute's unconstitutionality in contemporary context. Geithner's pocket-Constitution recitation laid the foundation for my current litigation against Treasury Secretary Lew. Also instrumental were former President Bill Clinton's 2011 judgment regarding the statute's unconstitutionality; excellent reporting by the Washington Post's Brad Plumer and persuasive commentary by the Atlantic monthly's Garrett Epps. But any subsequent litigation errors are fully mine.

Are Eric Holder and Jack Lew "Default Deniers"?

The Justice Department's job is to defend suits brought against Executive departments and their officials. The Attorney General is not, however, bound to defend a statute that facially violates the Constitution. Rather than "answer" my lawsuit's amended complaint (and thus take a position regarding the debt limit's patent unconstitutionally), DOJ's Civil Division filed a preemptive dismissal motion challenging the suit's standing and ripeness.

DOJ's dismissal memorandum argues that "the unprecedented government default Plaintiff claims to fear is, at most, a mere possible future injury," and that my "standing allegations are altogether speculative."

The DOJ attempts to reframe my lawsuit as an academic's "speculative" and meaningless "hypothetical." In doing so, however, Justice directly contradicts the Treasury Department's repeated statements about the harm the debt ceiling has on bondholders and its warnings that a "catastrophic" government default was imminent. The litigation strategy repudiates Treasury's costly "extraordinary actions" implemented to avoid an "imminent" and "catastrophic" default.

DOJ ignores my amended complaint's exhaustive discussion of the financial market's reactions to the imminent defaults; of the Fitch ratings agency's threatened downgrade, of the "TED spread" inversion, of large financial houses' such as Morgan and Fidelity dumping all short-term Treasury holdings, and of big banks spending millions in preparation for the default.

DOJ does a disservice to truth to suggest that legal concern about the debt-ceiling and the inevitable default is merely a law professor's hypothetical. Mr. Market knows that default is a certainty when the debt limit law is enforced. Better for Americans to trust the self-interested actions of the House that John Pierpont Morgan built than those of a government lawyer or a law professor.

The dismissal memorandum embarrassingly contradicts Defendant Jack Lew's repeated congressional letters, statements and Senate testimony about debt ceiling dangers. Lew warned Congress of present bondholder harm, certainly-imminent default, resulting widespread chaos, and irrevocable economic damage.

Secretary Lew has allowed his defense attorneys to drag him into the far-right camp of the most extreme ideological default deniers - just in order to derail my lawsuit with a quick procedural gimmick.

If I am found to have insufficient standing to "stand at bar," then perhaps my suit will attract a few well-healed co-plaintiff intervenors to boost my standing; or it will be reworked into a class action. Or perhaps I will have just shown the way to the courthouse for future plaintiffs.

However, DOJ's motion alternatively argues that "ripeness prudence" should convince the trial judge to wait until after a debt default to review any lawsuit against the debt ceiling.

Where is the courage and "prudence" that Attorney General Eric Holder demonstrated when he refused to defend the unconstitutional DOMA statute?

The court granted the DOJ's motion for an extra ten days to reply to my response to their dismissal motion over the Memorial Day Weekend. Time is running out for the Obama administration to reconsider why it is defending the invalid debt limit statute.

Victor Williams is an attorney in Washington D.C. and clinical assistant professor at Catholic University of America, Columbus School of Law. Victor Williams founded the American Institute for Disruptive Innovation in Law and Politics -- DisruptiveJustice.org.