For the U.S. Department of Justice’s top lawyers, an unusual deal to get rid of a legal headache from Minnesota two years ago has turned into a major political headache in Washington today.

In 2011, the Justice Department wanted the city of St. Paul to drop its appeal to the U.S. Supreme Court in an unrelated case that threatened the "disparate impact" theory, the agency’s favored way to enforce fair housing cases. In exchange, the Justice Department agreed not to intervene in an unrelated whistleblower case against St. Paul, wounding the lawsuit’s chances of succeeding.

Legal experts argue the federal courts have granted the Justice Department wide discretion to make such agreements, but a group of congressional Republicans has turned the St. Paul deal into one of their highest-profile attacks against the Obama administration this year.

The main targets have been political appointments of four Justice Department lawyers to leadership roles, most visibly that of Assistant Attorney General Thomas Perez, who orchestrated the St. Paul deal, to be secretary of the Labor Department.

The ensuing political scrap, featuring congressional reports and hearings, has brought heightened scrutiny to the Justice Department’s use of the False Claims Act, one of its most powerful tools in the fight against health care fraud and abuses in the mortgage industry.

The tiff has stirred debate in Congress and among qui tam lawyers over whether the Justice Department and other government agencies should use whistleblowers as bargaining chips for other government priorities.

"The result is that the department has demonstrated to future qui tam whistle­blowers that they might be helped, but only if a defendant doesn’t have something else the department wants in exchange," Senator Chuck Grassley (R-Iowa), a longtime defender of whistleblower rights, said last week during a hearing on Capitol Hill about the St. Paul case.

Democrats dismiss the controversy as a smear campaign against Perez’s nomination — a mix of opposition to the work he did on voter rights as chief of the Civil Rights Division, the legal theories he supports and Obama’s nominees in general.

Grassley, the ranking minority member of the Senate Judiciary Committee, confirmed last week that the Minnesota deal is behind delays for several nominations that run through the committee. Sri Srinivasan, the principal deputy solicitor general, couldn’t get a confirmation hearing for a spot on the U.S. Court of Appeals for the D.C. Circuit until he assured Republicans in private — and again during the public hearing — that he did not work on the St. Paul case. He still awaits a committee vote, which could happen as early as this week.

The nomination of Minnesota U.S. Attorney B. Todd Jones to be the permanent director of the Bureau of Alcohol, Tobacco, Firearms and Explosives is stalled. Acting Associate Attorney General Tony West, who had the final say on the St. Paul deal, according to a Republican congressional investigation, was nominated to assume the full-time position last year but still has not had a hearing.

Republicans have repeatedly delayed committee votes on Perez’s nomination. On May 8, Senate Minority Leader Mitch McConnell (R-Ky.) cited the St. Paul case in a floor speech that foreshadowed a possible Republican filibuster to block Perez from ever getting a confirmation vote. As Labor secretary, Perez would have the last say over whistleblower claims brought under 22 separate statutes.

"Americans of all political persuasions have a right to expect that the head of such a sensitive federal department, whether appointed by a Republican or a Democrat, will implement and follow the law in a fair and reasonable way," McConnell said. "But I do not believe they could expect as much from Mr. Perez."

During his confirmation hearing last month, Perez said it was St. Paul, and not the Justice Department, that first brought up the possibility of a global settlement. He said he consulted with ethics and professionalism experts in the Justice Department, who assured him the deal would be appropriate as long as West, the former head of the Civil Division, retained the ultimate decision. The Justice Department’s expert attorney on the False Claims Act — the now deceased Mike Hertz — had an "immediate and visceral reaction that it was a weak case," Perez added.

Republicans have released documents that tell a different story, however, with notes from a meeting during which Hertz said, "Odd — looks like buying off St. Paul. Should be whether there are legit reasons to decline as past practice."

Lawyers for the whistleblower in the case, Fredrick Newell, are fighting in the U.S. Court of Appeals for the Eighth Circuit to revive the suit, which is rooted in allegations that St. Paul committed fraud under the Fair Housing Act. The court will hear the case on June 13.

"Contrary to mere declination, the United States’ actions are unprecedented," Newell’s attorneys, including Thomas DeVincke of the Minneapolis firm Malkerson Gunn Martin, said in a brief in the appellate court.

Shelley Slade, a partner at Washington firm Vogel, Slade & Goldstein, testified on May 7 that she sees "nothing the least bit untoward or unusual" about the Justice Department considering "broad programmatic interests of the United States in deciding not to intervene."

Moreover, there were serious doubts about the merits of the whistleblower case in the St. Paul deal, Slade said. "If my law firm had been contacted about taking on this case, we would have rejected it," she said. The DOJ action "does not in any fashion deter me or the other members of my law firm from bringing qui tam cases."

On the other hand, Stephen Kohn, a partner at Kohn, Kohn & Colapinto, said the St. Paul deal is "not a violation of law, but it’s an abuse of the public trust." He compared enforcing whistleblower cases to civil rights cases. Would the government agree not to join a lawsuit about a company firing 100 female workers, Kohn said, if the company agreed to an unrelated deal on a railroad?

"At the end of the day there’s a whistleblower, who often has lost their job, risked their career and reputation to do the right thing," Kohn said. "If you permit political bargaining, the whistleblower will always lose."

Todd Ruger can be contacted at truger@alm.com.