Amicus Curiae Brief — Love Terminal Partners, L.P., et al., Petitioners v. United States

No. 18-1062

================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------LOVE TERMINAL PARTNERS, L.P., et al.,

Petitioners,

v.

UNITED STATES,

Respondent.

-----------------------------------------------------------------On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Federal Circuit

-----------------------------------------------------------------BRIEF OF AMICUS CURIAE

THE INSTITUTE FOR JUSTICE

IN SUPPORT OF PETITIONERS

-----------------------------------------------------------------RICHARD A. EPSTEIN

800 North Michigan Avenue

Apartment 3502

Chicago, IL 60611

(773) 450-4476

INSTITUTE FOR JUSTICE

DANA BERLINER

Counsel of Record

SCOTT G. BULLOCK

ANDREW WARD

901 North Glebe Road

Suite 900

Arlington, VA 22203

(703) 682-9320

DBerliner@ij.org

Counsel for Amicus Curiae

Institute for Justice

March 15, 2019

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

May the United States government absolve itself

from liability under the Takings Clause for both a physical and regulatory taking when it passes legislation

allowing an airline cartel to shut down and destroy a

competing airport terminal?

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED .....................................

i

TABLE OF AUTHORITIES ...................................

iii

INTEREST OF THE AMICUS...............................

1

INTRODUCTION ...................................................

1

SHORT SUMMARY OF FACTS ............................

6

SUMMARY OF THE ARGUMENT .......................

8

ARGUMENT ...........................................................

9

I. WARA WORKED A REGULATORY TAKING ...............................................................

9

A. WARA Was A Two-Step Process............

11

B. The Decision Below Is Wrong Even Under The Wright Restrictions .................. 15

II.

WARA WORKED A PHYSICAL TAKING ...

19

CONCLUSION .......................................................

22

iii

TABLE OF AUTHORITIES

Page

CASES

Burton v. Wilmington Parking Authority,

365 U.S. 715 (1961) .................................................19

Cienega Gardens v. United States,

331 F.3d 1319 (Fed. Cir. 2003) ................................16

City of Cincinnati v. Discovery Network, Inc.,

507 U.S. 410 (1993) ........................................... 12, 13

Commissioner v. Clark,

489 U.S. 726 (1989) .................................................15

H & R Corp. v. District of Columbia,

351 F.2d 740 (D.C. Cir. 1965) ............................ 10, 16

Kelo v. City of New London,

545 U.S. 469 (2005) ...................................................2

Loretto v. Teleprompter Manhattan CATV Corp.,

458 U.S. 419 (1982) ............................................. 8, 15

Love Terminal Partners v. United States,

126 Fed. Cl. 389 (2016)..............................................4

Love Terminal Partners, L.P. v. United States,

889 F.3d 1331 (Fed. Cir. 2018) ................ 5, 10, 14, 19

Love Terminal Partners, L.P. v. City of Dallas,

527 F. Supp. 2d 538 (N.D. Tex. 2007) ........................7

Lucas v. South Carolina Coastal Council,

505 U.S. 1003 (1992)..................................................4

Monongahela Navigation Co. v. United States,

148 U.S. 312 (1893) .................................................21

iv

TABLE OF AUTHORITIES – Continued

Page

Penn Central Transportation Co. v.

City of New York,

438 U.S. 104 (1978) ......................................... 4, 9, 16

United States v. 480.00 Acres of Land,

557 F.3d 1297 (11th Cir. 2009) ................................14

United States v. Miller,

317 U.S. 369 (1943) .................................................10

United States v. Topco Associates, Inc.,

405 U.S. 596 (1972) ...................................................4

Westendorf v. Stasson,

330 N.W.2d 699 (Minn. 1983)..................................20

STATUTES

International Air Transportation Competition Act

of 1979, Pub. L. No. 96-192, 94 Stat. 35 (1980) ........6

Wright Amendment Reform Act of 2006, Pub. L.

No. 109-352, 120 Stat. 2011 ............................ passim

OTHER AUTHORITIES

Barret V. Armbruster, Wright is Still Wrong: The

Wright Amendment Reform Act and Airline

Competition at Dallas Love Field, 81 Journal

of Air Law and Commerce 501 (2016) ......................3

v

TABLE OF AUTHORITIES – Continued

Page

Editorial, Wright questions, Dallas Business Journal, July 7, 2006 ........................................................3

Richard A. Epstein, The Wright Stuff – When is

aviation reform not really reform?, Regulation

Magazine 8 (Spring 2007) .........................................6

1

INTEREST OF THE AMICUS

The Institute for Justice is a nonprofit public interest law center committed to defending the essential

foundations of a free society by securing greater protection for individual liberty. Central to that mission

is combatting government schemes to give financial

advantages to particular private parties and ensuring

that condemning authorities provide just compensation for takings of private property.

This brief is co-authored with Professor Richard

Epstein, one of the nation’s leading authorities on constitutional law and the Takings Clause.1

------------------------------------------------------------------

INTRODUCTION

Against a backdrop of the government abusing its

power by taking property from a potential competitor

and handing it to a cartel, this petition for certiorari

raises—in a novel eminent-domain context—important,

unresolved questions about valuation of destroyed

property that had been previously subject to legal restrictions. The issue involves a novel interaction of

regulatory and physical takings law. The normal physical taking has the government taking possession of

1

All parties have been notified of and consented to the filing

of this brief. No party’s counsel authored this brief in whole or in

part, and no person or entity other than the amicus made a monetary contribution toward the preparation and submission of this

brief. Many years ago, Professor Epstein worked on this case for

the petitioners in the early stages of the litigation that precipitated this petition.

2

unencumbered private property or authorizing some

private person to do so. The normal regulatory taking

has the property owner left in possession of property

but with it subject to legal restrictions. This case has

elements of both. It starts with property that is subject

to a restriction and ends with the property destroyed

by government fiat. If the misguided decision of the

Federal Circuit is allowed to stand, the scheme pulled

off here will yield to its perpetrators a spectacular return: Valuable private property can first be regulated

and then be taken without the government paying a

cent in compensation.

The novel interaction of these two theories arises

from the way the United States worked with a cartel

to take and destroy petitioners’ twelve gates at Love

Field, Dallas, six of them at the state-of-the-art Lemmon Avenue terminal (“the Lemmon Avenue gates”).

The Wright Amendment Reform Act of 2006, Pub. L. No.

109-352, 120 Stat. 2011 (“WARA”), codified the physical destruction of these gates, enacting a scheme—

the Five-Party Agreement—among American Airlines,

Southwest Airlines, the City of Dallas, the City of Fort

Worth, and the Dallas Fort Worth Airport Authority.

The maneuver was so audacious that the parties

agreed that they would try it only with explicit Congressional blessing. On its face, the transaction was a

taking of property from one private party to others so

that they could then demolish it. Contra Kelo v. City

of New London, 545 U.S. 469, 477 (2005) (“[The government] would no doubt be forbidden from taking

3

petitioners’ land for the purpose of conferring a private

benefit on a particular private party.”).

This scheme was well understood to fleece airline

travelers in and out of the area. Thus the Dallas Business Journal lamented that “[American and Southwest] are playing nicely together, to the exclusion of

other potential competitors. Folks are starting to see

the collusion for what it is. They smell a rat—and

that’s because this is one ratty proposal.” Editorial,

Wright questions, Dall. Bus. J., July 7, 2006. And further: “Is it right for the city of Dallas to poison a $100

million, private-sector sale of Love’s old Legend Airlines terminal and to literally seize and bulldoze that

terminal, just to keep a new airline from using it to

compete against Southwest and American?” Id.2

As every observer could see, the deal created a cartel that divided the Dallas market between two carriers. Such cartels have long been condemned as per se

violations of the antitrust laws because they raise

prices, reduce output, and destroy social wealth. As this

Court—providing a string citation dating to 1899—has

put it:

One of the classic examples of a per se violation of [the Sherman Antitrust Act] is an

agreement between competitors at the same

level of the market structure to allocate territories in order to minimize competition. Such

2

WARA is still widely regarded as a travesty. See, e.g.,

Barret V. Armbruster, Wright is Still Wrong: The Wright Amendment Reform Act and Airline Competition at Dallas Love Field, 81

J. Air L. & Com. 501 (2016).

4

concerted action is usually termed a “horizontal” restraint. . . . This Court has reiterated

time and time again that “(h)orizontal territorial limitations . . . are naked restraints of

trade with no purpose except stifling of competition.” White Motor Co. v. United States,

372 U.S. 253, 263 (1963). Such limitations are

per se violations of the Sherman Act.

United States v. Topco Assocs., Inc., 405 U.S. 596, 608

(1972).

The scheme here is a paradigmatic example. Indeed, it is even worse. Normally cartels bind only the

parties to them. But here the scheme was even more

reprehensible because it involved an elaborate effort to

use government power to destroy the one facility that

might have provided some competition. The five parties well knew that they could pull off the scheme only

if they could exclude new entry by third parties. That

made petitioners’ twelve gates a threat. To leave them

standing, even if subject to legal restrictions, was

not viable because political pressure would eventually

reverse their forced idleness. Hence the Five-Party

Agreement contemplated their immediate destruction.

Against this sordid anticompetitive background,

the trial court thoroughly analyzed the case and

awarded the petitioners $133.5 million for the taking

of their gates. Love Terminal Partners v. United States,

126 Fed. Cl. 389 (2016). On appeal, the Federal Circuit

reversed under both Lucas v. South Carolina Coastal

Council, 505 U.S. 1003 (1992), and Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978).

5

Love Terminal Partners, L.P. v. United States, 889 F.3d

1331 (Fed. Cir. 2018) (“LTP”). Through a series of

dubious doctrinal maneuvers, the Federal Circuit held

that the destruction of these gates did not impose

any financial liability on the United States, tersely

“conclud[ing] that WARA did not constitute a regulatory or physical taking.” Id. at 1336.

On regulatory takings, the Federal Circuit held

that the gates had no economic value before the passage of WARA and thus had lost no value after the

gates were shut down—hence, no compensation. That

conclusion has to be wrong because the five parties

would not trouble themselves with an elaborate scheme

to destroy something worthless. It was precisely because the gates had economic value that they threatened the parties—their competitors—who responded

by eliminating the threat, first by regulation and then

by physical destruction. Nor is it credible to deny that

the United States was responsible for the physical destruction of the gates when it acted in concert with the

cartel to secure their destruction. The Federal Circuit

erred on these interrelated questions of takings law.

Amicus urges the Court to grant the writ of certiorari to prevent the evisceration of takings law for the

benefit of cartels. Allowing full compensation to aggrieved innocent parties will provide at least some protection against these machinations (or, in economic

terms, some social protection against these antisocial

actions).

------------------------------------------------------------------

6

SHORT SUMMARY OF FACTS

This dispute dates to 1978, when Congress repealed the Civil Aeronautics Act of 1938. The CAA had

long hampered competition in the airline industry by

allowing government to set routes and rates for all airline service in the United States. One major opponent

of the repeal was Speaker of the House Jim Wright, a

Congressman from Fort Worth. Wright wanted to protect the financial well-being of the Dallas/Fort Worth

Airport, whose chief tenant, American Airlines, had

over 80 percent of the local market. He also knew that,

after the repeal, Southwest Airlines would finally enter the interstate market at Love Field and drain away

landing fees that American and other carriers paid to

DFW. To stop that, the Wright Amendment of 1979

stipulated that any flights from Love Field ending outside the four contiguous states (Arkansas, Louisiana,

New Mexico, and Oklahoma) had to be flown in planes

with no more than 56 seats. Interstate flights beyond

the contiguous states were thus economically nonviable.3

But over time, pressure to open up Love Field to

interstate travel began to grow. In 1997, the Shelby

Amendment added Alabama, Kansas, and Mississippi

to the list of exempt states. Missouri was added in

2005. And pressure increased sharply when Southwest

3

See International Air Transportation Competition Act of

1979, Pub. L. No. 96-192, § 29, 94 Stat. 35, 48–49 (1980). Much of

the early history of the Wright Amendment is discussed in Richard A. Epstein, The Wright Stuff—When is aviation reform not

really reform?, Regulation Magazine 8 (Spring 2007).

7

Airlines mounted its 2004 campaign to “Free Love

Field.” But soon after, Southwest reversed tactics and

joined the Five-Party Agreement to convert the American Airlines monopoly over interstate air travel out of

DFW into a duopoly, by allowing Southwest to expand

its operations to the interstate market from Love Field.

The Wright Amendment would be repealed. But for the

deal to work, the parties had to neutralize the petitioners’ twelve gates at Love Field. Because other airlines

could compete if those gates were allowed to remain,

the gates had to be physically destroyed.

To avoid the per se rule against cartelization, the

five parties sought Congressional approval for the division of markets and the destruction of the gates—

over the strong objection of antitrust experts in the Department of Justice. Congress agreed and legislated in

WARA that:

The city of Dallas, Texas, shall reduce as soon

as practicable, the number of gates available

for passenger air service at Love Field to no

more than 20 gates. Thereafter, the number of

gates available for such service shall not exceed a maximum of 20 gates.

WARA § 5(a). Because there were 32 gates at Love

Field at the time, this meant the physical destruction

of the Lemon Avenue gates. The congressional authorization insulated the five parties from antitrust

liability under the Noerr–Pennington doctrine, which,

in circumstances like this one, grants First Amendment protection to petitions for anticompetitive favors.

See Love Terminal Partners, L.P. v. City of Dallas,

8

527 F. Supp. 2d 538, 545, 548 (N.D. Tex. 2007). But even

the most aggressive application of that doctrine has

not relieved the government of its obligation to provide

just compensation for regulatory and physical takings.

------------------------------------------------------------------

SUMMARY OF THE ARGUMENT

Here both kinds of takings require close attention.

On the regulatory takings issue, the Federal Circuit elevated the form of WARA over its substance. WARA

should be understood for what it was—a repeal of the

Wright Amendment that included the petitioners,

whom the law did not and could not treat differently.

Then, after the repeal, WARA ordered the Lemmon Avenue gates removed. That is a complete taking of the

terminal’s true market value, as the trial court correctly concluded. Even if not, the valuation at least

should have included the expected value of the terminal’s possible future income under new regulatory and

market circumstances—just as thousands of real-life

transactions value property every day.

The Federal Circuit was equally incorrect in holding that the United States did not physically take

these gates, even though it authorized razing them to

the ground. It is settled that the government has a per

se duty to compensate for any taking it either conducts

itself or authorizes. Loretto v. Teleprompter Manhattan

CATV Corp., 458 U.S. 419, 426 (1982) (“We conclude

that a permanent physical occupation authorized by

9

government is a taking without regard to the public

interests that it may serve.”).

This Court should grant the writ of certiorari to

correct the grievous errors below.

------------------------------------------------------------------

ARGUMENT

I.

WARA WORKED A REGULATORY TAKING.

The Federal Circuit’s Penn Central analysis is

wholly misguided. Its key argument is that the Lemmon Avenue gates had no value because they had not

earned a profit:

In summary, plaintiffs must show that their

property had value in the regulatory environment that existed before the government action, and that this value was diminished by

the government action that prevented them

from operating under the existing regime.

They presented no such testimony. Nor is

there any indication that they could have

done so. Plaintiffs’ historical financial performance suggests that their property was not

valuable for air passenger service with the

Wright Amendment in place. Legend, the tenant for which the Lemmon Avenue Terminal

was designed, went bankrupt in December

2000, eight months after beginning operations. Atlantic Southeast Airlines, the terminal’s only other airline tenant, moved its

operations to Love Field’s main terminal a few

months later. Plaintiffs tried to market their

10

property to other airlines, but never received

an actual offer, so by the time of WARA’s enactment no airline had used the Lemmon Avenue Terminal or paid any rent to plaintiffs

for more than five years. Indeed, between

their acquisition of the sublease in 1999 and

the enactment of WARA in 2006, plaintiffs

suffered a net income loss of roughly $13

million. And at no point during that time, including during the period when Legend was

operational, did revenue exceed plaintiffs’ carrying costs so as to meet plaintiffs’ expert’s

definition for an “economically beneficial use.”

Since there was no adverse economic impact,

there can be no taking.

LTP, 889 F.3d at 1344.

The error here is the incomplete financial analysis.

The ultimate question is not whether these state-ofthe-art gates had turned a past profit. It is their fair

market value, “defined in the law as the price which

a willing seller, who is not obliged to sell, would be

willing to accept and the price which a willing buyer,

who is not obliged to buy, would be willing to pay

for the property.” H & R Corp. v. District of Columbia,

351 F.2d 740, 742 (D.C. Cir. 1965).4

4

This case cites United States v. Miller, 317 U.S. 369 (1943).

Miller explained that market value could not include any enhancement of value to any retained property after the government purchase. This qualification does not apply in this case

because the petitioners were wiped out by the destruction of the

entire terminal.

11

A. WARA Was A Two-Step Process.

Rather than acknowledge the market-value standard, the Federal Circuit assumed that WARA shut

down the Lemmon Avenue gates while simultaneously

lifting the Wright restrictions for everyone else. But

why? Section 2(a) expanded the list of destinations for

all flights originating at Love Field. The plain text of

Section 2(b) simply stated that the Wright Amendment

“is repealed on the date that is 8 years after the date

of enactment of this Act.” Nothing preserved the

Wright restrictions on the petitioners alone. And as a

matter of equal protection, once the restrictions were

lifted for flights out of the Southwest and American

gates, they could not constitutionally be selectively enforced against the petitioners.5 Then Section 5(a) ordered Dallas to “reduce as soon as practicable, the

number of gates available for passenger air service at

Love Field to no more than 20 gates.” It is thus perfectly sensible to read WARA by tracking temporally

the two stages of its operation. First, all use restrictions are removed from all gates. Second, the Lemmon Avenue gates are shut down. Just as the Court of

Claims did, the takings analysis should view the gates

as unencumbered at the time WARA ordered them

closed. In other words, the correct measure of just

compensation values the Lemmon Avenue gates by

the same method that would be used to value the

5

Indeed, Congress reiterated the FAA’s authority to enforce

airline non-discrimination requirements at Love Field—but only

after the reduction to 20 gates. WARA § 5(e)(2).

12

American and Southwest gates in a condemnation proceeding.

This is not just the plain text and arrangement of

the statute. Not even the lowest level of rational basis

review would allow for the differential treatment of the

two sets of gates. No feature of the Lemmon Avenue

gates marked them for distinctive negative treatment.

They were the most modern at Love Field; if anything,

simple efficiency would have required razing Southwest or American gates before the Lemmon Avenue

ones. The Lemmon Avenue gates also had better access

to ground transportation.

The situation replays City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410 (1993), where this Court

stopped a city from arbitrarily picking winners and losers. There, the Court considered which distributors of

written material had the right to put free-standing

newsracks on public property in Cincinnati. Cincinnati

claimed that its interest in safety and esthetics let it

limit the number of these newsracks. But it advanced

no reason why the commercial publication of Discovery

was entitled to less protection than ordinary newspapers. Hence the Court concluded that, although the

First Amendment did not restrict Cincinnati’s ability

to limit for safety and esthetic reasons the number of

newsracks on public streets, it was “an insufficient justification for the discrimination against respondents’

use of newsracks that are no more harmful than the

permitted newsracks, and have only a minimal impact

on the overall number of newsracks on the city’s sidewalks.” Id. at 418. And further: “We agree with the city

13

that its desire to limit the total number of newsracks

is ‘justified’ by its interests in safety and esthetics. The

city has not, however, limited the number of newsracks; it has limited (to zero) the number of newsracks

distributing commercial publications.” Id. at 429. Of

course, Cincinnati’s interests in safety and esthetics

could have been satisfied without playing favorites. It

could have auctioned off spaces for newsracks—just as

Dallas could have auctioned off airline gates. It could

have allocated them by lot. But it could not use safety

and esthetics as pretexts to favor well-connected political groups over a vulnerable political outsider. Discovery Network was a First Amendment case, but under

any standard of review, there was no justification whatsoever to lift the Wright restrictions on some gates but

not the Lemmon Avenue ones, and that did not happen

because of any specific command contained in the text

of the Act. It is thus faithful to the facts and the law

to view WARA in two steps: The government first repealed the Wright Amendment for all of Love Field,

then shut down petitioners’ gates and authorized their

physical destruction.

That established, it is clear that the state cannot

elevate form over substance to avoid providing just

compensation. The law has long been alert to this risk.

For example, a planned two-step process in which the

state first regulates and then condemns the regulated

land is treated as a condemnation of the unencumbered land. Thus if unregulated land is worth $100,

which is reduced to $30 by regulation with an eye

to condemnation, the state still owes $100 after the

14

condemnation. Otherwise, the state could achieve in

two steps an objective that it cannot achieve in one. As

the Eleventh Circuit has explained:

In some cases strict adherence to market

value and comparable sales will result in

manifest injustice to the owner or to the public, and courts must apply special rules and

standards to arrive at “just” compensation.

One such rule is the “scope of the project” doctrine. This doctrine seeks to ensure that when

deciding the market value of the property the

fact-finding body does not consider the positive or the negative impact of any decision the

Government makes within the scope of the

project which prompted the taking. As a part

of this doctrine, a fact finder may disregard

the impact of a zoning restriction on a piece of

property in determining just compensation

when the Government passed the restriction

for the purpose of depressing the property’s

value in an impending eminent domain proceeding.

United States v. 480.00 Acres of Land, 557 F.3d 1297,

1307 (11th Cir. 2009). The Federal Circuit turned this

passage upside down when it cited only the penultimate sentence without ever mentioning the last sentence’s warning against strategically depressing value.

LTP, 889 F.3d at 1347. But the passage as a whole

makes it crystal clear that no government can circumvent its constitutional obligation to pay full market

value for property it takes simply by tinkering with the

15

precise form of the taking.6 Yet that is exactly what the

Federal Circuit allowed, simply because WARA tacked

the illicit purpose of destroying the Lemmon Avenue

gates on to the legitimate purpose of repealing the

Wright Amendment.

In sum, the Federal Circuit mischaracterized

every relevant step in this transaction when it held

that $133 million in gates had no value at all. Those

gates cannot be valued under the Wright Amendment

because WARA lifted those restrictions on all gates under its plain text and in the absence of any legitimate

police power interest in safety or esthetics to do otherwise. Then WARA shut down the gates and authorized

their physical destruction. That is a taking governed

by the per se compensation rule in Loretto. For the Federal Circuit to conclude otherwise is to bless a drafting

trick meant to limit the state’s liability for destroying

a threat to a cartel. The whole transaction should be

treated as the sham that it was and the judgment of

the trial court reinstated in full.

B. The Decision Below Is Wrong Even Under The Wright Restrictions.

This case warrants review even if the baseline

against which compensation should be awarded was

6

Unsurprisingly, it is long-standing law that private persons

cannot perpetrate the same shenanigans on the government

to escape their payment obligations. See, e.g., Comm’r v. Clark,

489 U.S. 726, 738 (1989) (explaining that in tax law “interrelated

yet formally distinct steps in an integrated transaction may not

be considered independently of the overall transaction”).

16

the restrictions under the Wright Amendment. That

is because the Federal Circuit adopted the odd position that “investment-backed expectations” under Penn

Central refer to only expectations that current regulations will not become more restrictive. In the Federal

Circuit’s analysis, property owners cannot expect that

restrictions will ever be loosened—no matter the probability.7

But the Federal Circuit’s misreading would treat

the restrictions on Love Field as perpetual, even

though they were subject to sustained political attack.

In many circumstances, people buy property restricted

to limited use in the hope that they can secure a regulatory change making the property more valuable. In

those cases, the correct valuation asks whether the

willing buyer will attach a positive value to the possibility that the restrictions will in fact be lifted. The circuits thus commonly accept in the “effort to establish

the market value of the property” an owner’s assertion

that, for example, “there was a reasonable possibility

that the property would be rezoned for a more profitable use—the construction of large apartment houses—

than the existing zoning (for the construction of residences and small apartment houses) would allow.”

H & R Corp., 351 F.2d at 741.

7

The case on which the circuit relied, Cienega Gardens v.

United States, 331 F.3d 1319 (Fed. Cir. 2003) stands for the opposite proposition. It found a regulatory taking when the government limited apartment owners’ ability to prepay mortgages.

There was no discussion of how to treat the prospect of deregulation.

17

The economic logic behind this position is impeccable. The market values everything about a property—not only its current profitability, but also the

expected present value of all future income, including

income that could come after regulatory change. The

reason these transactions take place is that property

buyers think it more likely than the sellers that favorable revision of the regulations will occur. The option

value of future uses matters.

One valuable future use at Love Field could have

come through regulatory change. The petitioners knew

that large amounts of value could be unlocked by

repealing the Wright restrictions, and that, in the

fraught situation, they had a reasonable chance of

achieving it (if an overbearing political process had

not short-circuited their efforts by the immediate seizure and destruction of the property—a circumstance

never encountered in an ordinary zoning case). Repeal of the Wright Amendment of course was never

certain, but neither was it impossible. Indeed, even if

removal of all restrictions was not possible, lifting the

Wright restrictions with respect to just some key

states such as Florida or Arizona could have quickly

changed the financial calculus. Yet nowhere did the

Federal Circuit recognize this basic aspect of market

value.

Another future use could have come through

changed airline interest. One reason the Lemmon Avenue gates did not generate positive cashflow was that

the events of September 11, 2001, slowed down the development of air transportation throughout the United

18

States, making it more difficult for airlines to gain

footholds in any established market. But it is total

market value—including long-term value—not just

short-term rental value at issue. Indeed, the postSeptember 11 conditions no longer exist. Today, the

rapid expansion of air travel may have made the

Lemmon Avenue gates an attractive proposition even

with the Wright restrictions. Additionally, in the early

2000s, the mayor of Dallas was openly hostile to any

operations initiated at Love Field. That caused Pinnacle Airlines, a rapidly growing discount carrier

in the southeastern United States, to back off its decision to lease the Lemmon Avenue gates. (The petitioners sued the mayor and the City of Dallas for

interference with business relations.) The Federal

Circuit made no reference to that event. But the market does not assume that political spats like this will

occur forever. If one local airline almost leased the

gates once, it was likely that another would one day

complete the deal.

Perhaps technology would have provided another future use. Aerospace technology has advanced,

as it always does. It could well be that new types of

aircraft with better fuel economy and performance

could have turned a profit when earlier planes could

not.

Finally, there may have even been future value

from the competitor airlines themselves. Southwest

and American might have leased the gates to upgrade

their operations to a newer terminal. The market takes

all these factors into account. But the Federal Circuit’s

19

frozen-in-time analysis refused to recognize the market reality that regulations and other circumstances

evolve.

II. WARA WORKED A PHYSICAL TAKING.

The Federal Circuit also took a blinkered view of

physical takings when it concluded that “WARA did

not codify the Five-Party Agreement in its entirety and

specifically did not codify the portions of the Agreement in which Dallas agreed to acquire and demolish

plaintiffs’ gates.” LTP, 889 F.3d at 1348. Here, the Federal Circuit fell into the trap of assuming that only the

explicit language of a given contract should be relevant

to understanding the total deal. That might be true as

between the parties to the transaction, but it is manifestly false to the extent that the choice of contract language is intended to strategically limit the rights of

third parties. The Five-Party Agreement proves the obvious conclusion that the parties were in league to

limit the exposure of the United States to any takings

claim by declining to make the U.S. a full partner on

the face of the agreement. But the U.S. was a full partner: It authorized the entire scheme, allowing the parties to escape the antitrust laws. It mandated the

reduction in gates. Section 5(d)(1) of WARA explicitly

stated that the FAA could not undertake actions “inconsistent” with the agreement or in any way “challenge” its legality. Id.

In Burton v. Wilmington Parking Authority,

365 U.S. 715 (1961), this Court held that a public

20

landlord had authorized discrimination when it refused to include a clause in its lease preventing Eagle,

a restaurant in the facility, from discriminating on the

basis of race. As this Court explained, “[t]he State has

so far insinuated itself into a position of interdependence with Eagle that it must be recognized as a joint

participant in the challenged activity, which, on that

account, cannot be considered to have been so ‘purely

private’ as to fall without the scope of the Fourteenth

Amendment.” The same logic applies here.

Indeed, extra scrutiny is always needed when

parties seek by agreement to limit their exposure

to outsiders. For example, in Westendorf v. Stasson,

330 N.W.2d 699, 701 (Minn. 1983), a subrogation case,

the injured party and the defendant entered into a

strategic settlement that provided that all “payments

to be made hereunder are solely attributable to the

pain and suffering and permanent injury” of the plaintiff and the loss of consortium to her spouse. But the

claim was an ordinary tort action in which recovery for

medical expenses was appropriate. The sole purpose of

writing the agreement that way was to let the settling

parties cut off an insurance company that was entitled

to receive reimbursement of its medical expenses—a

fraud against a third party. The court concluded that

the insurer should not be bound by a “bargain to which

it was not privy.” Id. at 702. And that concerned only

private parties. The United States government should

never be allowed to distance itself from the actions of

its business partners, which is exactly what the United

States tried to do in WARA. Combined with the proper

21

understanding of WARA’s function—lifting the restriction, then ordering the gates blown up—the

United States’ actions were a physical confiscation of

the gates, properly assessed at their unencumbered

fair market value.

Similarly, it does not matter that WARA prohibited federal money from outright paying for the destruction of the Lemmon Avenue gates. No government

is entitled to rid itself of any liability under the Fifth

Amendment by the simple declaration that government funds may not be used for the project. The constitutional obligation remains notwithstanding statutory

repudiation; otherwise the Just Compensation Clause

becomes a dead letter. A long stream of cases stands for

the proposition articulated in Monongahela Navigation Co. v. United States, 148 U.S. 312, 328 (1893):

“There can, in view of the combination of those two

words”—“just” and “compensation”—“be no doubt that

the compensation must be a full and perfect equivalent

for the property taken.” No statutory caveat can defeat

that constitutional imperative.

------------------------------------------------------------------

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CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

RICHARD A. EPSTEIN

800 North Michigan Avenue

Apartment 3502

Chicago, IL 60611

(773) 450-4476

INSTITUTE FOR JUSTICE

DANA BERLINER

Counsel of Record

SCOTT G. BULLOCK

ANDREW WARD

901 North Glebe Road

Suite 900

Arlington, VA 22203

(703) 682-9320

DBerliner@ij.org

Counsel for Amicus Curiae

Institute for Justice

March 15, 2019