Amicus Curiae Brief — Cisneros v. Alpine Ridge Group

In The [

Supreme Court of the United States”

October Term, 1992 .

+

JACK F. KEMP, SECRETARY OF THE

UNITED STATES DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT, et al.,

Petitioners,

we

ALPINE RIDGE GROUP, et al.,

Respondents.

4

On Writ Of Certiorari To The

United States Court Of Appeals For The Ninth Circuit

+

BRIEF OF STATESMAN SAVINGS HOLDING

CORP., THE STATESMAN GROUP, INC.,

AMERICAN LIFE AND CASUALTY INSURANCE

COMPANY, MCB FINANCIAL GROUP, INC.,

MEADOWS RESOURCES, INC., REPUBLIC

HOLDING COMPANY, NORTHEAST SAVINGS, F.A.,

COAST FEDERAL BANK, FEDERAL SAVINGS

BANK, CITIZENS FEDERAL BANK, A FEDERAL

SAVINGS BANK, CSF HOLDINGS, INC.,

HOME SAVINGS OF AMERICA, FSB, and

H.F. AHMANSON & COMPANY, AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

¢

CHARLES J. Cooper*

Rosert J. CYyNKAR

MicHaet A. CARVIN

W. Eric Pitsk

VINCENT J. COLATRIANO

SHaw, Pittman, Potts &

TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8000

*Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225.6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

Ee Ee SPIE E she ccccccessccsccesesecss ii

INTEREST OF THE AMICI CURIAE............... 1

INTRODUCTION AND SUMMARY OF

EE SUC sUCOUsbepsROUCHO LS EKeeseEeceavess 4

EET $555 0 oboe ebuseeecracsssvccsenedsoneces 6

I. GOVERNMENT PROMISES SUPPORTED BY

CONSIDERATION BECOME VESTED RIGHTS

WHEN THE GOVERNMENT RECEIVES THAT

SS Fhe can cccsccccevesesesicses. 6

II. NO PRINCIPLE OF LAW EXCUSES THE GOV-

ERNMENT’S REPUDIATION OF ITS CONTRAC-

pty ee yy ee rer errr TrerTTrer 16

A. The Law Creates No Higher Standard For

Contracts With The Government To Be Bind-

_ PPPPPTITITITI TTT ELE 16

B. The Circumstances Underlying The Govern-

ment’s Breach Do Not Excuse It From Lia-

Pree Steet eens sees seen eee e eee eeeees 20

C. Whatever The Government's Ability To

Avoid Having To Specifically Perform Its

Contractual Commitments, It May Not

Breach Such Commitments Without Incur-

SE eos cedcececccnsdcececssescecce 27

8 ee ee ee ee eer re 30

TABLE OF AUTHORITIES

Page

Cases

Allied Structural Steel v. Spannaus, 438 U.S. 234

(TFG)... ccccccccvesocsscuned sess citi 23

Armstrong v. United States, 364 U.S. 40 (1960)........ 28

Bowen v. Public Agencies Opposed to Social Security

Entrapment, 477 U.S. 41 (1986)................ passim

Brooks-Scanlon Corp. v. United States, 265 U.S. 106

ti | I 10

Butler v. Pennsylvania, 51 U.S. (10 How.) 402 (1850) .... 10

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984).................. 16

Choate v. Trapp, 224 U.S. 665 (1912) ................ 8, 9

Clark v. United States, 95 U.S. 539 (1877) ............ 29

De La Rama S.S. Co. v. United States, 344 U.S. 386

(i BR 12

De Laval Steam Turbine Co. v. United States, 284 U.S.

G1 (BODE)... 0cccccecvsnussunneuneeeeaan 10

Federal Housing Admin. v. The Darlington, 358 U.S.

ht MTree TU tS 14, 15

First English Evangelical Lutheran Church v. Los

Angeles, 462 U.S. 306 (1967)... .ccssccccssucnenmen 28

Fisk v. Jefferson Police Jury, 116 U.S. 131 (1885)....... 10

TABLE OF AUTHORITIES - Continued

Page

Flemming v. Nestor, 363 U.S. 603 (1960)............... 7

Fletcher v. Peck, 10 U.S. (6 Cranch) 87 (1810) ........ 10

Grove City College v. Bell, 465 U.S. 555 (1984)........ 26

Hamilton v. Kentucky Distilleries & Warehouse Co.,

EEE POET TEST ETE ITY 22

Hipolite Egg Co. v. United States, 220 U.S. 45 (1911) .... 22

Hodel v. Irving, 481 U.S. 704 (1987)........... 13, 20, 21

Indiana ex rel. Anderson v. Brand, 303 U.S. 95 (1938) .... 10

Kaiser Aetna v. United States, 444 U.S. 164 (1979)..... 13

Larionoff v. United States, 533 F.2d 1167 (D.C. Cir.

1976), aff'd, 431 U.S. 864 (1977)............... passim

Lincoln Federal Labor Union v. Northwestern Iron and

Metal Co., 395 US. S25 (1949). ............0eceeees 23

Lottery Case, 188 U.S. 321 (1903) .............. 66 eee. 22

Lynch v. United States, 292 U.S. 571 (1934)....... passim

Maxima Corp. v. United States, 847 F.2d 1549 (Fed.

ees eee cecdeecscesccecess 10

Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982) .17, 18

Monongahela Navigation Co. v. United States, 148

ede kek scbSeceecercecccccce: 22

iv

TABLE OF AUTHORITIES —- Continued

Murray v. Charleston, 96 U.S. 432 (1878) .......... 18, 19

National Fuel Gas Supply Corp. v. FERC, 811 F.2d

1563 (D.C. Cir.), cert. denied, 484 U.S. 869 (1987) .... 17

New Jersey v. Yard, 95 U.S. 104 (1877) ............... 10

New York Central & Hudson River R.R. v. Gray, 239

SEU SN, ccocnucacuk oacdaeensuccdsdianonsas 29

New York Mail & Newspaper Transp. Co. v. United

States, 154 F. Supp. 271 (Ct. CL.), cert. denied, 355

ee Ge ec ccccuvercesecuenecdccceusbuseses 29

Norman v. Baltimore & O.R. Co., 294 U.S. 240 (1935) ..7, 25

Ocean Technology, Inc. v. United States, 19 Cl. Ct.

Pe Rabe cennccucecanenashesencnenedussunducs 29

Pennhurst State School and Hospital v. Halderman,

SB eee 26, 27

Pension Benefit Guaranty Corp. v. Gray, 467 U.S. 717

Ne so 00dnonshnesenedseceesccesseesceucheaesdees 7

Perry v. United States, 294 U.S. 330 (1935)....... passim

Prestex, Inc. v. United States, 320 F.2d 367 (Ct. Cl.

Si bckadckucebiheeeteaduasnveuwienbusladeouas 29

v

TABLE OF AUTHORITIES - Continued

Page

Sinking Fund Cases, 99 U.S. 700 (1879)......... 8, 16, 20

Transohio Sav. Bank v. Director, Office of Thrift

Supervision, 967 F.2d 598 (D.C. Cir. 1992).......... 17

United States R.R. Retirement Bd. v. Fritz, 449 U.S.

Se Cacddddatdiduddaududlatiustaetuesbaseqnne 7

United States Trust Co. v. New Jersey, 431 U.S. 1

Dcdestienehdededeeecuntweenesecneneasusse passim

United States v. Amdahl Corp., 786 F.2d 387 (Fed.

DT cigecétcedindueguseussaGueemekesenaehte 29

United States v. Larionoff, 431 U.S. 864 (1977) ..... 12, 13

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

Sa csdedectddcsnscncesanecntassdsedachectusdess 7

Winstar Corp. v. United States, 25 Cl. Ct. 541 (1992),

appeal pending, No. 92-5164 (Fed. Cir. 1992) ..... 6, 28

Wood v. Lovett, 313 U.S. 362 (1941).................. 10

Yosemite Park & Curry Co. v. United States, 582 F.2d

ee ts Was SEP A cidnvedécacdcdavdceckbecesséadsans 29

OTHER AUTHORITIES

3 Joseph Story, Commentaries on the Constitution

PPG co ccccdncnsccesecucdecsvcecencesesees 8, 19, 29

B. Wright, The Contract Clause Of The Constitution

SE vee eevocccunssseveunsdenvesdsnececensessecue 23

G. Gunther, Constitutional Law (1974)................ 23

No. 92-551

+

In The

Supreme Court of the United States

October Term, 1992

°

JACK F. KEMP, SECRETARY OF THE

UNITED STATES DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT, et al.,

Petitioners,

Vv.

ALPINE RIDGE GROUP, et al.,

Respondents.

°

On Writ Of Certiorari To The

United States Court Of Appeals For The Ninth Circuit

¢

BRIEF OF STATESMAN SAVINGS HOLDING

CORP., THE STATESMAN GROUP, INC.,

AMERICAN LIFE AND CASUALTY INSURANCE

COMPANY, MCB FINANCIAL GROUP, INC.,

MEADOWS RESOURCES, INC., REPUBLIC

HOLDING COMPANY, NORTHEAST SAVINGS, F.A.,

COAST FEDERAL BANK, FEDERAL SAVINGS

BANK, CITIZENS FEDERAL BANK, A FEDERAL

SAVINGS BANK, CSF HOLDINGS, INC.,

HOME SAVINGS OF AMERICA, FSB, and

H.F. AHMANSON & COMPANY, AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

¢

INTEREST OF THE AMICI CURIAE

Amici are savings banks or the owners of savings

banks whose contracts with the United States were

breached - as were those of respondents in this case -

when Congress enacted legislation that abrogated key

1

2

terms of those contracts. Amici have each sued the United

States seeking, inter alia, money damages for breach of

contract and for the uncompensated taking and depriva-

tion of property in violation of the Fifth Amendment.

Statesman Savings Holding Corp., The Statesman

Group, Inc., and American Life and Casualty Insurance

Company are plaintiffs in the suit styled Statesman Sav-

ings Holding Corp. v. United States, No. 90-773C (Fed. Cl.

filed Aug. 15, 1990). The United States Court of Federal

Claims entered partial summary judgment as to liability

in favor of plaintiffs on July 24, 1992. Statesman Savings

Holding Corp. v. United States, 26 Cl. Ct. 904 (1992). The

case was certified and consolidated for appeal with two

other related cases,’ and that appeal is currently pending

in the United States Court of Appeals for the Federal

Circuit. Winstar Corp. v. United States, No. 92-5164 (Fed.

Cir.). The suits of the other amici are in the discovery

phase in the Court of Federal Claims and no trial dates

have been set.?

1 The two related cases are Glendale Federal Bank, FSB v.

United States, No. 90-772C (Fed. Cl. filed Aug. 15, 1990) and

Winstar Corp. v. United States, No. 90-8C (Fed. Cl. filed Jan. 2,

1990).

2 Citizens Federal Bank v. United States, No. 92-656C (Fed. Cl.

filed Sept. 22, 1992) (Citizens Federal Bank, A Federal Savings

Bank and CSF Holdings, Inc.); Home Savings of America, FSB v.

United States, No. 92-620C (Fed. Cl. filed Sept. 4, 1992) (Home

Savings of America, FSB and H.F. Ahmanson & Company);

Northeast Savings, F.A. v. United States, No. 92-550C (Fed. Cl.

filed Aug. 12, 1992) (Northeast Savings, F.A.); Coast Federal Bank

v. United States, No. 92-466C (Fed. Cl. filed July 9, 1992) (Coast

Federal Bank); Republic Savings Bank, F.S.B. v. United States, No.

92-265C (Fed. Cl. filed April 13, 1992) (MCB Financial Group,

Inc., Meadows Resources, Inc., and Republic Holding Com-

pany).

3

The contracts to which amici are parties, and the

legislation by which petitioners repudiated their obliga-

tions under those contracts, are not related to the con-

tracts or legislation involved here. Consequently, this case

raises questions of statutory and contract construction

unrelated to the controversies in which amici are

involved. Nevertheless, in both this case and those in

which amici are involved, the government has attempted

to avoid any liability for its repudiation of its contractual

obligations on the ground that the sovereign can change

or repudiate its contracts as it sees fit unless it has surren-

dered that power unmistakably. By “unmistakable sur-

render” the government does not simply mean a clear

and express promise, bargained for at arm’s iength and

supported by consideration, to undertake some act;

rather, the government would require the contract to

contain an additional, explicit promise not to repudiate

that first promise at some point in the future.

Far from reflecting some well-established “modern

view of congressional authority” as petitioners imply,

Brief for the Petitioners (“Pet. Br.”) at 33 n.31, petitioners’

radical proposition is fundamentally at odds with the

precedents of this Court. Petitioners seek to establish a

power to avoid their contractual obligations with total

impunity, a power that is effectively unlimited, or is

limited only by contract language that has never

appeared in any government contract, anywhere, at any-

time.

Accordingly, amici have a strong interest in any rul-

ing on this argument that the Court concludes to be

necessary to the resolution of this case. Moreover, having

joined issue with the government on this notion in a

4

variety of courts, amici are in a unique position to aid the

Court in its consideration of the issue.%

’

INTRODUCTION AND SUMMARY OF ARGUMENT

Respondents contend, and the courts below found,

that pursuant to the provisions of a federal statute and

the express terms of written contracts, respondents and

the Department of Housing and Urban Development

(“HUD”) entered into a binding contract governing how

rent increases in certain low-income housing projects

were to be calculated. Petitioners claim that this conclu-

sion is based on an erroneous understanding of that

statute and those contracts. Amici are not involved in that

housing program and so are not in a position to contrib-

ute to those particular arguments in a manner helpful to

the Court.

However, should petitioners be unable to bring this

Court to their view of the statute and contracts, they

advance several other arguments to avoid any liability for

their breach of their promises, notwithstanding the con-

tractual character of those promises under the law. The

government’s sovereign rights, according to petitioners,

allow the government to enter an express, arm’s length

contract with a private party, receive the benefits of that

party’s performance, disavow its own promised perfor-

mance at its pleasure, retain the benefits it has bargained

for and received, and yet be insulated from any liability

for its breach. This is so, according to petitioners, (1)

because the “modern view” of government authority

broadly “recognizes the prospective power of Congress to

modify the government’s contracts,” Pet. Br. at 33 n.31, or

3 Copies of the letters of the parties indicating consent to

the filing of this brief are being filed with this brief.

5

(2) because a contract needs to expressly “surrender”

Congress’ sovereign power - in addition to any express

promises of performance by the government - before a

private contractor can truly rely on a contract pro-

mise made by the government, id. at 32, or (3) because

“ “supervening conditions’ implicating the police power”

allow the government to breach its contracts with impu-

nity, id. at 41-43, or, finally, (4) because the government is

always free to breach its contracts so long as its does not

do so simply to save money. Id. at 42-45.

Far from being “modern,” all these arguments ulti-

mately spring from an Old World understanding of the

relationship of the sovereign to the citizen, an Old World

understanding long abandoned by the American experi-

ment and completely alien to our constitutional order. It

is an elementary point of our law that “the Federal Gov-

ernment, as sovereign, has the power to enter contracts

that confer vested rights, and the concomitant duty to

honor those rights.” Bowen v. Public Agencies Opposed to

Social Security Entrapment, 477 U.S. 41, 52 (1986)

(“POSSE”). If the rule petitioners urge here is to become

our law, no citizen could ever enter into an arm’s length

bargain with the federal government that conveys real

benefits to the government while exacting real obliga-

tions from it. Contrary to petitioners’ proffered rule, this

Court has consistently taught that both the Due Process

and the Taking Clauses of the Fifth Amendment ensure

that government contracts are not “vain prom-

ise[s] . . . having no other sanction than the pleasure and

convenience of the pledgor.” Perry v. United States, 294

U.S. 330, 351 (1935). Even when government performance

of a contract is impossible because it would do serious

harm to the public’s health or safety, no precedent of the

Court has held, on that account, that the original obliga-

tion was not truly contractual or that the government was

6

not obliged to compensate the innocent party for any

injury caused by the breach.

The profound hostility of petitioners’ proposition to

our most basic constitutional premises was brought into

sharp relief by an observation of the Court of Federal

Claims in a recent opinion rejecting the very arguments

the government presses here:

The assertion that, in order to freely regulate,

the government must have the power to disre-

gard the rights and interests of its citizens is a

novel proposition that finds no support

. in our constitutional tradition. Sovereign

power is always restricted, in one sense, by the

rights of individuals. However, in our Nation

that has never been seen as an improper restric-

tion on regulatory power. Rather, it is the foun-

dation upon which all law and regulation are

built.

Winstar Corp. v. United States, 25 Cl. Ct. 541, 548 (1992),

appeal pending, No. 92-5164 (Fed. Cir. 1992).

¢

ARGUMENT

I. GOVERNMENT PROMISES SUPPORTED BY CON-

SIDERATION BECOME VESTED RIGHTS WHEN

THE GOVERNMENT RECEIVES THE CONSIDER-

ATION

Throughout their argument, petitioners ignore a fun-

damental distinction under the law between gratuitous

government promises and government promises made to

secure a private party’s contractual performance or detri-

mental reliance. To be sure, given the scope of modern

government regulation, the government must retain the

flexibility to revise public policy in the light of experience

and to address issues of public importance in a manner

different from — even at odds with — that chosen in the

7

past. And indeed, the Constitution does not require the

government to adhere to a policy if it has received noth-

ing in exchange for it, such as gratuitous promises to

provide benefits to, or to refrain from regulating, certain

persons or groups.‘

For similar reasons, the government, unless its action

is unusually harsh or arbitrary, is free to readjust, even

retroactively, the burdens and benefits of agreements

solely between private parties. By definition, these purely

private arrangements confer no benefit on the govern-

ment, and the contracting parties, particularly in a

heavily regulated industry, rarely have any legitimate

reason, much less a vested right, to expect that the law at

the time of contracting will remain unchanged in perpe-

tuity. Pension Benefit Guaranty Corp. v. Gray, 467 U.S. 717

(1984); United States R.R. Retirement Bd. v. Fritz, 449 U.S.

166, 175 (1980); Usery v. Turner Elkhorn Mining Co., 428

U.S. 1 (1976). Consequently, the government's interfer-

ence with private contracts is given much more deferen-

tial review than the government’s impairment of its own

commitments.®

However, petitioners are wholly mistaken when they

imply that some “modern view of congressional author-

ity” holds that the federal government is somehow enti-

tled to repudiate its own obligations under a contract to

* See, e.g., POSSE, 477 U.S. at 52 (“The termination clause

was not unique to this Agreement; nor was it a term over which

the State had any bargaining power or for which the State

provided independent consideration.”); Flemming v. Nestor, 363

U.S. 603 (1960) (Social Security benefits are not annuity con-

tracts, and thus are gratuities unenforceable against the federai

government.).

5 United States Trust Co. v. New Jersey, 431 U.S. 1, 26 n.25

(1976). Compare Perry, 294 U.S. at 350-51 with Norman v. Baltimore

& O.R. Co., 294 U.S. 240, 304-305 (1935).

8

which it is a party. In those circumstances, the private

party’s contractual right to receive the bargained-for per-

formance of the federal government is a property right

that the government cannot, under both the Due Process

and the Taking Clauses of the Fifth Amendment, uni-

laterally extinguish through repudiation. As this Court

has recognized, “(t]he United States are as much bound

by their contracts as are individuals.” Sinking Fund Cases,

99 U.S. 700, 719 (1879).© In a long and unbroken line of

cases, this Court and other courts have consistently held

that when the government enters into a contract for the

purpose of securing some specified performance from a

private party, and that party fully performs its obliga-

tions under the contract, the private party’s contractual

right to receive the bargained-for performance of the

government is a property right that the government can-

not, consistent with the Fifth Amendment, unilaterally

extinguish without compensation.

For example, in Choate v. Trapp, 224 U.S. 665 (1912),

the Court upheld a lower court’s decision enjoining

enforcement of a statute purporting to tax Indian land

that the federal government had pledged, both in written

agreements and in a federal statute, would remain

© See also Perry, 294 U.S. at 352 (“When the United States,

with constitutional authority, makes contracts, it... incurs

responsibilities similar to those of individuals who are parties to

such instruments.”); Lynch v. United States, 292 U.S. 571, 579

(1934) (“When the United States enters into contract relations,

its rights and duties therein are governed generally by the law

applicable to contracts between private individuals.”); 3 Joseph

Story, Commentaries on the Constitution § 1385 (1833) (“[T]he

legislature may make a contract with individuals directly by a

law, pledging the state to a performance of it; and then, when it

is accepted, it is equally under the protection of the Constitu-

tion.”).

9

exempt from taxation for a certain period of time. In

exchange for the pledge of tax exemption, the Indians

had relinquished all equitable claims to common tribal

property, by which the Court found the plaintiff Indians

had “furnished a consideration which was sufficient to

entitle them to enforce whatever rights were conferred

.... ” Id. at 672. The statutory pledge of tax-exempt

status, therefore, “was a property right, which Congress

undoubtedly had the power to grant.” Id. at 673. Accord-

ingly, “[uJnder the provisions of the 5th Amendment

there was no more power to deprive [the Indians] of the

exemption than of any other right in the property.” Id. at

674.

The Choate Court distinguished prior decisions in

which the government was allowed to repeal “general

statutes containing, not a grant, but an offer of [tax]

exemption” to companies that agreed to build certain

projects and that “actually built in reliance on [the stat-

ute’s] terms”:

The companies gave nothing, and the state

received nothing in exchange for the offer. There

was no consideration moving from one to the

other. Such exemption was a mere bounty, valu-

able as long as the state chose to concede it, but

as tax exemptions are strictly construed, it could

be withdrawn at any time the state saw fit.

Id. at 674-75.

The distinction recognized in Choate, and applied by

the Ninth Circuit below - that generally applicable statu-

tory gratuities are normally revocable at will, while bar-

gained-for commitments made in discrete agreements

create constitutionally protected property rights — has

been followed consistently by this Court in a variety of

10

other contexts.” In Lynch, 292 U.S. at 576, for example, the

Court concluded that yearly renewable term insurance

policies issued by the Federal Bureau of War Risk Insur-

ance were “contracts of the United States” that could not

be abrogated by Congress. In a unanimous opinion

authored by Justice Brandeis, the Court enforced the

insurance policies. Citing both the Due Process and the

7 See also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003

(1984) (“[vJalid contracts are property within meaning of the

Taking Clause.”); United States Trust Co., 431 U.S. at 17 (“[T]he

Contract Clause limits the power of the States to modify their

own contracts.”); Wood v. Lovett, 313 U.S. 362 (1941); Indiana ex

rel. Anderson v. Brand, 303 U.S. 95, 100 (1938) (“[A] legislative

enactment may contain provisions which, when accepted as the

basis of action, become contracts between [individuals] and the

State” protected by Contract Clause.); De Laval Steam Turbine Co.

v. United States, 284 U.S. 61, 71 (1931) (“[C]ancellation [of a

contract] is an exercise of the power of eminent domain, and the

liability of the government is for just compensation.”);

Brooks-Scanlon Corp. v. United States, 265 U.S. 106, 121-22 (1924);

Fisk v. Jefferson Police Jury, 116 U.S. 131, 134 (1885) (“[A]fter the

services have been rendered under a law, . . . there arises an

implied contract to pay for the services.”); New Jersey v. Yard, 95

U.S. 104 (1877); Butler v. Pennsylvania, 51 U.S. (10 How.) 402, 416

(1850) (“[T]he promised compensation for services actually per-

formed and accepted . . . may undoubtedly be claimed both

upon principles of compact and of equity.”); Fletcher v. Peck, 10

U.S. (6 Cranch) 87, 135 (1810) (“When . . . a law is in its nature a

contract, when absolute rights have vested under that con-

tract;... repeal of the law cannot divest those rights.”); Maxima

Corp. v. United States, 847 F.2d 1549, 1557 n.6 (Fed. Cir. 1988)

(“[T]hat the government can always change the bargain .. . is

anathema not only to the rule of law but to... principles of a

great commercial nation.”); Larionoff v. United States, 533 F.2d

1167, 1189 (D.C. Cir. 1976), aff'd, 431 U.S. 864 (1977) (“[O}nce

someone agrees to perform . . . in exchange for a. . . sum of

money, and the Government has received that performan-

ce... the ‘gratuity’ becomes a contractual right.”) (footnotes

omitted).

11

Taking Clauses, the Court grounded its analysis on the

proposition that “[rjights against the United States aris-

ing out of a contract with it are protected by the Fifth

Amendment.” Id. at 579. The Court found consideration

for the contractual obligation in the payment of pre-

scribed monthly premiums. Id. at 576. The Court stated

that “[aJs Congress had the power to authorize the

Bureau of War Risk Insurance to issue [the policies], the

due process clause prohibits the United States from annu-

lling them ....” Id. at 579.

Notably, the Lynch Court rejected the argument that

the insurance policy contracts were unenforceable “gratu-

ities,” such as pensions or hospital privileges, on the

ground that, notwithstanding their “benevolent pur-

pose,” they were contracts supported by consideration

and thus created vested property rights protected by the

Fifth Amendment. Id. at 576-77.

Similarly, the Court held in Perry that Congress’

invalidation of gold standard clauses in bonds issued by

the United States “went beyond the congressional

power.” 294 U.S. at 354. The Court dismissed the deci-

sions allowing the United States to impair private con-

tracts with identical “gold clauses” as inapposite:

There is a clear distinction between the power of

the Congress to control or interdict the contracts

of private parties when they interfere with the

exercise of its constitutional authority and the

power of the Congress to alter or repudiate the

substance o: its own engagements when it has

borrowed money under the authority which the

Constitution confers.

Id. at 350-51.

The Perry Court also firmly rejected the argument

that “when, with adequate authority, the government

borrows money and pledges the credit of the United

States, it is free to ignore that pledge and alter the terms

of its obligations in case a later Congress finds their

12

fulfillment inconvenient.” Id. at 350. The Court refused to

“sanction . . . such a conception of the obligations of our

government.” Id. at 351.8

The circuit courts have also had occasion to consider

a claim by the federal government that it need not honor

its contractual commitment to privc.e parties who have

fully performed their end of the bargain. For example, in

Larionoff v. United States, 533 F.2d 1167 (D.C. Cir. 1976),

aff'd, 431 U.S. 864 (1977), the D.C. Circuit held that a

statute preventing payment of reenlistment bonuses

promised in Navy reenlistment agreements violated the

Due Process Clause. Relying on Lynch and Perry, the court

ruled that “[s]ince contractual rights against the govern-

ment are property interests protected by the Fifth

Amendment, Congressional power to abrogate existing

government contracts is narrowly circumscribed.” Id. at

1179. The court contrasted government “gratuities,” sub-

ject to congressional repudiation, with the much different

situation in which “someone agrees to perform certain

services in exchange for a given sum of money, and the

Government has received that performance .... ” Id. at

1189. In such a case, “the ‘gratuity’ becomes a contractual

right.” Id.

This Court affirmed the D.C. Circuit’s decision, albeit

on slightly different grounds. The Court fully agreed that

if Congress had intended to repeal the reenlistment

bonuses extant at the time of the extension agreements,

“serious constitutional questions would be presented.”

United States v. Larionoff, 431 U.S. 864, 879 (1977). The

Court accepted the United States’ argument that “Con-

gress may prospectively reduce the pay of members of

8 See also De La Rama S.S. Co. v. United States, 344 U.S. 386,

388 (1953) (“[T]he Constitution precludes extinction of the Gov-

ernment’s liability” under a war risk insurance policy.) (relying

on Lynch).

13

the Armed Forces, even if that reduction deprived mem-

bers of benefits they had expected to be able to earn.” Id.

Relying on Lynch and Perry, the Court concluded that “[iJt

is quite a different matter, however, for Congress to

deprive a service member of pay due for services already

performed, but still owing.” Id. (emphasis added). The

Court did not reach this constitutional question, however,

because it interpreted the subsequent congressional act as

not affecting the right to reenlistment bonuses.

Even where traditional contract documents are not

involved, the Court has recognized that a private party's

expectations in some course of government conduct may

legitimately rise to the level of a protected property inter-

est. Monsanto, for example, involved a 1972 federal stat-

ute providing that trade secrets submitted to the

Environmental Protection Agency in connection with reg-

istering pesticides would not be disclosed publicly or

considered in connection with a rival company’s pesticide

application. In 1978 the statute was amended to remove a

certain class of trade secrets from those disclosure protec-

tions. The Court unanimously held that a chemical com-

pany was entitled to compensation under the Taking

Clause for any damage caused by disclosure of its trade

secrets submitted during the 1972-1978 period because

“the Federal Government had explicitly guaran-

teed . . . an extensive measure of confidentiality and

exclusive use [for the trade secrets submitted]. This

explicit governmental guarantee formed the basis of a

reasonable investment-backed expectation.” 467 U.S. at

1011.9

* See also Hodel v. Irving, 481 U.S. 704, 715-11 (1987)

(invalidating congressional attempt to extinguish property

interest created by earlier statute even though only consider-

ation given to Congress in return was that property owners’

“ancestors . . . ced[ed] to the United States large parts of the

original Great Sioux Reservation.”); Kaiser Aetna v. United States,

14

Thus, as the Ninth Circuit noted below, though the

government assumes no obligation by virtue of a gratu-

itous promise unsecured by any consideration (or detri-

mental reliance) from the beneficiary, when it bargains

for and receives valuable consideration for an express

promise, particularly one contained in a bilateral con-

tract, it may not then repudiate that promise, and keep

the benefit received or otherwise escape liability for the

breach.

In their effort to ignore the force of the cases dis-

cussed above, and the principle that Congress cannot

impair vested contract rights, petitioners intently ignore

the distinction between vested contract rights and gratu-

itous statutory provisions. For example, petitioners quote

Federal Housing Admin. v. The Darlington, 358 U.S. 84, 91

(1958) for the general proposition that “[t]hose who do

business in the regulated field cannot object if the legisla-

tive scheme is buttressed by subsequent amendments to

achieve the legislative end.” Pet. Br. at 32-33. Yet peti-

tioners overlook the fact that the Court found that no

contract right existed in The Darlington: “[Ojne has to

look long and hard to find even a semblance of a contrac-

tual right rising to the dignity of the one involved in

Lynch ....” Id. at 91.

In The Darlington, the Court relied on the fact that the

law prevailing at the time the contract was entered into

did not give the private party the right it sought to

enforce, and that the private party’s contract with the

government was silent with respect to the existence of

that right. Id. at 87-90. Thus, the Court’s refusal to infer

444 U.S. 164, 179 (1979) (“[T]he consent of individual officials

representing the United States . . . can lead to the fruition of a

number of expectancies embodied in the concept of ‘property’ -

expectancies that, if sufficiently important, the government

must condemn and pay for before it takes over the management

of the land owner’s property.”).

15

that the private party had somehow obtained a vested

property right is hardly surprising. What is surprising is

petitioners’ attempt to wring from the Court’s holding

the principle that an express promise in a valid contract

can be repudiated with impunity. Far from supporting

petitioners’ case, The Darlington supports respondents’ by

framing the issue precisely: where there are no contract

rights, Congress is free to legislate; but where contract

rights have vested, Congress cannot impair those vested

contract rights with impunity.'°

Petitioners make the same error in their reading of

POSSE. According to petitioners, POSSE “held that when

Congress eliminated the States’ contractual right . . . the

contractual right lost did not ‘rise to the level of “prop-

erty” ‘ under the Fifth Amendment.” Pet. Br. at 42 n.41

(quoting POSSE, 477 U.S. at 55). To the contrary, POSSE

turned on the fact that there was no contract right to be

protected because the government’s promise was gratu-

itous. The Court noted, in distinguishing Lynch and Perry,

that California had not bargained for the “right” it

claimed to withdraw from the social security system, nor

was that “right” supported by any “independent consid-

eration,” since the federal government could have forced

the state to participate in the system at any time. POSSE,

477 U.S. at 55. Thus POSSE, like The Darlington, is not a

vested rights case at all, and petitioners misconstrue the

holding in those cases by arguing that they impart to

10 When placed in its proper context, therefore, The Dar-

lington Court’s admonition to “[t]hose who do business in the

regulated field,” 358 U.S. at 91, actually supports respondents’

rights here. It is precisely because the regulatory regime may

change that entities like respondents are not content to rely on

regulatory pronouncements, but instead seek to negotiate bind-

ing contracts with the government.

16

Congress the power to abrogate existing, vested contract

rights."!

Il. NO PRINCIPLE OF LAW EXCUSES THE GOVERN-

MENT’S REPUDIATION OF ITS CONTRACTUAL

COMMITMENTS

A. The Law Creates No Higher Standard For Con-

tracts With The Government To Be Binding.

Petitioners further argue that respondents do not

have enforceable contract rights because their contracts

do not state in “unmistakable terms” that the federal

regulators promised that Congress would never change

the statute in such a way as to affect their right to rent

adjustments. Pet. Br. at 32.!2 Petitioners have, by their

1! Similarly, petitioners quote this Court’s decision in the

Sinking Fund Cases in support of their assertion that Congress

has the power to modify the government's contracts. Pet. Br. at

33 n.31. Yet in the sentences immediately following the sentence

quoted by them, the Court sharply limited that power to “opera-

tion in the future.” Sinking Fund Cases, 99 U.S. at 721. The Court

held that a law altering or vacating contracts already entered

into would be unconstitutional. Id. Although the Court went on

to sustain the law at issue, it did so because nothing was taken

“from the Corporation or the stockholders that actually

belong[ed] to them.” Id. at 726. In other words, the law, unlike

here, did not actually alter or abrogate existing contract rights;

it merely imposed new guidelines, where previously there had

been none, for future conduct.

12 In connection with their statutory arguments, petitioners

suggest that the principles of deference stated by this Court in

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467

U.S. 837 (1984) apply to their reading of the statute at issue here,

and, therefore, to their reading of the relevant contract terms.

Pet. Br. at 21, 26. Amici disagree. Chevron deference is inap-

propriate with respect to interpretations of agency contracts or

statutes affecting agency contracts, since “deference might lead

17

passing reference to this “unmistakability doctrine,”

transformed a rather commonsensical notion into a for-

malistic doctrine that would render unenforceable nearly

every contract between the government and private citi-

zens. In fact, this Court has long held that Congress

“unmistakably” waives its power to alter a statute retro-

actively when it makes an express affirmative promise;

only when it makes no promise, is there no “unmistak-

able” waiver.

To be sure, the government’s contractual commit-

ments cannot override its responsibility to protect public

health or safety.'° Yet this recognition of the govern-

ment’s essential responsibilities has never been under-

stood to erase from the law books the fundamental

proposition that “the right to make binding obligations is

a competence attaching to sovereignty.” Perry, 294 U.S. at

353. Indeed, as POSSE and the case on which POSSE

relied, Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982),

show, the “unmistakable waiver” principle arose in

response to a claim of a contract right in the face of

governmental silence, not an explicit commitment, as

here.

Merrion involved oil and gas leases granted by the

Apache Tribe that were silent on the question of the

Tribe’s ability to impose severance taxes. In the absence

of such a contract provision, the Tribe could not be held

a court to endorse self-serving views that an agency might offer

in a post hoc reinterpretation of its contract.” National Fuel Gas

Supply Corp. v. FERC, 811 F.2d 1563, 1571 (D.C. Cir.), cert. denied,

484 U.S. 869 (1987). See also Transohio Sav. Bank v. Director, Office

of Thrift Supervision, 967 F.2d 598 (D.C. Cir. 1992).

3 See, e.g., United States Trust, 431 U.S. at 25 (a state’s

promise to secure a revenue bond by a particular public facility

cannot be construed to bind the state never to close that facility

for health or safety reasons).

18

to have waived its taxing power as to the lessees. As the

Court concluded:

We could find a waiver of the Tribe’s taxing

power only if we inferred it from silence in the

leases. To assume that a sovereign forever

waives the right to exercise one of its sovereign

powers unless it expressly reserves the right to

exercise that power in a commercial agreement

turns the concept of sovereignty on its head ....

455 U.S. at 148 (emphasis added).

Quoting the above passage from Merrion, the Court

in POSSE reiterated that a contractual obligation of the

government cannot be inferred from silence. The POSSE

Court reaffirmed, however, that an express contractual

promise cannot be abrogated by a later exercise of sover-

eign power, noting that “the Federal Government, as

sovereign, has the power to enter contracts that confer

vested rights, and [its] concomitant duty to honor those

rights ....” 477 U.S. at 52.

It was in this context — totally inapplicable here — that

POSSE held that the government’s sovereignty had not

been waived in “unmistakable terms.” Indeed, this Court

has repeatedly recognized the incoherence of petitioners’

rule of construction, i.e., that every express promise by the

government that it “will do X” carries the implied condi-

tion “unless the government changes it mind,” which can

be negated only by another express promise by the gov-

ernment that it “will not stop doing X.” In rejecting

precisely such an argument, the Court long ago observed,

“[H]ow an express contract can contain an implication, or

consist with a reservation directly contrary to the words

of the instrument, has never yet been discovered.” Mur-

ray v. Charleston, 96 U.S. 432, 444 (1878). In rejecting the

notion that an explicit contractual promise can be abro-

gated by some inherent reservation of authority, the

Court, quoting Alexander Hamilton, observed that a gov-

ernment contract so understood

19

would “[iJnvolve two contradictory things: an

obligation to do, and a right not to do - an

obligation to pay a certain sum, and a right to

retain it in the shape of a tax. It is against the

rules, both of law and of reason, to admit by

implication the construction of a contract or

principle which goes in destruction of it.”

Id. at 445. The Court in Perry rejected this argument in

similarly unequivocal terms, again quoting Hamilton:

[W]hen a government enters into a contract with

an individual, it deposes, as to the matter of the

contract, its constitutional authority, and

exchanges the character of the legislator for that

of a moral agent, with the same rights and obli-

gations as an individual ... . It is in theory

impossible to reconcile the idea of a promise

which obliges, with a power to make a law

which can vary the effect of it.

294 U.S. at 351 n.3.14

Thus, the Court should read petitioners’ “unmis-

takability” argument for what it is: a thinly-veiled

attempt to assert a right to avoid their express promises

on the basis of a formalistic doctrine that has nothing to

do with the parties’ intent. Viewed in this light, the

argument must, like petitioners’ other conceptions

regarding the “modern view of congressional authority,”

be rejected.

14 See also Story, Commentaries § 1385 (“[I]t may be laid

down as a general principle, that, whenever a law is in its own

nature a contract, and absolute rights have vested under it, a

repeal of that law cannot divest those rights, or annihilate or

impair the title so acquired. A grant . . . amounts to an extin-

guishment of the right of the grantor, and implies a contract not

to reassert it.”).

20

B. The Circumstances Underlying The Govern-

ment’s Breach Do Not Excuse It From Liability.

1. Petitioners continue their effort to avoid the plain

meaning of Lynch, Perry, and their progeny by attempting

to limit their scope to cases where the government abro-

gated “vested rights . . . solely to save the government

money ....” Pet. Br. at 42. The express language and

reasoning of the cases, however, preclude such a cramped

reading.

Amici will not comment on petitioners’ strained fac-

tual argument that Congress abrogated respondents’ con-

tracts for reasons other than to save money. Even

assuming the accuracy of this assertion, petitioners’ legal

argument is unsustainable. This Court’s precedents have

not treated government promises to pay money differ-

ently from other promises concerning regulatory or other

sovereign powers.'5 Nor has this Court ever suggested

that the government is free to repudiate its contractual

promises so long as it has a rational justification other

than its own naked desire to keep the money owed. For

example, important aspects of legislation such as improv-

ing “[m]ass transportation, energy conservation, and

environmental protection” during a national energy crisis

(United States Trust, 431 U.S. at 28), exercising “Congress’

paramount power to ‘raise and support armies’” when

the country was shifting to an all-volunteer military

(Larionoff, 533 F.2d at 1191), putting into place a compre-

hensive national program to shift from the gold standard

15 See, e.g., Hodel, 481 U.S. at 706-08 (promise to allow

Indians to pass on their interest in fractionated land); Monsanto,

467 U.S. at 992-93 (promise to maintain confidentiality of trade

secrets submitted to EPA in registration of pesticides); United

States Trust, 431 U.S. at 3 (promise not to spend all money for

mass transportation); Santobello v. New York, 404 U.S. 257, 257-58

(1971) (promise of a specific sentence recommendation upon a

guilty plea); Sinking Fund Cases, 99 U.S. at 719 (promise concern-

ing payment schedule of money owed to the government).

21

in order to stabilize banking and currency during a time

of worldwide financial crisis (Perry, 294 U.S. at 350-51),

resolving the “serious public problem” of “extreme frac-

tionation of Indian lands” (Hodel, 481 U.S. at 718), avoid-

ing burdens and delays in a regulatory program from

which the government did not profit (Monsanto, 467 U.S.

at 993), or achieving essential government economies

during the Great Depression (Lynch, 292 U.S. 571), have

not excused the government from liability for repudiation

of its contracts.

That the Court has never drawn the distinction peti-

tioners urge here is hardly surprising: from a Constitu-

tional or public policy perspective, the government's

failure to pay money promised in exchange for valuable

consideration is no different from reneging on any other

promise. Promises not exclusively related to the payment

of money can be as financially valuable to a contractor as

promises for money, and repudiating such promises can

save the government as much money as repudiating mon-

etary debts. Moreover, enforcing the government’s mone-

tary obligations limits its flexibility no less than does

enforcing its nonmonetary obligations. And Congress will

always be able to invoke a legitimate purpose - in addi-

tion to the naked desire to save money - to justify its

repudiation. Indeed, since the government must always

have a legitimate government purpose for any legislation

to survive substantive due process review, requiring it to

articulate such a purpose in order to freely abrogate its

contractual liabilities is no limitation at all.

2. Petitioners also make a suggestion, related to

their argument that they are liable only for contract

breaches designed solely to save money, that is remark-

able for its potential scope. In distinguishing Lynch, peti-

tioners note that that case did not involve “supervening

conditions” and suggest that the presence of such condi-

tions renders any congressional abrogation of the United

States’ contracts constitutionally valid. Pet. Br. at 43. In a

22

footnote, petitioners suggest that “ordinary uses of the

commerce power” represent examples of such superven-

ing conditions. Id. at n.42. Thus, in the guise of describing

an exception to the constitutional limitation on the govern-

ment’s ability to abrogate its contracts, petitioners actu-

ally offer a rule that completely eviscerates any such

limitation on governmental power. Petitioners are, quite

simply and quite frankly, arguing that whenever Con-

gress has power under the Commerce Clause to enact

certain legislation, the exercise of that power cannot be

challenged under the Due Process Clause, notwithstand-

ing its effects on the contractual obligations of the United

States. Such a principle makes the Fifth Amendment a

dead letter, renders the government’s contractual prom-

ises meaningless, and is completely unsupported by

authority.'® Moreover, the cases cited by petitioners either

do not involve contracts at all or involve only private

contracts. They can hardly, therefore, set the standard for

16 Indeed, the very cases cited by petitioners recognize that

Congress’ power under the Commerce Clause, though exten-

sive, is limited by other provisions of the Constitution. See, e.g.,

Hipolite Egg Co. v. United States, 220 U.S. 45, 57 (1911) (Com-

merce power “is complete in itself, subject to no limitations

except those found in the Constitution.”); Lottery Case, 188 U.S.

321, 362-63 (1903) (Commerce power “is subject to such limita-

tions or restrictions as are prescribed by the Constitution. This

power, therefore, may not be exercised so as to infringe rights

secured or protected by that instrument.”). See also Hamilton v.

Kentucky Distilleries & Warehouse Co., 251 U.S. 146, 156 (1919)

(“The war power of the United States, like its other powers and

like the police power of the states, is subject to applicable consti-

tutional limitations.”); Monongahela Navigation Co. v. United

States, 148 U.S. 312, 336 (1893) (“[L]ike the other powers granted

to Congress by the Constitution, the power to regulate com-

merce is subject to all the limitations imposed by such instru-

ment, and among them is that of the Fifth Amendment .... ”).

23

judging the constitutional validity of breaches of the gov-

ernment’s contractual obligations, unless contracts with

the government are, quite literally, not worth the paper

they are written on.

Rather, the “paramount power” claimed by the gov-

ernment extends no farther than simply to excuse the

government’s performance (though not liability, see infra

at 27-28) when unforeseen conditions not addressed in

the contract at the time of its making have rendered

performance impossible or a threat to the public’s health

or safety. See United States Trust, 431 U.S. at 25.17

17 United States Trust interpreted the requirements of the

Contract Clause, which does not apply to the federal govern-

ment. Petitioners suggest that the Contract Clause imposes

more exacting requirements upon the states than the Fifth

Amendment imposes on the federal government. Pet. Br. at 36

n.35. This is not so. While it is true that the Court has indicated

as much concerning the impairment of private contracts, it has

never hinted that the Due Process Clause or Taking Clause gives

the federal government greater leeway to repudiate its own

contracts than does the Contract Clause for the states. If any-

thing, the Court’s precedent indicates that the federal govern-

ment is held to a higher standard under the Fifth Amendment

than are the states under the Contract Clause. See Perry, 294 U.S.

at 352-54; United States Trust, 431 U.S. at 23-26. This rule makes

sense because the text and history of the Contract Clause clearly

show that it acts as a restriction on the states’ ability to interfere

with private contracts, but it is far less clear that the Due Process

Clause has any such effect in the private world. See Allied Struc-

tural Steel v. Spannaus, 438 U.S. 234 (1978); Lincoln Federal Labor

Union v. Northwestern Iron and Metal Co., 335 U.S. 525, 536 (1949).

Conversely, however, it is quite clear that the Due Process

Clause provides substantial restrictions on the actions of the

federal government, while it is far less clear that the Contract

Clause was intended to apply to contracts made by state govern-

ments. See, e.g., United States Trust, 431 U.S. at 45 (Brennan, J.,

dissenting); G. Gunther, Constitutional Law, 604 (1974); B.

Wright, The Contract Clause Of The Constitution, 15-16 (1938).

24

In United States Trust, as noted earlier, the govern-

ment’s decision to violate a security covenant in a bond

by spending toll revenues on mass transit served the

substantial purpose of reducing automobile use during a

nationwide energy crisis. Id. at 28. The Court nonetheless

rejected the state’s claim that the existence of such goals

justified abrogating a particular contract, explicitly

declining “this invitation to engage in a utilitarian com-

parison of public benefit and private loss.” Id. at 29.

Rather, the Court required the state to demonstrate

that abrogating the particular bond covenant was “neces-

sary to achievement of the plan.” Id. at 29. It ruled that

the state failed to meet this least restrictive alternative

standard because, “without modifying the covenant at

all, the States could have adopted alternative means of

achieving their twin goals of discouraging automobile

use and improving mass transit.” Id. at 30.

The Court also held that abrogation of the covenant

failed to satisfy the additional requirement that the harm

that the state sought to eliminate was not foreseeable

when the contract was entered. Although an unforeseen

national energy crisis had subsequently intervened, the

Court noted that concerns about energy were “not

unknown” at the time of the contract, and subsequent

exacerbation of those concerns “were of degree and not of

kind.” Id. at 32.

The quote from Lynch on which petitioners rely illus-

trates precisely this point. Pet. Br. at 43. What the Court

actually said in Lynch was that the United States had

made no showing of “supervening conditions which autho-

rized Congress to abrogate these contracts in the exercise

of its police or any other power.” Lynch, 292 U.S. at 580

Thus, while the Fifth Amendment may be less restrictive on the

federal government than is the Contract Clause on the states

with respect to the private sector, the Due Process Clause

imposes a more onerous standard on the federal government

with respect to its own contracts.

25

(emphasis added). Thus Lynch, like United States Trust,

simply hypothesizes a situation in which unforeseeable

“supervening conditions” arising after the formation of

the contract converted the contract into a public safety

threat which the government had a paramount purpose

in eliminating. As the Court noted, in the Great Depres-

sion, “economy had become urgent because of lessened

revenues and the heavy obligations to be issued in the

hope of relieving widespread distress.” Lynch, 292 U.S. at

580. While this explanation was sufficient to justify Con-

gress’ imposition of a burden on those without binding

contracts with the government, it was wholly insufficient

with respect to those who had such commitments.'*

Application of this principle in Perry is clearer still.

Concluding that the challenged statute, which provided that

debts and obligations could be discharged through payment

of legal tender rather than through payment in gold, signifi-

cantly advanced Congress’ paramount power of regulating

the value of money and commerce, the Court held in Perry's

companion case that this power justified invalidating gold

clauses in private contracts. See Norman v. Baltimore & O.R.

Co., 294 U.S. 240 (1935). Perry nevertheless held that the

paramount power to regulate the gold supply did not

empower Congress to abrogate gold clauses in its own con-

tracts. The “right to make binding obligations is a compe-

tence attaching to sovereignty,” and, having used this power

to create obligations, Congress could not invoke the same

“authority to alter or destroy those obligations.” Perry, 294

U.S. at 353-55.

Viewed in this light, while the feeble public purposes

advanced by petitioners may explain their actions here,

18 See also Larionoff, 533 F.2d at 1191 (Legitimate paramount

power “to raise and support armies’ and to make rules for the

government and regulation of the land and naval forces” was

not sufficient to justify “a change in the terms of already binding

extension agreements.” ).

26

they cannot excuse those actions. Whatever perceived

purpose or power that may justify petitioners’ breach

here, it pales when compared to reducing expenditures

and stabilizing financial markets during the Depression,

reducing automobile use during an energy crisis, and

exercising plenary authority over military personnel.

3. It is important to note that respondents’ partici-

pation in the Section 8 program, unlike the States’ actions

in POSSE, could not have been accomplished absent

respondents’ voluntary assent to the contractual arrange-

ments. In other words, under no reasonable understand-

ing of the spending or commerce powers could Congress

have singled out respondents and forced them to partici-

pate in the program.'? That being so, preventing peti-

tioners from breaching their commitment hardly

circumscribes any sovereign power. Instead, permitting

petitioners unilaterally to abrogate their contracts with-

out liability not only would deprive respondents of the

benefit of their bargains, it would also enable petitioners

to accomplish through broken promises that which they

could not have required through straightforward legisla-

tion. Petitioners simply cannot assert any legitimate, let

alone important, interest in so expanding their constitu-

tional authority through deceptive measures.”°

19 See, e.g., Grove City College v. Bell, 465 U.S. 555, 575 (1984)

(“Congress is free to attach reasonable and unambiguous condi-

tions to federal financial assistance that educational institutions

are not obligated to accept.”); Pennhurst State School and Hospital

v. Halderman, 451 U.S. 1, 17 (1981).

20 This point is made clear by the Court’s decision in

Pennhurst, supra. In holding that “if Congress intends to impose

a condition on the grant of federal moneys, it must do so unam-

biguously,” the Court reasoned:

27

C. Whatever The Government's Ability To Avoid

Having To Specifically Perform Its Contractual

Commitments, It May Not Breach Such Com-

mitments Without Incurring Liability.

Finally, amici wish to stress that no matter what con-

clusions the Court might reach with respect to the ability

of respondents to prohibit petitioners from acting in vio-

lation of their contractual obligations, they may not avoid

monetary liability for the consequences of any such

breach. It is one matter to determine, under substantive

due process principles, whether the right of a private

individual to compel the government to perform its con-

tractual undertakings outweighs the public interest in

allowing Congress flexibility to reverse course and

address newly-perceived public problems. This due pro-

cess analysis does not dictate whether, under contract

and Taking Clause principles, the right of a private indi-

vidual to compensation for financial harm caused by the

government’s repudiation of a contractual commitment

outweighs the government’s naked desire to shift the

financial burden of general regulatory policies from itself

to private individuals who took the government at its

word. Shifting the cost of public programs to private

Unlike legislation enacted under [section] 5 [of the

Fourteenth Amendment], however, legislation

enacted pursuant to the spending power is much in

the nature of a contract: in return for federal funds,

the States agree to comply with federally imposed

conditions. The legitimacy of Congress’ power to leg-

islate under the spending power thus rests on

whether the State voluntarily and knowingly accepts

the terms of the “contract” .... Though Congress’

power to legislate under the spending power is

broad, it does not include surprising participating

States with post acceptance or “retroactive” condi-

tions.

451 US. at 17, 25.

28

hands, unlike maintaining legislative flexibility, is not a

legitimate public interest. To the contrary, it is irreconcil-

able with the fundamental tenets of contract law and the

core principle underlying the Taking Clause.??

In short, the question of what remedies are available

for a government breach of contract is distinct from the

question of whether a private citizen had a contract with

the government in the first place. Whatever relevance

petitioners’ discussion of the ability to foreclose “Con-

gress’s right to enact legislation,” Pet. Br. at 32, might

have with respect to the former question, it is not impli-

cated by the latter question.

Well-established judicial precedent supports this dis-

tinction, as it has been squarely held that contractors are

entitled to damages for the financial harm of a govern-

ment breach. Indeed, even when the government's con-

tractual promises of performance cannot be enforced — for

example, because they were illegal or unauthorized at

their formation — the benefits conferred and costs

incurred by a private party in reliance on those promises

must be reimbursed, either by application of a quantum

21 See First English Evangelical Lutheran Church v. Los

Angeles, 482 U.S. 304, 319 (1987), quoting Armstrong v. United

States, 364 U.S. 40, 49 (1960) (purpose of Taking Clause is “to bar

Government from forcing some people alone to bear public

burdens which, in all fairness and justice, should be borne by

the public as a whole.”). See also Winstar Corp., 25 Cl. Ct. at 549:

[T]he government's power to regulate must operate

within the context of plaintiffs’ contract rights. While

Congress clearly may alter the regulatory treat-

ment ..., it must also honor the plaintiffs’ rights. The

government may breach the contract, but it must pay

for the damages the plaintiffs suffer. Any alteration of

this principle would undercut our democratic system.

It would allow governmental policies to be paid for

with a minority’s rights.

29

meruit or quantum valebant analysis, or through a broader

effort to put the parties “substantially in the position they

would have occupied without the attempted contract.”

New York Mail & Newspaper Transp. Co. v. United States, 154

F. Supp. 271, 276 (Ct. Cl.), cert. denied, 355 U.S. 904 (1957).

See Clark v. United States, 95 U.S. 539, 542 (1877) (“[w]here

a parol contract has been wholly or partially executed on

one side, the party performing . . . will be entitled to

recover such value as upon an implied contract for a

quantum meruit.”).2? Thus, it is well-settled that the gov-

ernment cannot retain the benefits of a contract that has

been performed by the private contractor, and at the same

time repudiate without liability its own obligations.

Indeed, this Court has made clear that even with respect

to private contracts, the mere fact that a subsequently

enacted federal statute precludes “specific performance”

of the contracts “by no means [establishes] that [a prom-

isor] could refuse to make just compensation in money

for the unpaid balance” of the plaintiff's performance

under the contract. New York Central & Hudson River R.R.

v. Gray, 239 U.S. 583, 586-87 (1916).23

22 See also Prestex, Inc. v. United States, 320 F.2d 367, 373 (Ct.

Cl. 1963) (“Even though a contract be unenforceable against the

Government, . . . the Government [must] pay for goods deliv-

ered or services rendered and accepted under it.”); Ocean Tech-

nology, Inc. v. United States, 19 Cl. Ct. 288, 293 (1990); United

States v. Amdahl Corp., 786 F.2d 387, 393 (Fed. Cir. 1986) (govern-

ment must return value of benefits received, on quantum vale-

bant or quantum meruit basis, under contract that was properly

terminated by the government for illegality); Yosemite Park &

Curry Co. v. United States, 582 F.2d 552, 560 (Ct. Cl. 1978).

. 23 See also Story, Commentaries, § 1379 (recognizing “distinc-

tion between the obligation of a contract, and a remedy upon

2...

30

It is unclear to amici whether these analytical distinc-

tions between an action to enforce a contract and an

action for money damages based upon its breach or some

other like theory compel a different result in the case at

bar, where respondents are simply trying to obtain pay-

ment of money due them under their leases. It may well

be, however, that in other cases this distinction may make

a very real difference, and the Court should therefore

keep this distinction in mind when considering the issues

presented in this case.

«

CONCLUSION

For the foregoing reasons, should the Court reach the

constitutional issues presented in this case, it should

affirm the decision of the Court of Appeals of the Ninth

Circuit and hold that petitioners’ actions unconstitu-

tionally abrogate respondents’ contracts..

Dated: February 8, 1993 Respectfully submitted,

CuHartes J. Cooper*

Rosert J. CyYNKAR

MicHaet A. CARVIN

W. Eric Pitsk

ViNcENT J. COLATRIANO

SHaw, PittMan, Potts &

TROWBRIDGE

2300 N Street, N.W.

Washington, D.C. 20037

(202) 663-8000

*Counsel of Record