# Amicus Curiae Brief — Franconia Associates v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2002
- **Citation:** 536 U.S. 129

## Text

Supreme Court, U.S
FILED

©) FEB 19 2

No. 01-455 | OFFICE OF THE CLERK

IN THE
Supreme Court of the United States

FRANCONIA ASSOCIATES, ET AL.,

Petitioners,
v.
UNITED STATES,

Respondent.

On Writ Of Certiorari
To The United States Court Of Appeals
For The Federal Circuit

BRIEF FOR JOHN K. CASTLE, et al.
AS AMICI CURIAE
SUPPORTING PETITIONERS

JOHN C. MILLIAN
Counsel of Record
MARK A. PERRY
PAUL BLANKENSTEIN
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Ave., N.W.
Washington, D.C. 20036
(202) 955-8500

February 19, 2002 Counsel for Amici Curiae

QUESTION ADDRESSED BY AMICI

The second question on which this Court has granted
certiorari is “[w]hether a Fifth Amendment takings
claim accrues for purposes of 28 U.S.C. § 2501 when
Congress enacts a statute alleged to abridge a contrac-
tual right to freedom from regulatory covenants upon
prepayment of government mortgage loans.” The gov-
ernment has asserted, as an ostensible “antecedent” to
the resolution of this question, that petitioners’ takings
claims cannot be maintained independently of their
claims for breach of contract. Opp. 16. Amici address
the question inherent in this argument, viz.: Whether the
government’s abrogation of rights secured by a citizen
under a contract with the government can give rise to an
independent claim for just compensation under the Tak-

ings Clause.

i
TABLE OF CONTENTS

QUESTION ADDRESSED BY AMICL...........ccccccesseeseees i
TABLE OF AUTHORITIES .........cccscscsscrscssssesesssrssseeesees ill
CONSTITUTIONAL PROVISION INVOLVED.............. l
INTEREST OF AMICI AND SUMMARY OF

AFUIGIIGS cee e11cesnsssersnenennvintinnesientiiamiaaa 2
IDIOTIC G coveecceesssesecsssssssesessnntinntinmnentiinaaa 6
CRI TLATIIIN ocececececcesscesveeesbinseneasensnnsninnneeesinlininnall 24

ill

TABLE OF AUTHORITIES
Cases
Agins v. City of Tiburon, 447 U.S. 255 (1980)............. 23
Airborne Data, Inc. v. United States, 702 F.2d
ee 10
Armstrong v. United States, 364 U.S. 40
iia lreccctncetnnnccssessnsnsosscsssosess 6,9
Brooks-Scanlon Corp. v. United States,
a scresnneenes 8

Castle v. United States, 42 Fed. Cl. 859
(1999) & 48 Fed. Cl. 187 (2000), appeals
pending, Nos. 01-5047 & 01-5050 (Fed.

0) Ey Ay) ) En 2,3
Cleveland Board of Education v. Loudermill,

a 12, 16
Connolly v. PBGC, 475 U.S. 211 (1986) ........:.cccccceeeees 8
De Leval Steam Turbine Co. v. United States,

a euaneees 8
Dolan v. City of Tigard, 512 U.S. 374 (1994).............. 13
Duke Power Co. v. Carolina Environmental

Study Group, Inc., 438 U.S. 59 (1978) .......cccccecseees 11
Eastern Enterprises v. Apfel, 524 U.S. 498

a. cssesnnononnnne 6

Far West Federal Bank, S.B. v. OTS, 746 F.
Supp. 1042 (D. Ore. 1990), vacated on
jurisdictional grounds, 951 F.2d 1093 (9th
Trin crccnenccnessessenccecssnsssoeoseeees 20

iv

First English Evangelical Lutheran Church v.
County of Los Angeles, 482 U.S. 304
SEIU cinsrecssnentnsniatinibonspetipenignasindientiamsiaeiniaeiiaiidas 12, 16

Franconia Assocs. v. United States, 240 F.3d
1358 (Fed. Cir. 2001), aff’g 43 Fed. Cl.

702 & 44 Fed. Cl. 315 (1999) ooo... cecccceeeeeeee 3, 6, 7
Gratz v. United States, 25 Cl. Ct. 411 (1992) .............. 17
Hedstrom Lumber Co. v. United States, 7 C1.

es UE crciennstinieininnipieiiiasiitisatiantiaalapiatieat latent 19
Horowitz v. United States, 267 U.S. 458

Tee arnssccsbinigiesiieDiiasincintinindaritandeslesitialia ae ca tiiealants 21,22

Hughes Communications Galaxy, Inc. v.
United States, 271 F.3d 1060 (Fed. Cir.

SUUIITEEDD cstavcvcnintcnnsiendiiieiiuitsammaiailiaicininaniailtiaia ais iaiatiabilasiieis 18
Jacobs v. United States, 290 U.S. 13 (1933)..........00000 16
Johnson v. Zerbst, 304 U.S. 458 (1938) ..........cccceceeeeees 11
Kaiser Aetna v. United States, 444 U.S. 164

SU ee ccrsrerniinsinnenactiiutaniciiaiiaineiitinnitslimald atiiieatis 9,10
Kirby Forest Industries, Inc. v. United States,

SEF Ce ee ntarvepraicnnnnitdtiiciaainpiiiaibiitinnaiiiiiaaisait 9
Larson v. Domestic & Foreign Commerce

Cn TOE es HE a inininenanctinsiasnantiiintiainiaaias 18
Library of Congress v. Shaw, 478 U.S. 310

IEEE iccevinsnesstistetitncinpeaatmidieetiintiaiatasiniaaaiiiiiiiaiat, .5, 15
Long Island Water Supply Co. v. Brooklyn,

as ee eiatitcrrccnctiniititisnminintiniiiiapiiiisiaiass 7

Louisville Joint Stock Land Bank v. Radford,
Be Chas GW Cre nassesennesinnintinsvenaninitianninitinduiainds 8

Vv

Lujan v. G&G Fire Sprinklers, Inc.,

Be A SEE rcnnttctetupdicsnantnnnnniniinnmanmmens 14
Lynch v. United States, 292 U.S. 571 (1934)........ 5, 8,21
Marathon Oil Co. v. United States, 16 Cl. Ct.

SITET icissiilictensiuipsiesinsuipdsitdinieiapiatnesnenibininsdninupntenmente 17
Monongahela Navigation Co. v. United

es Se ey GE I ircrccncntencnneneneicannecnnnniens 7
Palazzolo v. Rhode Island, 121 S. Ct. 2448

SEITE ines tecttintinbiaieehldeeabanaiasteninddiaeeniabenainenaie 23
Perry v. United States, 294 U.S. 330 (1935)...........000+. 19

Plaintiffs in Winstar-Related Cases v. United
States, 37 Fed. Cl. 174 (1997), aff'd sub
nom. Ariadne Financial Servs. Pty. Ltd. v.
United States, 133 F.3d 874 (Fed. Cir.),

cert. denied, 525 U.S. 823 (1998)............. veseeee 4-5, 21
Plaut v. Spendthrift Farm, Inc., 514 U.S. 211

ST icesiisheiethiinaetaacinhitiindcndeitnibbieemattatitennaiatlemimeonemaniien 16
Preseault v. ICC, 494 U.S. 1 (1990) .0..........ceeeeeees 11,14
Prudential Ins. Co. v. United States, 801 F.2d

I CI innisicrirnnicsiticreeseiesiptinbadenunparineens 20
Regional Rail Reorganization Act Cases, 419

le Be icsinniicnitsiiniinintniianniinsitimenniqns 5, 8, 15
Ruckelshaus v. Monsanto Co., 467 U.S. 986

IU crnccnnencnistanssenensemenmtpiasnnmenmmesnsimasicneans passim
Russell Motor Car Co. v. United States, 261

Sei SETI cosncscsniessnntntnienimnnsniiamienanininncetens 14, 19
Seaboard Air Line Ry. Co. v. United States,

Be TTI icictinchiteiertiittinintcialuasinnietinamrtatingaiin 11

vi

Sun Oil Co. v. United States, 572 F.2d 786
SIRE, Sane SO nicsttiachnicsinincnicniidemeniitiiaiedin 17, 18, 19, 21

Toyota Motor Mfg., Ky., Inc. v. Williams, 122

as snecsinsiniepieiaceaetbiemmdeneadihitneciatageimenratinanisies 4
Transpace Carriers, Inc. v. United States, 27

i Ee eee 17, 18
United States v. Clarke, 445 U.S. 253 (1980)................ )
United States v. Hooe, 218 U.S. 322 (1910) ............02.. 18
United States v. Klamath Indians, 304 U.S.

ETERS eee 15
United States v. North American Transp. &

Trading Co., 253 U.S. 330 (1920) ..........ccccccesseeseees 21
United States Trust Co. v. New Jersey,

Se eI eciinichiesvsthadeciniiiiaciattciiininanaanataiibiainaa 9
United States v. Winstar Corp., 518 U.S. 839

(EIU csientgincenseinatatiesineinscitiniasiniantenencientinindimniieninans passim

Williamson County Regional Planning
Comm'n v. Hamilton Bank, 473 U.S. 172

SET iciiseesinscinicnitteeiianetinaniaitiidiiiniisinaedaimaiitiibiinameacninimat 15
Statutes
ie: OF aie rcceerenninticnieaneeetenciintaiiiacintameniiinaaants 3, 23
Emergency Low Income Housing

Preservation Act of 1987, Pub. L. No. 100-

8 Re 3

Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, Pub. L. No.
as I iia 2

IN THE
Supreme Court of the United States

No. 01-455
FRANCONIA ASSOCIATES, ET AL..,

Petitioners,
Vv.
UNITED STATES,

Respondent.

BRIEF FOR JOHN K. CASTLE, et al.
AS AMICI CURIAE
SUPPORTING PETITIONERS

John K. Castle, et al. respectfully submit this brief as
amici curiae supporting petitioners.”
CONSTITUTIONAL PROVISION
INVOLVED
The Fifth Amendment to our Constitution provides,

in pertinent part, that “private property [shall not] be
taken for public use without just compensation.”

* Pursuant to this Court’s Rule 37.6, amici represent that counsel
for a party did not author this brief in whole or in part, and that no
person other than amici or their counsel made any monetary con-
tribution to the preparation or submission of this brief. Pursuant to
this Court’s Rule 37.3(a), letters from all parties consenting to the
filing of this brief have been lodged with the Clerk.

2

INTEREST OF AMICI
AND
SUMMARY OF ARGUMENT

1. Amici John K. Castle, et a/. are the named plain-
tiffs in a pending lawsuit in which they allege that the
government both committed a breach of contract and
engaged in an uncompensated taking by enacting and
enforcing legislation (the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, Pub. L. No.
101-73, 103 Stat. 183 (“FIRREA”)) that, inter alia, ab-
rogated certain rights amici had secured by a contract
with the government. Castle v. United States, 42 Fed.
Cl. 859 (1999) & 48 Fed. Cl. 187 (2000), appeals pend-
ing, Nos. 01-5047 & 01-5050 (Fed. Cir. argued Dec. 7,
2001).** The trial court in Castle agreed that the enact-
ment of FIRREA, and its subsequent implementing
regulations, resulted in a compensable breach of amici’s
contract with the government. 48 Fed. Cl. at 216; see

** In addition to Mr. Castle, amici are Leonard M. Harlan, Don-
ald C. Carter, Double S&M Partnership, Grace & Green Arbitrage
Partners, Hudson Valley Partners, L.P., Dan W. Lufkin, MCI Two
Investment Limited Partnership, Robert Marston, McD Merger
Arbitrage Fund, Ltd., L.T. Foster, Northern Trust Co., Trust #2-
67917 (Kate T. Foster Trust FBO), R.C. Foster, Northern Trust
Co., Trust #2-67918 (Kate T. Foster Trust FBO), J.R. Foster,
Northern Trust Co., Trust #2-67919 (Kate S. Thompson Trust
FBO), Public Service Resources, Society Bank & Trust-Trustee,
Zane Tankel Partners, Robert V. Dolan, M.D., Leo W. Kwan,
M.D. Pension and Profit Sharing Trusts, Robert B. Lyons, Robert
Margolis, Fosven Associates Partnership, Stanley E. Roberts,
M.D., Sanwa Bank of California, Trustee, Yorba Linda Medical

ew FBO Russell E. Ewing, Castle Harlan, Inc. and Cewnick
und.

3

United States v. Winstar Corp., 518 U.S. 839 (1996)
(holding that the government is liable for FIRREA-
related breaches of contract). The trial court in Castle
also held, however, that amici could not maintain an ac-
tion under the Takings Clause. See 48 Fed. Cl. at 217-
20. Amici have appealed the rejection of their takings
claim to the Federal Circuit.

Like amici, petitioners have alleged that the govern-
ment’s enactment and enforcement of certain legislation
(the Emergency Low Income Housing Preservation Act
of 1987, Pub. L. No. 100-242, Tit. II, 101 Stat. 1877
(“ELIHPA”)) resulted both in a repudiation of their con-
tracts with the government and in a taking of their prop-
erty within the meaning of the Fifth Amendment. The
courts below did not reach the merits of either claim, but
instead concluded that petitioners had not filed suit
within the six-year statute of limitations applicable to
actions against the federal government. Franconia As-
socs. v. United States, 240 F.3d 1358 (Fed. Cir. 2001),
aff’g 43 Fed. Cl. 702 & 44 Fed. Cl. 315 (1999).

2. Amici have no direct interest in the resolution of
the specific questions on which this Court has granted
certiorari—i.e., whether petitioners’ causes of action ac-
crued for purposes of 28 U.S.C. § 2501 upon the enact-
ment of ELIHPA (as the government contends) or at
some later date (as petitioners contend). See Order in
No. 01-455 (Jan. 4, 2002) (granting certiorari limited to
specified questions). In contrast to petitioners, amici
filed their lawsuit well within six years of the enactment
of FIRREA, and the government has never asserted a
statute of limitations defense in Castle. Cf Plaintiffs in
Winstar-Related Cases v. United States, 37 Fed. Cl. 174
(1997), aff'd sub nom. Ariadne Financial Servs. Pty.

4

Ltd. v. United States, 133 F.3d 874 (Fed. Cir.) (address-
ing accrual of FIRREA-related cases), cert. denied, 525
U.S. 823 (1998).

Amici do have a direct interest, however, in one of
the arguments the government has raised in its opposi-
tion to the petition for a writ of certiorari. With respect
to petitioners’ claims under the Takings Clause, the gov-
ernment argues, “[a]s an antecedent matter,” that “peti-
tioners’ taking and contract claims are not distinct from
each other.” Opp. 16. The government also suggests
that rights secured under a contract with the government
may not be “property” within the meaning of the Tak-
ings Clause, and that “[iJnsofar as the government
breached the contracts with petitioners, they had no in-
dependent takings claims because they had available a
remedy in damages that was sufficient to provide ‘just
compensation’ under the Fifth Amendment.” Jbid. The
government has made substantially the same argu-
ment—i.e., that a party to a government contract, the re-
pudiation of which has been authorized by congressional
action, cannot maintain a takings claim independently of
a claim for breach of contract—in the Castle case that is
now pending in the Federal Circuit.

Amici are in general agreement with petitioners that
the government’s argument concerning the availability
of the constitutional remedy of just compensation in this
context goes to the merits of their takings claims, rather
than to the commencement of the limitations period.
See Pet. Reply 8-9. As such, it is not within the ques-
tions specified by the Court in its grant of certiorari, and
the Court could properly decline to consider it. Cf. this
Court’s Rule 14.1(a); Toyota Motor Mfg., Ky., Inc. v.
Williams, 122 S. Ct. 681, 694 (2002) (declining to con-

5

sider argument not presented by petition). Nonetheless,
the government can be expected to press this argument
in its brief on the merits, presumably as an alternative
ground for affirmance. Amici are therefore concerned
that, in the event the Court reaches this argument, it be
resolved correctly.

3. As amici explain below, the government’s notion
that the Takings Clause does not provide an independent
remedy for the governmental action at issue in circum-
stances like those presented here is both erroneous and
entirely unsupported by any decision of this Court. At
the outset, there is no question but that rights secured
under a contract with the government are property pro-
tected from uncompensated taking by the Fifth Amend-
ment. E£.g., Lynch v. United States, 292 U.S. 571
(1934). Moreover, this Court’s precedents make clear
that the repudiation by the government in its sovereign
capacity of an express promise may give rise to a claim
under the Takings Clause independent of any common-
law action the promisee might have for breach of con-
tract. E.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986
(1984). And the government is simply incorrect that
contract damages necessarily equal the “just compensa-
tion” required by the Constitution; on the contrary, for a
variety of reasons the remedies available under the law
of contracts may fall short of providing just compensa-
tion as defined by this Court. E.g., Library of Congress
v. Shaw, 478 U.S. 310 (1986). In cases where (for wiat-
ever reason) contract remedies do not amount to just
compensation, the government is required by the
Takings Clause to make up the “constitutional shortfall.”
E.g., Regional Rail Reorganization Act Cases, 419 U.S.
102 (1974).

6

Thus, in the event the Court reaches the substantive
Takings Clause argument raised by the government and
addressed by amici, it should make clear that the gov-
ernment’s abrogation of rights secured by a citizen un-
der a contract with the government can give rise to an
independent claim for just compensation under the Fifth
Amendment.

ARGUMENT

“The aim of the [Takings] Clause is to prevent the
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.’” Eastern Enter-
prises v. Apfel, 524 U.S. 498, 522 (1998) (plurality opin-
ion) (quoting Armstrong v. United States, 364 U.S. 40,
49 (1960)). It appears from the court of appeals’ recita-
tion of the facts of this case (and, for that matter, from
the title of the statute itself) that Congress attempted,
through the enactment of ELIHPA, to force petitioners
and other similarly situated property owners to bear the
costs of providing certain low-income housing rather
than passing the financial burden of this program
through to the general public. See 240 F.3d at 1361.
Petitioners accordingly sued, in the alternative to their
claims for breach of contract, for just compensation un-
der the Takings Clause. Pet. 10.

In its opposition to the petition for a writ of certio-
rari, the government suggests that this Court need not
address the accrual of petitioners’ claims under the Tak-
ings Clause because the law of contracts, not the Consti-
tution, affords the exclusive avenue of relief in these cir-
cumstances. See Opp. 16. This argument is premised
on the government’s contention that “the only ‘property’
that could have been taken was petitioners’ contractual

¢

7-

prepayment right.” Jd. at 15. Petitioners dispute the
government’s characterization of the property right at
issue, pointing out that ELIHPA impaired not only their
contractual rights but also their ownership interests in
the underlying real properties. E.g., Pet. 28-29. This
Court has made clear that, in such cases, the government
must pay just compensation for the value of both tangi-
ble and intangible rights. See Monongahela Navigation
Co. v. United States, 148 U.S. 312, 327-30 (1893); Long
Island Water Supply Co. v. Brooklyn, 166 U.S. 685,
690-91 (1897). In any event, the government’s argu-
ment concerning the scope of the Takings Clause is in-
correct regardless of the precise contours of petitioners’
property (which is a question best addressed by the trial
court in the first instance). Amici will therefore accept
arguendo the court of appeals’ characterization of the
property at issue as petitioners’ contractual “right to
prepay their FmHA loans at any time.” 240 F.3d at
1365.

1. The government purports to leave aside the ques-
tion whether a contractual right “necessarily constitutes
property under the Fifth Amendment,” but expresses
doubt as to whether “taking claims may be brought in
this context at all.” Opp. 16. This Court’s precedents,
however, admit of no doubt on that matter: Rights se-
cured under a contract with the federal government—
including petitioners’ contractual rights to prepay their
loans—constitute “property” within the meaning of the
Fifth Amendment that cannot be taken by the govern-
ment in its sovereign capacity without the payment of
just compensation.

This Court has unequivocally held that “[vJalid con-
tracts are property, whether the obligor be a private in-

8

dividual, a municipality, a State or the United States.
Rights against the United States arising out of a contract
with it are protected by the Fifth Amendment.” Lynch v.
United States, 292 U.S. 571, 579 (1934). In the nearly
seven decades since Lynch, the Court has never retreated
from this clear statement; on the contrary, the principle
that contractual rights are property has repeatedly been
reaffirmed by this Court. See, e.g., Connolly v. PBGC,
475 U.S. 211, 224 (1986); Regional Rail Reorganization
Act Cases, 419 U.S. 102, 135 (1974). As this Court has
explained the holding of Lynch, “valid contracts are
property within the meaning of the Taking Clause.”
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003
(1984). The government has offered no basis for this
Court to disregard settled precedent on this point.

Similarly, this Court has long recognized that the
cancellation of a “contract ... with the government” by
authorized governmental action “is an exercise of the
power of eminent domain, and the liability of the gov-
ernment is for just compensation.” De Leval Steam
Turbine Co. v. United States, 284 U.S. 61, 71 (1931).
Again, this Court has never disavowed the principle that
the government must pay just compensation for taking
rights secured by contract, whether public or private.
See, e.g., Louisville Joint Stock Land Bank v. Radford,
295 U.S. 555, 601-02 (1935); Brooks-Scanlon Corp. v.
United States, 265 U.S. 106, 123-26 (1924). Contrary to
the government’s intimation, this Court’s precedents
thus clearly establish that “taking claims may be brought
in this context.” See Opp. 16.

Indeed, the sole authority of this Court cited by the
government in this section of its opposition—tellingly,
as “but cf.” (Opp. 16)—answers the question raised by

9

the government in favor of petitioners: “Contract nghts
are a form of property and as such may be taken for a
public purpose provided that just compensation is paid.”
United States Trust Co. v. New Jersey, 431 U.S. 1, 19
n.16 (1977). As property, contract rights, like other in-
tangible rights, are protected against uncompensated tak-
ings by the Fifth Amendment. Monsanto, 467 U.S. at
1003-04; Armstrong, 364 U.S. at 48-49. In the event the
government in its sovereign capacity takes such property
and fails (or refuses) to compensate the owner, the Tak-
ings Clause affords a remedy. Kirby Forest Industries,
Inc. v. United States, 467 U.S. 1, 5 & n.6 (1984); United
States v. Clarke, 445 U.S. 253, 257 (1980). Thus, the
government errs in implying that petitioners may not be
able to maintain claims under the Takings Clause for the
government’s abrogation of their contractual rights.

2. The government next contends that “petitioners’
taking and contract claims are not distinct from each
other.” Opp. 16; see also ibid. (“petitioners’ taking
claims are ... entirely parasitic on their contract
claims”). This argument is also squarely foreclosed by
this Court’s precedents.

The Court made clear in Monsanto that the govern-
ment’s breach of promise gives rise to a claim under the
Takings Clause. There, the Court held that an “explicit
governmental guarantee” of confidentiality gave rise to a
reasonable, investment-backed expectation that data
submitted to the government would be maintained in
confidence. 467 U.S. at 1011. The government’s repu-
diation of that promise by releasing the data was reme-
diable under the Takings Clause. J/bid.; see also Kaiser
Aetna v. United States, 444 U.S. 164, 179-80 (1979)
(implicit governmental promise gave rise to reasonable

10

expectation protected by Takings Clause). So, too, here:
The government’s promise that petitioners could prepay
their loans may well have given rise to legitimate expec-
tations, protected by the Takings Clause against gov-
ernment interference, that they would, in fact, be al-
lowed to prepay their loans.

The government has previously argued that Mon-
santo is distinguishable on the ground that a party to a
government contract can reasonably expect only that the
government will pay contract damages in the event of a
breach. This contention is irreconcilable with Lynch and
other cases in which this Court has held that the gov-
ernment may be held liable under the Takings Clause for
abrogating contractual rights, as discussed above. That
the promise in Monsanto was made pursuant to statute,
whereas the promise in this case was made pursuant to a
contract authorized by statute, is not a difference with
any constitutional significance. The Monsanto plaintiff
could have sued the government for breach of contract
on the same facts. See Airborne Data, Inc. v. United
States, 702 F.2d 1350 (Fed. Cir. 1983). The Monsanto
Court nowhere suggested that the availability of an al-
ternative contract remedy that does not itself provide
just compensation within the meaning of the Takings
Clause could possibly preclude the recovery of just
compensation in the event of a governmental taking.
But that is effectively the rule that the government is
urging on the Court.

Acceptance of the government’s reasoning would
lead to the absurd result that citizens who received non-
contractual promises from the government (as in Mon-
santo and Kaiser Aetna) would receive more constitu-
tional protection than those (like petitioners) who in-

11

sisted that the government formalize its promises by
contract. To reach such a result, the Court would have
to conclude that petitioners, by signing their loan agree-
ments, implicitly waived the protections afforded them
(like all citizens) by the Fifth Amendment. Such a con-
clusion would conflict not only with this Court’s pro-
nouncements that waivers of constitutional rights must
be both knowing and voluntary (e.g., Johnson v. Zerbst,
304 U.S. 458, 463 (1938)), but also with the plain terms
of petitioners’ contracts, which nowhere include such a
waiver. See Pet. App. 165-77.

It is revealing that the government does not (and
cannot) cite a single authority from this Court for the
proposition that a party to a contract abrogated by the
government in its sovereign capacity cannot maintain a
takings claim independent of any claim it may have for
breach of contract. That is because there is no such au-
thority. On the contrary, this Court has made abun-
dantly clear that “[jJust compensation is provided for by
the Constitution and the right to it cannot be taken away
by statute.” Seaboard Air Line Ry. Co. v. United States,
261 U.S. 299, 304 (1923). Indeed, any effort by the
government to preclude property owners from suing for
just compensation would, itself, be unconstitutional. See
Preseault v. ICC, 494 U.S. 1, 11 (1990); Duke Power
Co. v. Carolina Environmental Study Group, Inc., 438
U.S. 59, 94 n.39 (1978). Where the government, as
sovereign, takes private property—including contractual
rights—it is constitutionally obligated to pay just com-
pensation.

In fact, an argument closely analogous to the one
made by the government in this case has already been
rejected by this Court. In First English Evangelical Lu-

12

theran Church v. County of Los Angeles, 482 U.S. 304,
316 n.9 (1987), the Solicitor General had argued that
“the [Fifth] Amendment itself is . . . not a remedial pro-
vision.” The Court held that numerous precedents “re-
fute the argument of the United States that ‘the Constitu-
tion does not, of its own force, furnish a basis for a court
to award money damages against the government.’ ...
[T]hese cases make clear that it is the constitution that
dictates the remedy for interference with property rights
amounting to a taking.” Jbid.; see also id. at 316 (“in the
event of a taking, the compensation remedy is required
by the Constitution”). Thus, the Constitution affords
petitioners a remedy wholly independent from any relief
that may be available under the law of contracts.

Any doubt on this score is laid to rest by this Court’s
decision in Cleveland Board of Education v. Loudermill,
470 U.S. 532 (1985). There, a discharged public em-
ployee sued for deprivation of property (his job) without
due process; t » State countered that he had received all
the process he was due because the statutory procedures
had been followed. This Court held that since the right
to due process is conferred not by legislative grace, but
by the Constitution, the answer to the question what
process is due “is not to be found in the statute,” but
rather in the Fifth Amendment itself. Jd. at 541. To that
end, the Court rejected the argument, akin to the one ad-
vanced by the government in this case, that since the
employee’s property interest in his job was established
by a statute that also prescribed a remedy for the depri-
vation of that interest, the only process that was due was
set out in the statute. Instead, the Court held that once a
property interest has been established, the Constitution
specifies the remedy.

13

The same reasoning applies here: The remedy for a
governmental taking of property—including rights se-
cured by a contract—is provided not by statute or the
common law of contracts, but by the Constitution itself.
Cf. Dolan v. City of Tigard, 512 U.S. 374, 392 (1994)
(“We see no reason why the Takings Clause of the Fifth
Amendment, as much a part of the Bill of Rights as the
First Amendment or Fourth Amendment, should be
relegated to the status of a poor relation”). Accordingly,
the question of what compensation is just cannot be re-
solved by reference to an external source of remedial
law but rather by the plain terms of the Fifth Amend-
ment, which mandates that the government pay “just
compensation” when it acts in its sovereign capacity to
take private property.

3. The government asserts that “[i]nsofar as the gov-
ernment breached the contracts with petitioners, they
had no independent takings claims because they had
available a remedy in damages that was sufficient to
provide ‘just compensation’ under the Fifth Amend-
ment.” Opp. 16. This assertion can be correct only
where contract remedies amount to just compensation,
which has not yet been established in this case and, for a
variety of reasons, may not be established in other cases
in which the government in its sovereign capacity takes
contractual rights.

a. For a variety of reasons, application of the law of
contracts might yield a different monetary award than
the Fifth Amendment. To state the obvious, the avail-
able remedies—just compensation under the Constitu-
tion; protection of the promisee’s expectancy, reliance,
or restitutionary interests in contract—are divergent.
See, e.g., Russell Motor Car Co. v. United States, 261

14

U.S. 514, 523-24 (1923). Whether petitioners ultimately
will be able to recover more or less under the law of
contracts than they may be entitled to under the Takings
Clause depends on a variety of factors (such as the evi-
dence, the parties’ litigation strategies, and the trial
court’s rulings on numerous factual and legal issues)
that have yet to be determined. Thus, it cannot be said
at this stage of the litigation, as the government blithely
does, that petitioners’ contract remedies necessarily will
amount to just compensation.

To be sure, in the event petitioners were to recover
an amount, as contract damages, that equals or exceeds
the constitutional requirement of “just compensation,”
petitioners could not also recover directly under the
Constitution. That is because “[i]f the government has
provided an adequate process for obtaining compensa-
tion, and if resort to that process yield[s] just compensa-
tion; then the property owner has no claim against the
government for a taking.” Preseault, 494 U.S. at 11. In
such a case, petitioners’ property interests might well be
“fully protected by an ordinary breach-of-contract suit.”
Lujan v. G&G Fire Sprinklers, Inc., 121 S.Ct. 1446,
1451 (2001).

By the same token, however, in the event petitioners’
contractual damages are ultimately determined to be less
than the amount that would constitute just compensation
under the Constitution for any property taken from them
by the government in its sovereign capacity, the Takings
Clause remedy remains available to “cove[r] any short-
fall between [the alternative] remedy and just compensa-
tion.” Monsanto, 467 U.S. at 1018. The law is quite
clear that the Takings Clause applies even if some other
remedial scheme exists, and if the other remedy does not

15

afford the litigant just compensation, the Constitution
requires the government to make up the “constitutional
shortfall.” Regional Rail Reorganization Act Cases, 419
U.S. at 156; see also Williamson County Regional Plan-
ning Comm'n v. Hamilton Bank, 473 U.S. 172, 194-95
(1985).

Where the federal government in its sovereign capac-
ity acts to abrogate contractual rights, it could well be
that litigants’ contract remedies do not amount to just
compensation. For example, the United States is gener-
ally immune from paying interest on awards in contract
actions. Library of Congress v. Shaw, 478 U.S. 310,
317 (1986). The Takings Clause, however, requires that
the government pay interest as an element of just com-
pensation. /d. at 317 n.5; United States v. Klamath In-
dians, 304 U.S. 119, 123 (1938). Thus, all other things
being equal (e.g., if the trial court were to award as con-
tract damages precisely the value of the property rights
taken from petitioners by the government), the passage
of time entailed in litigation would itself create a “con-
stitutional shortfall” for which the Constitution would
require compensation (assuming, of course, that the
other requirements of a takings claim have been met).

The government has previously argued that the Win-
star Court’s recognition that a contract promisee is_enti-
tled either to performance or to damages for non-
performance (e.g., 518 U.S. at 868-69) somehow fore-
closes a party to a government contract from asserting
claims under the Takings Clause. Any such contention
must fail. Neither the law of contracts nor the Takings
Clause precluded the government from restricting peti-
tioners’ contractual rights; the government’s decision to
do so, however, gives rise to cognizable claims for both

16

contract damages and just compensation. Compare id.
at 868, 870 (while contract did not “bar the Government
from changing the way in which it regulated,” subse-
quent legislation meant “the Government was unable to
perform the promise and, therefore, became liable for
breach”), with First English, 482 U.S. at 315 (Takings
Clause is designed “not to limit the governmental inter-
ference with property per se, but rather to secure com-
pensation in the event of an otherwise proper interfer-
ence amounting to a taking”). While the Winstar plural-
ity correctly observed that “damages are always the de-
fault remedy for breach of contract” (id. at 885 (empha-
sis added)), the Court did not purport to address what
remedy would be available in the event of a taking of
contractual rights by the government in its sovereign ca-
pacity. To the extent contract damages do not amount to
just compensation, petitioners retain the constitutional
right to pursue the constitutional remedy.

Since the Takings Clause is self-executing (e.g., Ja-
cobs v. United States, 290 U.S. 13, 16 (1933)), the gov-
ernment cannot, by consenting to be sued under a re-
gime that does not yield just compensation (as a breach
of contract suit might not), preclude a plaintiff whose
property has been taken from obtaining the relief pro-
vided for by the Constitution. An alternative scheme
that does not afford an equivalent remedy cannot trump
the constitutional requirement. Loudermill, 470 U.S. at
541; cf. Plaut v. Spendthrift Farm, Inc., 514 U.S. 211,
226-27 (1995). Thus, because the law of contracts
might not afford petitioners the just compensation that
they would be due in the event of a proven governmen-
tal taking, petitioners may pursue their claims under the

17

Takings Clause independently of their claims for breach
of contract.

b. The lower court decisions cited by the govern-
ment are not to the contrary. See Opp. 16 (citing Sun
Oil Co. v. United States, 572 F.2d 786 (Ct. Cl. 1978),
Transpace Carriers, Inc. v. United States, 27 Fed. Cl.
269 (1992), and Marathon Oil Co. v. United States, 16
Cl. Ct. 332 (1989)). The government is presumably re-
ferring to the Sun Oil court’s statement that “the concept
of a taking as a compensable claim theory has limited
application to the relative nights of party litigants when
those rights have been voluntarily created by contract.
In such instances, interference with such contractual
rights generally gives rise to a breach claim not a taking
claim.” 572 F.2d at 818 (citation omitted); see also
Marathon Oil, 16 Cl. Ct. at 338-39 (same). But, read in
the proper context (which the government ignores), that
statement has no applicability to the circumstances pre-
sented by this case.

Amici have no quarrel with the general principle, ar-
ticulated in Sun Oil, that a party to a contract with the
government generally may maintain only an action on
the contract in the event of repudiation or breach, and
cannot resort to the Takings Clause. That principle is
not based, however, on either the merger or the mutual
exclusivity of the two rights (as the government
misleadingly suggests in its opposition), but rather on
the character of the governmental action at issue.

The Sun Oil decision is based on the inarguable
proposition that “[a] taking can occur only when the
Government acts in its sovereign capacity,” as distin-
guished from its proprietary capacity. Gratz v. United
States, 25 Cl. Ct. 411, 420 (1992); see, e.g., United

18

States v. Hooe, 218 U.S. 322, 335-36 (1910). When it
enters into and repudiates or breaches contracts with
private parties, the government frequently acts solely in
its proprietary rather than its sovereign capacity. See,
e.g., Larson v. Domestic & Foreign Commerce Corp.,
337 U.S. 682, 703 (1949). For this reason, “[t]akings
claims rarely arise under government contracts because
the Government acts in its commercial or proprietary
Capacity in entering contracts, rather than in its sover-
eign capacity.” Hughes Communications Galaxy, Inc. v.
United States, 271 F.3d 1060, 1070 (Fed. Cir. 2001).
Sun Oil is a textbook illustration of this dichotomy.

At issue in Sun Oil was whether the Secretary of In-
terior’s decision to deny several oil companies’ request
to construct a drilling platform, which decision had al-
ready been held to constitute a breach of the plaintiffs’
lease contract with the government, also amounted to a
taking. The Court of Claims’ holding that no taking had
been effected was based on its conclusion that the gov-
ernment was acting in its proprietary, rather than its sov-
ereign, capacity: “[The government’s] lease operations
... Tepresent activity by it in a proprietary capacity
rather than a sovereign capacity.... Remedies for vio-
lation of any of their lease rights by plaintiffs must be
directed at [the government] in its proprietary capacity
and not in its sovereign capacity.” 572 F.2d at 818. The
other cases cited by the government in this regard simi-
larly turn on the sovereign/proprietary distinction, not
(as the government would have it) on the unavailability
of a Takings Clause remedy in cases involving govern-
ment contracts. See, e.g., Transpace Carriers, 27 Fed.
Cl. at 274 (“NASA acted in its proprietary capacity, not
a sovereign capacity, in negotiating with TCI for the

19

transfer of the Delta program. Thus, TCI’s remedy must
be directed at NASA in its proprietary capacity, through
the contract vehicle.”’).

In contrast to the situation in Sun Oil and like cases,
where the government was acting only in its proprietary
capacity in entering into and subsequently breaching the
contracts at issue (as will often be the case with respect
to government contracts), this Court has long recognized
that the contractual relationships of the United States
with its citizens may also involve the government acting
in its sovereign capacity. See, e.g., Winstar, 518 U.S. at
876 (plurality opinion); Perry v. United States, 294 U.S.
330, 350-54 (1935). When the government acting in its
sovereign capacity repudiates or breaches a contract, it
may be held liable for just compensation under the Tak-
ings Clause. See, e.g., Russell Motor Car, 261 U.S. at
518-20. Indeed, Congress has previously recognized the
government’s constitutional obligation to pay just com-
pensation for contracts abrogated as a result of subse-
quent legislation (i.e., sovereign action). See Hedstrom
Lumber Co. v. United States, 7 Cl. Ct. 16, 21 (1984).

The Court of Claims in Sun Oil recognized that the
abrogation of contracts by the government in its sover-
eign capacity can give rise to liability under the Takings
Clause. As the court explained, “[t]he significant fact in
the Lynch case is that congressional action abrogated the
contracts in issue thereby giving rise to a taking by au-
thorized governmental action.” 572 F.2d at 819 n.49.
That is because an Act of Congress—such as ELIHPA
or FIRREA—is indisputably an exercise of the sover-
eign power that must conform to the dictates of the Con-
stitution. A litigant in the position of petitioners can
therefore sue the government both for breach of contract

20

and for just compensation. See, e.g., Prudential Ins. Co.
v. United States, 801 F.2d 1295, 1300 n.13 (Fed. Cir.
1986); Far West Federal Bank, S.B. v. OTS, 746 F.
Supp. 1042, 1050-51 (D. Ore. 1990), vacated on juris-
dictional grounds, 951 F.2d 1093, 1100 (9th Cir. 1991).

In this regard, the government might attempt to seize
upon petitioners’ statement that “the government was
not acting in its capacity as the sovereign when it en-
acted ELIHPA.” Pet. 16. Any such argument, however,
would confuse the truism that the enactment of legisla-
tion constitutes action by the government in its sover-
eign capacity (the pertinent issue for purposes of takings
analysis) with the so-called “sovereign acts” doctrine
that may sometimes apply in government contract ac-
tions (the context in which amici understand that peti-
tioners made the referenced statement). But see Opp.
12-13 n.4 (conceding that the “sovereign acts” doctrine
is not implicated here). For example, while the “sover-
eign acts” doctrine has been deemed inapplicable to
FIRREA (Winstar, 518 U.S. at 891-96 (opinion of
Souter, J.)), “it was an unquestionably sovereign act of
government—enactment and implementation of provi-
sions of FIRREA regarding treatment of regulatory capi-
tal—that gave rise to respondents’ claims for breach of
contract.” Jd. at 920 (Scalia, J., concurring in judg-
ment).

Thus, governmental action—such as the enactment
and enforcement of ELIHPA in this case—may well be
considered “sovereign,” and subject to redress under the
Takings Clause, regardless of whether it may be de-
fended, as a matter of contract law, under the “sovereign
acts” doctrine. See Winstar, 518 U.S. at 878-79 n.22
(plurality opinion). This follows from the rule that “the

21

actions of the government representative on which a tak-
ing claim is premised must be authorized[,] either ex-
pressly or by some necessary implication, by some valid
enactment of Congress.” Sun Oil, 572 F.2d at 819; see,
e.g., United States v. North American Transp. & Trad-
ing Co., 253 U.S. 330, 333 (1920). In this case, it is un-
disputed that the governmental action petitioners ulti-
mately challenge—FmHA’s refusal to accept prepay-
ment of their loans—was expressly authorized by
ELIHPA, an enactment of Congress. The sovereignty
predicate for a takings claim is thereby established.

The government has previously argued that the tak-
ings remedy is unavailable in contract actions because
“(t]he two characters which the government possesses
as a contractor and as a sovereign cannot be thus fused;
nor can the United States while sued in the one character
be made liable in damages for their acts done in the
other.”” Plaintiffs in Winstar-Related Cases, 37 Fed. Cl.
at 187 n.9 (quoting Horowitz v. United States, 267 U.S.
458, 461 (1925)). As Justice Scalia noted in Winstar,
however, this Court’s decision in Horowitz is at best a
suspect precedent. See 518 U.S. at 923 (opinion concur-
ring in judgment). Moreover, the quoted passage, which
in any event is pure dicta (as the government there was
acting only in its proprietary capacity and no question of
fusion was presented), cannot be reconciled with this
Court’s subsequent decision in Lynch, which involved
the government acting in both its proprietary capacity
(as administrator of the war risk insurance program) and
its sovereign capacity (as overseer of the federal fisc).
See 292 U.S. at 575. More importantly, the Winstar plu-
rality concluded, in the context of FIRREA, that “the
Government’s ‘regulatory’ and ‘nonregulatory’ capaci- -

22

ties”—its sovereign and proprietary characters—“were
fused in the instances under consideration.” 518 U.S. at
894 (emphasis added). The plurality also recognized
that “such fusion will be ... common in the modern
regulatory state.” Ibid.

_ I]t appears that ELIHPA, a statute by which Congress
expressly set out to repudiate contractual promises pre-
viously made by the government, is another example of
the type of “fusion” of governmental roles that, in con-
trast to the dicta in Horowitz, the Winstar plurality ex-
pressly acknowledged. The government, in choosing to
restrict FmHA’s ability to accept prepayments, acted
simultaneously in both its proprietary capacity (as
lender) and its sovereign capacity (as sponsor of low-
income housing in rural areas). The government’s en-
actment and enforcement of the statute thus constitutes
sovereign action that may be independently remediable
under the Takings Clause notwithstanding any remedies
petitioners might have available against the government
in its proprietary capacity under the law of contracts.

4. The government’s merits-based argument with re-
spect to petitioners’ claims under the Takings Clause is
thus incorrect in all of its facets. The government has
not cited any decision of this Court that supports any of
the points made at page 16 of its opposition to the peti-

tion for a writ of certiorari. Indeed, this Court’s prece- _

dents squarely rebut the government’s contention that
petitioners may not maintain takings claims independ-
ently of their claims for breach of contract.

Although amici have no direct stake in the questions
on which the Court has granted certiorari, the foregoing

analysis also demonstrates the error in the government’s
entirely unsupported assertion that petitioners’ claims

23

under the Takings Clause necessarily accrued at pre-
cisely the same moment as their claims for breach of
contract. Because petitioners’ takings claims are inde-
pendent of their contract claims, the accrual ve/ non of
each cause of action must be evaluated separately under
the law applicable specifically to it. Thus, the second
question on which this Court has granted certiorari
should be answered, not (as the government contends)
by reflexive reference to the law of contracts, but rather
in accordance with this Court’s Takings Clause jurispru-
dence—in particular, the doctrine of ripeness. See, e.g.,
Palazzolo v. Rhode Island, 121 S.Ct. 2448, 2459
(2001). Amici are in general agreement with petitioners
that, because ELIHPA permits FmHA to accept pre-
payments in certain circumstances, their takings claims
were not ripe—and thus did not “accrue” for purposes of
28 U.S.C. § 2501—unless and until they actually sought
from, and were denied by, FmHA permission to prepay
their loans. Cf Agins v. City of Tiburon, 447 U.S. 255
(1980). Petitioners should therefore be afforded the op-
portunity to prove up their independent claims under the
Takings Clause.

24

CONCLUSION

For the foregoing reasons, and in the event the Court
reaches the question, the Court should make clear that
the government’s abrogation of rights secured by a citi-
zen under a contract with the government can give rise
to an independent claim for just compensation under the
Takings Clause.

Respectfully submitted.

JOHN C. MILLIAN
Counsel of Record
MARK A. PERRY
PAUL BLANKENSTEIN
GIBSON, DUNN & CRUTCHER LLP
1050 Connecticut Ave., N.W.
Washington, D.C. 20036
(202) 955-8500

February 19, 2002 Counsel for Amici Curiae

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0505%3A10. Public record. Not legal advice.