Reply Brief — Gurney v. United States, 41 Fed. Cl. 2366 (1998) (No. 97-1440)

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No. 97-1440 GLEAN

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

CLIFFORD F. GURNEY. ETAL..

Petitioners,

v.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari

to the Court of Appeals

for the Federal Circuit

PETITIONERS’ REPLY BRIEF

STEPHEN M. TRUITT

Counsel of Record

CHARLES H. CARPENTER

PEPPER HAMILTON LLP

1300 Nineteenth Street, N.W.

Washington, D.C. 20036-1685

(202) 828-1200

JOHN A. WESTBERG

LEWIS M. JOHNSON

WESTBERG & JOHNSON

1300 Nineteenth Street, N.W.

Washington, D.C. 20036-1685

(202) 835-9810

Dated: June 5. 1998

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TABLE OF CONTENTS

PETITIONERS’ REPLY BRIEF

CONCLUSION

I es FR Fa re i 7 I ae Pe

TABLE OF CITED AUTHORITIES

Page

Cases

Andrus v. Allard, 44 U.S. 51 (1979) .. | ne 3.5.7

Armstrong v. United States, 364 U.S. 40 (1960) ae 5

Dames & Moore v. Regan, 453 U.S. 654 (1981) eae

DeVeevar v. Gillilland, 228 F.2d.640 (D.C. Cir. 1955).

cert. denied. 350 U.S. 994 (1956) 4

Everard's Breweries v. Day, 265 U.S. 545 (1924) 5

Goldblatt v. Hempstead, 369 U.S. 590 (1962 eS Sa

Hollister v. Benedict & Burnham Manuf. Co..,

pid te , 354 |. Spam are rar sas are 5

Jacob Ruppert, Inc. v Caffey, 251 U.S. 264 (1920) 5,6

Keystone Bituminous Coal Ass'n v. DeBenedictis.

er as Sr teers: oe ee ea eS ie

La Abra Silver Mining Co. v. United States, 175 U.S. 423

(1899) .. ; EEE ae eG Se ee 2

Loretto v. Teleprompter Manhattan CATV Corp., 458

BB ga): Sine era ene BEE Fg OO ET

Louisville Joint Stock Land Bank vy. Radford.

295 U.S. 555 (1935) .. iia We ees a ae

lll

(1992) Be. 3

Mitchell v. Harmony, 54 U.S. (13 How.) 115 ( 1852)

Monangahela Navigation Co. v. United States.

eae: Eee) ey

Mugler v. Kansas, 123 U.S. 623 (1887) .......

United States v. Sperry Corp, 493 U.S. 52 (1989) .......

ware v. eepeees, 3.5. (3 Dall.) 1991796) .............

Webb's Fabulous Pharmacies, Inc. v. Beckwith.

“49 US. 155 (1960) ....... PAN ee rs AV

6

PETITIONERS’ REPLY BRIEF

A serious error of fact concerning the nature of the

property affected by the Settlement Agreement forms the

lynchpin of the United States’ opposition to the grant of

certiorari. The government urges that its appropriation of

petitioners’ property was a “regulatory” action, a view

unequivocally rejected by the court of appeals and surely

incorrect. Specifically, the government contends that only real

property may be taken per se and that, therefore, because

petitioners did not possess real property, partial compensation

for the appropriation of that property is permissible. The

government is wrong on both counts. This Court has never

held that personal property may be appropriated for public use

without just compensation. Further, it is undisputed that real,

as well as intangible, property was taken here. Because these

errors interleave the entire opposition, petitioners submit this

reply.

‘& The government asserts that it took from

petitioners only “an inchoate and uncertain claim against a

foreign sovereign.” Opp. Br. 14. It is a matter of established

fact that some petitioners had real property, fee simple absolute,

directly transferred by the Agreement to Iran. Pet. App. 84a

90a; Pet. App. 63a. Others had personalty other than choses in

action. See, e.g., Pet. App. 76a. For this reason, the espousal

and transfer worked by the Settlement Agreement was not

limited to “claims” or choses in action. Real property (and

other tangible property) owned by U.S. nationals on the

effective date of the Agreement was expropriated by the United

States and transferred to Iran in addition to claims. This is

perfectly illustrated by the example of petitioner Fardanesh

who, prior to the settlement agreement, owned two parcels of

land in Iran. Alleging that Revolutionary Guards had occupied

the property, he filed a claim at the Tribunal for damages.

After the settlement agreement, the Commission determined

that Mr. Fardanesh’s property had, in fact, not been

appropriated by Iran. This did not mean, however, that he still

owned the property. He did not because the United States had

conveyed it to Iran pursuant to Article VII of the Settlement

Agreement. Title changed hands by means of the Settlement

Agreement.

The government not only misstates the facts regarding

the property interests taken, but ignores that espousal is

appropriation, not regulation.’ That an espousal is a taking per

se cannot be doubted, regardless of the type of property interest

at issue. In Mugler v. Kansas, the Court noted the difference

between a regulatory act and an appropriative act:

The present case must be governed by

principles that do not involve the power of

eminent domain, in the exercise of which

property may not be taken for public use

without compensation. A prohibition simply

upon the use of property for purposes that are

declared, by valid legislation, to be injurious to

the health, morals, or safety of the community,

cannot, in any just sense, be deemed a taking or

an appropriation of property for the public

benefit. Such legislation does not disturb the

owner in the control or use of his property for

lawful purposes, nor restrict his right to dispose

of it, but is only a declaration by the state that

its use by any one, for certain forbidden

purposes, is prejudicial to the public interests.

See La Abra Silver Mining Co. v. United States, 175 U.S. 423, 459

(1899)

td

123 U.S. 623, 668 (1887).

This distinction has been applied many times since

Mugler, notably in two cases upon which the government relies

here: Keystone Bituminous Coal Ass'n v. DeBenedictis, 480

U.S. 470, 489 (1987), and Goldblatt v. Hempstead, 369 U.S.

590 (1962). The government also cites Andrus v. Allard, 444

U.S. 51, 65-66 (1979), in which the same distinction was

drawn: “The regulations challenged here do not compel the

surrender of the artifacts, and there is no physical invasion or

restraint upon them. Rather a significant restriction has been

imposed on one means of disposing of the artifacts ... In this

case, it is crucial that appellees retain the rights to possess and

transport their property, and to donate or devise the protected

birds.”” For this reason, a regulatory analysis was appropriate.

In Dames & Moore v. Regan, 453 U.S. 654 (1981), the

Court held that a Presidential program of forum-shifting of

claims* (short of espousal) could result in a taking. The

availability of the Tucker Act remedy where plaintiffs could be

made whole if the Presidential program failed to provide just

compensation constituted an adequate remedy at law, according

to this Court, thereby defeating Dames & Moore’s request in

equity to enjoin the provisions of the Algiers Accords. But in

’The result in Allard was not dictated by the fact that the Court had

not previously held that regulation of the sale of eagle feathers could

consutute a taking. Similarly, the government's incantation that the Court

has never held that the extinguishment of international claims gives rise to

a Fifth Amendment obligation is no substitute for reasoned analysis. The

Court long ago determined that choses-in-action are property protected by

the Fifth Amendment, Ware v. Hylton, 3 U.S. (3 Dall.) 199, 245 (1796), and

not long ago at all determined that even the diminution of such property

would be cognizable under the Tucker Act. Dames & Moore.

‘The Court did not discuss real property

Dames & Moore there had been no taking at the time this Court

heard the case. First, the Accords did not extinguish claims or

transfer property. Secondly, the compensation proceeding had

not been conducted, so there was no way to tell if the ultimate

compensation was just or not.

Both elements missing in Dames & Moore are present

here. First, the extinguishment and transfer provisions of the

Settlement Agreement bear only one meaning -- what was

petitioners’ became the property of the United States which

then transferred it to Iran. This is a classic appropriation.

Second, there has been a valuation procedure by the Foreign

Claims Settlement Commission, which if not perfect, is by

statute final. 22 U.S.C. § 1623(h). This damage award cannot

be challenged by petitioners or the United States. See

DeVegvar v. Gillilland, 228 F.2d 640 (D.C. Cir. 1955), cert.

denied, 350 U.S. 994 (1956). And petitioners received

payments in every case less than the damage award plus

interest to the date of payment. The Commission was not free

to award the full amount due petitioners, however, but was

restricted to parceling out a pro rata share of the amount

allocated to it by the government from an amount set by the

executive, not the judicial, department. The executive, though

a trustee for the claimants, paid them what was left over after

the government took what it wanted to satisfy its own claims.

In this case, as the facts show and as the court of

appeals held, petitioners were completely deprived of their

property. The government took it in an act of eminent domain,

and traded it to Iran.*

*The decisions below assure there can never be a taking of property

in the context of an espousal/transfer no matter what value the President,

acting alone, puts on the claims. Petitioners are at a loss to understand how,

(continued...)

ya As its sole basis for the use of regulatory takings

analysis, the government suggests that the Court’s distinction

between “regulatory” and “per se” takings is limited to real

property. Opp. Br. 16. This is wrong -- the Court has applied

a “per se” analysis to the taking of personalty: Webb's

Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 163-64

(1980). And the Fifth Amendment certainly protects even

intangibles or other personal property. Ruckelshaus vy.

Monsanto Co., 467 U.S. 986, 1003-04 & n.9 (1984); Armstrong

v. United States, 364 U.S. 40 (1960); Louisville Joint Stock

Land Bank v. Radford, 295 U.S. 555 (1935); Monongahela

Navigation Co. v. United States, 148 U.S. 312 (1893) (finding

taking of right to collect tolls prior to development of

regulatory taking doctrine); Hollister v. Benedict & Burnham

Manuf. Co., 113 U.S. 59 (1885); Mitchell v. Harmony, 54 U.S.

(13 How.) 115 (1852) (suggesting, in dicta, that appropriation

of supplies for military use would have required just

compensation, had it been authorized). Further, the Court has

never suggested tnat the Fifth Amendment somehow provides

lesser protection for personal property from appropriation for

public use. In Lucas v. South Carolina Coastal Council, the

Court observed that owners of personalty ought to expect the

possibility of regulation, because of the State’s “traditionally

high degree of control over commercial dealings.” 505 U.S.

1003, 1027 (1992). The Court cited Allard, 505 U.S. at 1028,

which in turn relied upon Everard’s Breweries v. Day, 265 U.S.

345 (1924), and Jacob Ruppert, Inc. v Caffey, 251 U.S. 264

*(...continued)

as the government indicates, the Court’s holding in Monongahela

Navigation Co, v. United States, 148 U.S. 312 (1893), is not implicated by

this conclusion. Every case is susceptible to the “analysis” of the court of

appeals that petitioners are merely dissatisfied with the Settlement

“negotiated by the government” and thus that there is no “compensable

taking.” Petitioners are indeed dissatisfied with any compensation other

than just compensation for their property.

6

(1920). In these cases, the Court carefully distinguished

between the permissible -- regulation of certain uses of

personal property -- and the implicitly impermissible --

appropriation of the affected property. See Allard, 444 U.S. at

66-67: Jacob Ruppert, 251 U.S. at 303.

At bottom, the assertion that personalty is more

susceptible to regulation is really another aspect of the

“antecedent inquiry” requirement articulated later in Lucas, 505

U.S. at 1029-30, but misapplied below. Pet. 21-29. In any

takings claim, it is of course necessary to ascertain what interest

has been “taken” by the government and that the interest was in

fact possessed by the claimant.’ Real property (including that

owned by some petitioners) includes a well settled right to

exclude so that physical occupation can easily be seen to be a

taking. Loretto v. Teleprompter Manhattan CATV Corp., 458

U.S. 419, 433 (1982). But the Court’s rationale for concluding

that appropriation of even a small part of real estate is a taking

of land applies to personalty as well. In Loretto, the Court

explained that “[p]roperty rights in a physical thing have been

described as the rights ‘to possess, use and dispose of it.” To

the extent that the government permanently occupies physical

property, it destroys each of these rights.” 458 U.S. at 435

(citation omitted). This same logic very obviously applies

when the government takes possession of any item of

personalty. Or even an intangible.

Petitioners agree that some scrutiny of the nature of

their property interests is appropriate. However, the Lucas

antecedent inquiry must be properly conducted. To obtain

summary judgment, it was not enough for the government to

argue that simply because some petitioners had property other

“See, e.g., Scranton v. Wheeler, 179 U.S. 141, 163 (1900) (private

property held subject to government's navigational servitude).

than land, the government is therefore free to appropriate all

property without payment of just compensation, paying only an

amount set by the President, not a court. The government must

show that under the law that controls the very existence of the

property, it has some “easement” that allows it to completely

appropriate the property without just compensation. This it has

not done and cannot do.

In addition to the serious errors noted above, the

government's brief contains two misstatements of the record

that cannot pass unremarked: (a) that petitioners are seeking to

overturn this Court’s regulatory taking jurisprudence; and

(b) that the Settlement Agreement was intended to benefit

petitioners.

3 Petitioners do not argue that “any government

action 1s a taking if it diminishes the value of property or fails

to afford benefits of exactly equivalent value.” Opp. Br. 15.

The taking analysis turns on the governmental action--here an

outright appropriation and transfer. Nor do petitioners contend

that the government must pay compensation whenever

regulatory action diminishes the value of property, or every

time the government otherwise imposes some cost on a citizen.

There is thus nothing in petitioners’ argument that is

inconsistent with the holdings of Keystone, Allard, Goldblatt,

or United States v. Sperry Corp., 493 U.S. 52 (1989).

Petitioners’ argument -- and the government should have been

able to understand this -- is that when the government takes

possession of a citizen’s property to put it to public use, the

Constitution requires payment of just compensation. Just

compensation is fair market value at the time of the taking plus

interest from the date of the taking to the date of payment. It is,

moreover, petitioners’ position that partial compensation --

either in the form of partial payment, the conferring of some

benefit worth less than the property appropriated, or some

combination of the two -- does not satisfy this constitutional

mandate.

4. The government asserts -- without any citation

to the factual record -- that the government entered into the

settlement agreement with the intent of benefitting petitioners.

Opp. Br. 15. There is simply no evidence concerning the

government's intent in the record -- indeed, in the trial court,

the government suggested that the court was not permitted to

examine its motives in entering into the settlement. But the

consequences for petitioners of the Settlkement Agreement belie

any such benign motive. The procedures before the FCSC were

neither significantly “swifter and surer’” than those of the Iran-

United States Claims Tribunal which they replaced. Large

claimants (like the small claimants prior to the Settlement

Agreement) to this day receive awards with full interest to the

date of payment by the settlement bank in Amsterdam, thereby

obviating any perceived significance of delay. And the “batting

average’ at the FCSC for small claims was drastically worse

than at the Tribunal. Only a third of claimants at the FCSC

received any money at all, while at the Tribunal over 85%of

small claims concluded received awards. Pet. App. 47a.

Thus, the transfer of petitioners’ claims to the FCSC,

where they got smaller awards and prevailed less frequently,

cannot fairly be regarded as a “benefit” to them as the courts

below seemed to believe. The government does not even try to

argue that petitioners who lost real property as the result of the

settlement were benefitted by it. In any event, such a benefit

ought to be relevant only in the damages phase of a Tucker Act

° Opposition at 14.

9

proceeding, not to a decision holding that the petitioners had no

“compensable interest” in their lands, bank accounts and

choses-in-action.

The FCSC was directed to apply Tribunal precedent to

the small claims, must be presumed to have done so, and its

decisions cannot now be challenged by the government or

petitioners. Thus, the government’s suggestion that it is a

“dubious assumption” that petitioners would have prevailed at

the Tribunal is both factually erroneous and legally

impermissible. For all practical purposes at this stage, the

FCSC sat as the Tribunal and its decisions rest on the same

footing.

CONCLUSION

For the foregoing reasons, and the reasons stated in our

petition, the petition for writ of certiorari should be granted.

Respectfully submitted,

STEPHEN M. TRUITT

Counsel of Record

PEPPER HAMILTON LLP

1300 Nineteenth Street, N.W.

Washington, D.C. 20036

(202) 828-1230

JOHN A. WESTBERG

LEWIS M. JOHNSON

WESTBERG & JOHNSON

1300 Nineteenth Street, N.W.

Washington, D.C. 20036

(202) 835-9810

Dated: June 5, 1998 Counsel for Petitioner