Federal Responses to International Conflict and Terrorism: Property Rights Issues

Order Code RL32629

CRS Report for Congress

Received through the CRS Web

Federal Responses to

International Conflict and Terrorism:

Property Rights Issues

October 6, 2004

name redacted

Legislative Attorney

American Law Division

Congressional Research Service ˜ The Library of Congress

Federal Responses to International Conflict and

Terrorism: Property Rights Issues

Summary

Among federal actions dealing with international conflict, wars, and terrorism,

direct impingements on private property are common. Besides the obvious ravages

of battle, there have historically been military occupations and requisitions of

property not in the actual theater of war. And, non-military measures may be used

against assets, attachments on foreign assets, causes of action, and so on.

Unsurprisingly, holders of affected property interests have claimed that their

property was “taken” and demanded compensation, invoking the Takings Clause of

the Fifth Amendment. This report finds that based on case law to date, Takings

Clause limits on federal response to international threats are few, but most certainly

do exist – mostly when private property is impressed into military service not in the

theater of actual war.

Successful takings claims in the international area, often involving national

security, are made difficult by four principles. First, international dangers have

consistently prompted courts to extend extra deference to responsive government

measures when resolving regulatory takings claims. Second, courts say that when

dealing in foreign commerce, the possibility of evolving world circumstances and

U.S. response thereto make any expectation of government noninterference

unreasonable. Third, the benefit accruing to the property owner from the government

action may outweigh the harm. And fourth, there is deference to the President’s

constitutional role as representative of the federal government in the field of foreign

relations – often expressed as the “political question doctrine.”

The protection extended by the Takings Clause also depends on the legal status

of the property’s owner. The property of U.S. citizens gets the most protection;

enemy alien property, none; and friendly alien property somewhere in between,

depending on whether the alien has “substantial connections” with the United States.

Takings claims against the freezing and vesting of foreign assets have

universally been rejected, though with an occasional judicial caution that an overly

protracted freeze might be a taking. In other areas, government frustration of

performance under international commercial contracts appears to have yielded no

successful takings claims, while law enforcement, where physical damage results

from the pursuit of criminal suspects or financial damage results from the operation

of front organizations, has prompted some judicial concerns and a minority of

successful takings claims at the state level.

In sharp contrast with the poor record of takings claims in the above areas,

claimants challenging the impressing of private property into military or related

government service generally have prevailed – wartime or not. Examples include

military overflights, seizure and operation of coal mines during wartime, and

requisitioning of private property. But military destruction of property in connection

with actual battle, or to thwart an advancing enemy, is not compensable.

Contents

I. Broad Doctrines That Mitigate Against Takings . . . . . . . . . . . . . . . . . . . . . . . . 2

II. Status of the Property Owner and Location of the Property . . . . . . . . . . . . . . . 6

III. Freezing/Vesting of Assets, Suspending Judicial Process, Settling Claims . . 9

IV. International Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

V. Law Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

VI. Physical Takings and Appropriations, Mostly by the Military . . . . . . . . . . . 14

Federal Responses

to International Conflict and Terrorism:

Property Rights Issues

To be sure, property rights are not the first thing that leaps to mind when

thinking about wars, terrorism, and international conflicts. Yet among the federal

actions taken to deal with such threats, direct impingements on private property rights

are common. Besides the obvious ravages of battle, there have historically been

military occupations or requisitions of property not in the immediate theater of war.

Non-military measures may be taken against financial holdings, corporate facilities,

contract rights, attachments on assets, and causes of action of U.S. nationals against

foreign governments or their nationals. Such impingements on private property can

be quite severe, involving significant assets owned by U.S. citizens, friendly aliens,

or enemy aliens.

Unsurprisingly, holders of such property have cried foul. They have claimed

that their property was “taken” and demanded compensation, invoking the Takings

Clause of the Fifth Amendment.1 (Indeed, government responses to 9/11 have

already generated at least three reported cases resolving takings claims.2) This report

reveals that based on case law to date, Takings Clause limits on federal response to

international threats appear to be few, but most certainly do exist – chiefly when

private property is impressed into military service not in the theater of actual war.

However, the case law has not yet addressed all areas in the foreign-conflicts realm

that could potentially raise takings claims.

One further caution: most cases cited in this report deal with clearly defined

enemies and clearly delineated theaters of war. The newer decisions are just

beginning to address Takings Clause issues in the blurrier context of combating

terrorism, where the enemy may be terrorism-supporting states with whom the United

1

U.S. Const. amend. 5: “[N]or shall private property be taken for public use, without just

compensation.”

2

Holy Land Foundation for Relief and Development v. Ashcroft, 219 F. Supp. 2d 57

(D.D.C. 2002) (Treasury Department’s blocking of Foundation’s assets was not a taking),

affirmed, 333 F.3d 156 (D.C. Cir. 2003); Global Relief Foundation v. O’Neill, 207 F. Supp.

2d 779 (N.D. Ill.) (Treasury Department’s seizure of Foundation’s assets and temporary

blocking order was not a taking), affirmed, 315 F.3d 748 (7th Cir. 2002), cert. denied, 124

S. Ct. 531 (2003); Air Pegasus of D.C., Inc. v. United States, 60 Fed. Cl. 448 (2004) (FAA’s

permanent ban on flights at heliport near U.S. Capitol was not a taking).

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States is otherwise at peace,3 stateless entities such as al-Qaeda, or indeed, nationals

of the United States or friendly foreign countries.

I. Broad Doctrines That Mitigate Against Takings

The existence of war, terrorism, or other international conflict does not suspend

the Takings Clause’s protection of private property.4 Still, several broad takings-law

principles of particular relevance to international threats and national security present

daunting obstacles for takings claims in this area.

Heightened judicial deference in regulatory takings cases

International dangers have consistently prompted courts to extend extra

deference to responsive government measures when dealing with regulatory takings

claims. (“Regulatory takings claims” are those based on the government’s restriction

of a property’s use, rather than its physical invasion or outright expropriation of the

property.) Indeed, the judicial deference is great enough that our research failed to

reveal any instance where a regulatory taking claim based on federal government

action against an international threat has succeeded.

Statements of judicial deference are found in numerous cases rejecting

regulatory takings claims against the United States – claims based on (1) the federal

government’s temporary wartime shutdown of non-essential gold mines to free up

needed mine workers and mining equipment, United States v. Central Eureka Mining

Co., 357 U.S. 155, 168 (1958) (“In the context of war, we have been reluctant to find

that degree of regulation which, without saying so, requires compensation to be paid

for resulting losses of income.”); (2) wartime rent controls, Block v. Hirsh, 256 U.S.

135, 157 (1920) (“[a] limit in time, to tide over a passing trouble, well may justify

a law that could not be upheld as a permanent change”), and Bowles v. Willingham,

321 U.S. 503, 519 (1944) (“A nation which can demand the lives of its men and

women in ... war is under no constitutional necessity of providing a system of price

control on the domestic front which will assure each landlord a fair return ....”); (3)

a federal order during the Arab oil embargo that an oil production company sell oil

to a particular refiner, Condor Operating Co. v. Sawhill, 514 F.2d 351 (Temp. Emer.

Ct. App.) (citing Block v. Hirsh quote, supra), cert. denied, 421 U.S. 976 (1975); and

(4) a federal prohibition on the exercise of stock options in a U.S. company by a

foreign national with ties to Libya, a nation accused of sponsoring terrorism,

Paradissiotis v. United States, 49 Fed. Cl. 16, 23 (2001) (“It is unfortunate that

plaintiff lost his property outright. The preservation of the national security interest

3

A forerunner in this gray area is Sardino v. Federal Reserve Bank of New York, 361 F.2d

106, 111-112 (2d Cir.), cert. denied, 385 U.S. 898 (1966), a due process challenge to the

freezing of a Cuban national’s assets in New York under the Trading with the Enemy Act.

The court noted that while the United States was not formally at war with Cuba, qualifying

plaintiff as a friendly alien, a court did not have to ignore the fact that that nation “has

launched a campaign of subversion throughout the Western Hemisphere.”

4

YMCA v. United States, 396 F.2d 467, 470 (Ct. Cl. 1968), affirmed, 395 U.S. 85 (1969).

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of the United States nevertheless greatly outweighs plaintiff’s loss.”), affirmed, 304

F.3d 1271 (Fed. Cir. 2002).5

The Condor Operating Co. and Paradissiotis decisions demonstrate that

heightened judicial deference is not restricted to international dangers of the

traditional-war variety, or even to hostilities at all.

One element of the general regulatory takings analysis is a balancing of the

governmental interest advanced by the challenged government action against the

burden imposed on the property owner.6 The foregoing decisions in the international

conflict and terrorism realms often do not explicitly link their statements of deference

to this broad takings-test factor – but such a relative weighing is obviously what they

are doing. In the case of major threats to the security of the state, the governmental

interest is deemed to be so compelling as to be dispositive, or nearly so.

Reduced expectations when doing business internationally

Another factor in the general regulatory takings test is the extent to which the

government’s action frustrated the reasonable investment-backed expectations of the

property owner-plaintiff.7 Citing this factor, the courts unanimously have spurned

the takings claims of persons whose relations with foreign countries – through

contracts, leaseholds, causes of action for compensation, etc. – were frustrated when

the United States responded to deteriorating or hostile relations with those countries.

When dealing in foreign commerce, these decisions say, the possibility of changing

world circumstances and U.S. response thereto make any expectation of government

noninterference unreasonable. One is charged with awareness that relations between

the affected countries might sour, and that the government might act in a way that

interferes with one’s property rights.8 See, e.g., 767 Third Avenue Assocs. v. United

States, 48 F.3d 1575 (Fed. Cir. 1995); Chang v. United States, 859 F.2d 893 (Fed.

5

At the state level, see Citoli v. City of Seattle, 61 P.3d 1165 (Wash. App.), rev. denied, 75

P.3d 968 (2003), where police shut off utilities to a building illegally occupied and

barricaded by protesters, with the result that a lawful business in the building ultimately was

forced to close permanently. In finding no taking of the business, the court stated: “Where

the necessities of war or civil disturbance require the destruction or injury of private

property, the resulting losses must be borne by the owners of the property, in that the safety

of the state in such cases overrides all considerations of private loss.” Id. at 1181.

6

See, e.g., Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 488, 492

(1987).

7

This factor in the regulatory takings test was originally stated by the Supreme Court using

“distinct investment-backed expectations.” Penn Central Transp. Co. v. New York City, 438

U.S. 104, 124 (1978) (emphasis added). With no explanation, the Court morphed this

phrase into “reasonable investment backed expectations” in most of its later regulatory

takings decisions. See, e.g., Palazzolo v. Rhode Island, 533 U.S. 606, 626 (2001) (emphasis

added).

8

This principle is loosely related to a domestic takings law precept: persons who

voluntarily do business in a heavily regulated field cannot claim disappointment of

reasonable expectations when the Congress revisits the field to bolster the legislative

scheme. See, e.g., Concrete Pipe & Prods. v. Construction Laborers Pension Trust, 508 U.S.

602, 645 (1993).

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Cir. 1988); Paradissiotis v. United States, 49 Fed. Cl. 16 (2001), affirmed, 304 F.3d

1271 (Fed. Cir. 2002); Abrahim-Youri v. United States, 36 Fed. Cl. 482, 486 (1996),

affirmed, 139 F.3d 1462 (Fed. Cir. 1997), cert. denied, 524 U.S. 951 (1998);

Rockefeller Center Properties v. United States, 32 Fed. Cl. 586, 592 (1995); Belk v.

United States, 12 Cl. Ct. 732, 734 (1987), affirmed, 858 F.2d 706 (Fed. Cir. 1988).

Most of the just-cited cases involve property interests (e.g., contracts) acquired

at a time when the international situation was already foreboding – as in 767 Third

Ave. Assocs. with the threat of ethnic strife in Yugoslavia, and in Chang and

Paradissiotis with Libyan support of international terrorism. Or the plaintiffs had

chosen to live in a country “where the potential for kidnapping and other terrorist acts

existed and the possibility that the United States would have to intervene was always

present.” Belk, 12 Cl. Ct. at 734 (with regard to Iran). However, such pre-acquisition

stormclouds are not a prerequisite for courts to discount the property owner’s

expectations of government nonintervention, and deny the taking claim. It is enough

that the property interest was acquired at a time when the President had broad

statutory authority to impose measures against foreign assets in response to

international conflicts.9 767 Third Ave. Assocs., 48 F.3d at 1580-1581; Rockefeller

Center Properties, 32 Fed. Cl. at 592-594.

Benefits accruing to the plaintiff

In several cases, courts have rejected the taking claim because the challenged

government action also conferred substantial benefit on the plaintiff, even if

incidental benefit accrued to the United States as well. The leading case is YMCA v.

United States, 395 U.S. 85, 92 (1969), where no taking was found when U.S. troops

occupied buildings in Panama to protect them from rioters. Accord, Abrahim-Youri

v. United States, 139 F.3d 1462 (Fed. Cir. 1997); Belk v. United States, 858 F.2d 706,

709 (Fed. Cir. 1988).

Deference to government conduct of foreign policy and the President’s role as

commander in chief / Political question doctrine

Yet another recurring hurdle for the taking plaintiff is judicial deference to the

President’s constitutional role as representative of the federal government in the field

of international relations, and his latitude as commander in chief. “Matters intimately

related to foreign policy and national security are rarely proper subjects for judicial

intervention.” Haig v. Agee, 453 U.S. 280, 292 (1981). Accord, Regan v. Wald, 468

U.S. 222, 242 (1984). This deference plays out both as to (1) the reviewability of the

government action on which the taking claim is based, and (2) as a factor in the

taking analysis itself.

Reviewability of the government action on which the taking claim is based.

Government declarations and decisions involving national emergencies, war, and

foreign relations are often held to be outside the judicial reach – generally on

“political question” grounds. The classic statement of the political question doctrine

remains that of Baker v. Carr, 369 U.S. 186 (1962), which recognized that only

9

See discussion of International Emergency Economic Powers Act and Trading with the

Enemy Act in section III.

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certain types of cases are committed to the judicial branch for resolution. To be

beyond judicial reach under the doctrine, a case must involve at least one of six

factors, among them whether there is a “a textually demonstrable commitment of the

issue to a coordinate political department, or a lack of judicially discoverable and

manageable standards for resolving it ....” Id. at 217.

Numerous takings claims involving international conflicts have foundered on

the political-question shoal.10 For example, Belk v. United States, 858 F.2d 706 (Fed.

Cir. 1988), dealt with the Algerian Accords, under which the United States and Iran

ended the hostage crisis in 1981. Several of the former hostages argued that because

the Accords extinguished their causes of action against Iran, the U.S. had taken those

causes of action.11 Though denying their claim on the merits, the court concluded

alternatively that review of a policy decision made by the President during an

international crisis is barred as a political question. “Most, if not all, of [the Baker

v. Carr] concerns are present in this case.” Id. at 710.

Most recently, the Federal Circuit used the political question doctrine to rebuff

a taking claim brought by the owner of a manufacturing plant in the Sudan destroyed

by U.S. cruise missiles. El-Shifa Pharmaceutical Industries Co. v. United States, 378

F.3d 1346 (Fed. Cir. 2004). The missile attack was ordered by President Clinton

following bombings of two U.S. embassies in East Africa, based on U.S. belief that

the perpetrators were associated with al-Qaeda and that the plant was manufacturing

chemical weapons for al-Qaeda. The court found that the Constitution commits to

the President the power to designate enemy property in foreign territory – so, under

the first Baker factor, the matter was a nonjusticiable political question.12 Because

the court thus had to accept that plaintiff’s property was enemy property, there could

be no taking (see section II).13 However, the court stressed the limited nature of its

ruling in two respects. The outcome might have been different, it said, had the plant

10

As have non-takings claims involving international conflicts. See, e.g., Beacon Products

Corp. v. Reagan, 633 F. Supp. 1191, 1194-1195 (D. Mass. 1986) (whether Nicaragua posed

sufficient threat to trigger President’s powers under International Emergency Economic

Powers Act is nonjusticiable political question), affirmed on other grounds, 814 F.2d 1 (1st

Cir. 1987).

11

The court assumed without deciding that causes of action constitute “property” for

purposes of the Takings Clause.

12

See also The Prize Cases, 67 U.S. (2 Black) 635, 670 (1862) (whether seceded southern

states are to be regarded as belligerents is a determination for President as commander in

chief, and courts must be governed by that decision); Sardino v. Federal Reserve Bank of

New York, 361 F.2d 106, 109 (2d Cir.) (courts will not review presidential declaration of

national emergency – a determination “so peculiarly within the province of the chief

executive”), cert. denied, 385 U.S. 898 (1966).

13

Compare Chang v. United States, 859 F.2d 893, 896 n.3 (Fed. Cir. 1988), where the

finding of a political question (whether the President properly evaluated the “true facts” of

the Libyan crisis) did not preclude reaching the question whether the President’s actions

constituted a taking.

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been located in the United States,14 or had there been no evidence that the President

had in fact determined that the plant belonged to an enemy of the United States.

Not every case or controversy that touches on foreign relations lies beyond

judicial cognizance as a political question. Baker, 369 U.S. at 211. Courts assert that

the doctrine is a narrow one, and are aware it offers a tempting refuge for the

government defendant. Thus, the political question defense was rejected in

Langenegger v. United States, 756 F.2d 1565 (Fed. Cir.), cert. denied, 474 U.S. 824

(1985), where the taking claim was based on El Salvador’s confiscation of U.S.citizen-owned land as part of an agrarian reform program encouraged by the United

States. Resolution of the case, said the court, required no determination of El

Salvador’s sovereignty, nor did the plaintiff question the executive’s authority or the

validity of the expropriation. See also Ramirez de Arellano v. Weinberger, 745 F.2d

1500 (D.C. Cir. 1984) (en banc) (due process claim against U.S. military’s

occupation of U.S. citizen’s property in Honduras to train Honduran army does not

raise political question), vacated on other grounds, 471 U.S. 1113 (1985).

Deference as a factor in the takings analysis itself. In Rockefeller Center

Properties v. United States, 32 Fed. Cl. 586 (1995), the merits of the taking claim

were reached. The Treasury Department’s blocking of assets pursuant to the

International Emergency Economic Powers Act was found to further the important

public interest in the President’s ability to deal with international events. This public

interest entered the takings analysis through the “character of the government action”

factor, a component of the canonical takings test.15 No taking was found.

II. Status of the Property Owner

and Location of the Property

The protection extended by the Takings Clause depends first on the legal status

of the property’s owner – whether a U.S. citizen, friendly alien, or enemy alien. In

the case of friendly aliens, it depends further on the territorial or extraterritorial

location of the property. The law developing in this area is particularly important in

light of the increasing frequency with which congressional statutes reach

extraterritorial conduct, and with which U.S. offices abroad pursue the fight against

terrorism, drug trafficking, counterfeiters, and corrupt financiers.

U.S. citizens

The general rule is that the Takings Clause protects the property of U.S. citizens

against takings by the United States wherever in the world the property may be

located. Ashkir v. United States, 46 Fed. Cir. 438, 444 (2000) (collecting cases). An

14

One presumes the court is referring to the additional process that might be required to

designate enemy property in the U.S. There can be little question that enemy property may

be taken or destroyed without compensation even in the U.S. See section II of this report.

15

Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978).

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exception is that all property, even that of U.S. citizens, is regarded as enemy

property when located in enemy territory (see below, this section).

Friendly aliens

In the leading case, the property of a friendly alien (a Russian corporation) was

held to be protected by the Takings Clause, just as that of U.S. citizens. Russian

Volunteer Fleet v. United States, 282 U.S. 481, 489, 491-492 (1931). Because the

alien’s property was vessel-construction contracts with a New York shipyard, the

decision is usually read as restricted to property located within the United States.16

Russian Volunteer Fleet also declared that an alien’s ability to invoke Takings Clause

protection is not dependent on U.S. citizens being entitled to prosecute similar claims

against the alien’s government in the courts of that country. Id. at 491-492. (But

while the Takings Clause does not demand reciprocity, Congress does, at least when

the case is filed in the U.S. Court of Federal Claims. Under 28 U.S.C. section 2502,

the United States may be sued in that court only by citizens of foreign governments

that afford U.S. citizens the right to sue such governments in their courts.)

Russian Volunteer Fleet received judicial gloss in a later decision asking

whether the Fourth Amendment’s protection against unreasonable searches and

seizures applies to property owned by a nonresident alien – but located in a foreign

country. United States v. Verdugo-Urquidez, 494 U.S. 259 (1990). In holding that the

Fourth Amendment does not, the Court surveyed other cases, including Russian

Volunteer Fleet, in which it had held that friendly aliens enjoy certain rights under

the U.S. Constitution. Those cases, it clarified, “establish only that aliens receive

constitutional protections when they have come within the territory of the United

States and developed substantial connections with this country.” Id. at 271. But

because Verdugo-Urquidez involved the Fourth Amendment, and because its holding

was not based exclusively on the substantial connections prerequisite, its

authoritativeness with regard to Russian Volunteer Fleet and the Takings Clause

remained in doubt.17

Newer case law has grappled with the effect of Verdugo-Urquidez on the

Takings Clause, ruling unanimously that the substantial connections rule does apply

to alien-filed claims. Given the extraterritorial location of both plaintiffs and their

property in these cases, such connections were held to be absent, and the takings

claims dismissed. Hoffman v. United States, 53 F. Supp. 2d 483 (D.D.C. 1999),

affirmed, 17 Fed. Appx. 980 (Fed. Cir. 2001) (unpublished). involved German nationals

suing the United States for its refusal to turn over a photographic archive and

watercolors painted by Adolf Hitler, taken from Germany during the allied

occupation after World War II.18 Ashkir v. United States, 46 Fed. Cl. 438 (2000),

16

See, e.g., Ashkir v. United States, 46 Fed. Cl. 438, 440 (2000).

17

For a view of the case law immediately prior to Verdugo-Urquidez, see Remsen N. Kinne

IV, Making America Pay: Just Compensation for Foreign Property Takings, 9 B.C. Third

World L. J. 217 (1989).

18

This unpublished affirmance is not citable as precedent. As the trial court, the Federal

Circuit observed that where an alien plaintiff has neither resident alien status nor property

(continued...)

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involved a citizen of Somalia asserting a taking by the United States, based on the

U.S. military’s occupation of and injury to his compound in Mogadishu in aid of

U.N. relief efforts. And Rosner v. United States, 231 F. Supp. 2d 1202 (S.D. Fla.

2002), involved a takings class action by Hungarian Jews who alleged that their

valuables, confiscated by the pro-Nazi Hungarian government in 1944, were seized

by the U.S. army while being shipped by train to Germany, and never returned.

Rosner also stressed that the substantial connections with the United States must

exist at the time of the alleged taking, not later.

Notwithstanding the unanimous endorsement of Verdugo-Urquidez in these

trial-court decisions, the Federal Circuit recently declined to overrule its own

contrary precedent. In Turney v. United States, 115 F. Supp. 457 (Ct. Cl. 1957), the

Circuit’s predecessor court had held that U.S. seizure of radar equipment in the

Philippines after World War II, owned by a Philippine corporation, was a taking.

The court had rejected the government’s broad argument that the Takings Clause

lacks extraterritorial application. In its recent El-Shifa case, the Federal Circuit

characterized Turney as counseling in favor of applying the Takings Clause

extraterritorially despite the absence of substantial connections, placing Turney

squarely in conflict with Verdugo-Urquidez. It expressly declined to resolve this

conflict, however, because it did not need to: El-Shifa could be dismissed solely on

political question grounds (see section I).

At present, then, the Federal Circuit has not ruled authoritatively on whether

there is a substantial-connections prerequisite for takings claims brought by friendly

aliens against the United States. Case law reviewed above, however, suggests that

if and when the Circuit does rule, it will endorse its existence.

Enemy aliens

In contrast with friendly aliens, the property of enemy aliens receives no

Takings Clause protection wherever the property may be found. Cummings v.

Deutsche Bank, 300 U.S. 115, 120 (1937); El-Shifa Pharmaceutical Industries Co.

v. United States, 378 F.3d 1346, 1355 (Fed. Cir. 2004).

Under the “rules of war,” property of any person located in enemy territory is

deemed enemy property, notwithstanding the nationality of the owner. As enemy

property, it may be destroyed without Takings Clause compensation. Juragua Iron

Co. v. United States, 212 U.S. 297, 305-308 (1909). Query, however, whether the

courts may balk at some confiscations in enemy territory, where the property is

owned by a non-enemy national and the confiscation is unrelated to military

necessity. For example, in Seery v. United States, 127 F. Supp. 601, 605 (Ct. Cl.

1955), the court expressed skepticism that the military could use a U.S.-citizenowned estate in Austria as an officers’ club without effecting a taking, even assuming

Austria was still enemy territory months after Germany’s surrender.19

18

(...continued)

located within the United States, he generally lacks a substantial connection.

19

The court discerned a taking largely based on the rules of war under international law.

(continued...)

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III. Freezing/Vesting of Assets, Suspending Judicial

Process, Settling Claims

When the United States has moved to freeze or vest assets of hostile foreign

nations or nationals thereof, suspend judicial process initiated by U.S. nationals

against such assets, or settle claims of U.S. nationals against foreign sovereigns and

their assets, courts have universally rejected takings attacks, though with an

occasional caution.

Freezing of assets

Freezing of assets was accomplished, until 1977, under the Trading with the

Enemy Act (TWEA).20 During that time, the TWEA applied to both wartime and any

other period of national emergency declared by the President (typically in peacetime).

In 1977, Congress enacted the International Emergency Economic Powers Act

(IEEPA),21 which removed the national emergency authority from TWEA and

ensconced it exclusively in IEEPA. At the same time, IEEPA qualified the

emergency authority to reach only “any unusual and extraordinary threat, which has

its source in whole or substantial part outside the United States” and respecting

which the President declares a national emergency under IEEPA.22 IEEPA also

grandfathered existing exercises of national emergency authority under TWEA. Both

statutes now authorize the President to prohibit, among a long list of things,

“exercising any right ... with respect to ... any property in which any foreign country

or a national thereof has any interest by any person, or with respect to any property,

subject to the jurisdiction of the United States.”23

As far as reported court decisions reveal, every taking claim based on an asset

freezing order under TWEA or IEEPA has failed. The key rationale used by courts

has been that the freezing of assets is merely temporary and not a vesting of title in

19

(...continued)

These rules, beyond the scope of this report, prescribe when property captured or found on

battlefields, and property in military-occupied areas, may be “confiscated” (permanently

appropriated without compensation) or “seized” (taken with a duty to return or compensate

at the end of the armed conflict) – or must instead be “requisitioned” (appropriated in

occupied territory for the needs of an army of occupation, with compensation as soon as

possible). See generally Elyce K.D. Santerre, From Confiscation to Contingency

Contracting: Property Acquisition On or Near the Battlefield, 124 Mil. L. Rev. 111, 112122 (1989).

20

50 U.S.C. App. §§ 1-6, 7-39, 41-44.

21

50 U.S.C. §§ 1701-1707.

22

IEEPA § 202, 50 U.S.C. § 1701. The President may declare a national emergency only

under the procedures in the National Emergencies Act. 50 U.S.C. §§ 1601-1651.

23

TWEA § 5(b)(1)(B), 50 U.S.C. App. § 5(b)(1)(B); IEEPA § 203(a)(1)(B), 50 U.S.C. §

1702(a)(1)(B). The only difference between the two provisions, as pertinent here, is the

USA PATRIOT Act’s addition to IEEPA in 2001 of presidential authority to “block during

the pendency of an investigation” the rights listed in IEEPA section 203(a)(1)(B).

CRS-10

the United States. See, e.g., Tran Qui Than v. Regan, 658 F.2d 1296, 1304 (9th

Cir.1981). Accord, Global Relief Found. v. O’Neill, 207 F. Supp. 2d 779, 802 (N.D.

Ill.), affirmed, 315 F.3d 748 (7th Cir. 2002), cert. denied, 124 S. Ct. 531 (2003); Holy

Land Found. for Relief and Development v. Ashcroft, 219 F. Supp. 2d 57, 78 (D.D.C.

2002), affirmed, 333 F.3d 156 (D.C. Cir. 2003).

Moreover, “temporary” has been loosely construed. Even the passage of

considerable time since the freeze was imposed may not raise the taking specter, if

hostile relations are equally longstanding. See, e.g.,Tole S.A. v. Miller, 530 F. Supp.

999 (S.D.N.Y. 1981) (blockage of assets of Cuban corporation for 18 years effected

no taking), affirmed, 697 F.2d 298 (2d Cir. 1982) (table). Query, however, whether

the Supreme Court’s recent decision in Tahoe-Sierra Preservation Council v. Tahoe

Regional Planning Agency, 535 U.S. 302 (2002), noting that land-use planning

moratoria may become takings if kept in place long enough, may lead courts to view

protracted foreign asset freezes as takings. See Holy Land Found., 219 F. Supp. 2d

at 78 (owner of property frozen eight months may “some day” have a more viable

taking claim, citing Tahoe-Sierra). See also Nielsen v. Sec’y of the Treasury, 424

F.2d 833, 843-844 (D.C. Cir. 1970) (blocking of foreign assets raises taking issue if

continued indefinitely).24

Another rationale cited for ruling against the taking claimant is that the blocked

foreign assets may be needed to satisfy present or future claims of U.S. citizens

against the foreign country or its nationals, or to use as leverage in negotiations with

the hostile nation. Tole S.A., 530 F. Supp. 999 (discussing cases). “There is no

reason,” said the Supreme Court, “why [the United States] may not ... make itself and

its nationals whole from assets here before it permits such assets to go abroad in

satisfaction of claims of aliens made elsewhere ....” United States v. Pink, 315 U.S.

203, 228 (1942).25

In a recent case, the U.S. invoked IEEPA to prohibit a Cypriot citizen with

Libyan ties from exercising stock options in a U.S. company – owing to Libya’s

support of terrorism. During the freeze, the stock options expired, resulting in a total

loss to the plaintiff. In finding no taking of the option contract, the trial court relied

particularly on the contingent nature of foreign commerce. Paradissiotis v. United

States, 49 Fed. Cl. 16, 22 (2001). On appeal, plaintiff argued unsuccessfully that the

Treasury Department should have permitted him to exercise his stock options and

then retained the proceeds in a blocked, interest-bearing account, and that failure to

do so was a taking. 304 F.3d 1271 (Fed. Cir. 2002).

24

The Restatement (Third) of Foreign Relations Law (1987) seems not to insist on

“indefinite” duration in order for an asset freeze to be a possible taking. “Extended”

deprivation may be enough. Section 712, Comment g, Reporters’ Note No. 6.

25

See generally Sardino v. Federal Reserve Bank of New York, 361 F.2d 106, 112-113 (2d

Cir.), cert. denied, 385 U.S. 898 (1966).

CRS-11

Vesting of assets

TWEA and IEEPA authorize not only the freezing of foreign assets, but the

vesting of such assets.26 The TWEA vesting authority is available during wartime;

the IEEPA authority, “when the United States is engaged in armed hostilities or has

been attacked by a foreign country or foreign nationals.” In contrast with the freezing

of assets, vesting has the United States actually taking ownership of the property, so

that it may be “held, used, administered, liquidated, sold, or otherwise dealt with” by

the U.S.27 The Supreme Court has cautioned that “this summary power to seize

property which is believed to be enemy-owned is rescued from constitutional

invalidity under the Due Process and [Takings] Clauses ... only by those provisions

of the act which afford a non-enemy claimant a later judicial hearing as to the

propriety of the seizure.” Societe Internationale v. Rogers, 357 U.S. 197, 211 (1958).

Suspension of judicial process and executive settlement of claims

In the name of foreign policy, the President has considerable authority to

suspend judicial process against foreign assets and to settle with foreign nations the

claims of U.S. citizens against those nations, or their nationals.28 These executive

powers received considerable judicial scrutiny for possible takings in the aftermath

of the Iranian hostage crisis.29 The key documents are the IEEPA, under which

President Carter blocked removal or transfer of Iranian assets in the U.S. except by

license, and the Algerian Accords, under which the United States later agreed to

substitute binding arbitration for private litigation against Iran in U.S. courts.

Some courts have held that the President’s suspension of private claims against

Iran presented no ripe taking issue, since plaintiffs might recover fully in arbitration

before the Iran-U.S. Claims Tribunal. See, e.g., American Int’l Group, Inc. v. Islamic

Republic of Iran, 657 F.2d 430 (D.C. Cir. 1981); Chas. T. Main Int’l, Inc. v.

Khuzestan Water and Power Auth., 651 F.2d 800 (1st Cir. 1981). Others have refused

26

TWEA § 5(b)(1), 50 U.S.C. App. § 5(b)(1); IEEPA § 203(a)(1)(C), 50 U.S.C. §

1702(a)(1)(C). The vesting authority in IEEPA was not added until 2001, through the USA

PATRIOT Act.

For example, the first President Bush, in response to Iraq’s invasion of Kuwait, froze

that country’s assets in the U.S. under IEEPA. Exec. Order No. 12722 (1990), 50 U.S.C.

§ 1701 note. During the second Iraq war, the current President Bush invoked IEEPA to vest

ownership of such Iraqi assets in the U.S. Department of the Treasury. Exec. Order No.

13290 (2003), 50 U.S.C. § 1701 note.

27

The quoted phrase in the text appears in both the statutory provisions cited in note 26,

supra.

28

“[T]he President’s power to espouse and settle claims of our nationals against foreign

governments is of ancient origin and constitutes a well-established aspect of international

law.” Shanghai Power Co. v. United States, 4 Cl. Ct. 237, 246 (1983), affirmed, 765 F.2d

159 (Fed. Cir. 1985) (table). See generally Dames & Moore v. Regan, 453 U.S. 654, 679680 (1981).

29

See generally Peter W. Adler, Note, The Iran-U.S. Accords and the Taking Clause of the

Fifth Amendment, 68 Va. L. Rev. 1537 (1982); Lawrence W. Newman, A Personal History

of Claims Arising Out of the Iranian Revolution, 27 N.Y.U. J. Int’l L. & Pol’y 631 (1995).

CRS-12

to reach the merits on political question grounds. See, e.g., Belk v. United States, 858

F.2d 706, 710 (Fed. Cir. 1988).

Where the taking issue in the case was reached, courts have stated or implied

that in a proper case an executive cancellation of private claims by settlement could

be a taking. See, e.g., Langenegger v. United States, 756 F.2d 1565 (Fed. Cir.)

(opining that an earlier decision of the court, finding no taking based on U.S.

settlement of individual claims against China, did not stand for an absolute rule that

extinguishment of claims can never be a taking), cert. denied, 474 U.S. 824 (1985);

American Int’l Group, 657 F.2d at 446. Research reveals no instance, however,

where a taking has been found. For example, when the United States, through the

Algerian Accords, extinguished causes of action asserted by the former Iranian

hostages against the government of Iran, there was no taking. Belk, 858 F.2d 706.

Belk pointed out that because the Accords brought about the release of the hostages,

they received a valuable benefit for the compromise of their claims. Similarly, no

taking resulted when the President vacated pre-judgment attachments of Iranian

assets made pursuant to revocable license. Dames & Moore v. Regan, 453 U.S. 654

(1981).

More recently, holders of small claims against Iran asserted a taking based on

the United States’ espousal and settlement of their claims against that country.

Abrahim-Youri v. United States, 139 F.3d 1462 (Fed. Cir. 1997), cert. denied, 524

U.S. 951 (1998). The $50 million fund available to the successful claimants was

enough that each claimant received the full amount of principal awarded, but only a

third of the interest accrued. No taking of the interest resulted, said the court,

because as in Belk, the settlement here sought to benefit the claimants, whose claims

had languished many years. Moreover, it said, “those who engage in international

commerce must be aware that international relations sometimes become strained ....”

Id. at 1468.

IV. International Contracts

Federal measures against foreign governments may severely frustrate

performance under existing contracts with those governments or their nationals. In

asserting takings, disappointed contract parties cite the fact that contract rights are

generally held to be “property” for purposes of the Takings Clause, placing them

under its protective umbrella.30 In the international realm, however, takings

plaintiffs invariably collide head-on with the contingent nature of expectations when

contract performance hinges on the maintenance of friendly relations between

nations. As a further obstacle, courts on occasion note the additional takings law

precept that the U.S. is held to only frustrate contract performance, not take a contract

30

See, e.g., United States Trust Co. v. New Jersey, 431 U.S. 1, 19 n.16 (1977) (“Contract

rights are a form of property and as such may be taken ... provided that just compensation

is paid.”); Lynch v. United States, 292 U.S. 571, 579 (1934) (“Valid contracts are property,

whether the obligor be a private individual, a municipality, a State, or the United States.”).

CRS-13

right, when its actions incidentally block performance under existing contracts.31

Research reveals no successful takings claims in this area. See, e.g., Chang v. United

States, 859 F.2d 893 (Fed. Cir. 1988) (employment contract); 767 Third Avenue

Assocs. v. United States, 48 F.3d 1575 (Fed. Cir. 1995) (leasehold contract);

Paradissiotis v. United States, 304 F.3d 1271 (Fed. Cir. 2002) (stock option

contract).32

In Chang, for example, U.S. nationals or resident aliens entered into

employment contracts with a Libyan oil company in 1985. The following year, the

President issued an executive order under IEEPA, declaring a national emergency

because of the threat posed by Libyan support of international terrorism. The order

declared that “no U.S. person may perform any contract in support of an industrial

or other commercial or governmental project in Libya.” Plaintiffs’ claim that the

United States had thereby taken their employment contracts was rejected under the

traditional three-factor balancing test for regulatory takings. Most pertinent to the

international context of the dispute, the court said that persons entering into

employment contracts overseas are on notice that contract performance turns on the

continuation of friendly relations between nations. Indeed, relations between the

United States and Libya were deteriorating at the time the contracts were entered

into.

V. Law Enforcement

In the course of their duties, law enforcement personnel may damage or destroy

private property, as a byproduct of pursuing criminal suspects. They may also seize

property or bring about its forfeiture. Often, the harmed individual is an innocent

party, and plainly these make the most compelling takings plaintiffs.

This area is vast and is only touched upon here. Much of the case law deals

with law enforcement by state personnel, where the classic situation involves police

damage to the homes or retail stores of innocent parties in the process of breaking

down doors or flushing out criminal suspects. The majority view is that no taking

occurs; at most, the state action constitutes a tort.33 These state cases presumably

have relevance to federal law enforcement against terrorists as well.

Several federal agencies now combating terrorism have been on the receiving

end of takings claims arising out of non-terrorism-related law enforcement. A typical

31

Omnia Commercial Co. v. United States, 261 U.S. 502 (1923).

32

Where the government’s action frustrates future sales abroad in the absence of any

contracts, a taking claim based on such future losses approaches the frivolous. See, e.g.,

Galloway Farms v. United States, 834 F.2d 998 (Fed. Cir. 1987) (losses to Iowa farmer as

result of grain embargo on trade with Soviet Union, in response to Soviet invasion of

Afghanistan, caused no taking).

33

See generally Charles E. Cohen, Takings Analysis of Police Destruction of Innocent

Owners’ Property in the Course of Law Enforcement: The View From Five State Supreme

Courts, 34 McGeorge L. Rev. 1 (2002); Kelly v. Story County Sheriff, 611 N.W.2d 475,

482-483 (Iowa 2000) (collecting cases).

CRS-14

seizure case is Alde, S.A. v. United States, 28 Fed. Cl. 26 (1993), holding that the

U.S. Customs Service’s seizure and temporary possession of a private airplane until

the court denied forfeiture was not a taking, despite the fact that while in government

storage the plane was heavily damaged by hurricane and theft. The court stated

absolutely that “[s]eizures carried out by the Government under its police power are

not takings.” Id. at 34. Parenthetically, forfeiture of private property, even as regards

the interests of innocent owners or co-owners, is also rarely held to be a taking. See,

e.g., Bennis v. Michigan, 517 U.S. 1163 (1996).

The CIA and FBI have been sued for takings where businesses created as fronts

ultimately produced financial loss to innocent parties. In Adams v. United States, 20

Cl. Ct. 132 (1990), the CIA created and operated an investment-banking firm for

intelligence gathering. The firm eventually went bankrupt, and the resulting losses

to the firm’s customers prompted them to claim a taking. Under the one scenario

analyzed by the court that gave rise to a colorable taking claim, the plaintiffs’ losses

resulted chiefly from market losses, so the CIA was not accountable for any taking,

or the losses were not extensive enough to surmount the takings threshold. And, the

character of the government action cut against a taking, since the losses were not

claimed to be the direct result of the cover operation, hence were purely

consequential.

A note of caution, however, was sounded by Janowsky v. United States, 133

F.3d 888 (Fed. Cir. 1998), where a business was turned over to the FBI for its use in

investigating police corruption. The owner’s taking claim, based on the resulting

harm to the business, was rejected by the trial court on the ground that the turnover

to the FBI had been voluntary. On appeal, the Federal Circuit asked whether FBI

statements to the owner rendered his participation coerced, and remanded to the trial

court.

VI. Physical Takings and Appropriations,

Mostly by the Military

Impressing private property into public service

The courts have long regarded physical occupations and outright expropriations

as the most serious sort of government interference with property. Small wonder,

then, that takings claims based on physical takings or expropriations, as opposed to

regulatory interferences, have often succeeded – despite the existence of war. The

successful claims have arisen where the government, almost always the military, has

impressed private property into public service, rather than destroyed it as an incident

of hostilities. “[T]he government does not avoid the Takings Clause by simply using

its military forces as cover for activities that would otherwise be actionable if

performed by one of its civilian agencies.” El-Shifa Pharmaceutical Industries Co.

v. United States, 378 F.3d 1346, 1356 (Fed. Cir. 2004). Merely because

appropriating the property aids a war effort, even directly, is not sufficient to deflect

the taking claim.

CRS-15

The rule that military appropriations must be compensated, at least when not

demanded by the immediate needs of battle, is illustrated by the abundant takings

decisions on military flights over private property. When the interference with the

use and enjoyment of such property is sufficiently severe, courts find takings in both

wartime, see, e.g., United States v. Causby, 328 U.S. 256 (1946) (taking resulted

from low and frequent flights of military aircraft, during World War II, over chicken

farm), and peacetime, see, e.g., Argent v. United States, 124 F.3d 1277 (Fed. Cir.

1997). A related factual circumstance led to a taking holding in Portsmouth Harbor

Land & Hotel Co. v. United States, 260 U.S. 327 (1922) (if U.S. installed guns not

simply as wartime defenses, but to subordinate adjacent resort to government’s right

to fire across it at will in peacetime, a servitude has been taken). A non-military case

of wartime appropriation is United States v. Pewee Coal Co., 341 U.S. 114 (1951),

where a taking was found based on the government’s seizure and operation of coal

mines during World War II, to avert a strike.34 35

The case law finding compensable expropriation of U.S.-citizen property for use

by the military stretches well back to the nineteenth century. See, e.g., United States

v. Pacific Railroad, 120 U.S. 227, 234 (1887) (noting that “where property of loyal

citizens is taken for the service of our armies,” compensation is required); United

States v. Russell, 80 U.S. (13 Wall.) 623, 629 (1871) (compensation required where

Union Army requisitioned three steamboats to carry freight during Civil War);

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

Army took for use the wagons and mules of a merchant who had been forced to

follow it into Mexican territory). Discussing Russell and Mitchell, a later court

isolated the distinction between compensable and noncompensable military actions

– the former, it said, did not involve “impending danger in the context of a hostile

confrontation .... Instead, the property ... was requisitioned in a manner much akin to

the procurement of goods and services under contract ....” YMCA v. United States,

396 F.2d 467, 471 (Ct. Cl. 1968), affirmed, 394 U.S. 85 (1969).36

34

The decision in Pewee Coal Co. is often juxtaposed by courts with that in United States

v. Central Eureka Mining Co., 357 U.S. 155 (1958). In the former the United States actually

took over and ran the mines; indeed, it posted “U.S. Property” signs at the mine entrances.

In the latter, the United States closed the mines by regulatory action but asserted no

dominion over them. This difference was dispositive in leading the Supreme Court to find

a taking in Pewee Coal Co., but not in Central Eureka. See id. at 165-166.

35

See also Hohri v. United States, 782 F.2d 227, 243 (D.C. Cir. 1986), vacated on

jurisdictional grounds, 482 U.S. 64 (1987), holding that takings claims brought by JapaneseAmericans sent to internment camps during World War II may proceed, given a later

congressional report concluding there was no military justification for the internment. The

court rejected the United States’ argument that government actions taken pursuant to a

“perceived need to protect national security” cannot be a taking. “Only a showing of actual

(and not merely imagined) military emergency vitiates a Takings Clause claim.” Id.

This decision arguably implies that had the military justification for the internment not

been later rejected, the taking claim could not proceed – notwithstanding that the property

was owned by U.S. citizens and located within the United States, far from the theater of

actual war.

36

See also United States v. Caltex, 344 U.S. 149, 152-153 (1952) (similarly reading Russell

and Mitchell as confined to requisition-type situations).

CRS-16

Destruction of property in connection with actual battle

Nearer the thick of battle, even the deliberate destruction of private property by

the military is usually noncompensable. A well-settled rule is that the wartime

destruction of private property by the United States to prevent its capture by an

advancing enemy is not a taking. United States v. Caltex, 344 U.S. 149 (1952)

(Army destruction of oil terminals in Philippines during World War II to impede

advance of Japanese Army); United States v. Pacific Railroad, 120 U.S. 227, 234

(1887) (Union Army destruction of bridges in Missouri during Civil War to impede

advance of Confederate Army). See also Juragua Iron Co. v. United States, 212 U.S.

297 (1909) (Army destruction of U.S. company’s property in enemy territory during

Spanish-American War, to prevent spread of yellow fever, is not a taking; all

property in enemy territory is enemy property, subject to confiscation without

compensation).

Least surprising, property damage due to battlefield operations is

noncompensable. “The destruction or injury of private property in battle, or in the

bombardment of cities and towns, and in many other ways in the war, had to be borne

by the sufferers alone as one of the consequences.” Caltex, 344 U.S. at 153, quoting

Pacific Railroad, 120 U.S. at 234. The noncompensability of both damage from

battlefield operations and destruction to avoid enemy capture is a legal first cousin

of the common law’s recognition that “in times of imminent peril – such as when fire

threatened a whole community – the sovereign could, with immunity, destroy the

property of a few that the property of many and the lives of many more could be

saved.” Caltex, 344 U.S. at 154.

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