ALLEY'S OF KINGSPORT, INC et al v. USA

Filing 34

ORDER denying 16 Motion to Dismiss - Rule 12(b)(1) and (6) Signed by Sr. Judge Robert H. Hodges, Jr. (sjv) Copy to parties.

In the United States Court of Federal Claims
No. 11-100C
Filed: February 27, 2012
*

*

*

*

*

*

ALLEY’S OF KINGSPORT, INC., et al.,

*
*

Plaintiffs,

*

v.

*

THE UNITED STATES OF AMERICA,

*

Defendant.

*

*

*

*

*

*

*

Takings Claim Arising from
Troubled Asset Relief Program
(TARP); Motions to Dismiss
Pursuant to RCFC 12(b)(1),
12(b)(6); Jurisdiction;
Jurisdiction Vis-a-Vis Bankruptcy
Court Procedure; Ad Hoc Review;
Penn Central Regulatory Taking;
Lucas Categorical Taking; Unique
Taking Theory

*

Nancie Gail Marzulla, Marzulla Law, LLC, Washington, DC, for plaintiffs.
Brian A. Mizoguchi, Civil Division, United States Department of Justice, Washington, DC, for
defendant.
ORDER AND OPINION
HODGES, Judge.
Plaintiffs are former owners of Chrysler automobile dealerships. They allege an
uncompensated taking of their property rights from the Government’s application of the Troubled
Asset Relief Program (TARP), 12 U.S.C. § 5211.1 According to plaintiffs, the takings occurred
when the Government required Chrysler to terminate dealerships as a condition of obtaining
financial assistance. The dealers’ property rights allegedly taken by the Government were franchise
contracts, ongoing automobile businesses, and automobile dealer rights under state law.2
Defendant filed motions to dismiss for lack of subject matter jurisdiction and for failure to
state a claim for which relief may be granted. For the reasons stated below, we deny both motions.
1

Congress created the Troubled Asset Relief Program (TARP) in response to the global
financial crisis in 2008. The Secretary of the Treasury used TARP to assist banks, brokers,
automakers, and other businesses in danger of failure.
2

A bankruptcy court rejected plaintiffs’ franchise agreements when Chrysler declared
bankruptcy in 2008.

Jurisdiction
Defendant asserted during oral arguments that a bankruptcy court’s ruling that Chrysler was
entitled to reject the dealers’ franchise agreements, prevents this court from hearing the dealers’
takings case against the United States.3 Defendant asserts that the bankruptcy court’s ruling
approving rejection of the dealers’ franchise agreements assumes a finding that no taking could have
occurred, and that ruling is res judicata or otherwise binding on this court.
Defendant likens this case to Allustiarte v. United States, 256 F.3d 1349 (Fed Cir. 2001), in
which the Court of Federal Claims lacked jurisdiction because the facts required that we review
rulings made by a bankruptcy judge about matters involving the bankruptcy itself. This is an entirely
different case. The plaintiff in Allustiarte claimed that malfeasance by a trustee in bankruptcy caused
him losses from a government taking. Id. at 1350-51. The bankruptcy judge had approved the
trustee’s actions. Id. The appeals court held that we lacked jurisdiction because this court could not
review decisions by the bankruptcy court in areas of their own jurisdiction. Id. at 1352.
We are not asked to review bankruptcy court rulings in the administration of a bankruptcy,
but to hear a taking claim against the United States. The better citation for the dealers’ claim in this
case is Boise Cascade v. United States, 296 F.3d 1339 (Fed. Cir. 2002), where the Government
sought and obtained an injunction against the plaintiff to prevent its logging without a permit. The
plaintiff filed suit in the Court of Federal Claims, alleging that the injunction resulted in a taking of
Boise Cascade’s property. Id. at 1344. The Government argued in that case that Allustiarte
precluded jurisdiction in this court for the same reasons it has offered here. Id. The Federal Circuit
distinguished Boise Cascade from Allustiarte. Id. at 1344-45. Whether the injunction caused a
taking of Boise Cascade’s property “was not before the district court, nor could it have been,” the
appeals court emphasized. Id. at 1344. The court could not have found it necessary to review a
district court ruling because the district court could not have had a taking issue before it. There as
here, this court is the only forum available to hear takings claims at the federal trial level.

3

Had a bankruptcy court attempted to bind this court by legal or factual rulings on a
takings issue, it would have been acting outside its own jurisdiction. That did not happen,
however. Here is the bankruptcy court’s opinion with regard to an alleged taking, in its entirety:
[T]he Objection that the rejection [of dealers’ contracts] constitutes a violation of the
Fifth Amendment is without merit because the [agreement] was a contract between
[Chrysler] and [the automobile dealers]. A lien in some collateral that is property of
the estate is a necessary prerequisite to a Fifth Amendment Takings Clause claim in
the bankruptcy context.
In re Old Carco LLC, 406 B.R. 180, 211 (Bankr. S.D.N.Y. 2009) (emphasis added) (citations
omitted). The bankruptcy court properly limited its ruling to takings claims “in the bankruptcy
context.”
2

The dealers’ takings issue before the bankruptcy judge was limited to the court’s rejection
of their Chrysler franchises. The bankruptcy court held they could not make such an argument
because they were unsecured creditors; only secured creditors may argue a taking in bankruptcy
court. This is a rule of law in the bankruptcy court, and its application is within the province of the
bankruptcy court.
Other rulings related to Chrysler’s rejection of the dealers’ contracts were (1) denial of the
dealers’ claims to Chrysler’s trademarks because “[t]rademarks are not ‘intellectual property’ under
the Bankruptcy Code.”; (2) denial of the dealers’ claims that rejection of their franchise agreements
was a violation of the First Amendment, which the court termed “without merit and far afield”; (3)
denial of the dealers’ claims that Chrysler violated their automatic stays, also “without merit”; and
(4) denial of the dealers’ claims to rights under State Dealer Statutes, which the court ruled was
“preempted by the Bankruptcy Code.” In re Old Carco LLC, 406 B.R. 180, 211-12 (Bankr.
S.D.N.Y. 2009).
Bankruptcy court rulings regarding First and Fifth Amendment claims, federal preemption
of conflicting state laws, and stays in bankruptcy, provide context for the judge’s ruling on alleged
takings within the bankruptcy process. These are procedural rulings handled routinely by the
bankruptcy court according to the claims of creditors and the needs of debtors. The court’s
consideration of takings claims in bankruptcy was only a part of this process.
The dealer-plaintiffs in this case allege a taking against the United States. They do not
contest decisions of the bankruptcy judge. They do not ask that we review those decisions. Instead,
they complain that the Government’s alleged control of the TARP restructuring process resulted in
a Fifth Amendment taking as defendant applied TARP to the automobile industry. This court’s
jurisdiction to hear and adjudicate takings claims against the United States is undisputed. See, e.g.,
Lion Raisins, Inc. v. United States, 416 F.3d 1356, 1362 (Fed. Cir. 2005) (“The Tucker Act broadly
provides jurisdiction for ‘any claim against the United States founded . . . upon the Constitution.’
This includes on its face all takings claims against the United States.” (quoting 28 U.S.C. §
1491(a)(1))).
The bankruptcy court’s taking decision was a matter internal to bankruptcy procedure; i.e.,
whether an unsecured creditor could argue a taking to prevent rejection of a creditor’s contract. The
judge’s taking ruling in the Chrysler bankruptcy was incidental or unrelated to the taking alleged in
this court.
Failure to State a Claim
Defendant’s motion to dismiss for failure to state a claim is also based on rulings of the
bankruptcy court. For example, defendant argues that plaintiffs lack a property interest that can be
taken because their franchise agreements were unsecured in the bankruptcy proceeding. In re Old
Carco, 406 B.R. at 211. Rule of bankruptcy law prevents unsecured creditors from arguing takings
in bankruptcy court; it has no application to this court’s jurisdiction of Fifth Amendment takings
claims against the United States.
3

Defendant relies on other bankruptcy court rulings to argue that plaintiffs have not stated a
proper claim in this court. For example, defendant contends that the Government acted as any lender
of last resort would in a bankruptcy proceeding, and therefore it could not be responsible for a taking.
This is based on the bankruptcy judge’s findings that the United States did not control Chrysler for
purposes of the Bankruptcy Code, and that decisions relating to the bankruptcy proceeding were
made by Chrysler in an exercise of their own business judgment. In re Chrysler LLC, 405 B.R. 84,
107-08 (Bankr. S.D.N.Y. 2009). We have no reason to question those findings of the bankruptcy
court, but they are irrelevant to the takings claims in the Court of Federal Claims. The findings were
prerequisites to the bankruptcy court’s approval of Chrysler’s rejection of the dealers’ franchise
agreements. Id.4
Plaintiffs contend that the Government used TARP assistance to force its vision for the
Chrysler restructure prior to and outside of the automaker’s bankruptcy proceedings. The bankruptcy
proceedings were separate and apart from the issues before this court. So far as plaintiffs are
concerned, the Chrysler bankruptcy was an irrelevant and complicating event. Bankruptcy court
rulings should not be used by defendant to prevent plaintiffs from pursuing their takings claims in
this court. Defendant’s alleged involvement in and control of Chrysler’s bankruptcy proceedings
may or may not be important or even relevant in this case. Regardless, the Government cannot use
rulings issued in a bankruptcy proceeding to control prospective legal and factual findings in the
Court of Federal Claims in a separate proceeding involving different causes of action.
Takings Theories
The dealers present unusual allegations that nevertheless create the prima facie feel of a
takings case warranting just compensation. We are not aware of a takings theory that resembles the
legal and factual theories offered so far, however. Counsel have advised us of none. The theory
under which plaintiffs hope to recover does not fit neatly into a normal takings framework.
However, the Supreme Court acknowledged that it has not been able “to develop any ‘set formula’”
for recognizing a taking by the Government. Penn Cent. Transp. Co. v. City of New York, 438 U.S.
104, 124 (1978) (quoting Goldblatt v. Hempstead, 369 U.S. 590, 594 (1962)). For that reason, each
case must be determined by the trial court on an “essentially ad hoc” basis. Id.
Plaintiffs may survive a motion to dismiss for failure to state a claim if their Complaint
contains enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “[A] well-pleaded complaint may proceed even if it appears
‘that a recovery is very remote and unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232,

4

The bankruptcy court also determined that Chrysler complied with its fiduciary duties,
so the debtor could sell its assets, In re Chrysler, 405 B.R. at 104-05, and it analyzed whether
governmental entities could be good faith purchasers of those assets. Id. at 106-08 (“[A] finding
that a purchaser acted in good faith protects the finality of a sale that has been authorized even if
it is reversed on appeal.”). Such findings were important to the resolution of Chrysler’s
bankruptcy, but for the most part, they have no binding application to this case.
4

236 (1974)). The court must assume the truth of all well-pleaded factual allegations and draw
reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).
Plaintiffs’ burden of moving forward at this stage is minimal.
The dealers offered a regulatory takings theory during oral arguments, but the takings
framework established in Penn Central may not be an appropriate means of analyzing plaintiffs’
claims in this unusual case. See Penn Central, 438 U.S. at 124.5 Categorical takings were the focus
of plaintiffs’ briefs. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). Takings
that fall within the Lucas framework arise where the application of state or federal regulations results
in the destruction of all reasonable value. See Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l
Planning Agency, 535 U.S. 302, 330 (2002) (stating that the categorical rule arising from Lucas “is
required when a regulation deprives an owner of ‘all economically beneficial uses’ of his land”
(quoting Lucas, 505 U.S. at 1019)). Lucas cases thus far have involved takings of real property. See
Hawkeye Commodity Promotions, Inc. v. Vilsack, 486 F.3d 430, 441 (8th Cir. 2007) (“[I]t appears
that Lucas protects real property only.”); Unity Real Estate Co. v. Hudson, 178 F.3d 649, 674 (3d
Cir. 1999) (“[T]he categorical approach has only been used in real property cases.”).
The United States Supreme Court has stressed the importance of considering takings
arguments according to surrounding events and circumstances. See, e.g., Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419, 426 (1982). The Court anticipated that unique cases would
arise; it wrote, “[o]rdinarily, the Court must engage in ‘essentially ad hoc, factual inquiries.’” Id.
(quoting Penn Central, 438 U.S. at 124). The Supreme Court addressed the complex nature of Fifth
Amendment claims in Penn Central:
The question of what constitutes a ‘taking’ for purposes of the Fifth Amendment has
proved to be a problem of considerable difficulty. While this Court has recognized
that the ‘Fifth Amendment’s guarantee . . . [is] designed to bar Government from
forcing some people alone to bear public burdens which, in all fairness and justice,
should be borne by the public as a whole,’ this Court, quite simply, has been unable
to develop any ‘set formula’ for determining when ‘justice and fairness’ require that
economic injuries caused by public action be compensated by the government, rather
than remain disproportionately concentrated on a few persons. Indeed, we have
frequently observed that whether a particular restriction will be rendered invalid by
the government’s failure to pay for any losses proximately caused by it depends
largely ‘upon the particular circumstances [in that] case.’
Penn Central, 438 U.S. at 123-24 (citations omitted); see also PruneYard Shopping Center v.
Robins, 447 U.S. 74, 83 (1980); Kaiser Aetna v. United States, 444 U.S. 164, 175 (1979).

5

The Penn Central Court identified “several factors that have particular significance” in
determining whether a taking in fact occurred. These factors include (1) the character of the
government action, (2) its economic impact, and (3) its interference with reasonable, investmentbacked expectations.
5

The Court’s language implies that a trial court’s review of taking complaints may disclose
unique allegations, and in turn, unique findings. Plaintiffs should have the opportunity to develop
a case that may turn out to be unique. See 120 Delaware Ave., LLC v. United States, 95 Fed. Cl. 627,
632 (2010) (“The novelty of these issues and the divergence of possible analytical approaches are
further reasons for allowing Plaintiff to pursue this action beyond the pleading stage.”). Neither the
Supreme Court nor the Court of Appeals for the Federal Circuit has limited takings cases to strict
or formulaic theories at the pleading stage. Plaintiffs may discover evidence pretrial that helps to
develop a previously unknown taking theory of the type the Supreme Court urged us to consider “ad
hoc,” and apply “the particular circumstances [of that] case.” Penn Central, 438 U.S. at 124. Such
a possibility demands rejection of defendant’s motion to dismiss on the pleadings as premature.6
Defendant’s motions to dismiss for lack of subject matter jurisdiction and for failure to state
a claim for which relief may be granted are DENIED. Counsel may contact the court at any time for
assistance with discovery, or to discuss their progress otherwise.
IT IS SO ORDERED.

s/Robert H. Hodges, Jr.
Robert H. Hodges, Jr.
Judge

6

Other theories that may be under consideration by plaintiffs include the possibility that
plaintiffs’ loss of personal property was the direct, natural, or probable result of the
Government’s actions, see Cary v. United States, 552 F.3d 1373, 1379 (Fed. Cir. 2009)
(analyzing inverse condemnation as a taking theory); government-agent taking by Chrysler,
whereby the United States takes private property through agents, see Lion Raisins, 416 F.3d at
1363 (“[W]hen separate corporate entities act for the United States, the United States is liable for
their takings.”); and “regulation by deal,” see Steven M. Davidoff & David Zaring, Regulation by
Deal: The Government’s Response to the Financial Crisis, 61 Admin. L. Rev. 463, 536, 541
(2009) (“[R]egulation by deal is yet another example of administration through an alternative to
the traditional administrative law. . . . [I]n future emergencies the government may manage its
authority limitations through regulation by other means when it is unable to turn to a legislative
response due to political, timing, or other constraints. This may be regulation by deal.”).
6