Piszel v. United States

In the United States Court of Federal Claims
No. 14-691C
(Filed: June 12, 2015)
)
ANTHONY PISZEL, )
)
Plaintiff, )
) Rule 12(b)(1); Subject-Matter
v. ) Jurisdiction; Rule 12(b)(6); Failure to
) State a Claim; Fifth Amendment Takings;
THE UNITED STATES, ) Illegal Exaction.
)
Defendant. )
)
William E. Donnelly, Murphy & McGonigle, P.C., Washington, D.C., James K.
Goldfarb, and Michael V. Rella, Murphy & McGonigle, P.C., New York, N.Y., Attorneys for
Plaintiff.
David A. Harrington, Senior Trial Counsel, Franklin E. White, Jr., Assistant Director,
Robert E. Kirschman, Jr., Director, Christopher C. Mizer, Acting Assistant Attorney General,
Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington,
D.C., Attorneys for Defendant, and Michael Sitcov, Federal Housing Finance Agency, of
Counsel, Washington, D.C.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
Plaintiff, Anthony Piszel, brought this action alleging an illegal exaction and contract-
based takings of his severance compensation under an employment agreement with the Federal
Home Loan Mortgage Corporation, in violation of the Fifth Amendment of the United States
Constitution. The government has moved to dismiss plaintiff’s claims for lack of subject-matter
jurisdiction and for failure to state a claim, pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules
of the United States Court of Federal Claims (“RCFC”). For the reasons set forth below, the
government’s motion to dismiss is GRANTED.
II. FACTUAL AND PROCEDURAL BACKGROUND1
A. Factual Background
Plaintiff, Anthony Piszel, is the former Chief Financial Officer of the Federal Home Loan
Mortgage Corporation (“Freddie Mac”). Compl. at ¶ 1. Prior to joining Freddie Mac in 2006,
plaintiff accrued $8.1 million in unpaid compensation from his former employer. Id. at ¶¶ 2, 16.
As an incentive to join Freddie Mac and to forego this compensation, Freddie Mac offered to
provide plaintiff with certain employment benefits if he were to be terminated from his job
without cause during the first four years of his employment. Id. at ¶ 4, 22-25. Specifically,
plaintiff’s employment agreement provided that, should he be terminated without cause, plaintiff
would receive a lump sum cash payment and certain restricted stock units awarded to plaintiff
would be allowed to continue to vest. Id.
Freddie Mac is a government-sponsored enterprise (“GSE”). See 12 U.S.C. §§ 1451-
1459 (2008). In 1992, Congress established the Office of Federal Housing Enterprise Oversight
(“OFHEO”) to regulate Freddie Mac, pursuant to the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (“Safety and Soundness Act”). Compl. at ¶ 11. Since that
time, Freddie Mac has been subject to regulatory oversight and the potential for conservatorship.
See Federal Housing Enterprises Financial Safety and Soundness Act of 1992, Pub. L. No. 102–
550, §§ 1301–95, 106 Stat. 3672, 3941–4012; 12 U.S.C. § 4617(b) (1992) (establishing
OFHEO). OFHEO, acting in its capacity as the regulatory agency for Freddie Mac, reviewed
and approved plaintiff’s employment agreement in 2006. Compl. at ¶¶ 5, 21.
In response to great economic turmoil within the national housing market, Congress
enacted the Housing and Economic Recovery Act (“HERA”) on July 30, 2008, to provide for
greater regulatory authority over the housing sector. See Housing and Economic Recovery Act
of 2008, Pub. L. No. 110-289, 122 Stat. 2654; 42 U.S.C. § 4501 et seq. HERA, among other
things, replaced OFHEO with the newly created Federal Housing Finance Agency (“FHFA”).
1
The facts recounted in this Memorandum Opinion and Order are taken from the plaintiff’s
complaint cited in this Memorandum Opinion and Order as (“Compl. at ___”), the defendant’s
motion to dismiss (“Def. Mot. at __”), plaintiff’s opposition to the motion to dismiss (“Pl. Opp.
at __”), and defendant’s reply (“Def. Rep. at __”). For the purpose of this Memorandum
Opinion and Order, the Court accepts all undisputed facts in the plaintiff’s complaint as true.
2
Compl. at ¶ 36. HERA also gave the Director of FHFA expanded authority to prohibit or limit
any golden parachute or indemnification payment to senior executives who were employed by
Freddie Mac and expanded the government’s authority to place Freddie Mac into
conservatorship. Compl. at ¶¶ 38-39; see also 12 U.S.C. § 4518(e)(l).
With these new authorities in hand, the FHFA placed Freddie Mac into conservatorship
on September 7, 2008. Compl. at ¶ 7. The following week, the Director of FHFA promulgated
regulations setting forth the factors to be taken into account when seeking to limit or prohibit
golden parachute payments under employment agreements with Freddie Mac. Compl. at ¶¶ 41,
44; see also 12 C.F.R. § 1231.5.
On September 28, 2008, the Director of FHFA instructed Freddie Mac to terminate
plaintiff without cause and to withhold plaintiff’s severance compensation. Compl. at ¶¶ 52-54.
Freddie Mac complied with this directive. Id. at ¶ 55. At the time of his termination, plaintiff
received 19,735 of the 78,940 restricted stocks units granted under his employment agreement.
Id. at ¶ 56. Plaintiff has not received the remainder of severance compensation called for under
his employment agreement. Id. at ¶¶ 8, 55-57.
B. Procedural Background
On August 1, 2014, plaintiff commenced this action alleging an unconstitutional takings
without just compensation of his property rights under his employment agreement with Freddie
Mac, in violation of the Fifth Amendment. Id. at ¶ 69. Alternatively, plaintiff alleges that the
government illegally exacted his property rights in violation of HERA and the Due Process
Clause of the Fifth Amendment. Id. at ¶ 71.
On November 25, 2014, the government moved to dismiss plaintiff’s complaint for lack
of subject-matter jurisdiction and for failure to state a claim upon which relief can be granted,
pursuant to RCFC 12(b)(1) and 12(b)(6). See generally Def. Mot. On January 30, 2015,
plaintiff filed his opposition to defendant’s motion to dismiss. See generally Pl. Opp. The
3
government filed its reply brief on March 10, 2015. See generally Def. Rep. The Court held oral
argument on the government’s motion on June 2, 2015.2
III. LEGAL STANDARDS
A. Jurisdiction and RCFC 12(b)(1)
The United States Court of Federal Claims is a court of limited jurisdiction and the Court
“possess[es] only that power authorized by Constitution and statute.” Kokkonen v. Guardian
Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Under the Tucker Act, the Court has limited
jurisdiction to adjudicate “any claim against the United States founded either upon the
Constitution, or any Act of Congress or any regulation of an executive department, or upon any
express or implied contract with the United States, or for liquidated or unliquidated damages in
cases not sounding in tort.” 28 U.S.C. § 1491(a)(1) (2011). The Tucker Act, however, is “a
jurisdictional statute; it does not create any substantive right enforceable against the United
States for money damages . . . the Act merely confers jurisdiction upon [the United States Court
of Federal Claims] whenever the substantive right exists.” United States v. Testan, 424 U.S. 392,
398 (1976). To pursue a substantive right under the Tucker Act, a plaintiff must identify and
plead a claim founded upon an independent contractual relationship, Constitutional provision,
federal statute, and/or executive agency regulation that provides a substantive right to money
damages. See Todd v. United States, 386 F.3d 1091, 1094 (Fed. Cir. 2004) (“[J]urisdiction under
the Tucker Act requires the litigant to identify a substantive right for money damages against the
United States separate from the Tucker Act itself.”); see also Fisher v. United States, 402 F.3d
1167, 1172 (Fed. Cir. 2005) (en banc) (“The Tucker Act . . . does not create a substantive cause
of action; . . . a plaintiff must identify a separate source of substantive law that creates the right
to money damages. . . .”). Specifically, a plaintiff must demonstrate that the source of
substantive law upon which he relies “can fairly be interpreted as mandating compensation by
the Federal Government . . . .” Testan, 424 U.S. at 400 (internal citation omitted).
When deciding a motion to dismiss based upon a lack of subject-matter jurisdiction
pursuant to RCFC 12(b)(1), this Court must assume that all undisputed facts alleged in the
2
References to the transcript from the oral argument held on June 2, 2015 are cited as (“Tr. at
__”).
4
complaint are true and must draw all reasonable inferences in the non-movant’s favor. See
Erickson v. Pardus, 551 U.S. 89, 94 (2007). But, plaintiff bears the burden of establishing
subject-matter jurisdiction, Alder Terrace, Inc. v. United States, 161 F.3d 1372, 1377 (Fed. Cir.
1998), and he must do so by a preponderance of the evidence. Reynolds v. Army & Air Force
Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988) (citations omitted). Should the Court determine
that “it lacks jurisdiction over the subject matter, it must dismiss the claim.” Matthews v. United
States, 72 Fed. Cl. 274, 278 (2006).
B. Rule 12(b)(6)
When deciding a motion to dismiss based upon a failure to state a claim pursuant to
RCFC 12(b)(6), this Court must assume that all undisputed facts alleged in the complaint are true
and must draw all reasonable inferences in the non-movant’s favor. See Erickson, 551 U.S. at
94. And so, to survive a motion to dismiss under RCFC 12(b)(6), a complaint must contain facts
sufficient to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In ABB Turbo
Systems AG v. TurboUSA, Inc., the Federal Circuit explained the interplay between RCFC
8(a)(2) and RCFC 12(b)(6), which “together establish a notice-pleading standard that is applied,
in a context-specific manner, with the recognition that the imposition of litigation costs must be
justified at the threshold by the presence of factual allegations making relief under the governing
law plausible, not merely speculative.” 774 F.3d 979, 984 (Fed. Cir. 2014). RCFC 8(a)(2)
requires that a plaintiff provide a “short and plain statement of the claim showing that the pleader
is entitled to relief,” so that the complaint provides fair notice of the nature of claim and the
grounds upon which it rests. RCFC 8(a)(2); see also Twombly, 550 U.S. at 555. Where the
complaint fails to “‘state a claim to relief that is plausible on its face,’” the Court must dismiss
the complaint. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). On the other hand,
“[w]hen there are well-pleaded factual allegations, a court should assume their veracity,” and
determine whether it is plausible, based on these facts, to find against the defendant. Iqbal, 556
U.S. at 664, 678-79 (“A claim has facial plausibility when the . . . plead[ed] factual
content . . . allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged”).
5
C. Illegal Exaction and Fifth Amendment Takings
1. Illegal Exaction
This Court has recognized that an illegal exaction occurs when a “‘plaintiff has paid
money over to the [g]overnment, directly or in effect, and seeks return of all or part of that sum’
that ‘was improperly paid, exacted, or taken from the claimant in contravention of the
Constitution, a statute, or a regulation.’” Aerolineas Argentinas v. United States, 77 F.3d 1564,
1572-73 (Fed. Cir. 1996) (quoting Eastport S.S. Corp. v. United States, 372 F.2d 1002, 1007 (Ct.
Cl. 1967)). And so, to assert a valid illegal exaction claim, a plaintiff must show that: (1) money
was taken by the government and (2) the exaction violated a provision of the Constitution, a
statute, or a regulation. Andres v. United States, No. 03-2654, 2005 WL 6112616, at *2 (July 28,
2005). The Federal Circuit has recognized that “the Tucker Act provides jurisdiction to recover
an illegal exaction by government officials when the exaction is based on an asserted statutory
power.” Aerolineas, 77 F.3d at 1573. This Court recognizes that an illegal exaction occurs when
“the Government has the citizen’s money in its pocket.” Clapp v. United States, 127 Ct. Cl. 505,
512 (1954). In such circumstances, an action can be maintained under the Tucker Act to recover
the money exacted. Aerolineas, 77 F.3d at 1573.
2. Fifth Amendment Takings
The Takings Clause of the Fifth Amendment guarantees just compensation whenever
private property is “taken” for public use. U.S. Const. amend. V. The purpose of the Fifth
Amendment is to prevent the “[g]overnment from forcing some people alone to bear public
burdens which, in all fairness and justice, should be borne by the public as a whole.” Penn
Central Transp. Co. v. City of New York, 438 U.S. 104, 123 (1978) (quoting Armstrong v. United
States, 364 U.S. 40, 49 (1960)); see also Florida Rock Indus., Inc. v. United States, 18 F.3d
1560, 1571 (Fed. Cir. 1994).
In order to have a cause of action for a Fifth Amendment takings, the plaintiff must point
to a protectable property interest that is asserted to be the subject of the takings. See Phillips v.
Wash. Legal Found., 524 U.S. 156, 164 (1998) (“Because the Constitution protects rather than
creates property interests, the existence of a property interest is determined by reference to
‘existing rules or understandings that stem from an independent source such as state law.’”)
(citation omitted). Contract rights can be the subject of a takings action. See, e.g., Lynch v.
6
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.”); see also United States v. Petty
Motor Co., 327 U.S. 372, 380-81 (1946) (holding that plaintiff was entitled to compensation for
government’s takings of option to renew a lease).
Courts have traditionally divided their analysis of Fifth Amendment takings into two
categories−regulatory takings and physical takings. The United States Court of Appeals for the
Federal Circuit has recognized that “[g]overnment action that does not directly appropriate or
invade, physically destroy, or oust an owner from property but is overly burdensome may be a
regulatory taking.” A & D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1151 (Fed. Cir.
2014). In assessing whether a regulatory takings has occurred, courts generally employ the
balancing test set forth in Penn Central, weighing the character of the government action, the
economic impact of that action and the reasonableness of the property owner’s investment-
backed expectations. Penn Central Transp. Co., 438 U.S. at 124-25. “The general rule at least is
that while property may be regulated to a certain extent, if regulation goes too far it will be
recognized as a taking.” Penn. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922); see also Lingle v.
Chevron U.S.A. Inc., 544 U.S. 528, 537 (2005) (regulation is a takings if it is “so onerous that its
effect is tantamount to a direct appropriation or ouster”).
Regulations that are found to be too restrictive, so that the regulations deprive property of
its entire economically beneficial or productive use, are viewed as categorical takings. Lucas v.
S.C. Coastal Council, 505 U.S. 1003, 1015 (1992); see also A & D Auto Sales, 748 F.3d at 1151-
52. Categorical takings do not require the application of the Penn Central balancing test. Id. at
1152. The Supreme Court has mainly applied the categorical test to regulatory takings of real
property. See Lucas, 505 U.S. at 1015–19. In A & D Auto Sales, the United States Court of
Appeals for the Federal Circuit noted that it has at times applied the categorical test to tangible
personal property as well. 748 F.3d at 1151-52 (citing Rose Acre Farms, Inc. v. United States,
373 F.3d 1177, 1196–98 (Fed. Cir. 2004)); see also Maritrans, Inc. v. United States, 342 F.3d
1344, 1353–55 (Fed. Cir. 2003).3
3
The United States Court of Appeals for the Federal Circuit has not yet addressed the question
of whether the categorical takings test may apply to takings of intangible property, such as
contract rights. See A & D Auto Sales, 748 F.3d at 1152.
7
In contrast, physical or per se takings occur when the government’s action amounts to a
physical occupation or invasion of the property, including the functional equivalent of “a
practical ouster of [the property owner’s] possession.” Transportation Company v. Chicago, 99
U.S. 635, 642 (1878); see also Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419
(1982). When an owner has suffered a physical invasion of his property, the Supreme Court has
noted that “no matter how minute the intrusion, and no matter how weighty the public purpose
behind it, we have required compensation.” Lucas, 505 U.S. at 1015. The distinction between a
physical invasion and a governmental activity that merely impairs the use of that property turns
on whether the intrusion is “so immediate and direct as to subtract from the owner’s full
enjoyment of the property and to limit his exploitation of it.” United States v. Causby, 328 U.S.
256, 265 (1946).
IV. DISCUSSION
A. Plaintiff Fails to State a Plausible Illegal Exaction Claim
In the complaint, plaintiff alleges that the government illegally exacted the severance
compensation in his employment agreement when the FHFA terminated his employment.
Compl. at ¶¶ 60-65. The government argues that the Court should dismiss this claim for three
reasons: (1) the government has not exacted any money from plaintiff; (2) plaintiff’s claim is
precluded because his breach of contract claim against Freddie Mac has lapsed;4 and (3) plaintiff
asserts an Administrative Procedure Act claim to review the FHFA’s termination decision, which
falls outside the jurisdiction of this Court. Def. Mot. at 6-10. For the reasons discussed below,
dismissal of plaintiff’s illegal exaction claim is appropriate.
It is well-established that this Court lacks jurisdiction to consider claims brought pursuant
to the Administrative Procedure Act (“APA”). Lawrence v. United States, 69 Fed. Cl. 550, 554
(2006). The Court does not, however, construe plaintiff’s claim as a claim seeking judicial
review under the APA. In his complaint, plaintiff alleges that the FHFA unlawfully exacted his
4
While the Court finds that plaintiff fails to state a plausible illegal exaction claim, the Court
does not agree with the government’s argument that this claim is precluded because plaintiff
allowed a potential breach of contract claim against Freddie Mac to lapse. See Def. Mot at 8-9.
The government cites to no legal authority for this novel proposition. Moreover, plaintiff can
certainly pursue alternative legal remedies regarding the termination of his employment
agreement.
8
rights to severance compensation under his employment agreement. Id. The Court has long
exercised jurisdiction over illegal exaction claims. See, e.g., Aerolineas, 77 F.3d at 1572-73
(citing Eastport S.S. Corp., 372 F.2d at 1007). And so, it is appropriate for the Court to examine
whether plaintiff’s complaint states a plausible illegal exaction claim. RCFC 12(b)(6).
A plain reading of the complaint shows that plaintiff fails to state a plausible illegal
exaction claim. An illegal exaction occurs where a “‘plaintiff has paid money over to the
[g]overnment, directly or in effect, and seeks return of all or part of that sum’ that ‘was
improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a
statute, or a regulation.’” Aerolineas, 77 F.3d at 1572-73 (quoting Eastport S.S. Corp., 372 F.2d
at 1007). And so, to assert a valid legal exaction claim here, plaintiff must show that: (1) money
was taken by the government and (2) the exaction violated a provision of the Constitution, a
statute, or a regulation. Andres, 2005 WL 6112616, at *2.
Here, plaintiff alleges that the FHFA’s directive to terminate him without paying the
severance compensation called for in his employment agreement constitutes an illegal exaction,
in violation of HERA and the Due Process Clause of the Fifth Amendment. Compl. at ¶¶ 60, 71.
Plaintiff concedes that he has not paid any money over to the government directly. See generally
Complaint. And so, to state a plausible illegal exaction claim, plaintiff must show that he has
paid money to the government “in effect.” Bowman v. United States, 35 Fed. Cl. 397, 401
(1996). Plaintiff cannot make such a showing.
This Court has recognized an “in effect” illegal exaction in two distinct situations: First,
an “in effect” illegal exaction can occur when the government requires a plaintiff to make a
payment on its behalf to a third-party. For example, in Aerolineas, the United States Court of
Appeals for the Federal Circuit held that where the government required an airline to make
payments that by law the Immigration and Naturalization Service was obligated to make, the
government has “in its pocket” money corresponding to the payments that were the
government’s statutory obligation to make. Aerolineas, 77 F.3d at 1573-74. Second, an “in
effect” illegal exaction can also occur when the government exacts property which it later sells
and for which it receives money. For example, this Court held in Bowman that money received
by the government for the sale of property it had taken from a plaintiff constitutes an illegal
exaction “in effect.” Bowman, 35 Fed. Cl. at 401 (stating that “cases such as the instant one—
9
where the [g]overnment exacts property which it later sells and for which it receives money—
must necessarily qualify for consideration under the established illegal exaction jurisdiction”).
Neither of those situations are present here. Rather, plaintiff seeks to recover under an
illegal exaction theory based upon the premise that the government failed to pay him severance
compensation provided for under his employment agreement. See Compl. at ¶ 75. As this Court
noted in an analogous case, if the plaintiff’s theory of illegal exaction was correct, then “[e]very
successful back pay claim this Court hears could also be characterized as an illegal exaction . . .
[t]he same could be said of a breach of contract claim, as the [g]overnment would be holding the
money it allegedly owed the government contractor in its pocket.” Andres, 2005 WL 6112616,
at *3. (“[W]hat distinguishes an illegal exaction from a back pay or breach of contract claim[ ] is
that in an illegal exaction case the claimant has paid money over to the [g]overnment that he
once had in his pocket, and in a back pay or breach of contract claim the claimant is seeking
payment of money the claimant has never received.”). Id. Because plaintiff cannot show that he
has paid any money to the government directly or “in effect,” he fails to state a plausible illegal
exaction claim in the complaint.
B. Plaintiff Fails to State a Plausible Takings Claim
Plaintiff similarly fails to state a valid takings claim in his complaint. Plaintiff alleges
that the FHFA’s directive to terminate him without honoring the severance compensation terms
of his employment agreement constitutes a takings without just compensation. Compl. at ¶ 69.
In moving to dismiss this claim, the government offers five lines of defense: First, the
government argues that plaintiff’s contract-based takings claim is jurisdictionally barred by his
lapsed contract remedies. Def. Mot. at 25-27. Second, the government maintains that plaintiff
has no cognizable property interest in the severance payment terms of his employment
agreement. Def. Mot. at 13-20. Third, the government argues that plaintiff fails to show that he
had a reasonable investment-backed expectation that Freddie Mac would honor the severance
payment terms of his employment agreement. Def. Mot. at 20-23; Def. Rep. at 7-8. Fourth, the
government maintains that the FHFA’s actions merely frustrated plaintiff’s employment
agreement and, therefore, could not effectuate a taking. Def. Mot. at 23-24. Finally, the
government argues that plaintiff fails to allege that the government’s actions in enacting and
10
implementing HERA were unauthorized. Def. Mot. at 11-13. For the reasons discussed below,
the Court agrees that dismissal of plaintiff’s takings claim is warranted.
1. Plaintiff’s Contract Remedies Do Not Foreclose His Takings Claim
As an initial matter, plaintiff’s alternative contract remedies against Freddie Mac do not
bar his takings claim. In its motion to dismiss, the government relies upon United States v.
Sherwood, 312 U.S. 584 (1941), to seek dismissal of plaintiff’s takings claim, because plaintiff
allowed his breach of contract claim against Freddie Mac to lapse. Def. Mot. at 25-27. The
government’s reliance upon Sherwood is misplaced.
In Sherwood, the Supreme Court recognized that this Court is without jurisdiction to
consider a suit brought against private parties.5 But here, plaintiff’s constitutional claims are
appropriately brought against the government and Freddie Mac is not a necessary party to this
action. It is well-established that this Court has jurisdiction over takings claims brought pursuant
to the Constitution. See, e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1020 (1984); see also
28 U.S.C. § 1491(a)(1) (Under the Tucker Act, the Court has jurisdiction to adjudicate “any
claim against the United States founded either upon the Constitution, or any Act of Congress or
any regulation of an executive department . . . .”). And so, plaintiff’s takings claim is not
jurisdictionally barred because he could have pursued breach of contract remedies against
Freddie Mac.6
5
In Sherwood, a judgment creditor sought to sue the federal government under the Tucker Act to
recover damages for breach of a contract that the government entered into with his judgment
debtor. Because the Supreme Court found that the judgment debtor would have been a necessary
party to those proceedings, the Supreme Court held that such a lawsuit was not within the
jurisdiction of the Tucker Act. 312 U.S. at 588-89.
6
The government also errs in relying upon Castle v. United States, 48 Fed. Cl. 187, 218 (2000),
affirmed in relevant part, 301 F.3d 1328 (Fed. Cir. 2002), to argue that plaintiff fails to state a
valid takings claim because of his lapsed contract remedies. Def. Mot. at 26. As this Court
noted in Century Exploration New Orleans, Inc. v. United States, 103 Fed. Cl. 70, 77 (2012),
“the Federal Circuit did not hold in Castle that a plaintiff is precluded from raising a takings
claim when its asserted property rights were created by contract; rather, the court merely held
that the plaintiffs in that particular case had failed to demonstrate the existence of a compensable
property right under the contract.” Id.
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2. Plaintiff Has No Cognizable Property Interest in His Employment
Agreement
While plaintiff’s takings claim is not jurisdictionally barred, he fails to state a plausible
takings claim. In its motion to dismiss, the government argues that plaintiff has no cognizable
property interest in his employment agreement because plaintiff’s private contractual rights stand
on more fragile footing than tangible property interests under the takings analysis and because
plaintiff voluntarily entered into his employment agreement with the understanding that he
would be working in a highly-regulated industry. Def. Mot. at 14-15. The Court must agree.
It is well established that “the existence of a valid property interest is necessary in all
takings claims.” Wyatt v. United States, 271 F.3d 1090, 1097 (Fed. Cir. 2001). As a result, a
threshold element of a takings claim is whether a plaintiff has a cognizable property interest for
purposes of the Fifth Amendment. Am. Pelagic Fishing Co. L.P. v. United States, 379 F.3d
1363, 1372 (Fed. Cir. 2004). If a plaintiff cannot prove that he held a protected property interest,
his takings claim must fail. Webster v. United States, 74 Fed. Cl. 439, 446 (2006) (citing Wyatt,
271 F.3d at 1096 (Fed. Cir. 2001)).
In this regard, this Court has long recognized that valid contracts are property. See, e.g.,
Lynch, 292 U.S. at 579; see also U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 19 n. 16
(1977) (“Contract rights are a form of property and as such may be taken for a public purpose
provided that just compensation is paid.”). Nonetheless, background principles derived from
legislation enacted prior to the execution of a contract “‘define the range of interests that qualify
for protection as “property” under the Fifth’” Amendment. Perry Capital LLC v. Lew, No. CV
13-1025 (RCL), 2014 WL 4829559, at *20 (D.D.C. Sept. 30, 2014) (quoting Lucas v. S. C.
Coastal Council, 505 U.S. 1003, 1028–30 (1992)); see also Hearts Bluff Game Ranch, Inc. v.
United States, 669 F.3d 1326, 1330 (Fed. Cir. 2012) (“Where a citizen voluntarily enters into an
area which from the start is subject to pervasive Government control, a property interest is likely
lacking.”).
The Supreme Court has long recognized that “the ‘right to exclude’ is doubtless . . . ‘one
of the most essential sticks in the bundle of rights that are commonly characterized as property.’”
Yee v. City of Escondido, Cal., 503 U.S. 519, 528 (1992) (quoting Kaiser Aetna v. United States,
444 U.S. 164, 176 (1979). And so, while “‘[c]ontracts may create rights of property . . . when
12
contracts deal with a subject matter which lies within the control of Congress, they have a
congenital infirmity.’” Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223-24 (1986)
(“‘Contracts, however express, cannot fetter the constitutional authority of Congress. . . . Parties
cannot remove their transactions from the reach of dominant constitutional power by making
contracts about them.’”) (quoting Norman v. Balt. & Ohio R.R. Co., 294 U.S. 240, 307-08
(1935)).
The United States Court of Appeals for the Federal Circuit has twice held that the
shareholders of statutorily regulated financial institutions lacked the requisite property interests
to support a takings claim. Golden Pacific Bancorp v. United States, 15 F.3d 1066 (Fed. Cir.
1994); Cal. Housing Sec., Inc. v. United States, 959 F.2d 955 (Fed. Cir. 1992). In Golden
Pacific, the Federal Circuit found that, given the existing regulatory structure permitting the
appointment of a conservator or receiver, the financial institutions in that case “lacked the
fundamental right to exclude the government from its property at those times when the
government could legally impose a conservatorship or receivership” on the institutions. Golden
Pacific, 15 F.3d at 1073 (quoting California Housing, 959 F.2d at 958) (internal quotation marks
omitted). In California Housing, the Federal Circuit similarly held that the owner of a failed
savings and loan institution had no cognizable property interest in the institution’s assets,
because the owner had no right to exclusive possession given that the government could place
the institution into conservatorship and receivership. California Housing, 959 F.2d at 958.
“Golden Pacific and California Housing stand for the general notion that investors have no right
to exclude the government from their alleged property interests when the regulated institution in
which they own shares is placed into conservatorship or receivership.” Perry Capital, 2014 WL
4829559, at *22; see also California Housing, 959 F.2d at 958 (finding no right to exclude when
a conservatorship or receivership is legally imposed).
The holdings in Golden Pacific and California Housing are instructive here. In this case,
Freddie Mac−like the financial institutions in Golden Pacific and California Housing−operated
in a heavily regulated environment. Congress established the FHFA’s predecessor, OFHEO, in
1992 under the Safety and Soundness Act. See Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, Pub. L. No. 102–550, §§ 1301–95, 106 Stat. 3672, 3941–4012, 12
U.S.C. § 4561 et seq. Since that time, Freddie Mac has been subject to regulatory oversight,
including the potential for conservatorship under which the regulatory agency succeeds to “all
13
the powers of the shareholders, directors, and officers of the enterprise.” See 12 U.S.C. §
4620(a) (1992); see also 12 U.S.C. § 4617(b)(2)(A)(i) (2008) (authority to place Freddie Mac
into conservatorship). In addition, the Safety and Soundness Act−and later HERA−expressly
authorized federal regulators to prohibit plaintiff’s executive compensation if the government
found the compensation to be unreasonable. 12 U.S.C. § 4518(a).7 Given this regulatory
environment, plaintiff “lacked the fundamental right to exclude the government” from his
property rights under his employment agreement when the FHFA placed Freddie Mac into
7
The relevant portion of the Safety and Soundness Act provides as follows:
Prohibition of excessive compensation.
(a) IN GENERAL.−The Director shall prohibit the enterprises from providing
compensation to any executive officer of the enterprise that is not reasonable and
comparable with compensation for employment in other similar businesses
(including other publicly held financial institutions or major financial services
companies) involving similar duties and responsibilities.
12 U.S.C. § 4518(a) (1992).
The relevant portion of the Housing and Economic Recovery Act provides as follows:
Prohibition and withholding of executive compensation.
(a) IN GENERAL.−The Director shall prohibit the regulated entities from
providing compensation to any executive officer of the regulated entity that is not
reasonable and comparable with compensation for employment in other similar
businesses (including other publicly held financial institutions or major financial
services companies) involving similar duties and responsibilities.
(b) FACTORS. In making any determination under subsection (a), the Director
may take into consideration any factors the Director considers relevant, including
any wrongdoing on the part of the executive officer, and such wrongdoing shall
include any fraudulent act or omission, breach of trust or fiduciary duty, violation
of law, rule, regulation, order, or written agreement, and insider abuse with
respect to the regulated entity. The approval of an agreement or contract
pursuant to section 1723a(d)(3)(B) of this title or section 1452(h)(2) of this title
shall not preclude the Director from making any subsequent determination under
subsection (a).
12 U.S.C. § 4518 (2008) (emphasis supplied).
14
conservatorship in 2008. Cf. California Housing Sec., 959 F.2d at 959; see also Perry Capital,
2014 WL 4829559, at *22.
Plaintiff attempts to distinguish this case from the holdings in Golden Pacific and
California Housing by arguing that he has a cognizable property interest here, because Congress
enacted HERA after he entered into his employment agreement. Pl. Opp. at 20-21. And so,
plaintiff contends that the regulatory scheme governing Freddie Mac changed when Congress
enacted that law in 2008. Id. Plaintiff’s argument is unavailing.
The government demonstrated during oral argument that the Safety and Soundness Act,
which was in effect at the time plaintiff entered into his employment agreement, “authorized the
regulator to put Freddie Mac into conservatorship and . . . provided authority to regulate
executive compensation.” Tr. at 8. Moreover, when Congress enacted HERA in 2008, Congress
modified these existing authorities to make clear that the FHFA could prohibit executive
compensation that had previously been approved. 12 U.S.C. § 4518(c) (2008); Tr. at 11.
Plaintiff contends that Congress changed the regulatory environment concerning executive
compensation when it enacted HERA, by expressly providing that the FHFA could prohibit
executive compensation previously approved by OFHEO. But, plaintiff points to no authority in
the Safety and Soundness Act that could have guaranteed that the government could not later
change its mind after OFHEO approved his compensation.
Given the regulatory environment at the time he entered into his employment agreement,
and the authority that federal regulators had to prohibit executive compensation, plaintiff simply
could not have had a cognizable property interest in the severance compensation called for under
his employment agreement. For this reason, the Court must dismiss plaintiff’s takings claim.
RCFC 12(b)(6); see also Iqbal, 556 U.S. at 679 (“[O]nly a complaint that states a plausible claim
for relief survives a motion to dismiss.”).
3. Plaintiff Fails To Advance a Plausible Takings Theory
Even if plaintiff could show a cognizable property interest in the severance compensation
under his employment agreement−which he cannot−his takings claim would fail under
applicable takings precedent.
15
First, plaintiff fails to allege a plausible categorical or physical takings in his complaint.
As discussed above, a categorical takings occurs “where regulation denies all economically
beneficial or productive use of land.” Lucas v. S.C. Coastal Council, 505 U.S. at 1015; Lost Tree
Vill. Corp. v. United States, No. 2014-5093, 2015 WL 3448943, at *4 (Fed. Cir. June 1, 2015)
(finding a regulatory takings under Lucas even if de minimis residual value remains in the land).
Even assuming that a categorical takings analysis could apply to intangible property−such as
plaintiff’s employment agreement−plaintiff’s categorical takings theory must fail, because
plaintiff acknowledges that he has received 19,735 of the 78,940 shares of restricted stock units
granted under his employment agreement. Compl. at ¶ 56; Def. Rep. at 14.
Plaintiff fares no better under a physical takings theory. A physical or per se takings
occurs when the government’s action amounts to a physical occupation or invasion of the
property, including the functional equivalent of “a practical ouster of [the property owner’s]
possession.” Transportation Company v. Chicago, 99 U.S. 635, 642 (1878); see also Loretto v.
Teleprompter Manhattan CATV Corp., 458 U.S. 419, 428 (1982); Norman v. United States, 429
F.3d 1081, 1090 (2005) (A court cannot find a physical takings of property unless the
government has authorized physical occupation of, or taken title to, the property.). But, here, the
government has neither physically occupied, nor taken title to, plaintiff’s property.
Plaintiff likewise fails to state a valid regulatory takings claim because he could not have
a reasonable investment-backed expectation to receive his severance compensation. “In
determining whether a reasonable investment-backed expectation exists, one relevant
consideration is the extent of government regulation within an industry.” Ascom Hasler Mailing
Sys., Inc. v. U.S. Postal Serv., 885 F. Supp. 2d 156, 195 (D.D.C. 2012) (collecting cases); see
also Monsanto, 467 U.S. at 1005 (“[T]he force of [the reasonable investment-backed
expectations] factor [here] is so overwhelming . . . that it disposes of the takings question . . . .”).
Given the regulatory scheme governing Freddie Mac, plaintiff simply could not have had a
reasonable investment-backed expectation to receive the severance compensation under his
employment agreement.8 See 12 U.S.C. § 4518(a).
8
The Court evaluates plaintiff’s regulatory takings claim under the ad hoc analysis set forth in
the Supreme Court’s decision in Penn Central by weighing (1) “[t]he economic impact of the
regulation on the claimant”; (2) “the extent to which the regulation has interfered with distinct
investment-backed expectations”; and (3) “the character of the governmental action.” Penn
16
Nonetheless, plaintiff argues that he has a reasonable investment-backed expectation
here, because no regulatory authority existed at the time that allowed the government to nullify
the severance compensation provisions under his contract once that compensation had been
approved. Pl. Opp. at 18-19. But, as discussed above, there is no provision in the Safety and
Soundness Act that would have prohibited the government from changing its mind−as it did
here−and later deciding to prohibit plaintiff’s executive compensation in light of new
circumstances within the nation’s housing industry. To be sure, plaintiff voluntarily entered into
his employment agreement within this regulatory environment and that environment did not
change in any material way when Congress enacted HERA.
In sum, plaintiff simply could not have developed a historically rooted expectation of
compensation in the event that the government placed Freddie Mac into conservatorship−as it
eventually did in 2008. See California Housing, 959 F.2d at 958; Perry Capital, 2014 WL
4829559, at *23; Connolly, 475 U.S. at 227 (“Those who do business in the regulated field
cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the
legislative end.”) (citations omitted); Concrete Pipe & Prod. of California, Inc. v. Constr.
Laborers Pension Trust for Southern California, 508 U.S. 602, 645 (1993) (same).9 Given this,
dismissal of plaintiff’s takings claim is appropriate. See Chang v. United States, 859 F.2d 893,
898 (Fed. Cir. 1988) (affirming dismissal of Fifth Amendment takings claim for failure to state a
claim upon which relief could be granted).10
Central, 438 U.S. at 124. Plaintiff is not required to demonstrate favorable results under all three
Penn Central factors in order for the Court to find a taking−it is a balancing test. See Dist.
Intown Props. Ltd. P’ship v. District of Columbia, 198 F.3d 874, 878–79 (D.C. Cir. 1999) (Penn
Central submits “three primary factors [to be] weigh[ed] in the balance”).
9
The remaining Penn Central factors−the character of the government action and economic
benefit−do not revive plaintiff’s takings claim. Plaintiff acknowledges that Congress enacted
HERA for important reasons−“to preserve Freddie Mac’s assets for the benefit of the general
public so that Freddie Mac could continue fulfilling its [g]overnment-mandated mission.”
Compl. at ¶¶ 51, 58. Moreover, plaintiff acknowledges that he received a portion of the shares of
the restricted stock provided for under his employment agreement at the time Freddie Mac
terminated his employment. Id. at ¶ 56. And so, it would appear that the economic impact of the
government’s actions are far outweighed by the absence of a reasonable investment-backed
expectation that the plaintiff would receive this compensation.
10
Given the Court’s determination that plaintiff has no cognizable property interest in the
severance compensation under his employment agreement, the Court need not reach the question
17
The Court does not take the decision to dismiss this case lightly. Plaintiff has not had the
opportunity to conduct discovery to further develop his claims. But, there are no set of material
facts that plaintiff could demonstrate via discovery that would make either his illegal exaction
claim or takings claim viable.
Plaintiff concedes that he has not paid any money to the government and there is no way
to read the allegations in the complaint to state a plausible illegal exaction claim. Furthermore,
plaintiff cannot show that he has a cognizable property interest to give rise to a valid takings
claim, given the regulatory scheme governing Freddie Mac when plaintiff entered into his
employment agreement. And so “[w]hile regulatory takings require a ‘more fact specific
inquiry’. . . no supplementation of the factual record could alter dismissal here.” Perry Capital,
2014 WL 4829559, at *23 (internal citation omitted).
V. CONCLUSION
For the foregoing reasons, the Court GRANTS the government’s motion to dismiss.
The Clerk shall enter judgment accordingly.
of whether his takings claim is precluded by the Supreme Court’s decision in Omnia Commercial
Co. v. United States, 261 U.S. 502 (1923), and its progeny. Nonetheless, the Court is
unpersuaded by the government’s argument that no takings occurred here, because the FHFA’s
actions merely frustrated plaintiff’s employment agreement. Def. Mot. at 23-24. The Federal
Circuit recently held in A & D Auto Sales that government action may give rise to a takings
where the effect of the government action is direct and intended, rather than collateral or
unintended, or where the action affected a general class. See A & D Auto Sales, 748 F.3d at
1154. Here, the FHFA’s directive specifically directed that Freddie Mac not pay the severance
compensation under plaintiff’s employment agreement. See Compl. at ¶ 53. And so, plaintiff’s
rights under this agreement were not merely frustrated by the government’s actions. Rather,
those rights were directly and intentionally terminated by the FHFA’s actions. The Court is
equally unpersuaded by the government’s argument that plaintiff’s takings claim should be
dismissed because he fails to allege that the FHFA’s actions were authorized. See Def. Mot. at
11-13; Compl. at ¶ 70. To the extent that plaintiff’s complaint is defective for this reason, the
appropriate remedy is to amend the complaint, rather than to dismiss his claim. See RCFC 15(a).
18
Each party to bear their own costs.
IT IS SO ORDERED.
s/ Lydia Kay Griggsby
LYDIA KAY GRIGGSBY
Judge
19