EgyptAir Flight 648 was hijacked on November 23, 1985. Fifty-eight of the ninety-eight passengers died. Three years later, Pam Am Flight 103 exploded over Lockerbie, Scotland at 7:03 PM on December 21, 1988. All of the 259 passengers died.

Advancing a novel takings theory, the Plaintiffs in Aviation & Gen. Ins. Co., Ltd. v. United States—insurance companies and an asset management company—asserted that President George W. Bush’s restoration of sovereign immunity to Libya in 2008 constituted an unconstitutional taking of their property interest in insurance contracts. No. 14-687C, 2016 WL 3675437 (Fed. Cl. July 7, 2016). Judge Wheeler granted Defendants’ motion for summary judgment on July 7, 2016.

This post describes the legal background of the case and the Court’s opinion. It also discusses how Aviation & Gen. Ins. Co. should be a warning to clients and attorneys considering filing a takings claim. First, alternative methods of framing the takings claim may increase the likelihood of overcoming summary judgment. Second, litigants and lawyers must use Takings Claims as a strategic part of their larger litigation plan.^[1]

Statutory Background

In 1976, Congress passed and the President signed the Foreign Sovereign Immunities Act (“FSIA”), designed to codify Congress’s finding that “the determination by United States courts of the claims of foreign states to immunity from the jurisdiction of such courts would serve the interests of justice and would protect the rights of both foreign states and litigants in United States courts.” 28 U.S.C. §§ 1602-­11. At its core, the act provides that “a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States,” subject to various statutory exceptions that the FSIA describes in detail.

In 1996 Congress added an exception to the FSIA’s general grant of foreign sovereign immunity that gave U.S. courts jurisdiction over civil suits against state sponsors of terrorism filed by U.S. victims of terrorism. See P.L. 104-132, Title II, § 221 (codified at 28 U.S.C. § 1605A).  In an early example of the application of this exception, a father was held to have jurisdiction to sue the Islamic Republic of Iran for the death of his daughter at the hands of state-sponsored terrorists. See Flatow v. Islamic Repub. of Iran, 999 F. Supp. 1 (D.D.C. 1998).

Libya was designated a state sponsor of terror under Section 1607(a)(7) on January 28, 2008. Plaintiffs filed suit shortly after. In August 2008 Congress passed the Libyan Claims Resolution Act which removed jurisdiction over Libyan terrorism-related cases.  PL 110–301, August 4, 2008, 122 Stat 2999; See McDonald v. The Socialist People’s Libyan Arab Jamahiriya, 666 F. Supp. 2d 50, 52 (D.D.C. 2009). President Bush then issued Executive Order No. 13,477, which officially recognized the settlement of outstanding claims against Libya and stated that pending U.S. District Court suits against Libya should be terminated. The government of Libya paid $1.5 billion to the United States in order to provide immediate and fair compensation to U.S. nationals with terrorism-related claims against it. The Foreign Claims Settlement Commission, however, found that Plaintiffs, foreign companies, were ineligible for compensation.

Regulatory Takings

Courts have taken two approaches when assessing whether a regulatory taking has occurred: (1) the Penn Central multi-factorial test; and (2) the Lucas categorical test. Under Penn Central, the court determines whether a taking has occurred based on three considerations: (a) the character of the government action; (b) the extent to which the regulation interferes with distinct, investment-backed expectations; and, (c) the economic impact of the regulation. Under the Lucas standard, a taking has unquestionably occurred “where regulation denies all economically beneficial or productive use” of the property. Lucas v. S. Carolina Coastal Council, 505 U.S. 1003 (1992).

The Opinion

1. Plaintiffs Have a Property Interest in The Insurance Contracts

In its order May 26, 2015 order denying Defendants’ motion to dismiss, the Court held that Plaintiffs had a property interest in their insurance contracts. Aviation & Gen. Ins. Co., Ltd. v. United States, 121 Fed. Cl. 357, 366 (2015). The Court explained that Federal Circuit precedent creates two types of property for purposes of this analysis. First, some property is statutorily created and thus not protected by the Takings Clause. Second, the taking of “common law recognized property interests such as land, contract, intangible property and personal injury” can create a cognizable takings claim. Insurance contracts, recognized property under the common law, are property under the Takings Clause. Id.

2. Investment Backed Expectation and the Character of the Government Action

The Court’s opinion addresses these investment-back expectations and the character of the government action together. Aviation & Gen. Ins. Co., Ltd., 2016 WL 3675437, at *3 (“Plaintiffs cannot claim an investment-backed expectation free of government involvement nor can they characterize the Government’s action as novel or unexpected.”). The Court held that the business of international commerce always rides upon the waves of international relationships. Thus those that engage in international commerce must know that their investments and expectations are subject to the “relationships among nations.”

The Court rejected Plaintiffs’ claim that their investment-backed expectation emerged when Congress briefly lifted Libya’s sovereign immunity. Lifting and restoring sovereign immunity, the Court held, is just another part of the ebb and flow of international political bonds and thus does not change Plaintiffs’ investment-backed expectations.

3. The Impact of the Government’s Actions

The parties and the Court agreed that 22 U.S.C. § 1623(h) describes the Commission’s decisions as final and thus not subject to the Court’s review. Once over this hurdle, though “the Government’s action clearly extinguished Plaintiffs’ claims without providing an alternative”, the nature of the government action was largely irrelevant.  Id. at *4.

Analysis

Though limited as precedent, Aviation & Gen. Ins. Co., Ltd., is instructive for those considering bringing a takings claim.

1. Alternative Takings Theory: Lucas

The complicated nature of Takings Clause jurisprudence offers several different ways to describe a takings claim. Here the parties and the Court applied the Penn Central factors. This lead to a challenging argument for Plaintiffs, who had to convince the Court that they had a reasonable economic-backed expectation despite the known volatility of international commerce.

Plaintiffs could have argued that under Lucas the President’s executive order denied them of all economically beneficial or productive use of their property. Lucas is not a multi-factor test. It presents the Court with a binary: full loss of all economic value creates a taking, a partial taking does not. Admittedly, subsequent case law muddles this distinction somewhat and the Lucas-lens may not have persuaded the Court. But eliminating the need to argue investment-backed expectation given the Plaintiffs’ business may have been advantageous.

2. Takings Claims Must be Part of a Larger Litigation Strategy

Aviation & Gen. Ins. Co., Ltd. reminds us that regulatory takings claims are challenging to successfully litigate. For potential plaintiffs this means getting attorneys involved far in advance of filing a claim. In this case there was lobbying involved in the early stages, advocacy with the Claims Commission, and litigation in the Court of Federal Claims. The Plaintiffs may also have considered an Administrative Procedure Act challenge in the District Court for the District of Columbia.

Conclusion

Foreign states are generally immune from suit in United States Courts. The exceptions to this rule are limited and potentially complex. Whether a takings claim against the United States could ever serve as an alternative means of recovery for the victims of a state-sponsored act of terror remains unresolved. Aviation & Gen. Ins. Co., Ltd. makes clear that for a takings claim to provide such an alternative path, plaintiff’s counsel must think creatively and carefully about the nuances of Takings Clause jurisprudence.

_{[1] On September 28, 2016, Congress passed the Justice Against Sponsors of Terrorism Act (JASTA) over presidential veto. Justice Against Sponsors of Terrorism Act, § 3 (2016) (to be codified at 28 U.S.C. § 1605B(c)). JATSA potentially opens to door for victims of the 9/11 terrorist attacks to sue Saudi Arabia. While it does not affect Plaintiffs’ claims, it does illustrate the political nature of claims related to terrorist acts and the importance of a multi-pronged strategy.}