Piszel’s US Court of Appeals for the Federal Circuit Decision Leads the Charge.
While Piszel loss his case in the US Court of Appeals for the Federal Circuit, the court provided a clear and pointed decision for Mr. Hume to submit in a letter to the US Court of Appeals for the District of Columbia Circuit.
For clarification purposes, the United States Court of Appeals for the Federal Circuit is the appeals court to the United States of Federal Claims and the United States Court of Appeals for the D.C. Circuit is appeals court for the United States District Court for the District of Columbia.
Important Summary and Roadmap Clues
The government argues, and the Claims Court found, that Mr. Piszel lacked a cognizable Fifth Amendment property interest. We disagree.
In evaluating whether governmental action constitutes a taking for Fifth Amendment purposes, the court must determine “whether the claimant has identified a cognizable Fifth Amendment property interest that is asserted to be the subject of the taking.” Acceptance Ins. Cos., Inc. v. United States, 583 F.3d 849, 854 (Fed. Cir. 2009). When a claimant lacks such a property interest, nothing has been taken, and thus the claimant cannot maintain a takings claim. See Am. Pelagic Fishing Co., L.P. v. United States, 379 F.3d 1363, 1372 (Fed. Cir. 2004).
In general, “[v]alid contracts are property, whether the obligor be a private individual, a municipality, a state, or the United States.” Lynch v. United States, 292 U.S. 571, 579 (1934); see U.S. Tr. 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.”); A & D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1152 (Fed. Cir. 2014); 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 taking of option to renew a lease). Mr. Piszel’s employment contract with Freddie Mac is no exception.
In short, “there is ample precedent for acknowledging a property interest in contract rights under the Fifth Amendment.” Cienega Gardens v. United States, 331 F.3d 1319, 1329 (Fed. Cir. 2003). In Cienega Gardens, we rejected the government’s position that “enforceable rights sufficient to support a taking claim against the United States cannot arise in an area voluntarily entered into and one which, from the start, is subject to pervasive Government control.” Id. at 1330 (quoting government brief) (internal quotation marks omitted); see also A & D, 748 F.3d at 1152–53 (finding that a property interest in contract rights existed despite being subject to bankrupt- cy law). We therefore conclude that Mr. Piszel had a cognizable Fifth Amendment property interest in his contract rights.
The government argues that Mr. Piszel should be barred from pursuing a takings claim because he failed to pursue a breach of contract claim against Freddie Mac. Mr. Piszel argues that there is no requirement to pursue a breach of contract claim against a private party before bringing a takings claim. We disagree with the government that Mr. Piszel’s failure to pursue a contract remedy is an absolute bar to his bringing a takings claim against the government.
The Supreme Court has held that a claimant must exhaust administrative or judicial remedies against the relevant government entity in order for his regulatory takings claim to be ripe. See, e.g., Williamson Cty. Reg’l Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186–87 (1985); see also, e.g., Palazzolo v. Rhode Island, 533 U.S. 606, 618–19 (2001); Suitum v. Tahoe Reg’l Planning Agency, 520 U.S. 725, 735 (1997); Mac- Donald, Sommer & Frates v. Yolo Cty., 477 U.S. 340, 348 (1986). The Court has explained that to demonstrate a regulatory taking, a party “must establish that the regulation has in substance ‘taken’ his property—that is, that the regulation ‘goes too far.’” MacDonald, 477 U.S. at 348 (citations omitted). But “[a] court cannot determine whether a regulation has gone ‘too far’ unless it knows how far the regulation goes.” Id. This is because “resolution of [this] question depends, in significant part, upon an analysis of the effect [of the regulation] on the value of [the] property and investment-backed profit expectation. That effect cannot be measured until a final decision is made as to how the regulations will be applied.” Id. at 349 (quoting Williamson, 473 U.S. at 200). As to the second prong of a takings claim, a failure to provide “just compensation,” “a court cannot determine whether a municipality has failed to provide ‘just compensation’ until it knows what, if any, compensation the responsible administrative body intends to provide.” MacDonald, 477 U.S. at 350.
We therefore find no basis for the government’s argument that Mr. Piszel had to pursue a breach of contract claim against Freddie Mac before bringing a takings claim, even though, as described below, the existence of a remedy for breach of contract is highly relevant to the takings analysis in this case.
The government’s instruction to Freddie Mac did not take anything from Mr. Piszel because, even after the government’s action, Mr. Piszel was left with the right to enforce his contract against Freddie Mac in a breach of contract action. As the government correctly points out, “the only duty a contract imposes is to perform or pay damages.” F.T.C. v. Think Achievement Corp., 312 F.3d 259, 261 (7th Cir. 2002) (citing Oliver Wendell Holmes, Jr., The Common Law 300–02 (1881)). Thus, to effect a taking of a contractual right when performance has been prevented, the government must substantially take away the right to damages in the event of a breach. See Castle v. United States, 301 F.3d 1328, 1342 (Fed. Cir. 2002) (finding that because “the plaintiffs retained the full range of remedies associated with any contractual property right they possessed[,]” the government action “did not constitute a taking of the contract”).
Other similar provisions of HERA indicate that when a conservator prohibits performance of a contract, an action for breach of contract remains. Section 1367(b)(2)(H) of HERA states a general policy that the conservator “shall, to the extent of proceeds realized from the performance of contracts or sale of the assets of a regulated entity, pay all valid obligations of the regulated entity that are due and payable at the time of the appointment” of the conservator. 122 Stat. at 2738 (codified at 12 U.S.C. § 4617(b)(2)(H)). Section 1367(b)(19)(d), like the golden parachute provision, allows the conservator to “disaffirm or repudiate” contracts including “any contract for services between any person and any regulated entity” like employment contracts. 122 Stat. at 2747–48, 2750 (codified at 12 U.S.C. §4617(b)(19)(d)). That section plainly preserves a breach of contract claim, providing that the conservator will be liable for the disaffirmance or repudiation of the contract but limits the liability to “actual direct compensatory damages.”
The statute cannot reasonably be read to preserve a breach claim when the conservator disclaims a contract providing for a payment but to eliminate a breach claim when the identical action is taken pursuant to a regulatory directive. Thus, the surrounding provisions indicate that Congress intended to preserve breach of contract claims, as the parties agree.
“The Supreme Court . . . has made clear that in the regulatory takings context the loss in value of the adversely affected property interest cannot be considered in isolation.” Cienega Gardens, 503 F.3d at 1280. Rather, the “test for regulatory taking requires [a court] to compare the value that has been taken from the property with the value that remains in the property.” Keystone Bitu- minous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 497 (1987); see also Concrete Pipe, 508 U.S. at 644; Cienega Gardens, 503 F.3d at 1281. The Supreme Court recognized this in the very case that created the regulatory takings framework, explaining that “[i]n deciding whether a particular governmental action has effected a taking, this Court focuses . . . on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole.” Penn Cent., 438 U.S. at 130–31 (emphasis added). This is, of course, because “a regulatory taking does not occur unless there are serious financial consequences” that stem from the government action. Cienega Gardens, 503 F.3d at 1282.
Certainly Freddie Mac operated in a regulated environment where a court may have concluded that Freddie Mac accepted the risk of regulatory action. In a breach action, the courts might have concluded that Freddie Mac bore the risk of regulatory intervention, thus depriving it of an impossibility defense.
As noted, we asked the parties to address whether recovery for a breach of contract claim would be limited by the sovereign acts doctrine. Both Mr. Piszel and the government take the position that the sovereign acts doctrine would not limit recovery in this case. Gov’t Supp. Br. at 6–7; Piszel Supp. Br. at 12 n.10. We agree. We also agree with the parties that HERA’s limitations on damages for breach of contract claims, 12 U.S.C. §4617(d)(3)(A), would not affect Mr. Piszel’s recovery in a breach of contract action against Freddie Mac. See Gov’t Supp. Br. at 8–9; Piszel Supp. Br. at 12 n.10.