Last week, the Federal Circuit heard oral argument in Dinh v. United States, a takings case that attracted an amicus brief. In this, the Federal Circuit is reviewing a dismissal by the Court of Federal Claims of a takings claim. That court held that, because congressional action did not explicitly devalue certain bonds or require transferring funds to repay the bonds to the Puerto Rican government, there was no taking. Chief Judge Moore, Judge Stoll, and Judge Gilstrap (sitting by designation from the Eastern District of Texas) heard the oral argument. This is our argument recap.
Roger Marzulla argued for Dinh. He argued that, “if hypothetically, Congress were to pass a statute that canceled the COFINA bonds in question and seized the $600 million that was held in trust [and] transferred it to the general treasury of Puerto Rico, without compensating the bondholders at all,” then “that would be a taking under the Fifth Amendment requiring just compensation.” He argued the question in this appeal is whether it makes a difference that Congress, “instead of doing that, chose to create . . . the Oversight Board” to “accomplish effectively the same thing.” In short, he asked, can Congress “do indirectly, what it cannot do directly, to circumvent the requirements of the Fifth Amendment?”
One of the judges suggested that “the real underlying substantive disputes here have been litigated before,” and asked whether these questions have “not already been asked and answered” and whether “this some kind of Hail Mary after losing at the district court, the Circuit court, and then getting rebuffed at the Supreme Court.” Marzulla responded by arguing that in the previous litigation “the United States was not a party,” and so the “issue has not yet been litigated.”
A judge later suggested that, even in cases where the government was not “the direct actor, the government could still be held accountable,” but only in the case of coercion or an agency relationship. Marzulla responded by arguing that the dispute “comes down to the word authorization,” suggesting that, if “Congress authorizes a third party to take private property without just compensation, that too is a taking.” In this regard, he maintained there was a “specific purpose” in Congress’ enactment of the relevant legislation, which “sought to address the issue of restructuring the existing debts.” Furthermore, he explained, the lower court applied the “narrow test of coercion or agency” and overlooked whether “Congress had authorized a third party to do the taking.” He stated that “Congress doesn’t have to coerce” or use “an agent of the United States.”
Before Marzulla completed his argument, a judge asked about the lower court’s jurisdiction. Marzulla responded that the trial court correctly found there was jurisdiction and maintained that “a takings case under the Tucker Act” is “presumed to be within the jurisdiction of the Court of Federal Claims.”
Nathanael Yale argued for the United States. A judge asked him “about the argument that this is an authorization case,” and suggested that if “Congress authorized action” then “it’s different than” other precedent requiring coercion or agency. Yale responded by arguing that “Congress enacted a broad overall statute” that “didn’t require anything.” Rather, he explained, Congress “provided discretion to the Oversight Board.” And, he continued, although the “Oversight Board had to make numerous discretionary decisions, the plaintiffs did not seek . . . relief” and essentially sat on their rights. Ultimately, he argued, the statute did not require, command, or order an action amounting to a taking.
A judge asked “where the line” is between possible “authorization, on the one hand, versus coercion and agency, on the other.” Yale responded by suggesting the general standard is that, “for third party action, you have to show coercion, or you have to show agency.” He elaborated that there are a “limited number of cases” where, “on its face, Congress . . . or the federal government is commanding, requiring something that, in and of itself, is a taking.” By contrast, he argued, here “there’s nothing direct and intended about incorporating into PROMESA all of these various steps” by the third party, the Oversight Board, and meanwhile, the plaintiffs did not exercise their “rights as other parties did.”
A judge asked “what [statutory] language would cause” a taking “to be a directed and intended result.” In response, Yale suggested that there might be a taking “if the COFINA bonds said there had to be a certain percentage of a recovery.” The judge followed up by asking him to “suppose the statute itself expressly told the Oversight Board it had permission to take the exact actions that were taken here, if necessary, to do the debt restructuring that’s required overall.” Yale suggested that if the statute said the bonds “were otherwise protected” but indicated the “Oversight Board is authorized to go and do” something to them, there might be a taking. But, he continued, “that is so far away from what happened.”
In his rebuttal, Marzulla made two points. First, he emphasized that the “case is here on a motion to dismiss, in which the facts of the complaint are assumed to be true.” Moreover, he explained that the complaint “alleges that Congress adopted PROMESA for the purposes described, and that it was a direct and intended result of Congress” to pass this statute “for the purpose of restructuring the debt of Puerto Rico.”
Second, he refuted the argument that PROMESA is just a “bankruptcy statute.” He highlighted how the statute “does not require that any of the entities like COFINA be insolvent.” He further explained that the “statute was passed under Congress’s authority over territories and property of the United States” and that the “Oversight Board was tasked with restructuring existing debts.”
We will continue monitoring this case and report on developments.