At least one court has considered and determined that there is something to this whole “bailout as a taking” issue. The Court of Federal Claims recently denied the government’s motion to dismiss the claims of Colonial Chevrolet Co. (Colonial Chevrolet Co. v. U.S.) and other former dealers who were kicked to the curb per the requirements of the bailout agreement. Apparently, the bailout ended with Chrysler tearing up a little less than 800 franchise agreements and General Motors doing the same for almost 1,500.

A previous motion to dismiss went up on appeal where the Circuit Court held that the motion to dismiss was properly denied, but remanded on the issue that if the franchise agreements were worth nothing (as a result of the pending insolvency of GM and Chrysler) the claims could not stand:

The Circuit stated that to survive a motion to dismiss the plaintiffs must make “specific allegations” establishing that their franchise agreements would have retained value in a scenario known as the “but-for world” in which the government did not enter into an agreement with the manufactures to provide financing, conditioned upon closing dealerships, to save the companies.

Everyone amended their complaints and the government predictably asserted the very grounds the Circuit court discussed in their opinion.

The government argues that plaintiffs have failed to allege sufficient facts in their amended complaints to meet the “economic loss” requirement for establishing a taking under the Fifth Amendment. According to the government, nothing was taken from plaintiffs because, in the but-for worlds where the alleged taking did not occur, GM and Chrysler would have been liquidated, making plaintiffs’ franchise agreements worthless. The government contends that plaintiffs’ but-for world allegations are either inconsistent with the Circuit’s holding or lack sufficient detail to meet the “plausibility” standard set by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662 (2009).

A 20+ page trip through the looking glass into the mysterious “but-for” world of eminent domain left the Court denying the motion to dismiss and allowing the case to go forward. Check back with GrayRobinson’s Florida Eminent Domain blog to keep apprised of the latest on these fascinating cases.

Originally published April 11, 2014

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Another victim on the Boulevard of Broken DreamsPhoto by John Martinez Pavliga, Berkeley, USA

Here’s an unusual takings (maybe?) case making its way through the Federal Courts:

A&D Auto Sales v. U.S.

The issue goes something like this. As part of the bailouts of GM and Chrysler, the Feds mandated that these two automakers cancel franchise agreements with certain dealerships, including the Plaintiffs.

Plaintiffs brought suit alleging a taking of their franchise agreements. But are these franchise agreements ‘property’ as defined by the Constitution and case law protecting property? The government argued no, moving to dismiss the case and also argued that the terminations were not causally linked to the government demands.

The Court of Federal Claims refused to dismiss, and the Federal Circuit agreed, saying this unique case of first impression warranted a continued look, but sent the case back down for the Plaintiffs to amend their complaint to more clearly define and explain that the government action, not the financial situation for GM and Chrysler, caused the loss in value.