Guess What? Fish Like Oil Rigs

Check out the Jonah Goldberg column in today’s LA Times, Rigging Habitat for Fish, Oct. 21, 2014, p. A17. It reports that a new study by Occidental College and the University of California at Santa Barbara, has concluded that “the ecosystems that build up around artificial rigs host 1,000% more fish and other sea life than natural habitats such as reefs and estuaries.”

Eminent Domain Program Announced

The annual ALI-CLE (formerly ALI-ABA) Eminent Domain and Land Valuation Litigation program has been set for February 5-7, 2015, in San Francisco, at the Nikko Hotel.

For an on-line preview and list of topics and speakers go to http://www.inversecondemnation.com/inversecondemnation/2014/10/ali-cle-2015-eminent-domain-and-land-valuation-litigation-condemnation-101-agendas-and-faculty-annou.html

This is the best eminent domain program that has been around some 50 years, and is widely recognized as the best CLE offering of its kind. Besides, San Francisco is always a great place  to visit. Hope to see you there.

Does Redevelopment Increase Tax Revenues? No, Says a New Study

A new study by the Mercatus Center of George Mason University brings us the dispatch that the familiar redevelopment projections of higher revenue are not true. See Carrie B. Kerekes and Dean Stansel, Takings and Tax Revenues: Fiscal Impacts of Eminent Domain, Mercatus Center Report, October 2014. See http://mercatus.org/sites/default/files/Kerekes-Eminent-Domain.pdf

Here is the abstract:

“This paper provides the first examination of the relationship between eminent domain activity and the growth (and level) of state and local revenue. We restrict our attention to takings that are for private use, such as the one that led to the landmark Kelo decision in 2005. One of the arguments used by the proponents of such takings is that they will lead to higher levels of tax revenue for state and local governments. Using data on the number of takings for private use, we find virtually no evidence of a positive relationship between eminent domain activity and the level of state and local tax revenue. We find some limited evidence of a negative relationship between eminent domain and future revenue growth. These findings are robust to a variety of model specifications. They have important implications for contemporary public policy debates on this issue.”

This reminds us of the great line of Macklin Fleming, former Justice of the California Court of Appeal, who observed in one of his opinions (Regus v. Baldwin Park) that proponents of redevelopment projects are fond of asserting that their proposed projects will bake a bigger economic pie, with bigger shares for all, but in reality, what they often produce is pie in the sky.

AIG Lawsuit (Cont’d.)

We learn from today’s New York Times Business Section that the taking of evidence in the AIG trial that we have been following here, was suspended yesterday to allow the parties’ lawyers to argue over admissibility of something quaintly called the “Doomsday Book,” which is not really a book but rather [the Fed's] ”collection of legal opinions that describe and delineate the Federal Reserve’s ability to fight financial crises, along with a variety of related documents.” Se Binyamin Applebaum, Fed Is Silent On Blueprint Used to Fight A.I.G. Crisis, N.Y. Times, Oct 15, 2014, at p. B1. Go to:  http://www.nytimes.com/2014/10/15/business/economy/fed-is-silent-on-doomsday-book-its-blueprint-for-fighting-aig-crisis.html

The Fed defendants contend that the contents of the “Doomsday Book” are confidential, proprietary, and generally of the none-of-your-damned-business variety, to put it colloquially. The plaintiffs, on the other hand, contend that the Fed violated some of the policies duly memorialized in the “Doomsday Book,” such as taking a 79.9% stake in AIG as part of its bailout.

Stay tuned for the trial court’s ruling.

Lowball Watch — California

The Los Angeles Daily Journal Verdicts and Settlements supplement, August 22, 2014 reports the settlement of People v. Sani, San Luis Obispo Superior Court No. CV128114. See  http://www.murphyevertz.com/files/news/People%20v.%20Sani.pdf

CalTrans originally offered $1,073,200 for the partial takings of the owners’ two parcels, and later upped its offer to $4,00,200. Using a cross-complaint, the owners also asked for damages to a third parcel which was not made a part of the condemnation action in Caltrans’ eminent domain complaint, but the court eventually denied that claim.

The case eventually settled for $6,440,000, or six times its original offer, with the owners retaining their right to pursue their claim for damages to the third parcel in a separate future action. The report gives no indication what those damages would be for.

AIG Lawsuit (Cont’d.)

As we have tried to make clear, the press coverage of the lawsuit against Uncle Sam for the seizure of AIG stock during the 2008 financial meltdown has not been journalism’s finest hour in terms of displaying an understanding of legal theories underlying this mega-kerfuffle. But it turns out that someone, it turns out, is at least thinking about it. See Tim Cavanaugh, 5 Reasons the Government Might Lose the AIG Lawsuit, National Review on line, Oct 10, 2014. http://www.nationalreview.com/article/389994/5-reasons-govt-might-lose-aig-lawsuit-tim-cavanaugh

Actually, we have trouble understanding how Mr. Cavanaugh’s “5 Reasons” add up to a clear cut victory for the plaintiffs, but we sure dig his Reason No. 6 — evidently thrown in as a bonus-afterthought to the other five reasons. It contains an inverse condemnation claim (taking of property without compensation), although Mr. Cavanaugh does not use that term.

After all the pros and cons of the government’s asserted graciousness or its punitiveness in bailing out AIG, and of the current plaintiffs’ (former shareholders of AIG) asserted ingratitude in trying to bite the hand that bailed them out back in 2008, the stark fact remains that Uncle Sam did seize some 80% of AIG’s voting stock, and with it control of AIG, which he used it to force AIG to grant a sweetheart deal to the big-boy banks that had taken out insurance policies from AIG against default of mortgage-secured bonds, and now wanted full 100% payment of their value as if nothing had happened, rather than a reduced payment that AIG was trying to negotiate with them, until Uncle Sam stepped in, flashed all that AIG stock it had seized, and forced AIG into that sweetheart deal with the insured banks. And by the way, the plaintiffs also complain that Uncle Sam forced AIG to give up their claims against those insureds who, according to AIG, misrepresented the quality of the bonds being insured.

For a summary of last week’s Bernanke testimony, see Bernanke Testifies That He Was Reluctant to Lend Money to A.I.G., NY Times, Oct. 11, 2014, at p. B7.

Anyway, if you wish to keep up with this controversy (which in our opinion at least is the biggest and most unique inverse condemnation claim in history) we recommend you read Mr. Cavanaugh’s article.

 

 

 

 

AIG Trial Continues. Anticlimactically.

Former fed Chief Ben S. Bernanke, finally took the stand in the ongoing controversial AIG  trial (see our earlier posts), but this long-anticipated event turned out to be anticlimactic. Bernanke said he couldn’t remember whether “specific details, such as various fees to AIG, were discussed before central bank officials voted.” Associated Press, Bernanke Defends AIG Bailout in Court, L.A. Times, Oct. 10, 2014, at p. B3. Of course, the amount of those  “fees” — whether they were excessive or not; whether the government had the power to impose them – is a factor that lies at the heart of this controversy. And given that Bernanke was “one of the key decision makers on the bailout,” his lack of recollection of these matters does not speak well of his attention to details where, as we know, the devil dwells. Given the controversial nature of this monumental bailout, one finds it hard not to conclude that Bernanke did not make much of a perceptive, or credible, witness.

Then there was the matter of necessity, and here Bernanke, reflecting the feds’ general legal strategy, stressed the great need for federal action to prevent “basically the end” of the financial system. But what he and the feds don’t seem to understand is that great necessity may justify the use of eminent domain, but it does not justify an uncompensated seizure of AIG’s stock and the imposition of excessive interest on AIG.

Necessity goes to justification for a taking. It does not justify omitting payment of just compensation when the taking does occur. In other words, great necessity may have justified the feds’ seizure of that 80% of AIG’s stock, and their subsequent exercise of AIG corporate powers to give the big banks whose junk bonds had been insured against default by AIG, an unwarranted break. In other words, Uncle Sam was free to give away his own money, not AIG’s. The deal struck by the feds after they seized that stock allowed the insured banks to get off scot-free with their alleged misrepresentation of the quality of those bonds, at AIG’s expense. To say it again, it did not justify a seizure of AIG’s voting stock without compensation. As the US Supreme Court explained in 1906 in the Strickley case, dire necessity justifies the use of eminent domain in cases “where the very foundations of public welfare could not be laid” without it; 200 U.S. at 531. In other words, dire necessity may justify a taking, but it does not dispense with constitutional imperative of the government having to pay just compensation for what it takes. As President Harry S Truman found out the hard way in the Youngstown Sheet & Tube case, seizure of private property — even under prod of dire wartime necessity — is not allowed without the exercise of eminent domain and the payment of just compensation because neither the Constitution nor statutes allow it. Here, to make matters worse, there was no statute purporting to authorize the seizure of AIG’s stock.

Moreover, as the Supreme Court explained in the Pewee Coal case, when the government uses its power of eminent domain to seize and operate a private enterprise,  it becomes liable for any losses that the seized company incurs while being operated by Uncle Sam. Of course, here there were no losses in the long run, but that goes to the issue of compensation, not to the issue of whether a taking occurred — i.e., whether Uncle Sam had the right to do what it did. There are eminent domain cases in which due to unique facts, the property owner receives no compensation. But that does not make them any less eminent domain cases.

AIG Trial (Cont’d.)

Two noteworthy items for today.

First, the NY Times continues to report progress at the trial. Former Treasury Secretary Timothy Geithner continues on the stand, being examined and cross-examined. Not much new there — these folks are concentrating on the “fairness vs. unfairness” of AIG’s treatment by the feds. At least as far as the press coverage goes, nobody is focusing in on the eminent domain law aspects of this controversy. Which is to say that if the AIG bailout produced benefits, that only justifies the taking, if the court agrees with Starr’s contention that there was one. No one seems to mention that eminent domain takings are supposed to produce benefits, so for the government to say that its bailout of AIG saved the financial world is to say no more than What SCOTUS said at the turn of the 20th century. Also, it’s black letter law that the government may use its taking power without due process ( that’s what SCOTUS said in the Dow case). So for the feds to defend on those grounds is not a defense, but only a justification for the taking of 80% of AIG’s stock. See Aaron M. Kessler, Geithner Testifies That Government Had Right to Act to Avert A.I.G. Bankruptcy, NY Times, Oct 9, 2014, at p. B4.

Second, if you don’t feel like wading through this controversy on a piecemeal basis, and want a concise summary of it, see Dean Starkman, Trial Revisits Financial Crisis, LA Times, Oct. 9, 2014, at p. B1. Go to http://www.latimes.com/business/la-fi-aig-trial-20141009-story.html

CAVEAT: Other than occasional mention of the subject of takings, none of the press coverage that we have seen analyzes the plaintiffs’ legal taking theory, or the measure of compensation that would be payable if the plaintiffs prevail on liability.  See http://gideonstrumpet.info/?p=7020

AIG Trial (Cont’d.)

For the next installment of this saga, this time involving testimony by former Secretary of the Treasury, Timothy Geithner, go to http://dealbook.nytimes.com/2014/10/07/geithner-says-an-a-i-g-bankruptcy-could-have-been-more-damaging-than-lehmans/?_php=true&_type=blogs&ref=business&_r=0

Not much there that is legally new but it’s amusing to read about Geithner’s effort to steer a course between his testimony and what he said in his book. All of which reminds us of a line of some famous Frenchman who said “Oh Lord, make my enemy write a book.”

On the funny side, this time the dramatis personae were sparring over the meaning of the term “insolvent.” The government contends that AIG was insolvent, while the plaintiffs deny this, and contend that it was only experiencing a “liquidity crisis.”