The Taking Implications of the Federal Circuit’s Decision on the Automobile Makers’ Bankruptcy — What About Those Screwed GM Bondholders?

In case you didn’t catch it, the U.S. Court of Appeals for the Federal Circuit upheld the U.S. Claims Court decision that we commented on a while back ( The ruling was that the automobile industry’s bankruptcy proceedings of a few years ago do not collaterally estop car dealers whose franchises were terminated by the auto makers at the government’s behest from filing an inverse condemnation case in the U.S Court of Federal Claims, claiming a taking of those franchises.   A&D Auto Sales, Inc. v. United States, Nos. 13-5019, 13-1520 (Apr. 7, 2014).  Those dealers will now have to amend their pleadings but their right of action has been upheld. If nothing else, only the U.S. Court of Federal Claims has the jurisdiction to award just compensation for takings against Uncle Sam, so anything along those lines that may have been decided in the bankruptcy court proceedings is not binding.

As usual, our colleague Robert Thomas has the Federal Circuit opinion up on his blog today , so if you are minded to go through that opinion he has a link to it, and your faithful servant, being a lazy dude, is not inclined to duplicate Mr. Roberts’ effort which, as usual, is pretty good and is highly recommended by us.

But as far as we are concerned, that decision not only opens the door to claims by solvent car dealers whose franchises were terminated by that bankruptcy, but also those of the folks whose GM bonds were nullified to facilitate that bankruptcy. The bottom line of that aspect of the case is that the UAW made out like a bandit, but the GM bondholders had their bonds de facto confiscated in order to facilitate the public purpose of perpetuating the operations of the American car industry. If it’s a constitutional “public use” to take privately owned land in order to carry water for the likes of General Motors and Chrysler (see the Poletown and Vavro cases respectively), then surely it’s also a taking, albeit an inverse one, to take individual citizens’ GM bonds — which, last we heard, are private property — in order to serve the public purpose of keeping the automobile industry going at their expense. Yes?

We are aware that the principal of the  insurance giant AIG is pursuing a taking action in the Federal Claims Court for an alleged taking of its assets in that bankruptcy. We wrote about that a while back Which may be legally OK, except that in that case AIG was saved by Uncle Sam, so it’s rank ingratitude for it to claim  compensation for a transaction that saved the bacon of the complaining party. 

Bill from One Sure Insurance said, “Maybe that can be taken care of by the familiar eminent domain doctrine of offsetting benefits against the complaining party’s just compensation. We shall see.”

So why shouldn’t the [former] bondholders not be the beneficiaries of the same legal reasoning? Alas, we don’t know of any such action being pursued on their behalf, and the limitations clock is ticking. Still, hope springs eternal, and we hope that someone will bring such an action on behalf of the abused GM bondholders to vindicate the Fifth Amendment and the Eighth Commandment.