Why the 3 Judge panel was mistaken in their February 2022 ruling: "As discussed herein, the only relevant question in evaluating a shareholder’s Takings claim should be whether the
shareholder’s property has been taken. By imposing
an inapposite direct-derivative framework, the Federal
Circuit decision severely restricts the application of the
Takings Clause. Further, it does so as to a Taking that
is as extreme as a taking of shareholder property can get
– one that deprived shareholders of 100% of their interest in a corporation."
OH PLEASE TELL ME MORE!:
A. This Court, Not The Federal Circuit, Should
Decide Whether Shareholders May Bring A
Takings Claim When The Government Has
Taken The Entirety Of Their Property For Its
Own Benefit.
The Federal Circuit and the Court of Federal Claims,
the principal courts charged with adjudicating federal
Takings claims, both dismissed petitioners’ Takings claim
as a “derivative” shareholder claim without analyzing
whether petitioners had identified a property interest
that they (and they alone) directly owned and that was
taken in its entirety by the government. In so doing,
they seriously distorted the analysis that should dictate
whether a plaintiff may pursue a Takings claim. This
Court should grant certiorari to make clear that standing
to bring a Takings claim is based on direct ownership of
property that was allegedly taken, nothing else.
Petitioners in this case alleged that the Net Worth
Sweep appropriated their shareholder rights to future
dividends and other distributions, and transferred those
rights to the United States Treasury. Before the Net
Worth Sweep, petitioners owned the following property:
• The right to receive dividends in any quarter in
which a common shareholder received a dividend;
• The right to receive a dividend in any quarter in
which the Treasury received a dividend above
the 10% dividend payable on its senior preferred
stock (since the only way Treasury could receive a
dividend above that 10% amount was by exercising its warrants to acquire common stock and
receiving dividends on such stock);
• The right to priority over common shareholders,
including Treasury, in the distribution of any
liquidation proceeds, after Treasury received the
amount of its funding plus $1 billion (per GSE).
After the Net Worth Sweep, the private shareholders
no longer owned any of these rights. Instead, all of these
rights were owned by the Treasury. The necessary effect
of the Net Worth Sweep was to transfer rights from
the petitioners to the Treasury. The following chart
summarizes this appropriation of private property by
the Treasury.
Property Rights Taken By Treasury
Treasury’s Property Private Preferred
Shareholders’
Property
Before
Net
Worth
Sweep
Right to 10% dividend
on Senior Preferred if
paid in cash
Right to 79.9% of
common stock for
nominal price
Right to liquidation
preference equal
to actual funding
amount plus $1 billion
Right to dividend in
any quarter when
dividend is paid on
common stock
Right to dividend
whenever Treasury
receives dividend
above its 10% senior
preferred dividend
Right to priority
liquidation proceeds
over all common
shareholders
(including
Treasury) after
Treasury recovers
both actual funding
amount and $1
billion on its senior
preferred stock
Treasury’s Property Private Preferred
Shareholders’
Property
After
Net
Worth
Sweep
100% of all
dividends, no matter
how much they may
exceed the original
10% dividend amount
100% of all
liquidation
proceeds, no matter
how much they may
exceed Treasury’s
investment plus $1
billion
ZERO in dividends
ZERO in liquidation
proceeds
Thus, petitioners identified property that they owned,
and that the Treasury acquired through the Net Worth
Sweep. That establishes petitioners’ standing to bring a
claim under the Takings Clause. Yet the Federal Circuit
and the Court of Federal Claims held petitioners had no
right to bring a direct claim because their only possible
claim was a derivative claim on behalf of the companies;
both courts reached this conclusion without spending
any time analyzing whether petitioners had identified
a property right that they owned and that was taken.
App.550a–55a; App.21a–28a.
The only place where the Federal Circuit obliquely
recognized that petitioners owned a property right was
in distinguishing the D.C. Circuit’s holding in Perry II
that shareholders have an “obviously direct” claim for the breach of their shareholder contracts. Perry II, 864 F.3d
at 628. The Federal Circuit rejected petitioners’ argument
that their ability to vindicate their property rights should
be just as “obviously direct” as their ability to vindicate
their contractual rights, holding as follows:
The fact that shareholders possess a property
interest in their shares of the Enterprises
does not answer the question of whether they
are asserting direct or indirect harm to that
property right. Shareholders clearly allege
a corporate overpayment by the Enterprises
which, in turn, indirectly diluted the value of
their shares.
App.26a.
This mischaracterizes petitioners’ claims. First, the
Net Worth Sweep did not “indirectly dilute the value”
of petitioners’ property rights; it nullified them in their
entirety, and transferred their value to the Treasury.
Before the Net Worth Sweep, petitioners held rights that
had value because of the potential for future dividends – in
particular, they would have considerable value when and if
the Treasury ever sought to receive dividends in excess of
their 10% senior preferred dividend. After the Net Worth
Sweep, petitioners had no rights – zero. No matter how
much money the GSEs might make, 100% of it must go
to Treasury. This government action did not “indirectly
dilute the value” of petitioners’ property; it effected a total
deprivation of 100% of the value of petitioners’ property,
and thus was a categorical taking under this Court’s
decision in Lucas v. South Carolina Coastal Comm’n,
505 U.S. 1003 (1992)."
AI
