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10/29/2017

Philip Hamburger on the AIG Litigation
Michael Ramsey

At Liberty Law Blog, Philip Hamburger: From Kelo to Starr: Not Merely an Unlawful Taking but an Illegal Exaction.  From the core of the argument:

A property case even more important than Kelo v. City of New London (2005) began to wend its way toward the Supreme Court a few weeks ago. The new case is Starr International Company, Inc. v. United States, and unless the Supreme Court repudiates the lower courts, the case will lay down a strange principle: that the government can unlawfully deprive shareholders of their ownership and control as long as it does not seize their shares.

Starr International, and other shareholders of American International Group, are seeking with this suit to recover their ownership interest in AIG. The case may therefore seem just a footnote to the c. 2008 financial crisis, when the government supported many companies for the sake of the economy. The shareholders’ claim is that in the course of propping up AIG, the government, in violation of federal statute, demanded nearly 80 percent of equity in the company—ultimately depriving shareholders of their share of ownership and their voting control. Although the government did not physically take their shares—their formal indicia of ownership—it ignored federal law to seize most of their real share of ownership and their control.

Government interference in property rights is often associated narrowly with the Constitution’s Taking’s Clause, which bars government from taking private property for public use without just compensation. This was the provision that the Supreme Court notoriously misread in 2005, when it concluded in Kelo that government can take private property for transfer to a private developer.

But the Takings Clause centers on compensation for lawful takings, and it thus is not the only protection for property rights. Even more basically, government cannot exact property unlawfully. It must return any property that it acquires through an unlawful exaction.

Thus, whereas the Takings Clause requires just compensation for lawful takings, the more central constitutional point—at stake in Starr International—is that the government must return any property it gets hold of unlawfully. And here, where the government has sold the property it exacted, it ordinarily must return its ill-gotten proceeds—not as damages, but in lieu of the property itself.

This seems related to last year's Supreme Court case Nelson v. Colorado, about which I wrote a couple of posts (see here and here).