Sperry Corp. v. U.S.

• Decision Date: 10 August 1988
• Docket Number: No. 88-1009,88-1009
• Citation: 853 F.2d 904
• Parties: SPERRY CORPORATION and Sperry World Trade, Inc., Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 904

853 F.2d 904

57 USLW 2147

SPERRY CORPORATION and Sperry World Trade, Inc., Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 88-1009.

United States Court of Appeals Federal Circuit.

Aug. 10, 1988.

John D. Seiver, Cole, Raywid & Braverman, Washington, D.C., argued for plaintiffs-appellants. With him on the brief were Alan Raywid and Susan Paradise Baxter, Washington, D.C.

Terrence S. Hartman, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., argued for defendant-appellee. With him on the brief were James M. Spears, Acting Asst. Atty. Gen. and David M. Cohen, Director, Washington, D.C. Also on the brief were Russell Munk and Francine Barber, Dept. of the Treasury and Ronald Bettauer and Lisa Grosh, Dept. of State, Washington, D.C., of counsel.

Before MARKEY, Chief Judge, COWEN, Senior Circuit Judge, and MAYER, Circuit Judge.

OPINION

MAYER, Circuit Judge.

Sperry Corporation and Sperry World Trade, Inc. (Sperry) appeal the judgment of the United States Claims Court, 12 Cl.Ct. 736 (1987), upholding the constitutionality of the Iran Claims Settlement Act, which requires the United States to make a deduction from awards of the Iran-United States Claims Tribunal. Because the deduction is a taking in violation of the fifth amendment of the Constitution, we reverse.

Background

On November 4, 1979, Iranian nationals seized the United States Embassy in Tehran, Iran, and took American citizens there as hostages. In response, ten days later President Carter declared a national emergency under the International Emergency Economic Powers Act, 50 U.S.C. Secs. 1701-06, and issued an executive order blocking the removal or transfer of "all property and interests in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the jurisdiction of the United States." Exec. Order No. 12170, 3 C.F.R. 457 (1980).

In July of 1980, Sperry filed suit against Iran and fifteen of its instrumentalities in United States district court alleging breach of contract, conversion of property, and interference with business relations. It obtained a prejudgment attachment of approximately $7 million against Iranian assets in the United States. Sperry Corp. v. Islamic Republic of Iran, No. 80-1614 (D.D.C. Oct. 24, 1980).

On January 19, 1981, the United States and Iran entered into a series of agreements, commonly known as the Algiers Accords, to end the hostage crisis and resolve other disputes between the two countries. A stated "purpose" of the Accords was "to terminate all litigation as between the Government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration." Declaration of the Government of the Democratic and Popular Republic of Algeria, reprinted in 19 Selected Documents, Bureau of Public Affairs, U.S. Department of State 2, 3 (Mar. 12, 1981). To this end, the Accords called for the establishment of the Iran-United States Claims Tribunal (Tribunal) to hear claims against Iran by United States nationals. Awards by the Tribunal are "final and binding" and come from a "Security Account" established by Iran with an initial deposit of $1 billion, and in which Iran promised to maintain a minimum balance of $500 million until all Tribunal awards are paid. The United States agreed "to terminate all legal proceedings in United States courts involving claims of United States persons and institutions against Iran and its state enterprises, to nullify all attachments and judgments obtained therein, to prohibit all further litigation based on such claims, and to bring about the termination of such claims through binding arbitration." Id. The United States also agreed to transfer all Iranian assets held in the United States to Iran. Presidents Carter and Reagan issued executive orders implementing these terms, Exec. Order Nos. 12276-12285, 12294, 3 C.F.R. 104-118, 139-140 (1982), and the Supreme Court upheld them in Dames & Moore v. Regan, 453 U.S. 654, 101 S.Ct. 2972, 69 L.Ed.2d 918 (1981), which contains a comprehensive description and discussion of this program.

Sperry filed a claim with the Tribunal and entered into settlement negotiations with the Iranian government. A settlement paying Sperry $2.8 million received final approval from Iran in July 1982 and the Tribunal entered an award to that effect in September. The United States, however, deducted two percent from the award pursuant to a June 7, 1982 directive license issued by the Secretary of Treasury. 47 Fed.Reg. 25243. The stated rationale for the deduction, which was authorized by the directive license only after the deadline for filing claims with the Tribunal and after Sperry and Iran had agreed in principle to settle the claims, was to "reimburse the United States Government for costs incurred for the benefit of U.S. nationals who have claims against Iran." Id.

Sperry promptly filed suit in the United States Claims Court alleging that the fees were "illegally exacted" and requesting that the directive license be invalidated. In a May 1, 1985 bench ruling, the court held the directive license unlawful and ordered return of the deduction. The court reasoned that under 31 U.S.C. Sec. 9701, the Department of Treasury improperly charged for services provided by the Departments of State and Justice and that the government could not justify the decision to make a two percent deduction in the absence of evidence that the deduction was a reasonable attempt to match benefits and costs.

Before the Claims Court issued a written opinion or entered final judgment, and in response to the bench ruling, in August of 1985 Congress enacted the Iran Claims Settlement Act (Act), Pub.L. No. 99-93, Title V, Secs. 501-505, 99 Stat. 437 (codified at 50 U.S.C. Sec. 1701 note), which became Title V of the Foreign Relations Authorization Act, Fiscal Years 1986 and 1987. Section 502 of the Act provides for deductions of 1.5 percent from Tribunal awards of up to $5 million and of one percent on amounts in excess of $5 million. According to the Act, these deductions are "reimbursement to the United States Government for expenses incurred in connection with the arbitration of claims of United States claimants against Iran before that Tribunal and the maintenance of the Security Account." The deductions were to be applied retroactively to the date the directive license was issued, June 7, 1982.

Shortly thereafter, the government suggested that the Iran Claims Settlement Act had mooted the case. Sperry responded that the Act is unconstitutional because it caused a taking of property in violation of the fifth amendment; denied Sperry equal protection of law by assessing only successful claimants; violated the origination clause, art. I, Sec. 7, cl. 1, because it was revenue legislation originating in the Senate rather than the House of Representatives; and denied Sperry due process by its retroactivity. The Claims Court rejected these arguments and dismissed the case. Sperry reasserts them here.

Discussion

Under the fifth amendment, "private property [shall not] be taken for public use, without just compensation." But the Supreme Court has yet to develop "any set formula for identifying a 'taking,' " Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224, 106 S.Ct. 1018, 1026, 89 L.Ed.2d 166 (1986), so courts "[o]rdinarily ... must engage in 'essentially ad hoc, factual inquiries' " of the circumstances of each case. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426, 102 S.Ct. 3164, 3171, 73 L.Ed.2d 868 (1982) (emphasis added). In the perhaps usual case where governmental activities must be assessed to see if they so impair private property rights as to amount to a taking, these "inquiries" are guided by three factors of "particular significance." They are "(1) 'the economic impact of the regulation on the claimant'; (2) 'the extent to which the regulation has interfered with distinct investment-backed expectations'; and (3) 'the character of the governmental action.' " Connolly, 475 U.S. at 225, 106 S.Ct. at 1026 (quoting Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631 (1978)). But this multifactor test is not invoked when there is a permanent physical occupation of property, Loretto, 458 U.S. at 432, 102 S.Ct. at 3174; see Nollan v. California Coastal Comm'n, --- U.S. ----, 107 S.Ct. 3141, 3145, 97 L.Ed.2d 677 (1987), which the Supreme Court has called a per se taking. Loretto, 458 U.S. at 433, 102 S.Ct. at 3174-75, see FCC v. Florida Power Corp., 480 U.S. 245, 107 S.Ct. 1107, 1111, 1112, 94 L.Ed.2d 282 (1987).

Loretto said "that a permanent physical occupation is a government action of such a unique character that it is a taking without regard to other factors that a court might ordinarily examine." 458 U.S. at 432, 102 S.Ct. at 3174. In that event, the character of the governmental action is "determinative" of whether a taking has occurred, id. at 426, 102 S.Ct. at 3171, "without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner." Id. at 434-35, 102 S.Ct. at 3175. The degree of impairment is relevant only to the amount of compensation due, not to whether or not there has been a taking. Id. at 437, 102 S.Ct. at 3177.

The case we have is a dispute over money which the government has permanently appropriated for its own use. The fifth amendment by its terms applies to all "private property," not only real property, as the government seems to believe. See PruneYard Shopping Center v. Robins, 447 U.S. 74, 82 n. 6, 100 S.Ct. 2035, 2041, n. 6, 64 L.Ed.2d 741 (1980). "Property rights in a physical thing have been described as the rights 'to possess, use and dispose of it.' " Loretto, 458 U.S. at 435, 102 S.Ct. at 3176 (quoting United States v....