A & D Auto Sales v. United States – Case Brief Summary (Federal Court)

A & D Auto Sales v. United States - Case Brief Summary (Federal Court)

In A & D Auto Sales, Inc. v. United States, 748 F.3d 1142 (Fed. Cir. 2014), car dealerships brought takings claims against the government because the government instructed auto manufacturers to breach certain agreements with those dealerships. A & D, 748 F.3d at 1147.

The Court addressed the takings claim against the government even though the Court noted that the claimants may have remaining claims against the auto manufacturers. Id. at 1149 (“To the extent the franchises were terminated by action of the bankruptcy estate, the affected dealers received unsecured claims against the estates.”).

In A & D Auto Sales v. United States, 748 F.3d 1142, 1148 (Fed. Cir. 2014) , the government argued before the Federal Circuit, as it does now, that GM and Chrysler would have been forced to liquidate and plaintiffs’ franchises would have been worthless without the government’s assistance that was conditioned on cancelling plaintiffs’ franchises.

Therefore, according to the government, because the plaintiff’s property would have zero value but for the government’s intervention, there was no taking. The Federal Circuit agreed with plaintiffs that government action requiring a third party to eliminate a private property right “may give rise to takings liability depending on the circumstances.” A & D Auto Sales, 48 F.3d. at 1153.

However, the Circuit accepted government’s premise that if the plaintiffs’ franchises were worth nothing, no taking had occurred, noting that “just compensation for a net loss of zero is zero.” Id. at 1157 (citing Brown v. Legal Found. of Washington, 538 U.S. 216 , 240 n.11 (2003)).

The Circuit stated that “in order to establish a regulatory taking, a plaintiff must show that his property suffered a diminution in value or a deprivation of economically beneficial use.” Id. Therefore, the Circuit found, “by necessity, proving economic loss requires a plaintiff to show what use or value its property would have but for the government action.” Id.

The court found that, in order to survive a motion to dismiss for a takings claim, a plaintiff must “allege sufficient facts in its complaint to show what use or value its property would have had.” Id.

The Federal Circuit also agreed with the government that plaintiffs’ complaints “contain no allegations regarding the but-for economic loss of value of the plaintiffs’ franchises from which to establish an economic loss.” Id. at 1158.

The Circuit explained that: Absent an allegation that GM and Chrysler would have avoided bankruptcy but for the government’s intervention and that the franchises would have had value in that scenario, or that such bankruptcies would have preserved some value for the plaintiffs’ franchises, the terminations actually had no net negative economic impact on the plaintiffs because their franchises would have lost all value regardless of the government action. Id.

The Circuit remanded the case to give plaintiffs the opportunity to amend their complaint to allege the type of economic value/loss described in its opinion. Id. at 115859.