Federal Circuit Flash Digest – Aviation v. United States: Termination of the Right to Sue Libyan Government Not a Taking

Aviation & Gen. Ins. Co., Ltd. v. United States, No. 2016-2389, 2018 WL 817247 (Fed. Cir. Feb. 12, 2018)

In Aviation & Gen. Ins. Co., Ltd. v. United States, the U.S. Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims’ grant of summary judgment for the U.S. Government (“Government”), holding that the termination of Aviation’s lawsuits did not constitute a Fifth Amendment taking. The Federal Circuit also first addressed the threshold issue that the Government’s actions did present a justiciable question.

In 1998 and 2006, Aviation filed suit against the Libyan government in the United States District Court for the District of Columbia. Aviation asserted their insurance subrogation rights and sought damages for the insurance claims they paid as a result of the EgyptAir and Pan Am Libyan-sponsored terrorist attacks. In 2008, while the lawsuits were pending, Congress passed the Libyan Claims Resolution Act (“LCRA”), restoring Libya’s sovereign immunity and implementing the LCSA. Then-President George W. Bush signed an Executive Order terminating all pending U.S. suits against Libya related to the EgyptAir and Pam attacks. As a result, the district court dismissed Aviation’s suit for lack of jurisdiction.

Following termination, the State Department referred Aviation’s claims to the Foreign Claims Settlement Commission (“FCSC”), a settlement program funded by Libya. The FCSC denied Aviation’s claims.

In 2014, Aviation filed suit against the Government in the Court of Federal Claims, alleging that the termination of all U.S. suits against Libya constituted a taking under the Fifth Amendment. The Government moved to dismiss on the ground that the case presented a nonjusticiable political question. The Court of Federal Claims denied the motion to dismiss but granted summary judgment in favor of the Government, finding that no taking had occurred.

The Federal Circuit addressed the justiciability question and reviewed de novo the lower court’s grant of summary judgment. With regard to justiciability, the Federal Circuit held that Aviation’s claims concerning the Government’s termination of their lawsuits did not present a nonjusticiable political question. Instead, they presented a legal question of whether a Fifth Amendment taking occurred.

The Federal Circuit subsequently held that the Government’s actions did not constitute a taking. It reached this conclusion by balancing three relevant considerations under Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978). First, although the Government’s action in reinstating Libya’s sovereign immunity impaired Aviation’s rights in maintaining their lawsuits, it did not physically invade Aviation’s property rights. Second, the Government’s action was “neither novel nor unexpected” and therefore did not interfere with Aviation’s reasonable investment-backed expectations. Third, the economic impact of the Government’s action on Aviation is speculative and uncertain. In addition to these factors, the Federal Circuit also considered public interest and policy considerations, stating that the Government’s action was designed to normalize U.S. relations with Libya, restore international comity, and promote international commerce.

Judge Reyna concurred in affirming the grant of summary judgment. According to Reyna, Aviation’s claims should be rejected for lack of standing. In the context of insurance claims, courts have generally held that the insurer’s claim against a third party based on a subrogated interest is limited to actual tortfeasors. However, the Government was not directly responsible for the Libyan-sponsored attacks; its involvement was limited to its actions taken after the attacks.

Additionally, Reyna dissented with the majority’s view that Aviation’s claims concerning the Government’s termination of their lawsuits presents a justiciable question. Reyna believed that the court is precluded from considering Aviation’s takings claim because it runs the risk of materially interfering with the Government’s constitutional authority in foreign relations and shifting the burden of bearing the costs of foreign state sponsored terrorist attacks to U.S. taxpayers.

Judy Greenwald from Business Insurance generally observes that the Aviation ruling establishes that insurers cannot pursue lawsuits against Libya in terrorism attacks. Chase Johnson and Steven Shaw of Covington & Burling noted that Aviation is instructive for potential plaintiffs considering filing a takings claim. First, tactful use of alternative takings theories may increase the likelihood of overcoming summary judgement. For example, Aviation could have avoided the need to argue investment-backed expectation by guiding the court to evaluate their claim using the Lucas test (Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992)) rather than the Penn Central multi-factor test. Second, potential plaintiffs should involve their attorneys far in advance to ensure that their takings claim is part of their larger litigation strategy.

Aviation could become a guide post in litigating the intellectual property statutory framework. Not manifested in tangible medium like real or personal property, intellectual property is little more than the right to sue an infringer. As Aviation suggests, diminishment of these rights would be subject to the Penn Central multi-factor test. And if Aviation controls, an IP holder’s right to sue could be removed by statute with few remedies. The Federal Circuit, having disregarded Judge Reyna’s caution to decide the case on standing, went beyond what was necessary and set forth a holding that weakened IP ownership rights.

Amy Zhao is a 1L student at Harvard Law School.