Public Takings of Private Contracts
53 Pages Posted: 12 Mar 2011 Last revised: 15 Mar 2011
This article, part of a larger project analyzing how far public and private contracting arrangements can go in constraining democratic decision-making, examines whether the United States should be liable under the Takings Clause of the Fifth Amendment when its actions have the effect of destroying or impairing private contract rights. In the Omnia Commercial case, decided 90 years ago, the Supreme Court ruled that private contract interests represent “property” within the meaning of the Takings Clause, and that the issue of whether such property has been “taken” should be resolved by assessing whether the government has “appropriated” the contract interest (resulting in a taking), or merely “frustrated” it (not resulting in a taking). While Omnia Commercial reflects a sound intuition that private contract interests deserve special treatment under the Takings Clause, the appropriation versus frustration standard has no principled foundation and is irreconcilable with modern takings standards. In place of the Omnia Commercial standard, this article suggests that the Court should adopt a two-part analysis. First, rather than treating all private contract interests as a form of “property,” the Court should only treat the direct contractual commitments between the parties as property; as a result, only when the government inserts itself into the parties’ contractual relations, by taking over the contract benefits of one of the parties, or by transferring the benefits to some new party, has the government impinged on “property” in a fashion that can potentially support a taking claim. Second, the Court should rule that a government action impinging on contract-based property does not result in a taking when the action imposes no net economic loss on the contracting parties, considered together as a single unit; this approach would require the parties to allocate between themselves the burden, if any, a government action has imposed on either one of them. On the other hand, the Court should rule that, when government interference with contract-based property does produce a net loss to the contracting parties, considered as a unit, a finding of a taking generally will be warranted under a traditional appropriation analysis.
Keywords: takings, contracts, property, Omnia Commercial
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