Murray v. Geithner

624 F.Supp.2d 667

Kevin J. MURRAY, Plaintiff, v. Timothy F. GEITHNER and Board of Governors of the Federal Reserve System, Defendants.

Civil No. 08-15147.

United States District Court, E.D. Michigan, Southern Division.

May 26, 2009.

David Yerushalmi, David Yerushalmi Assoc., Chandler, AZ, Robert J. Muise, Ann Arbor, MI, for Plaintiff.

John R. Coleman, U.S. Department of Justice, Civil Division, Washington, DC, for Defendants.

OPINION AND ORDER

LAWRENCE P. ZATKOFF, District Judge.

I. INTRODUCTION

This matter comes before the Court on Defendants' motion to dismiss [dkt 6]. The parties have fully briefed the motion. The Court finds that the facts and legal arguments are adequately presented in the parties' papers such that the decision process would not be significantly aided by oral argument. Therefore, pursuant to E.D. Mich. L.R. 7.1(e)(2), it is hereby ORDERED that the motion be resolved on the briefs submitted. For the reasons set forth below, Defendants' motion is DENIED.

II. BACKGROUND

According to the parties, a large-scale economic crisis erupted in the United States in 2008, threatening the liquidity and stability of financial institutions domestically and abroad. The rapid decline of the financial institutions subsequently infected the entire global economy, resulting in a state of affairs that the parties compare to the Great Depression. A full discussion of the crisis is irrelevant to this opinion; however, the underlying facts of this case would not have occurred but for the crisis, which catalyzed governmental response in unprecedented ways.

In September 2008, the Board of Governors for the Federal Reserve System acquired a majority ownership interest in American International Group, Inc. ("AIG") on behalf of the federal government. The Board of Governors accomplished this by authorizing the Federal Reserve Bank of New York ("FRBNY") to create a credit facility that enabled AIG to draw up to $85 billion for general corporate purposes, including as a liquidity source. The $85 billion credit line was collateralized by AIG's assets. In return for the credit facility, AIG signed a credit agreement whereby it agreed to pay interest and fees to the FRBNY and to issue Series C preferred stock to a trust—the AIG Credit Facility Trust ("Trust")—that held the stock for the benefit of the United States Treasury. The credit agreement provided that holders of Series C preferred stock were entitled to 79.9% (subsequently reduced to 77.9%) of the dividend payments and 79.9% (subsequently reduced to 77.9%) of the aggregate voting power of the common stock.

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 ("EESA"), 12 U.S.C. § 5201, in order to "restore liquidity and stability to the financial system of the United States." The EESA granted the Treasury Secretary broad authority "to purchase, and to make fund commitments to purchase, troubled assets from any financial institution" without specifying any particular institution. On November 25, 2008, the Secretary exercised the authority granted to him under the EESA to purchase "$40 billion of newly issued AIG perpetual [Series D] preferred shares and warrants to purchase a number of shares of common stock of AIG equal to 2% of the issued and outstanding shares as of the purchase date." AIG issued a press release in which it indicated that "[a]ll of the proceeds will be used to pay down a portion of the Federal Reserve Bank of New York credit facility." After the payment to reduce the $85 billion debt, the credit facility retained $60 billion in available credit.

AIG is the market leader in Sharia-compliant financing, which features financial products that comply with the dictates of Islamic law. According to AIG, "Sharia" is "Islamic law based on Quran [sic] and the teachings of the Prophet (PBUH)."¹ In Sharia-complaint financing, a Sharia authority issues a legal ruling called a fatwa, which approves or rejects particular investments or transactions. AIG's Sharia authority exists in the form of a "Sharia Supervisory Committee," the purpose of which "is to review [AIG's] operations, supervise its development of Islamic products, and determine Sharia compliance of these products and [AIG's] investments." A significant element of Sharia compliance involves "purification" of finances, accomplished in two manners: 1) an obligatory charitable contribution to those who "struggle for Allah"; and 2) disgorgement of "tainted" funds (those associated with entities forbidden under Islamic law) by donating them to acceptable Islamic charities.

One of the most prominent examples of Sharia-compliant financing is Takaful Insurance, which avoids investments in "prohibited elements in Islam according to Sharia." AIG opened a subsidiary in Bahrain called AIG-Takaful-Enaya in 2006. In December 2008, another AIG subsidiary announced the creation of a Takaful Homeowners Policy, the first in "a series of Shari'ah-compliant (Takaful) product offerings in the U.S." These subsidiaries represent elements of AIG's "global expansion strategy" to benefit from the growing Takaful Insurance field. In November 2008, the Department of Treasury hosted a forum entitled "Islamic Finance 101" in conjunction with the Islamic Finance Project of the Harvard Law School.

On March 4, 2009, AIG filed a Form 8-K with the Securities Exchange Commission ("SEC") in which AIG reported the transfer of the preferred shares of its stock to the Trust. The filing provided that "[a]s a result of the Transaction, a change in control of AIG has occurred. Pursuant to the Purchase Agreement, AIG and AIG's Board of Directors are obligated to work in good faith with the Trust to ensure corporate governance arrangements satisfactory to the Trust." In AIG's annual report to the SEC, it explained that "the Trust, which is overseen by three independent trustees, will hold a controlling interest in AIG, AIG's interests and those of AIG's minority shareholders may not be the same as those of the Trust of the United States Treasury."

Plaintiff is a federal taxpayer, United States Marine, and a practicing member of the Catholic faith. He brings this suit as a taxpayer, alleging that the "appropriated funds are being used to finance Sharia-based Islamic religious activities in violation of the Establishment Clause." As such, Plaintiff believes that the unregulated appropriation of funds to AIG was constitutionally impermissible. Defendants contend that Plaintiff lacks standing to bring this suit. In the alternative, Defendants maintain that Plaintiff has not stated a cognizable Establishment Clause claim and therefore, his case should be dismissed.

III. LEGAL STANDARD

Defendants bring their motion under both Fed.R.Civ.P. 12(b) (1) and 12(b)(6). When a motion is filed under Fed.R.Civ.P. 12(b)(1), the "plaintiff has the burden of proving jurisdiction in order to survive the motion." Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir.1986). The plaintiff's burden in this regard "is not onerous." Musson Theatrical v. Fed. Express Corp., 89 F.3d 1244, 1248 (6th Cir. 1996). The plaintiff may defeat the motion "by showing any arguable basis in law for the claim made." Id. The Court may dismiss an action for lack of subject-matter jurisdiction "because of the inadequacy of the federal claim ... only when the claim is `so insubstantial, implausible, foreclosed by prior decisions of [the Supreme Court], or otherwise completely devoid of merit as not to involve a federal controversy.'" Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Oneida Indian Nation of N.Y. v. County of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 39 L.Ed.2d 73 (1974)).

A motion brought pursuant to Fed. R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted tests the legal sufficiency of Plaintiff's claims. The Court must accept as true all factual allegations in the pleadings, and any ambiguities must be resolved in Plaintiff's favor. See Jackson v. Richards Med. Co., 961 F.2d 575, 577-78 (6th Cir.1992). While this standard is decidedly liberal, it requires more than the bare assertion of legal conclusions. See Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass'n, 176 F.3d 315, 319 (6th Cir.1999). Thus, a plaintiff must make "a showing, rather than a blanket assertion of entitlement to relief" and "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007).

In deciding a motion to dismiss pursuant to Fed.R.Civ.P. 12(b) (6), this Court may only consider "the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings, and matters of which the [Court] may take judicial notice." 2 James Wm. Moore et al., Moore's Federal Practice ¶ 12.34[2] (3d ed. 2000). If, in deciding the motion, the Court considers matters outside the pleadings, the motion will be treated as one for summary judgment pursuant to Fed.R.Civ.P. 56. See Fed.R.Civ.P. 12(b).

IV. ANALYSIS

A. STANDING

Article III of the Constitution of the United States "limits the judicial power ... to the resolution of `Cases' and `Controversies,' and `Article III standing ... enforces the Constitution's case-or-controversy requirement.'" Hein v. Freedom From Religion Found., 551 U.S. 587, 127 S.Ct. 2553, 2562, 168 L.Ed.2d 424 (2007) (quoting DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006)). To satisfy Article III standing, a plaintiff "must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). A plaintiff's injury must be "distinct and palpable, and not abstract or conjectural or hypothetical." Id. (...