We’re not suggesting you read the entire majority and dissenting opinions from the U.S. Court of Appeals for the Eleventh Circuit in Landcastle Acquisition Corp. v. Renasant Bank, No. 20-13735 (Jan. 12, 2023). After all, together they comprise 126 pages (yikes!). And the case isn’t our usual fare, but “arises out of the insolvency of the Crescent Bank and Trust Company (“Crescent”) and the conduct of its customer-lawyer Nathan Hardwick[.]” Slip op. at 1.

So what gives, inversecondemnation?  

We’re posting it because of the back-and-forth between the majority and the dissenting judge (Pryor, C.J., which begins on page 80 of the slip copy) on a takings question that cropped up.

We say “cropped up” because, as the majority argues, the dissent’s takings discussion “strays so far afield from the narrow” issue presented in the case that it proves to be a “false alarm.” Slip op. at 51. Thus, the majority dismissed the takings arguments in a footnote, asserting that the appellant “never mentioned it in the district court or in its appellate briefs.” Slip op. at 51 n.10. “That’s why the dissent resorts to suggesting that ‘Landcastle should be free on remand’ to raise a Takings Clause claim.” Id. 

So what’s this takings argument all about? The short story is that the lawyer’s law firm went bankrupt with Landcastle as one of its creditors. There’s a longer story, of course, but you really don’t want to bother with that. What you might want to do is skip forward to how Judge Pryor analogized it, beginning on page 44 of his dissent:

Consider the following hypothetical. Butch Cassidy is the Vice President of Finance at Coca-Cola. He has authority to enter into many kinds of transactions on behalf of Coca-Cola. In fact, he has entered into several high-dollar agreements, taken out loans, and pledged collateral on behalf of Coca-Cola. Cassidy has a family and a house with a white picket fence in the suburbs. Everything appears to be going well, but he has badly mismanaged his finances. A bad turn of luck with a cryptocurrency investment and a nasty gambling habit have left him in dire straits. He is in default on his mortgage with no way to cure it and is days away from fore-closure.

So, Cassidy finds a small Atlanta-area bank named Old Bank that is severely distressed. He borrows enough money to pay off his mortgage and give him a little breathing room. He signs a promissory note, but Old Bank, of course, demands collateral to secure the loan. Cassidy, an agent of Coca-Cola for many purposes, signs an agreement as “Butch Cassidy, Vice President of Coca-Cola.” The agreement assigns all interests in Coca-Cola’s secret formula to Old Bank. Even though he lacks both actual and apparent authority, he falsely represents to Old Bank that, as a benefit to senior officers, Coca-Cola gave him the authority to pledge the secret formula to secure personal debts. Old Bank fails, and the Deposit Corporation takes over as receiver. Our main character, Butch Cassidy, then defaults on the loan because, unsurprisingly, he continues to mismanage his finances.

Under the majority’s new rule, the federal government now owns Coca-Cola’s secret formula free and clear! The Deposit Corporation has legal title to the secret formula, and Coca-Cola is out of luck. And the majority does not even attempt to deny that its rule would require this absurd result.

Dissent at 44-45.

Whoa. The takings problem as Judge Pryor saw it the takings argument not as an affirmative claim for compensation, but more like a rule of construction for the judicial D’Oench doctrine (courts can’t interpret or apply the rule in way that will result in a taking). And if anyone wasn’t sure what he meant by that, he laid it all out:

Because the majority’s new rule deprives private parties of property rights and gives those rights to the federal government, it creates serious Takings Clause concerns. See Horne v. Dep’t of Agric., 135 S. Ct. 2419, 2426 (2015) (“[A]n appropriation . . . of personal property” “is a per se taking that requires just compensation.”); Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 164–65 (1980) (applying the Takings Clause to interest earned on a deposit fund); E. Enters. v. Apfel, 524 U.S. 498, 522–23 (1998) (plurality opinion) (applying the Takings Clause to required money payments). To illustrate, at time one, a principal has an indefeasible right to an asset, and a failed bank has no interest in that asset. At time two, the federal government acts and takes over the failed bank. As a result of the federal government’s action, the federal government appropriates the asset, and the principal loses all rights in the asset. Courts ordinarily call that a “taking,” see, e.g., Horne, 135 S. Ct. at 2426; the majority calls it “[e]quit[y],” Maj. Op. 45.

The majority’s new rule gives Landcastle a plausible Takings Clause claim against the Deposit Corporation. In fact, Landcastle should be free on remand to argue that, because the D’Oench doctrine claim is unconstitutional as applied to its lack-of-authority claim, it can state claims for conversion and breach of contract. See City of Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687, 717 (1999) (plurality opinion) (explaining that an uncompensated taking is “not only unconstitutional but unlawful and tortious as well”); Knick v. Twp. of Scott, 139 S. Ct. 2162, 2180 (2019) (Thomas, J., concurring) (explaining that “ordinary remedial principles [of] . . . common-law tort claims” are available in response to a taking). But the majority has apparently resolved that question sub silentio because it remands with instructions to enter judgment in favor of Renasant. Maj. Op. 79. Left for another day is whether Landcastle might still be able to bring a separate claim against the Deposit Corporation for an unconstitutional taking. See Knick, 139 S. Ct. at 2170; City of Monterey, 526 U.S. at 717 (plurality opinion).

Before today, the D’Oench doctrine did not implicate the Takings Clause because the Supreme Court limited its application to protect only those interests that the Deposit Corporation already had. See Langley, 484 U.S. at 93–94. But the majority’s extension of the D’Oench doctrine places it on much shakier constitutional ground. Because the majority purports to apply the preexisting D’Oench doctrine, see Maj. Op. 44–45, it fails to engage in the Kimbell Foods analysis. And in that analysis, these Takings Clause problems would preclude creating this rule.

The majority preemptively reacted to the above with its own bit of judicial clapback: “Oh my goodness. ‘[L]ike most apocalyptic warnings,’ the dissent ‘proves a false alarm.'” Slip op. at 51 (citation and footnote omitted). 

So there it is.

If the plaintiff takes up Judge Pryor’s invitation on remand and the takings issue becomes more than just judicial verbal sparring, we’ll let you know, Hoss. 

Landcastle Acquistion Corp. v. Renasant Bank, No. 20-13735 (11th Cir. Jan 12, 2023)