The U.S. Court of Federal Claims recently cleared the way to hear a case involving the uncompensated taking of property (a temporary dining facility and equipment) owned and operated in Iraq by Kuwait Pearls, a catering company. Kuwait Pearls operated the dining facilities on behalf of the U.S. military. Following the withdrawal of U.S. troops from Iraq, the United States categorized the dining facility as real property, which could not be removed from Iraq and relocated. Kuwait Pearls argued instead that their catering agreement categorized their dining facility as personal property. The Company first sued in a state court in Texas claiming a breach of contract, fraud, and promissory estoppel. That action was removed from state court to a federal district court for the Southern District of Texas. The district court dismisses the case, holding that the political question and act-of-state doctrines rendered the matter nonjusticiable.
While an appeal of the dismissal was pending in the Fifth Circuit, Kuwait Pearls filed a takings case in the Court of Federal Claims. The Fifth Circuit ultimately decided to vacate the district court’s dismissal, but a concurring and dissenting member of the panel suggested that Kuwait Pearls’ claims belonged in the Court of Federal Claims:
Although the outcome of that litigation in the Court of Federal Claims would be uncertain (it always is in litigation), it at least appears that Kuwait Pearls would be able to assert the takings claim as a third-party beneficiary of KBR’s contract with the military.
Last month, the Court denied the Government’s motion to dismiss Kuwait Pearls’ taking case. Kuwait Pearls Catering Co., WLL, v. United States, No. 17-220C (September 30, 2019).
Taking foreign property
To sustain a taking claim involving foreign property, the plaintiff must allege substantial, voluntary connections with the United States. Here, the court found that Kuwait Pearls’ contracts with the United States Military in Iraq provided the required substantial connections with the government.
The company directly served military personnel on the United States’ military base, under a subcontract with a United States corporation. The United States Military is named as the Client of the subcontract, and the United States approved the subcontract. The United States also exercised substantial control over Kuwait Pearls’ operations, including staffing, suppliers, and even what food items the company would serve. The Company was also subject to federal laws and regulations.
A cognizable property interest
To survive a motion to dismiss under Rule 12 (b)(1), a plaintiff must allege a legally cognizable property interest taken by the United States Government.
The Court held that Kuwait Pearls’ property interests–its tangible, moveable dining facility and the associated equipment—satisfied this jurisdictional requirement.
Kuwait Pearls sufficiently established that it possessed substantial connections with the United States by (1) voluntarily providing a dining facility and related services directly to the United States Military personnel on a United States base, (2) submitting to extensive United States control of its operations and personnel, and (3) adhering to United States laws and regulations. The Court, therefore, denied the Government’s motion to dismiss Kuwait Pearls’ taking lawsuit for lack of jurisdiction.