Suit alleging that federal government is supporting sharia financing gets green light

The suit says that the federal government, having purchased 80 percent of AIG, is now funding sharia-compliant finance products that AIG sells, and thus is violating the no-establishment clause of the First Amendment. The staff of the SANE website, where the main writer is David Yerushalmi, lawyer for the plaintiff in the case, sent this astonishing e-mail yesterday.

Nestled in between the California Supreme Court’s opinion validating Prop 8 and President Obama’s choice to fill J. Souter’s slot on SCOTUS, comes this important decision out of the ED of Michigan:

In an extremely well-written and soundly analyzed opinion, Judge Lawrence P. Zatkoff of the U.S. District Court for the Eastern District Court of Michigan, has denied the U.S. government’s motion to dismiss the lawsuit filed by Kevin Murray. (The full opinion may be downloaded above from this entry’s unique url.) Mr. Murray, who is represented by legal counsel David Yerushalmi and the Thomas More Law Center (Richard Thompson and Robert Muise), filed a federal complaint against the Treasury Secretary, representing the U.S. Treasury, and the Federal Reserve Board alleging that AIG’s promotion of Shariah in its Shariah-compliant insurance products violates the Establishment Clause because the federal government owns and controls 80% of AIG and AIG’s actions have become the government’s.

The government filed its motion to dismiss making two arguments. One, Mr. Murray, as a former combat Marine, practicing Catholic, and tax payer, did not have standing to even bring this lawsuit. Two, even if he did have standing, the government acted in buying AIG without any intent to promote or become involved in religious questions.

The Court spent much of its opinion reciting the law on the narrow exception to the no-tax-payer-standing rule. That exception is triggered in a claim of a violation of the Establishment Clause and when there is a specific legislative grant for spending that implicates the First Amendment. The Court carefully reviewed all of the relevant case law and found the argument made by Messrs. Yerushalmi and Muise in their brief persuasive.

On the second issue, the Court put together all of the facts as presented by the Plaintiff’s brief and concluded:

In this case, the fact that AIG is largely a secular entity is not dispositive: “The question in an as-applied challenge is not whether the entity is of a religious character, but how it spends its grant.” Kendrick, 487 U.S. at 624–25 (Kennedy J., concurring). The circumstances of this case are historic, and the pressure upon the government to navigate this financial crisis is unfathomable. Times of crisis, however, do not justify departure from the Constitution. In this case, the United States government has a majority interest in AIG. AIG utilizes consolidated financing whereby all funds flow through a single port to support all of its activities, including Sharia-compliant financing. Pursuant to the EESA, the government has injected AIG with tens of billions of dollars, without restricting or tracking how this considerable sum of money is spent. At least two of AIG’s subsidiary companies practice Sharia-compliant financing, one of which was unveiled after the influx of government cash. After using the $40 billion from the government to pay down the $85 billion credit facility, the credit facility retained $60 billion in available credit, suggesting that AIG did not use all $40 billion consistent with its press release. Finally, after the government acquired a majority interest in AIG and contributed substantial funds to AIG for operational purposes, the government co-sponsored a forum entitled “Islamic Finance 101.” These facts, taken together, raise a question of whether the government’s involvement with AIG has created the effect of promoting religion and sufficiently raise Plaintiff’s claim beyond the speculative level, warranting dismissal inappropriate at this stage in the proceedings.

We reached out to Messrs. Yerushalmi and Muise in a conference call. They both were quite obviously pleased by the well-reasoned opinion. They also said, almost in perfect unison: “There is not a fact in the complaint we cannot prove.” Mr. Yerushalmi added, “This case is going to send a loud and reverberating alarm in Washington and in the financial world which is now running full speed and blindly to embrace Shariah-compliant finance.”

When the case was first filed, arm-chair First Amendment lawyers (meaning law professors who opine while gathering wood splinters writing arcane law review articles and shotgun blog entries) almost unanimously concluded this case had zero chance to survive a motion to dismiss. Turns out they were wrong. Way wrong.

Indeed, Thomas C. Baxter, Jr., the legal counsel to the New York Federal Reserve, was a participant in a day-long conference at Fordham University’s law school entitled, “Islamic Law and Financial Symposium,” on February 23, 2009. After he gave the standard rah-rah Shariah finance is a win-win, someone from the audience asked him about the lawsuit. His answer: “While I will not comment on pending litigation, what I can say is that we are absolutely certain that the court will dispense with it very expeditiously.”


Maybe it is time for Mr. Baxter and the other government lawyers to enroll in Mr. Yerushalmi’s newly published on line continuing legal education (CLE) course designed for financial institution compliance officers, SEC lawyers, Treasury officials, and investors, on the civil liability and criminal exposure risks associated with Shariah-compliant finance (available here.) Maybe then the Baxters of the world could offer their learned opinions rather than just the standard arrogant hot air of a government bureaucrat who insists the government can do no wrong.

Posted by Lawrence Auster at May 27, 2009 07:22 PM | Send

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