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Court Refuses To Dismiss Establishment Clause Challenge To AIG Bailout

By Howard M. Friedman

In Murray v. Geithner, (ED MI, May 26, 2009), a Michigan federal district court refused to dismiss a taxpayer's Establishment Clause challenge to the federal government's expenditure of $40 billion under the Emergency Economic Stabilization Act to rescue the giant insurance company, AIG. AIG is the market leader in Sharia-compliant financing. The lawsuit argues that use of federal bailout funds to finance "Sharia-based Islamic religious activities" is unconstitutional. Initially the court held that plaintiff has standing to bring the Establishment Clause challenge, relying in large part on the Supreme Court's 1988 decision in Bowen v. Kendrick. On the merits of the claim, the court held:

[T]he 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."... 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 ESSA, the government has injected AIG with tens of billions of dollars without restricting or tracking how this considerable sum of money is spent.... [A]fter the government acquired a majority interest in AIG... [it] co-sponsored a forum entitled "Islamic Financing 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.

The Thomas More Law Center which filed the lawsuit issued a press release summarizing the decision. (See prior related posting.)

Full post as published by Religion Clause on May 28, 2009 (boomark / email).