UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

KEVIN J. MURRAY

CIVIL NO. 08-15147

Plaintiff,

HON. LAWRENCE P. ZATKOFF

-vs- MAG. JUDGE MONA K. MAJZOUB

TIMOTHY F. GEITHNER, Secretary, U.S. 

Department of Treasury, and BOARD OF

GOVERNORS OF THE FEDERAL 

RESERVE SYSTEM,

Defendants.

 /

DEFENDANTS’ BRIEF IN OPPOSITION TO PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT

Case 2:08-cv-15147-LPZ-MKM Document 71 Filed 06/28/10 Page 1 of 25
ISSUE PRESENTED

Whether the Emergency Economic Stabilization Act of 2008, as applied to the Secretary

of the Treasury’s purchase of American International Group, Inc. preferred stock, had either the

predominant purpose or the primary effect of establishing religion.

Case 2:08-cv-15147-LPZ-MKM Document 71 Filed 06/28/10 Page 2 of 25
MOST PERTINENT AUTHORITY

McCreary County, Ky. v. ACLU, 545 U.S. 844 (2005)

Mitchell v. Helms, 530 U.S. 793 (2000)

Agostini v. Felton, 521 U.S. 203 (1997)

Am. Atheists, Inc. v. City of Detroit Downtown Dev. Auth., 567 F.3d 278 (6th Cir. 2009)

Case 2:08-cv-15147-LPZ-MKM Document 71 Filed 06/28/10 Page 3 of 25
TABLE OF CONTENTS

INTRODUCTION .............................................................1

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I. No Reasonable Observer Could Conclude that the EESA Was Enacted or Has Been

Implemented With the Purpose of Advancing Religion . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II. No Reasonable Observer Could Conclude that the Primary Effect of the Secretary’s

Purchase of AIG Preferred Stock Pursuant to the EESA Has Been the Advancement of

Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Plaintiff Cannot Demonstrate that the Treasury Department’s Purchase of AIG

Preferred Stock Pursuant to the EESA has Led to Religious Indoctrination

Attributable to the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. EESA Funds Have Not Been Used to Market Shariah-Compliant 

Products ...................................................4

2. AIG’s Presentation of its Financial Results on a Consolidated Basis is 

Not a Basis for Concluding that AIG Has Directed EESA Funds to

Support the Sale of Shariah-Compliant Products ...................4

3. Plaintiff’s Claim Regarding AIG’s Financial Support of ShariahCompliant Products is Factually Baseless and Legally Irrelevant .......6

4. AIG’s Subsidiaries’ Sale of Shariah-Compliant Products Cannot Be

Attributed to the Treasury Department . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

5. The Sale of Shariah-Compliant Products is Not Religious 

Indoctrination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B. Facts Unrelated to the Treasury Department’s Exercise of Authority Pursuant to

the EESA Are Immaterial And, In any Event, Do Not Demonstrate an

Endorsement of the Islamic Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

C. Restrictions on AIG’s Use of Funds Are Not Legally Required, but, Even

Assuming Otherwise, the EESA and the Structure of the Treasury Department’s

Investment Are Sufficient Such that No Reasonable Observer Could Conclude

that their Primary Effect Has Been the Advancement of Religion . . . . . . . . . . . 15

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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INTRODUCTION

Neither the purpose nor the primary effect of the Secretary of the Treasury’s

(“Secretary”) purchase of American International Group, Inc. (“AIG”) preferred stock pursuant

to the Emergency Economic Stabilization Act of 2008 (“EESA”) was to advance the Islamic

religion. And Plaintiff’s Motion for Summary Judgment fails to provide any basis for a

reasonable observer to conclude otherwise. Plaintiff’s theory that AIG’s use of consolidated

accounting leads to the presumption that EESA funds provided to AIG have been used to support

all its subsidiaries’ activities, including the sale of shariah-compliant insurance products, is

groundless and legally insufficient. The undisputed evidence is that no EESA funds have gone

to support the subsidiaries that sell these products (let alone the products themselves), and that,

in any event, the products’ contribution to AIG’s consolidated revenue is de minimis. Similarly

baseless is plaintiff’s contention that all of AIG’s activities, including the sale of shariahcompliant products by its independent subsidiaries, are attributable to the defendants because

AIG’s controlling shareholder is an independent trust established for the benefit of the U.S.

taxpayers (as a result of a statute not challenged in this case). Further, plaintiff’s proffered

evidence of endorsement is both irrelevant to his claim and insufficient. Finally, contrary to

plaintiff’s argument, the Constitution does not require explicit restrictions on AIG’s use of EESA

funds, and, even assuming otherwise, the relevant safeguards are more than sufficient to ensure

that a reasonable, reasonably informed observer would not consider the “primary effect” of the

Secretary’s investment in AIG to be the advancement of religion.

ARGUMENT

Plaintiff must demonstrate that the EESA, as applied to the Secretary’s purchase of AIG

preferred stock, either was motivated by a religious purpose or has had the “primary effect of

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advancing or inhibiting religion.” Mitchell v. Helms, 530 U.S. 793, 807-08 (2000) (plurality

opinion) (citing Agostini v. Felton, 521 U.S. 203, 222-23 (1997)). Plaintiff has provided no

evidence of an improper purpose. Nor has plaintiff demonstrated that the Treasury Department’s

purchase of AIG preferred stock pursuant to the EESA had the “primary effect of advancing or

inhibiting religion.” Id.

I. No Reasonable Observer Could Conclude that the EESA Was Enacted or Has Been

Implemented With the Purpose of Advancing Religion

There is no evidence that the EESA was enacted, or has been implemented, “with the

ostensible or predominant purpose of advancing religion.” McCreary County, Ky. v. ACLU, 545

U.S. 844, 860 (2005). Although plaintiff quotes the Supreme Court’s admonition that courts

should not naively accept “any transparent claim to secularity” when considering governmental

purpose, see Pl. Mem. at 15 (quoting McCreary, 545 U.S. at 863-64), plaintiff presents no

evidence nor even argues that the government’s stated purpose in enacting and implementing the

EESA, is “a sham, [or] merely secondary to a religious objective.” McCreary, 545 U.S. at 864. 

Indeed, the exhibits to plaintiff’s memorandum corroborate that the government’s purpose in

enacting and implementing the EESA has been entirely secular.1

 Thus, the undisputed facts

demonstrate that the EESA has been implemented “for the sole purpose of restoring stability to

financial institutions.” Murray v. Geithner, 624 F. Supp. 2d 667, 676 (E.D. Mich. 2009). 

1

 See, e.g., 154 Cong. Rec. H10712 (Statement of Rep. Frank) (“This legislation is about making

sure that there is enough credit in order for students and families to take out loans to afford to go

to college.”) (Pl. Ex. 24); Id. at 10702 (Statement of Rep. Slaughter) (“The bill before us is

intended to rescue Main Street. By rescuing the financial institutions, we rescue the jobs, the

savings and the ability to get a loan for each hardworking American.”); Letter from Bernanke to

Paulson dated November 9, 2008 (“I believe that utilizing TARP funds to purchase preferred

equity of American International Group, Inc. (AIG) is necessary to promote financial stability.”)

(Pl. Ex. 19).

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II. No Reasonable Observer Could Conclude that the Primary Effect of the Secretary’s

Purchase of AIG Preferred Stock Pursuant to the EESA Has Been the Advancement

of Religion

The Supreme Court has identified three primary criteria for evaluating whether a

government aid program impermissibly advances religion: (1) whether it results in religious

indoctrination that could be attributed to the government; (2) whether it defines its recipients by

reference to religion; and (3) whether it create an excessive entanglement between government

and religion. See Mitchell, 530 U.S. at 808 (plurality opinion) (citing Agostini, 521 U.S. at 234);

id. at 845 (O’Connor, J., concurring in the judgment) (same). Plaintiff concedes that the EESA

does not define its recipients by reference to religion, Pl. Mem. at 16, and his arguments that the

EESA runs afoul of the first and third Mitchell prongs are factually and legally groundless. 

A. Plaintiff Cannot Demonstrate that the Treasury Department’s Purchase of

AIG Preferred Stock Pursuant to the EESA Has Led to Religious

Indoctrination Attributable to the Government

To show that the EESA, as-applied to the purchase of AIG preferred stock, has led to

religious indoctrination attributable to the United States Department of the Treasury (“Treasury

Department”), plaintiff must demonstrate—at a minimum—that AIG has actually diverted EESA

funds to support the sale of shariah-compliant insurance products, and that the diverted funds are

not de minimis in relation to the total amount of capital provided to AIG. See Mitchell, 530 U.S.

at 857-58, 861 (2000) (O’Connor, J., concurring in the judgment);2 Am. Atheists v. Detroit

Downtown Dev. Auth., 567 F.3d 278, 293-94 (6th Cir. 2009). Plaintiff must also show that “a

reasonable, reasonably informed observer” would both attribute the sale of these products to the

2

 The Mitchell plurality viewed actual diversion as irrelevant to the Establishment Clause

inquiry, provided the aid itself is content neutral and distributed on a non-religious basis. Id. at

820 (plurality opinion). Justice O’Connor’s concurring opinion, which rested on narrower

grounds, is the controlling authority. Marks v. United States, 430 U.S. 188, 193 (1977).

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government, and perceive the offer of shariah-compliant insurance products, alongside a host of

conventional insurance products, as an endorsement of the Islamic religion. See Am. Atheists,

567 F.3d at 291-92. Plaintiff fails to satisfy any of these requirements.

1. EESA Funds Have Not Been Used to Market Shariah-Compliant Products

Without citation to the record, plaintiff simply asserts that “all funds going to AIG are

used to financially support AIG’s activities, including its religious activities.” Pl. Mem. at 18-

19. Even assuming that the sale of shariah-compliant insurance products is a religious activity

(but see infra Section II.A.5) this statement is contradicted by the undisputed record. The direct

recipient of EESA funds, AIG, does not sell Shariah-compliant insurance products. Lee Decl. ¶

5 (Def. Ex. 6). And, although certain direct or indirect subsidiaries of AIG sell, or have sold,

shariah-compliant insurance products, id. at ¶ 6, the undisputed record demonstrates that none of

these subsidiaries have received any EESA funds. See Millstein Decl. ¶¶ 10, 29 (Def. Ex. 1);

Gender Decl. ¶ 10 (Def. Ex. 4); Outlines of Expected Uses (Def. Ex. 1-K to 1-N); Suppl. Gender

Decl. ¶ 2 (Def. Ex. 5); Series F Actual Use of Funds (Def. Ex. 1-O); Section 3.10 Certification

(attached as Ex. 12-A hereto). It follows necessarily that none of these subsidiaries have used

EESA funds to support the sale of Shariah-compliant insurance products. Accordingly, plaintiff

has not provided any evidence sufficient to satisfy his burden of showing that EESA funds have

been diverted to support the sale of shariah-compliant products.

2. AIG’s Presentation of its Financial Results on a Consolidated Basis Is Not

a Basis for Concluding that AIG Has Directed EESA Funds to Support the

Sale of Shariah-Compliant Products

Unable to evade these facts, plaintiff claims that “[b]ecause AIG uses consolidated

accounting and receives and funnels money through an unsegregated single port, taxpayer funds

have been effectively diverted to support AIG’s Shariah-based Islamic activities and are

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divertible in the future for such uses with no meaningful restrictions or safeguards.” Pl. Mem. at

11; see also id. at 2-3 (“the cash flows from AIG to its subsidiaries relevant to this litigation are

neither sourced in nor destined for segregated accounts.”). The assumptions underlying this

theory are baseless, and, even if accepted, this theory would not demonstrate an Establishment

Clause violation.

As a factual matter, it is undisputed that 

 Lee Decl. ¶ 5. 

Nor can there be any dispute regarding how AIG has used the EESA funds. As required by the

Series D Securities Purchase Agreement dated November 25, 2008 (“Series D SPA”), AIG used

the first $40 billion of EESA funds it received to pay down its debt with the Federal Reserve

Bank of New York (“FRBNY”). See Gender Decl. ¶ 10 (Def. Ex. 4); Series D SPA § 1.2(b)

(Def. Ex. 1-C). And, as required by the Securities Purchase Agreement dated April 17, 2009

(“Series F SPA”), AIG provided detailed outlines of its intended use of the approximately $7.5

billion in Series F EESA funds it has drawn to date, and thereafter certified, under penalty of

federal law, to its actual use of those funds. See Series F SPA §§ 1.6(c), 3.10 (attached as Ex. 13

hereto); Outlines of Expected Uses (Def. Ex. 1-K to 1-N); Suppl. Gender Decl. ¶ 2 (Def. Ex. 5);

Series F Actual Use of Funds (Def. Ex. 1-O); Section 3.10 Certification (Def. Ex. 12-A).3

Thus, AIG’s use of consolidated accounting does not mean, as plaintiff asserts, that AIG

and its subsidiaries do not maintain separate accounts, but that these accounts are consolidated

for purposes of presentation in its public financial filings, as required by the SEC. See generally

3

 In the few instances in which AIG did not use the Series F EESA funds as described in its

Outlines of Expected Uses, it used the funds to 

 See Section 3.10 Certification (Def. Ex. 12-A).

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17 C.F.R. §§ 210.3A-01 to 210.3A-05.4

 As a result, plaintiff’s claim that EESA funds have been

“effectively diverted” to support the sale of shariah-compliant products has absolutely no

evidentiary support.

Furthermore, even if one were to accept plaintiff’s unfounded assumption that “all funds

going to AIG are used to support AIG’s [consolidated business] activities, including its religious

activities” on a proportional basis, see Pl. Mem. at 19, plaintiff’s Establishment Clause claim

would still fail because the sale of shariah-compliant products by AIG’s subsidiaries is a de

minimis part of AIG’s consolidated business. Indeed, even under the most conservative

assumptions, these products contributed less than % to AIG’s 2009 consolidated revenue.5

Diversion of “‘less than one percent of the total allocation’ of aid under the program . . . is ‘too

insignificant to affect the constitutional inquiry.’” Am. Atheists, 567 F.3d at 294 (quoting

Mitchell, 530 U.S. at 866-67 (O’Connor, J., concurring in the judgment)). Thus, even if the

Court were to accept plaintiff’s baseless theory, he would not be entitled to summary judgment.

3. Plaintiff’s Claim Regarding AIG’s Financial Support of ShariahCompliant Products Is Factually Baseless and Legally Irrelevant

Unable to show actual diversion of EESA funds to support the sale of shariah-compliant

4

 See also AIG 2009 Form 10-K at 202 (Note 1 to the Consolidated Financial Statements)

(“Basis of Presentation. The consolidated financial statements include the accounts of [AIG], its

controlled subsidiaries, and variable interest entities in which AIG is the primary beneficiary. . .

. All material intercompany accounts and transactions have been eliminated.”) (emphasis added)

(attached as Ex. 14 hereto).

5

 Compare Coleman Decl. ¶ 8 (Def. Ex. 1) (AIG’s fiscal year revenue on a consolidated basis

was approximately $96.0 billion) with

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products, plaintiff claims instead that “to date AIG has directly and indirectly provided financial

support in excess of one billion dollars to its [shariah-compliant finance] business while

receiving taxpayer funds.” Pl. Ex. 11.6

 This statement is both factually wrong and legally

immaterial.

As an initial matter, there is no evidence to support plaintiff’s assertion that AIG has

provided funds (from any source) to support any shariah-compliant finance (“SCF”) business. 

 See Gender Decl. ¶ 9(d) (Def. Ex 4). 

But, ALICO is not an “SCF business” as plaintiff baldly claims. ALICO is “a leading

international life insurer that provides consumers and businesses with products and services for

life insurance, accident and health insurance, retirement and wealth management solutions.” See

MetLife Press Release 3.8.2010 (attached as Ex. 15 hereto). Its total revenues for the first

quarter of 2010 were $3.522 billion, or approximately $14.1 billion on an annualized basis. See

AIG Form 10-Q for Period Ending March 31, 2010, at 112 (attached as Ex. 16 hereto). Indeed,

plaintiff’s claim that ALICO is an “SCF business” relies entirely on 

Likewise, Lexington Insurance Co. (“Lexington”), 

6

 Plaintiff’s brief does not cite to any evidence to support this statement, but to two additional

pages of argument that plaintiff attached to his brief as Exhibit 36. Pl. Mem. at 11. Plaintiff’s

additional argument should be stricken. See E.D. Mich. L. R. 7.1(d)(3)(A). But even if the

Court were to consider it, Exhibit 36 does not support plaintiff’s statement.

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 Rather, “Lexington writes

surplus lines for risks on which conventional insurance companies do not provide coverage.” 

AIG 2009 Form 10-K at 5 (Def. Ex. 2-E). Lexington’s insurance products generated

approximately $6.2 billion in gross premiums in 2009 alone. See Lexington Financial Data

(attached as Ex. 17 hereto). As with ALICO, plaintiff’s factual assertion relies entirely on

 No

reasonable, reasonably informed observer could conclude, on the basis of this record, that either

ALICO or Lexington is a “shariah-compliant finance business.”

In addition to being baseless, plaintiff’s factual assertion is also immaterial. First,

plaintiff fails to present any evidence (nor is it reasonable to presume) that ALICO’s Saudi

Branch or Lexington have used any funds received from AIG to support the offer of their

respective shariah-compliant products. Second, even if plaintiff could show that these two

subsidiaries have used funds provided by AIG to market their shariah-compliant products, it

would be immaterial because plaintiff is unable to show that these subsidiaries have used EESA

funds for this purpose. In the context of the Establishment Clause, money is not fungible and

“[t]he Supreme Court has repeatedly rejected ‘the recurrent argument that all aid is forbidden

because aid to one aspect of an institution frees it to spend its other resources on religious

ends.’” Am. Atheists, 567 F.3d at 296 (quoting Hunt v. McNair, 413 U.S. 734, 743 (1973)); see

also Mitchell, 530 U.S. at 824 (plurality opinion) (same). As a result, plaintiff’s assertion that

AIG has provided non-EESA funds to these two subsidiaries is immaterial to his Establishment

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Clause claim.

4. AIG’s Subsidiaries’ Sale of Shariah-Compliant Products Cannot Be

Attributed to the Treasury Department 

As the foregoing illustrates, plaintiff is unable to show that EESA funds (or any other

AIG funds) have been used to promote the Islamic religion. But, even if he could, the decision

to use EESA funds for this purpose could not be attributed to the government because Treasury

Department employees do not manage the day-to-day operations of AIG and have had no

involvement with the offer of shariah-compliant products by AIG’s subsidiaries. See Millstein

Decl. ¶ 28 (Def. Ex. 1); Power Decl. ¶¶ 9-10 (Def. Ex. 7); Homsi Decl. ¶¶ 10-11 (Def. Ex. 8);

Rahdi Decl. ¶¶ 9-10 (Def. Ex. 9); Zain Decl. ¶¶ 14-15 (Def. Ex. 10); Kamdani Decl. ¶¶ 13-14

(Def. Ex. 11). As a result, no reasonable observer could attribute to the Treasury Department the

sale of shariah-compliant products by AIG’s subsidiaries.

In an attempt to evade the import of this evidence, plaintiff’s “Statement of Material

Facts” includes an entire section on the “implications of defendants’ ownership and control of

AIG.” Pl. Mem. at 5-10. As this heading illustrates, this entire section is premised on a clear

misstatement of fact. Neither defendant owns AIG or controls the day-to-day operations of AIG

or its subsidiaries. Rather, AIG is owned by an independent trust, the AIG Credit Facility Trust

(“Trust”), that holds approximately 80% of the ownership interest in AIG for the benefit of the

taxpayers. See AIG Form 10-K at 3 (Def. Ex. 2-E). In all relevant matters, the trustees “have

full discretionary power to Vote the Trust Stock.” See AIG Credit Facility Trust Agreement

(“Trust Agreement”) § 2.04(d) (Pl. Ex. 22). The trustees may not be officials of either the

Treasury Department, the FRBNY, or AIG, id. at § 3.01, and may not vote to elect officials of

the Treasury Department or the FRBNY to AIG’s board of directors. Id. at § 2.04(e). Thus, AIG

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is owned by the Trust, not by the defendants, and the sale of shariah-compliant products cannot

be attributed to the defendants for this reason alone.

Moreover, although the Trust is AIG’s controlling shareholder, the trustees are explicitly

prohibited from “becom[ing] directors of [AIG] or otherwise becom[ing] responsible for

directing or managing the day-to-day operations of [AIG] or any of its subsidiaries.” Id. at

§ 2.04(f). The separation between ownership and management is a fundamental principle of

corporate law. See In re ALH Holdings LLC, 675 F. Supp. 2d 462, 477 (D. Del. 2009)

(“Delaware law explicitly defines the separation of (and relationship between) an entity’s

management and its ownership.”) (citing 8 Del. C. § 141). Plaintiff has provided no evidence

that the trustees violate this principle or the Trust Agreement’s explicit prohibition on their

management of AIG’s day-to-day operations. Indeed, the evidence demonstrates that the

trustees exercise the voting stock in a manner appropriate for a majority owner of a corporation.7

As a result, actions of AIG may not be attributed to the trustees either. Likewise, plaintiff has

provided no legal basis to attribute the sale of shariah-compliant products by AIG’s independent

subsidiaries to AIG. Compare United States v. Bestfoods, 524 U.S. 51, 61 (1998) with Lee Decl.

¶ 5n (Def. Ex. 6). Thus, for all of these reasons, no reasonable observer could—on the basis of

the Trust’s ownership of AIG—attribute the sale of shariah-compliant products by AIG’s

independent subsidiaries to the defendants.

But, plaintiff’s argument fails for an additional, independent reason. The Trust’s

ownership interest (in the form of AIG Series C Preferred Stock) was consideration for the

FRBNY’s September 16, 2008 provision of credit pursuant to Section 13(3) of the Federal

7

 See, e.g, Foshee Test. at 2 (trustee recognizing “allocation of responsibility” between AIG’s

ownership, board of directors, and management) (Pl. Ex. 27); Feldberg Test. at 3 (trustee stating

that his role is to “exercis[e] the voting rights of the AIG shares held in the Trust”) (Pl. Ex. 28).

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Reserve Act. See Trust Agreement at p.1 (Pl. Ex. 22) (“[T]he issuance of the [Series C Preferred

Stock] to the Trust is intended to provide compensation for the assumption of the risks arising

from the Credit Agreement and to reduce those risks.”). Plaintiff, however, is not challenging

the constitutionality of the Federal Reserve Act; plaintiff is challenging the constitutionality of

the EESA. Am. Compl. ¶ 1. Because the Trust’s ownership did not result from the Secretary’s

actions pursuant to the EESA, such ownership is not relevant to whether the EESA, as applied to

the Secretary’s purchase of AIG preferred stock, has had the primary effect of advancing

religion. 

5. The Sale of Shariah-Compliant Products Is Not Religious Indoctrination

Finally, plaintiff has failed to present evidence that would lead a reasonable observer to

conclude that the sale of shariah-compliant products constitutes religious indoctrination. 

Plaintiff’s attempt to show that AIG’s subsidiaries’ mere offer of shariah-compliant products

advances an “Islamic religious mission,” and “tak[es] a theological position on an ongoing

debate among Muslims and between Muslims and non-Muslims,” see Pl. Mem. at 4 (citing Pl.

Exs. 12, 13, and 15), relies entirely on the reports submitted by Stephen C. Coughlin and Robert

Spencer, each a self-described “expert” on “Islam, Shariah, and Shariah-compliant finance.” See

Coughlin Decl. ¶ 2 (Pl. Ex. 12); Spencer Decl. ¶ 2 (Pl. Ex. 13). This purported expert testimony,

however, is irrelevant and thus does not raise a genuine issue of material fact. See Fed. R. Civ.

P. 56(c)(2); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

As courts have recognized, expert testimony is not relevant to determining whether a

reasonable, objective observer (not an expert), on the basis of readily available facts (rather than

specialized knowledge), would view government action as an endorsement of religion. See, e.g.,

Gaylor v. United States, 74 F.3d 214, 217 (10th Cir. 1996) (excluding expert testimony as

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irrelevant based on application of “reasonable observer standard” in Establishment Clause case);

Brown v. Woodland Joint Unified Sch. Dist., 27 F.3d 1373, 1382 (9th Cir. 1994) (“Instead of

engaging in a ‘battle of the experts’ in deciding Establishment Clause cases, courts have relied

upon assumptions about a ‘hypothetical observer’ to determine whether a government action

conveys an endorsement of religion. The expert testimony . . . has little relevance to this

inquiry.”) (internal citations omitted). 

Moreover, even if the court were to consider expert testimony relevant to an

Establishment Clause claim generally, the proffered expert testimony here is not entitled to

weight because both Coughlin and Spencer admit that they did not review the evidence relating

to the actual shariah-compliant products at issue in this case until after they formulated their

opinions. Compare Pl. Ex. 12 at ¶ 3 with Ex. A to Pl. Ex. 12, at 6, and Pl. Ex. 13 at ¶ 3 with Ex.

A. to Pl. Ex. 13, at 5. That their proffered opinions were reached without considering the

specific activities that plaintiff alleges violate the Establishment Clause makes them of little use

to the court because “determining whether the challenged program offends the Establishment

Clause . . . requires the courts to draw lines, sometimes quite fine, based on the particular facts of

each case.” Mitchell, 530 U.S. at 844 (2000) (O’Connor, J., concurring in the judgment); see

also Adland v. Russ, 307 F.3d 471, 483 (6th Cir. 2002) (assessing whether Establishment Clause

has been violated “hing[es] on the factual specifics of each case”). Thus, the Court, armed with

the actual facts, can determine for itself whether a “reasonable, reasonably informed observer”

would view the offer of the particular shariah-compliant products at issue in this case as a

religious activity. Am. Atheists, 567 F.3d at 292. And, for the reasons set forth in defendants’

opening brief, it should find that the offer of these products does not “inculcate religion.” 

Mitchell, 530 U.S. at 847 (O’Connor, J., concurring in the judgment).

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B. Facts Unrelated to the Treasury Department’s Exercise of Authority

Pursuant to the EESA Are Immaterial And, In any Event, Do Not

Demonstrate an Endorsement of the Islamic Religion

Finally, plaintiff fails to demonstrate that the Treasury Department’s purchase of AIG

preferred stock pursuant to the EESA constitutes an “endorsement” of religion. Pl. Mem. at 12. 

Plaintiff’s legal challenge is limited to the EESA, Am. Compl. ¶ 1, but plaintiff’s endorsement

argument relies exclusively on actions—the issuance of two press releases and a scholarly paper,

and a conference organized to educate policymakers about Islamic finance, see Pl. Mem. at

12—not taken pursuant to the EESA. Indeed, the press releases were issued on June 2, 2004 (Pl.

Ex. 32) and May 8, 2004 (Pl. Ex. 33), and the paper was issued in August 2006 (Pl. Ex. 31), each

years before the EESA was enacted. Likewise, the Islamic Finance 101 Conference was not

organized by the Office of Financial Stability pursuant to the EESA, but by the Treasury

Department’s Office of International Affairs beginning in August 2008, two months before the

EESA was enacted. See Kiwan Depo. at 15 (attached as Ex. 18 hereto). As a result, this

evidence is wholly irrelevant to plaintiff’s as-applied constitutional challenge to the EESA, the

only claim for which plaintiff has been held to have standing. See Murray v. Geithner, 624 F.

Supp. 2d 667, 671-75 (E.D. Mich. 2009).

Moreover, none of this material suggests that the Treasury Department “endorses” Islam. 

The article by Dr. El-Gamal contains an explicit disclaimer stating that such articles “are not

statements of U.S. Government, Department of the Treasury, or Administration policy and

reflect solely the views of their authors.” Overview of Islamic Finance: Occasional Paper No. 4,

at 2 (August 2006) (Pl. Ex. 31). In any event, no reasonable observer could view Dr. El-Gamal’s

paper as an endorsement of Islam. In his paper, he simply describes different Islamic financial

products, and concludes that “Islamic finance is an industry which in many ways tries to

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‘reinvent the wheel,’ producing successive approximations of western financial practices.” Id. at

11.8 Despite these approximations, Dr. El-Gamal opines that Islamic finance remains

intrinsically inefficient, and that “one should not encourage regulatory adjustments to

accommodate Islamic financial practices.” Id. at 12 (emphasis added).9

 

Likewise, the press release announcing Dr. El-Gamal’s appointment states that “[t]he

purpose of the Islamic Finance Scholar-in-Residence program is to promote broader awareness

of Islamic finance practices internationally and domestically for U.S. government policymakers,

regulators, and the public at large.” Pl. Ex. 32. And, former Under Secretary Taylor’s May

2004 remarks were not an “endorsement” of any particular type of finance (let alone a particular

religion), but rather a call for “transparency, good governance and an internationally-accepted

regulatory framework that will govern [Islamic finance].” Pl. Ex. 33. Finally, the Islamic

Finance 101 conference was organized for a similar purpose: to provide “the regulatory and

policy communities . . . with some basic information about Islamic finance.” Kiwan Depo. at 32. 

As a reasonable observer would conclude, the conference was not organized to “endorse” Islam,

but because Islamic finance “is a significant part of the global financial system, and it’s

important in certain parts of the world that are [of] strategic importance to the U.S. government.” 

Id. at 10. Accordingly, plaintiff has provided no evidence that the Treasury Department’s

8

 Similarly, Dr. El-Gamal states that “[t]he main idea behind Takaful is similar to mutual

insurance, wherein there is no commutative financial contract that allows one to interpret

premium payments as prices and insurance claim fulfillment as an object of sale. Rather, policy

holders are viewed as contributors to a pool of money, which they agree voluntarily to share in

cases of loss to any of them.” Id. at 7.

9

 In this respect, Dr. El-Gamal’s views are consistent with those of the Office of the Comptroller

of the Currency (“OCC”), which has opined that certain Islamic financial products are

“functionally equivalent” to conventional banking products, and therefore subject to standard

regulation. See id. at 4 & n. 7 & 8 (quoting OCC interpretative opinions).

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investment in AIG pursuant to the EESA constitutes an “endorsement” of the Islamic religion. 

C. Restrictions on AIG’s Use of Funds Are Not Legally Required, but, Even

Assuming Otherwise, the EESA and the Structure of the Treasury

Department’s Investment Are Sufficient Such that No Reasonable Observer

Could Conclude that their Primary Effect Has Been the Advancement of

Religion

Plaintiff’s sole legal argument in support of his motion for summary judgment is that the

lack of an explicit restriction on AIG’s hypothetical diversion of EESA funds to support the sale

of shariah-compliant insurance products by its subsidiaries “is sufficient to find a constitutional

violation.” See Pl. Mem. at 19 (citing Comm. for Pub. Educ. & Religious Liberty v. Nyquist, 413

U.S. 756 (1973); Tilton v. Richardson, 403 U.S. 672 (1971)). As an initial matter, plaintiff’s

argument fails because a reasonable observer would not perceive the sale of shariah-compliant

products as a religious activity. See Def. Mem. at 17-19. The Court need not decide that issue,

however, because plaintiff’s argument fails as a matter of law for additional reasons as well. 

First, a plurality of the Supreme Court has abandoned the “‘no divertibility’ rule [a]s

inconsistent with our more recent case law and [a]s unworkable.” Mitchell, 530 U.S. at 820

(plurality opinion); see also id. at 834 (plurality opinion) (“[T]he evidence of actual diversion

and the weakness of the safeguards against actual diversion are not relevant to the constitutional

inquiry, whatever relevance they may have under the statute and regulations.”). Justice

O’Connor, joined by Justice Breyer, likewise rejected the suggestion that the “mere divertibility”

of aid would be grounds for striking down a federal statute. See id. at 857 (O’Connor, J.,

concurring in the judgment). Rather, according to Justice O’Connor, “[t]o establish a First

Amendment violation, plaintiffs must prove that the aid in question actually is, or has been, used

for religious purposes.” Id. (emphasis added). The Supreme Court’s rejection of the no-

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divertibility rule relied upon by plaintiff has been acknowledged by the lower courts.10 And of

course, the record contains no evidence of actual diversion of EESA funds to support shariahcompliant products. See supra Section II.A.1. Accordingly, for this reason alone, plaintiff’s

argument fails.

In addition, even if the “no divertibility” line of precedent survives Mitchell, it has never

applied to the provision of funds to secular entities like AIG. Instead, restrictions on the use of

government funds have only been required when the direct recipient of the funds is a religious

institution. See, e.g., Tilton, 403 U.S. at 677 (plurality opinion) (citing legislative history

demonstrating that Congress contemplated “aid to institutions with religious affiliations[,]”

including the defeat of amendments designed to prevent such aid); Nyquist, 413 U.S. at 767-68

(1973) (vast majority of beneficiaries of program were religiously-oriented elementary and

secondary schools). In such cases, the Supreme Court has reasonably presumed that, absent

restrictions, the religious institution will use the money to support its religious mission. 

For example, in Nyquist, the Supreme Court observed that “virtually all” of the

beneficiaries of a state program to reimburse nonpublic elementary and secondary schools for

maintenance and repair expenses were “Roman Catholic schools in low income areas.” Nyquist,

413 U.S. at 774. It assumed that these schools were likely to “(a) impose religious restrictions

on admissions; (b) require attendance of pupils at religious activities; (c) require obedience by

10 See, e.g., Community House, Inc. v. City of Boise, 490 F.3d 1041, 1059 (9th Cir. 2007)

(“Thus, Mitchell stands for the proposition that actual diversion of secular government aid to

religious indoctrination violates the Establishment Clause.”) (emphasis added); Columbia Union

Coll. v. Oliver, 254 F.3d 496, 504 (4th Cir. 2001) (“Justice O’Connor would require plaintiffs to

‘prove that the aid in question is, or has been, used for religious purposes.’”) (quoting Mitchell,

530 U.S. at 857 (O’Connor, J., concurring in the judgment)); Christianson v. Leavitt, 482 F.

Supp. 2d 1237, 1247 (W.D. Wash. 2007) (requiring, based on Justice O’Connor’s concurrence in

Mitchell, evidence of actual diversion). 

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students to the doctrines and dogmas of a particular faith; (d) require pupils to attend instruction

in the theology or doctrine of a particular faith; (e) are an integral part of the religious mission of

the church sponsoring it; (f) have as a substantial purpose the inculcation of religious values; (g)

impose religious restrictions on faculty appointments; and (h) impose religious restrictions on

what or how the faculty may teach.” Id. at 767-68. Given the overwhelmingly religious nature

of the aid recipients, the Supreme Court reasonably concluded that, without any restriction on the

use of funds, the effect of the aid, “inevitably, is to subsidize and advance the religious mission

of sectarian schools.” Id. at 779-80 (emphasis added). 

Thus, the Supreme Court precedent cited by plaintiff does not, as plaintiff suggests,

require every disbursement of federal funds to be accompanied by a restriction on the use of such

funds for religious purposes. Rather, such restrictions have only been deemed necessary when

there is, due to the sectarian nature of the recipient, a “substantial risk” that the unrestricted

funds will be used for religious purposes. See Roemer v. Bd. of Pub. Works of Md., 426 U.S.

736, 753 (1976) (quoting Levitt v. Comm. for Pub. Educ., 413 U.S. 472, 480 (1973)). Indeed,

even Justice Souter’s dissent from the abandonment of this line of cases in Mitchell recognized

that only “a ‘substantial risk’ of [actual diversion] suffices to invalidate a government aid

program on establishment grounds.” Mitchell, 530 U.S. at 908 (Souter, J., dissenting) (citing

cases). Furthermore, the Supreme Court has recognized that “[o]nly in the context of aid to

‘pervasively sectarian’ institutions [has it] invalidated an aid program on the grounds that there

was a ‘substantial risk’ that aid to these religious institutions would, knowingly or unknowingly,

result in religious indoctrination.” Bowen v. Kendrick, 487 U.S. 589, 612 (1988) (citing cases).11

11 For this reason, the Sixth Circuit’s recent opinion in American Atheists does not support

plaintiff’s argument. The as-applied challenge considered there involved direct aid to churches,

and, even then, the Sixth Circuit recognized that Tilton and Nyquist were inapplicable to the

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No “substantial risk” of diversion exists here. AIG is not a pervasively religious

institution, or religiously affiliated in any manner. AIG, itself, does not even offer shariahcompliant insurance products. Lee Decl. ¶ 5 (Def. Ex. 6). And, although a handful of its 290

subsidiaries have offered shariah-compliant insurance products, these products’ contribution to

AIG’s consolidated results is trivial, accounting for less than % of AIG’s fiscal year 2009

consolidated revenue, or 

, is excluded. See supra note 5. Thus, unlike

the situation in Tilton and Nyquist, it is simply not reasonable to presume that funds provided to

AIG pursuant to the EESA will be used to inculcate religion absent a restriction on their usage,

even assuming (counter to fact) that the sale of shariah-compliant products inculcates religion. 

As a result, Tilton and Nyquist are simply inapplicable here.

Finally, the minimal risk of diversion owing to the nature of AIG is further mitigated by

the oversight provisions contained in the EESA and the securities purchase agreements that

govern the Treasury Department’s investments in AIG. The Secretary’s actions under the EESA

are subject to the oversight and audits of numerous bodies, including the Congressional

Oversight Panel, the Comptroller General, and the Special Inspector General for the TARP

(“SIGTARP”), all of which have broad authority to investigate financial institutions’ use of

funds provided pursuant to the TARP. See 12 U.S.C. §§ 5226(a)(2), 5231(d), 5233(e). These

entities have issued numerous reports relating to the Treasury Department’s purchase of AIG

preferred stock without questioning its constitutionality, a fact which, by itself, is compelling

evidence that a reasonable observer would not perceive the Treasury Department’s investment in

neutral program at issue in that case, and potentially in “tension, if not outright conflict, with

later cases.” See Am. Atheists, 567 F.3d at 298-300.

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AIG as an endorsement of the Islamic religion.12 

Further, the EESA gives the Secretary broad discretion to determine “the terms and

conditions” upon which he will purchase troubled assets. 12 U.S.C. § 5211(a)(1). Pursuant to

this authority, the Secretary has entered into two contracts with AIG for the purchase of

preferred stock. The Series D SPA could not have permitted any diversion of EESA funds to

religious purposes because the funds were sent directly to the FRBNY to pay down AIG’s

outstanding indebtedness. See Gender Decl. ¶ 10 (Def. Ex. 4); Series D SPA § 1.2 (Def. Ex. 1-

D). Likewise, the Series F SPA includes numerous provisions that allow AIG’s use of EESA

funds to “be monitored to determine whether the funds are, in effect, being used by [AIG] in

such a way as to advance religion.” Bowen, 487 U.S. at 615. For example, AIG was required to

provide, prior to the consummation of the agreement, a use of capital plan describing its intended

use of the EESA funds. See Millstein Decl. ¶¶ 18-20 (Def. Ex. 1); Series F SPA § 1.5(e)(vii)

(Def. Ex. 13). As a result, the government was able to confirm, prior to any funding, that AIG

intended to use the funds for secular purposes. Millstein Decl. ¶ 19-20 (Def. Ex. 1); see also

Initial Capital Use Plan (Def. Ex. 1-F). And, as AIG’s reports on its use of Series F funds

illustrate, AIG has used EESA funds for entirely secular purposes. See Outlines of Expected

Uses (Def. Ex. 1-K to 1-N); Suppl. Gender Decl. ¶ 2; Millstein Decl. ¶ 29; Series F Actual Use

of Funds (Def. Ex. 1-O); Section 3.10 Certification (Def. Ex. 12-A). In light of these undisputed

12 See, e.g., Congressional Oversight Panel, The AIG Rescue, Its Impact on Markets, and the

Government’s Exit Strategy (June 10, 2010); SIGTARP, July 2009 Quarterly Report to Congress

(July 2009); SIGTARP, Extent of Federal Agencies’ Oversight of AIG Compensation Varied,

and Important Challenges Remain (Oct. 2009); SIGTARP, Factors Affecting Efforts to Limit

Payments to AIG Counterparties (Nov. 2009); GAO, Update of Government Assistance

Provided to AIG (April 2010); GAO, Status of Government Assistance Provided to AIG (Sept.

2009). These reports are available at cop.senate.gov, www.sigtarp.gov and www.gao.gov,

respectively.

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facts, and given the trivial nature of AIG’s subsidiaries’ shariah-compliant insurance business,

see supra note 5, no reasonable observer could conclude that the “primary effect” of the

Treasury Department’s investment in AIG has been the advancement of Islamic religion.

Conclusion

For the foregoing reasons, defendants respectfully request that the Court deny plaintiff’s

motion for summary judgment.

Respectfully submitted,

TONY WEST

Assistant Attorney General

BARBARA L. MCQUADE

United States Attorney

JOHN R. GRIFFITHS

Assistant Director, Federal Programs Branch

/s/ John R. Coleman 

JOHN R. COLEMAN

JULIE STRAUS

Trial Attorneys, U.S. Department of Justice

Civil Division, Federal Programs Branch

20 Massachusetts Ave., N.W., Room 6118

Washington, D.C. 20530

Telephone: (202) 514-4505

Facsimile: (202) 616-8460

Email: John.Coleman3@usdoj.gov

DATED: June 28, 2010

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Case 2:08-cv-15147-LPZ-MKM Document 71 Filed 06/28/10 Page 24 of 25
CERTIFICATE OF SERVICE

I hereby certify that on June 28, 2010, I electronically filed the foregoing paper with the

Clerk of the Court using the ECF system, which will send notification of such filing to the

following: Robert J. Muise, David Yerushalmi. I further certify that I provided unredacted

copies of Defendants’ Brief in Opposition to Plaintiff’s Motion for Summary Judgment and any

exhibits filed under seal to Robert J. Muise and David Yerushalmi by electronic mail. 

/s/ John R. Coleman 

John R. Coleman

Trial Attorney, U.S. Department of Justice

Civil Division, Federal Programs Branch

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