IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________________
No. 00-50139
_______________________________
WASHINGTON LEGAL FOUNDATION, WILLIAM R. SUMMERS,
and MICHAEL J. MAZZONE,
Plaintiffs-Appellants,
versus
TEXAS EQUAL ACCESS TO JUSTICE FOUNDATION, RICHARD TATE, Chairman,
Texas Equal Access to Justice Foundation, THOMAS R. PHILLIPS, Chief
Justice, and Justices NATHAN R. HECHT, CRAIG T. ENOCH, PRISCILLA R.
OWENS, JAMES A. BAKER, DEBORAH G. HANKINSON, HARRIET O’NEILL, and
XAVIER RODRIGUEZ in their official capacities as Justices of the
Supreme Court of Texas,
Defendants-Appellees.
_________________________________________________
Appeal from the United States District Court
for the Western District of Texas, Austin Division
_________________________________________________
May 31, 2002
ON PETITION FOR REHEARING EN BANC
(Opinion October 19, 2001, 5 Cir., 2001 270 F.3d 180)
Before WIENER, BARKSDALE, and EMILIO M. GARZA, Circuit Judges.
PER CURIAM:
Treating the Petition for Rehearing En Banc as a Petition for
Panel Rehearing, the Petition for Panel Rehearing is DENIED. The
court having been polled at the request of one of the members of
the court and a majority of the judges who are in regular active
service not having voted in favor (Fed. R. App. P. and 5th Cir. R.
35), the Petition for Rehearing En Banc is DENIED.
Judge Higginbotham did not participate.
CHIEF JUDGE KING and JUDGES JOLLY, WIENER, BENAVIDES, STEWART,
PARKER, and DENNIS, Circuit Judges, dissenting from denial of
rehearing en banc.1
In this second round of the captioned case, a divided panel of
our court reversed the district court’s ruling and held the Texas
Interest on Lawyers’ Trust Accounts (IOLTA) program
unconstitutional. Soon afterwards, the Ninth Circuit, sitting en
banc, upheld the constitutionality of an essentially identical
IOLTA program in the State of Washington.2 In so doing, the court
formulated answers to constitutional questions that are common to
both cases, answers that are consistent with those in our district
court’s ruling and Judge Wiener’s panel dissent, and thus contrary
to those of our panel majority. Despite this split in the
circuits, our 2-1 reversal of the district court, and the far-
reaching, exceptionally important constitutional and practical
consequences of the Fifth Amendment jurisprudence thus established
for this circuit by but two of our judges, a tie among voting
active judges prevented this case from receiving the rehearing en
banc that it so richly deserves. Given (1) the disagreement
1
Judge Higginbotham recused himself from the case, leaving
fourteen active Circuit Judges, seven of whom voted for en banc
rehearing and seven of whom voted against it. Pursuant to Fifth
Circuit operating procedure, an evenly divided vote on an en banc
poll results in denial of rehearing en banc, leaving the panel
opinion in effect.
2
Washington Legal Foundation v. Legal Foundation of
Washington, 271 F.3d 835 (9th Cir. 2001) (holding that, although
interest in IOLTA accounts is property, no taking occurred and no
just compensation was due).
2
between our panel majority and the Ninth Circuit sitting en banc,
(2) the fact that our panel majority opinion forges novel and far-
reaching Takings jurisprudence for this circuit, (3) the inability
of the plaintiffs to show any compensable loss whatsoever, and (4)
the effect on IOLTA programs that will likely result from the
opinion of the panel majority, we find it difficult to understand
how any judge of this court (even those who served on this panel)
could fail to deem this case worthy of en banc reconsideration,
irrespective of what the reasoning and result should be. We are
therefore constrained to dissent respectfully from this denial of
a rehearing en banc. Our hope is that the Supreme Court will see
fit to address this very important case once again and resolve the
questions left unanswered by its prior opinion.3
3
Phillips v. Washington Legal Foundation, 524 U.S. 156, 172
(Rehnquist, C.J.):
We express no view as to whether these funds have been
“taken” by the State; nor do we express an opinion as to
the amount of “just compensation,” if any, due
respondents. We leave these issues to be addressed on
remand.
3
WIENER, Circuit Judge, supplementing the foregoing dissent from
denial of rehearing en banc:****
My reasons for believing that this case is worthy of en banc
review are the same as those set forth in the foregoing dissent by
the seven of us who voted to rehear it. I now write separately to
add the substantive law reasons why I am convinced that we should
have reheard this appeal en banc and reinstated the judgment of the
district court.
As a practical outcome for our circuit, the panel majority’s
holding dismantles IOLTA programs that have found favor in all
fifty states as a means of funding legal services for the
underprivileged while fulfilling lawyers’ ethical obligations to
contribute to the delivery of such services for that segment of
society.1 Jurisprudentially, the opinion of the panel majority
forges novel Fifth Amendment Takings jurisprudence for our circuit
by mandating a simple analytical approach —— and its scope —— that
must be taken when courts of this circuit consider a Takings Clause
issue. I shall do my best to demonstrate why I believe that the
panel majority’s reasoning and judgment are wrong.
I. IOLTA I
Following our first go-around with Washington Legal Foundation
****
Chief Judge King and Judges Benavides, Stewart, Parker,
and Dennis join in this supplemental dissent.
1
Phillips v. Washington Legal Foundation, 524 U.S. 156, 159
n.1 (1998); Model Rules of Professional Conduct Rule 6.1; State Bar
of Tex. Pro Bono Policy; Geoffrey C. Hazard, Jr., After
Professional Virtue, 6 Sup. Ct. Rev. 213, 215 (1989).
v. Texas Equal Access to Justice,2 a five-justice majority of the
Supreme Court deliberately answered but one of three questions
raised by the case. That majority held that interest on funds
deposited into lawyers’ trust accounts is “property” of the client,
but the same majority expressly left unanswered the other two
questions:
We express no view as to whether these funds have been
“taken” by the State; nor do we express an opinion as to
the amount of “just compensation,” if any, due
respondents. We leave these issues to be addressed on
remand.3
The Court neither stated nor implied that prospective (injunctive)
relief is even a possibility. Pursuant to the Supreme Court’s
directive and the crucial, far-reaching impact of the answers to
these constitutional questions, this case and its implications at
the circuit level of the fifty sovereign states should not have
been left to the determination of but two (or even three if the
panel had been unanimous) of our fifteen active judges.
Our panel majority’s opinion and the Ninth Circuit’s en banc
opinion validate Justice Souter’s worst concerns and predictions in
2
Washington Legal Foundation v. Texas Equal Access to
Justice (IOLTA I), 873 F. Supp. 1 (W.D. Tex. 1995) aff’d in part,
vacated in part, rev’d in part by 94 F.3d 996 (5th Cir. 1996) r’hrg
en banc denied by 106 F.3d 640 (5th Cir. 1997) cert. granted in
part by Phillips v. Washington Legal Foundation (Phillips), 521
U.S. 1117 (1997) aff’d by 524 U.S. 156 (1998) appeal after remand
by 86 F. Supp. 2d 624 (W.D. Tex. 2000) (IOLTA II) rev’d and
remanded by 270 F.3d 180 (2001) (Wiener, J. dissenting).
3
Phillips, 524 U.S. at 172 (Rehnquist, C.J.) (emphasis
added).
5
Phillips.4 In the eyes of the dissenting justices, the majority’s
recognition of the plaintiff’s “abstract property right to interest
‘actually earned’”5 on his principal —— severed from the
inextricable questions whether a taking occurred and, if so,
whether compensation is due —— skewed the Fifth Amendment
analysis.6 Indeed, just as Justice Souter predicted, our district
court’s determination that the plaintiffs could not prove any
amount of monetary loss under any accounting or economic theory
demonstrates that the Supreme Court’s abstract pronouncement in
Phillips identified a right that exists in theory but is moribund
in reality: With zero compensable loss, the abstract property
right recognized by the Court has “no practical consequences for
purposes of the Fifth Amendment.”7
II. IOLTA II
A. Takings: Ad Hoc versus Per Se Analysis
A divided panel of this court has now established the Takings
jurisprudence for this circuit regarding whether to use ad hoc or
4
Phillips, 524 U.S. at 175-76, 178 (Souter, J., joined by
Stevens, Ginsburg, and Breyer JJ., dissenting).
5
Id. at 178.
6
Id. (“One may wonder here not only whether the theoretical
property analysis may skew the resolution of the taking and
compensation issues that will follow, but also how far today’s
holding may unsettle accepted governmental practice elsewhere.”)
7
Id. at 174.
6
per se analysis when the property purportedly “taken” is money ——
more specifically, the illusory right to future interest, if any ——
that is both fungible and valued in dollars on its face.
Consequently, determination whether the workings of IOLTA effect a
taking depends largely on the analytical methodology employed by
the examining court. The Ninth Circuit noted that, in Takings
Clause cases, one or the other of two analyses —— ad hoc or per se
—— has been employed.8 Explaining that the per se analysis
generally has not been used except in the context of real property,
the Ninth Circuit determined that the ad hoc takings analysis is
the correct method to apply when the property at issue is the mere
intangible personal property right to potential interest, such as
that which might accrue in IOLTA accounts.9 In then conducting its
ad hoc assessment, the Ninth Circuit inspected (1) the economic
impact of the regulation on the claimant, (2) the extent to which
the regulation interfered with investment-backed expectations, and
(3) the character of the governmental action.10 Based on the
8
Id. at 854 (citing Loretto v. Teleprompter Manhattan CATV
Corp., 458 U.S. 419 (1982) (use of per se analysis); Penn Central
Transportation Co. v. City of New York, 438 U.S. 104 (1978) (use of
ad hoc analysis)).
9
Id. at 856-57:
Although we note that the Fifth Circuit recently has
decided in a two to one decision to adopt the per se
method of analysis in similar (but not identical)
circumstances, given the monetary nature of the property
in question, the public nature of the IOLTA program, and
the highly-regulated nature of the banking industry, we
believe the better approach is [the ad hoc analysis] of
Penn Central. (emphasis added) (citations omitted).
10
Id. at 857
7
unassailable truism that, absent the IOLTA program, the plaintiffs
could not have recognized any net interest on their principal and
that their investment position was no worse-off with IOLTA in place
than without it, the court’s ad hoc calculus revealed that no
“taking” under the Fifth Amendment had occurred.11
Our analysis should have been guided by an understanding of
the exact nature of the “property” at issue, not merely that,
according to the Supreme Court, it is property. Here, we deal with
neither tangible or intangible real property, nor even tangible
personal property, such as a painting taken by a city for display
in the Hotel de Ville. Rather, the “property” here at issue is the
ephemeral net interest, if any, on a client’s funds deposited into
an IOLTA account, which can only produce net interest when combined
with funds of other clients: Separately, the deposited funds are
too few or are held too briefly to produce net interest for the
individual client who owns the principal on deposit.
The only answer provided by the Supreme Court in Phillips is
that this potential interest to be earned on funds in an IOLTA
account is property. Post Phillips, the first question we must
answer —— whether to apply ad hoc or per se analysis, or some yet
unarticulated method to be used in situations when money is the
purportedly taken property —— is a novel and open one for our
circuit, not to mention the entire federal system, save only the
11
In my panel dissent I assumed arguendo that a taking had
occurred so as to reach the position that, even if there is a
taking, it is unconstitutional only if done without just
compensation.
8
Ninth Circuit. Our panel majority’s opinion assumes that the
appropriation of IOLTA funds is a physical intrusion of property
requiring application of the per se test articulated in Loretto v.
Teleprompter Manhattan CATV Corp.12 Like many of the cases
employing per se analysis, however, Loretto involved only real
property, making its application to the instant case a very
questionable proposition. Whether appropriation of interest on an
IOLTA account should be analyzed identically to physical invasions
of real or tangible personal property is particularly important in
light of the Supreme Court’s recent directive:
This longstanding distinction between acquisitions of
property for public use, on the one had, and regulations
prohibiting private uses, on the other, makes it
inappropriate to treat cases involving physical takings
as a controlling precedents for the evaluation of a claim
that there has been a “regulatory taking,” and vice
versa.13
The key inquiry thus becomes whether appropriation of IOLTA
funds is akin to the physical intrusion discussed in other per se
cases. Scrutiny of (1) the original “fairness and justice”
purposes of the Fifth Amendment, (2) the rationale underlying the
per se doctrine, (3) the methodology employed by takings cases
involving money or monetary liability, in addition to (4) a
thorough evaluation of the cases purportedly supporting application
12
458 U.S. 419 (1982) (holding that a takings had occurred
by the fact of the physical intrusion of a cable company’s cable on
the roof of a privately owned building).
13
Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional
Planning Agency, 535 U.S. ___, ___, 122 S.Ct. 1465, 1479 (2002)
(citation omitted).
9
of the per se doctrine, makes clear that this doctrine, as it is
used in cases dealing with real or tangible personal property, is
ill-suited to analyze the instant case, which involves intangible
personal property in the form of potential interest on principal.
B. Fairness and Justice
The original purpose of the Fifth Amendment reflects an
understanding that situations like the one presented by IOLTA do
not fall neatly into any particular takings analysis. One of the
Supreme Court’s venerable Takings Clause cases, United States v.
Armstrong, teaches that “The Fifth Amendment’s guarantee that
private property shall not be taken for public use without just
compensation was designed to bar Government from forcing some
people alone to bear public burdens, which, in all fairness and
justice, should be borne by the public as a whole.”14 Here, no one,
including the plaintiffs, is being asked to “bear” a public burden
in any sense that impinges on the notions of fairness and justice.
In fact, the evidence presented in the district court clarifies
that absolutely no hardships are borne by the plaintiffs as a
result of IOLTA —— their position, vis-à-vis Takings Clause law, is
exactly the same with or without IOLTA, relegating their dubious
complaints solely to the realm of the First Amendment.
It is indeed a novel extension of Fifth Amendment
jurisprudence to allow these plaintiffs to prevail without any
showing of loss or hardship. In fact, in this case, it is the
14
364 U.S. 40, 49 (1960).
10
prescribing of injunctive relief that assaults the notions of
fairness and justice underlying the Amendment. It is the
plaintiffs —— accused by some of playing the dog in the manger15 ——
who, begrudging others what they cannot themselves enjoy, seek to
dismantle a program that promotes the public good without placing
undue burdens on any one person or group.
C. Incongruous Rationale Underlying the Per Se Doctrine
Loretto explains the rationale for employing the per se
analysis in physical invasion cases: “Property rights in a physical
thing have been described as the rights ‘to possess, use and
dispose of it.’ To the extent that the government permanently
occupies physical property, it effectively destroys each of these
rights.”16 This rationale, although convincing in the context of
real and tangible personal property, is inapt when the property at
issue is the speculative interest on the plaintiffs’ pooled funds
in an IOLTA account: unpooled, such principal could not generate
net interest. Without Congress’s enactment of 12 U.S.C. § 1832,
which permitted the creation of NOW accounts, a client’s principal
would have absolutely no economic value to the client beyond the
15
See Donald L. Beschle, The Supreme Court’s IOLTA Decision:
Of Dogs, Mangers, and the Ghost of Mrs. Frothingham, 30 Seton Hall
L. Rev. 846, 867 (2000); see also, Aesop, Aesop’s Fables 1 (Grosset
& Dunlap, eds. 1947) (describing a dog that cannot derive
beneficial use of straw, but inexplicably, perhaps for some
perverse satisfaction, denies an ox that eats the straw access to
it; the author includes the story’s moral: “Ah, people often grudge
others what they cannot enjoy themselves.”).
16
Loretto, 458 U.S. at 435 (emphasis in original) (citation
omitted).
11
value of the principal itself.17 Therefore, unlike real or tangible
personal property, the plaintiffs’ property right to receive
interest on their principal, with or without IOLTA, is a kind of
property that its owners cannot actually “use” or “dispose” of,
even if it is, hypertechnically, their property.
The Supreme Court, in deciding that the interest on IOLTA
accounts is property, noted that valuable rights other than
economic rights appertain to property. Specifically, the Court’s
majority opinion states that “[w]hile the interest at issue here
may have no economically realizable value to its owner, possession,
control, and disposition are nonetheless valuable rights that
inhere in property.”18 Even though, as an abstract universal
proposition, this is undoubtedly true, the Court did not inform us
just what those other “valuable rights” would be in the context of
the specific property at issue. I find perplexing the Court’s
statement that property may still have value, other than its pure
monetary value, given the context of the kind of property here at
issue —— money. With the utmost respect (and at the risk of
revealing my own intellectual shortcomings), I read the Court’s
opinion in Phillips as begging the question of what other “valuable
rights” inhere with the ownership of money, which, axiomatically,
can only be defined by its face value.
17
The interest that accrued on those accounts would be
forfeited to the banks which held the accounts. See IOLTA II, 270
F.3d 180, 182-83 (5th Cir. 2001).
18
Phillips, 524 U.S. at 170.
12
Second, none dispute that, even without IOLTA, the plaintiffs
cannot physically “possess” this chimeric interest or even
“control” where these funds end up. The plaintiffs’ mythical
“choice” is between allowing banks to gobble the interest, using
each client’s principal as an interest-free loan, on the one hand,
or allowing the lawyers of Texas, under the supervision of the
Texas Supreme Court, to fulfill the legal profession’s ethical duty
to the needy by diverting the interest to legal aid societies, on
the other. Put simply, the “valuable rights” other than economic
value that appertain to real or tangible personal property simply
do not exist when the property at issue is potential interest on a
principal amount that alone is too small or held too fleetingly to
generate net interest for its owner.
When carefully assayed, the property at issue in IOLTA
constitutes a unique variety that does not easily conform to the
traditional rights attendant on real or tangible personal property.
Understanding this, Justice Souter stated in dissent that “it is
enough to note the possible significance of the facts that there is
no physical occupation or seizure of tangible property, that there
is no apparent economic impact....”19 This observation demonstrates
that, even though the Supreme Court decided that the interest on
IOLTA accounts is property, the Court has not yet identified the
type of taking, if a taking at all, that is effected by
appropriation of IOLTA interest.
19
Id. at 176 (Souter, J. dissenting).
13
The difficulty in evaluating the type of analysis that is
appropriate for IOLTA funds is especially important in light of the
Supreme Court’s explanation that “physical appropriations are
relatively rare, easily identified, and usually represent a greater
affront to individual property rights.”20 The Ninth Circuit’s en
banc analysis and my dissent in this circuit’s IOLTA II case, not
to mention the 5-4 divided Supreme Court, confirms that we are not
presented with a situation that is susceptible of easy legal
categorization, a fact that militates against the panel majority’s
per se analysis. In this case, and possibly all others involving
a monetizable interest, the per se doctrine —— adopted from the
Supreme Court’s rulings in real and tangible personal property
cases —— is a blunderbuss approach to an issue that requires
target-rifle accuracy.
D. Balancing Approach Employed in Takings Cases Involving
Money
Unfortunately, the few cases that address the Takings Clause
in the context of money are not wholly on point. They do, however,
confirm that when the property at issue is money, a distinct
analysis —— separate from per se or ad hoc, or any other method
used for real and tangible personal property —— is required. Both
Webb’s Fabulous Pharmacies, Inc. v. Beckwith21 and United States v.
20
Tahoe-Sierra, 535 U.S. at ___, 122 S.Ct. at 1479
(discussing the contrast between regulatory takings of real
property and physical intrusions on real property).
21
449 U.S. 155 (1980) (holding that the court clerk’s
appropriation of the interest on funds held by the court in an
interpleader action was an unconstitutional taking because the
14
Sperry Corp.22 are “fee for services” cases which were decided by
assessing the relationship between the amount of money withheld by
the governmental entity and the service provided by the government
for which the money was withheld (court fees in Webb’s, claims
tribunal in Sperry). Although the Court held that a takings
occurred in Webb’s when the government appropriated an interpleader
accounts’ interest, the facts of Webb are inapposite to the instant
case despite their superficial similarity. Webb’s would be
analogous to the case before us only if IOLTA programs
indiscriminately appropriated the interest from a client’s
principal, whether or not on its own that principal would have
earned net interest the receipt of which the client had a
legitimate expectation. The defining terms of the IOLTA program,
however, preclude this result by barring the deposit of that
category of client funds into IOLTA accounts.23
More importantly, the focus in Webb’s and Sperry is on the
reasonableness of the relationship between the appropriated amount
and the reasons for the appropriation, suggesting that, in the
funds were held for the benefit of creditors and the amount
withheld was not reasonably related to services rendered by the
court).
22
493 U.S. 52 (1989) (holding that withholding of a small
percentage of an award from Iran-United States Claims Tribunal was
not an unconstitutional taking because the amount was not clearly
excessive as a user fee).
23
TEAJF Rule 6 (Client funds may be deposited in an IOLTA
account only if those funds “could not reasonably be expected to
earn interest for the client or if the interest which might be
earned on such funds is not likely to be sufficient to offset the
cost of establishing and maintaining the account....”)
15
context of money, the Supreme Court does not apply the same per se
analysis it uses in the context of real and tangible personal
property. Without question, in both cases the governmental entity
forthrightly took control of the funds, but in neither case was the
taking by itself determinative of the outcome. Significantly, one
of the dispositive factors in Webb’s was that “Webb’s
creditors...had more than a unilateral expectation” in the accruing
interest and that “it was property held only for the ultimate
benefit of Webb’s creditors.”24 In contrast, the plaintiffs here
cannot possibly have any financial expectation (unilateral or
otherwise) in the interest from the IOLTA account —— their funds
could never gain net interest for them, even without IOLTA.25
In all likelihood, these specific concerns, which arise when
the property at issue is money, are what prompted the Court to
remark in Sperry that “[i]t is artificial to view deductions of a
percentage of a monetary award as physical appropriations of
property. Unlike real or personal property, money is fungible.”26
In both Webb’s and Sperry the Court engaged in an implicit
weighting of factors, similar to that undertaken in a case
expressly employing ad hoc analysis, to determine the
24
Webb’s, 449 U.S. at 451.
25
See supra note 23.
26
493 U.S. at 62, n. 9. Contrary to Judge Kozinski’s
argument in his dissent from the Ninth Circuit’s en banc opinion in
WLF v. LFW, fungibility is relevant and important. It not only
affects the choice of Supreme Court precedent to be applied, but,
as discussed further below, obviates and renders inapt injunctive
remedies.
16
reasonableness of the appropriations involved.
This theme as articulated in Sperry —— that money is a unique
type of property which is inadequately covered by conventional real
or personal property analysis —— is reflected in two subsequent
appellate court cases. In Nixon v. United States, the D.C. Circuit
held that personal property is subject to Loretto’s per se
doctrine. In doing so, however, the court expressly described
Sperry as clarifying that, although real and personal property are
subject to the doctrine, money does not receive per se analysis.27
More recently, in Branch v. United States, holding that the Fifth
Amendment was not violated by the federal government’s seizure of
one bank’s assets to offset losses of another bank owned by the
same bank holding company, the Federal Circuit stated that
“[b]ecause of ‘the State’s traditionally high degree of control of
commercial dealing,’ the principles of takings law that apply to
real property do not apply in the same manner to statutes imposing
monetary liability.”28 Seeming to foreshadow the unique nature of
IOLTA, the Branch court, using Sperry as its paradigmatic example,
continued: “Nor are other, less conventional assessments viewed as
per se takings, requiring compensation without inquiry into their
27
978 F.2d 1269, 1285 (D.C. Cir. 1992) (the court’s
parenthetical explanation of Sperry following its citation of that
case reads: “distinguishing between money, which is not subject to
the per se doctrine because it is fungible, and ‘real or personal
property’”).
28
69 F.3d 1571, 1576 (Fed. Cir. 1996) (quoting Lucas v. South
Carolina Coastal Council, 505 U.S. 1003 (1992)).
17
reasonableness.”29
The Texas IOLTA program is nothing if not a “less
conventional” method of regulating financial dealings with
commercial institutions so as to fulfill the legal profession’s
ethical obligation to the underprivileged members of society.
Thus, the panel majority’s application of the per se doctrine, in
the form developed for real and personal property other than money,
is a highly questionable proposition that suffers from two palpable
analytical flaws: (1) It is not grounded in definitive or wholly
applicable Supreme Court precedent; and (2) it fails to address the
special treatment accorded by the Supreme Court and other appellate
courts to situations in which the property purportedly taken is
money.
E. Inadequate Case Law Support for Application of Per Se
Analysis
A closer study of the four cases relied on here by the panel
majority to reach its conclusion regarding the per se doctrine
further illustrates the weakness of the panel’s argument.30
According to the panel majority, Phillips, and Webb’s and Loretto
(the two cases on which Phillips relied), “compel applying the per
se analysis.”31 I must disagree: The analysis in Phillips mandates
no such method; the Court specifically answered only the question
29
Id.
30
See Phillips, 524 U.S. 156; Lucas, 505 U.S. 1003; Webb’s,
449 U.S. 155; Loretto, 458 U.S. 419.
31
270 F.3d at 186.
18
whether the interest on IOLTA accounts was property, expressly
pretermitting any discussion of takings and just compensation. The
Court’s majority opinion cites Webb’s only for the proposition that
interest follows principal, and cites Loretto only for the
proposition that an item can be property without having a positive
economic or market value. Thus, the panel majority’s reading
unduly strains the plain language of Phillips. The simple fact of
the Court’s reliance on Webb’s and Loretto for the “property”
analysis does not dictate application of those cases to the takings
question.
Furthermore, as discussed above, those case are factually and
legally distinguishable from the instant case, making any rote
application of their reasonings or holdings simplistic and
incongruous. Webb’s was a user-fee case that did not address
either per se or ad hoc approaches, instead basing its holding on
(1) the legitimate expectation of accrued interest by creditors,
and (2) the arbitrary relationship between the amount taken and any
service rendered by the government.32 Loretto implicated an actual,
physical occupation of real property by a cable company’s lines.
As the Court was dealing with a brick-and-mortar item, the presence
of the cable lines actually did interfere with other “valuable
32
As already stated, the Court’s focus on these factors in
Webb’s implicitly endorses a non-categorical approach to takings
analyses that involve money. The panel majority’s focus on the
“factual similarity” of Webb’s is misleading because the cases
would be factually analogous only if clients whose principals
could, on their own, earn net interest were pooled in an IOLTA
account despite those clients’ legitimate expectations of
possessing the interest on their principals.
19
rights” such as the right to control, dispose of, and otherwise
profit from the physical space occupied by the cables. It is these
prototypical physical invasion cases (and parallel tangible
personal property cases) for which the Supreme Court created per se
analysis in the first place, and it is only these to which the
analysis has been applied. No case cited by the panel majority or
written by the Supreme Court has rotely applied the per se doctrine
to the putative taking of money or a monetizable interest.
With similar fallacy, the panel majority reads Loretto to
stand for the proposition that physical occupation of property
constitutes a per se taking “regardless of the economic impact on
the owner.”33 The holding of Loretto, however, is much narrower:
The physical invasion of real property, no matter how minimal, is
a per se taking. Specifically, the Loretto court stated that a
permanent physical occupation is a per se taking even if the action
“has only minimal economic impact on the owner [of the real
estate].”34 Thus, Loretto did not answer the more difficult
question of how to assess a purported taking with no economic
impact on property that is only valued monetarily —— money. The
panel majority’s invoking of Loretto still leaves three issues
unsatisfactorily unresolved: (1) whether appropriation of potential
net interest from pooled principals, which principals by themselves
could not produce net interest, is a physical invasion or
33
270 F.3d at 187 (emphasis added).
34
458 U.S. at 435.
20
occupation; (2) whether the takings analysis for real or tangible
personal property is applicable to the purported taking of
potential interest; and (3) what is the proper treatment of
monetary appropriations that have no economic impact on the
property owner whatsoever.
Finally, Lucas, another case cited by the panel majority in an
effort to support its application of per se takings analysis,
provides only paper-thin support, if any support at all, for the
panel majority’s position. In Lucas, the Court dealt with a
regulatory taking of real property. Even though it was a
regulatory taking and not a physical invasion, the Court abandoned
the ad hoc test of Penn Central and declared the regulation a
taking because it had caused the property owner to “sacrifice all
economically beneficial” uses of his property.35 If the panel
majority truly wants to apply Lucas to the instant case, then the
relevant inquiry must be whether IOLTA strips the plaintiffs of all
economically beneficial use of their property (i.e., their
interest). Simply and accurately, the answer is no. Even absent
IOLTA, the plaintiffs cannot use the interest on their principals
because their funds will not gain net interest; therefore, by
definition, vis-à-vis the plaintiffs, there is no such thing as an
economically beneficial use that the government could have taken.
The plaintiffs’ counter argument —— that, even though no economic
benefit is lost through the program, IOLTA robs them of the
35
505 U.S. at 1019 (emphasis added).
21
subjective benefit of letting their speculative interest lie fallow
—— is not a takings claim; at most, it is a dubious First Amendment
claim.
The panel majority’s reliance on Lucas is rendered even more
tenuous by the Supreme Court’s statement in that case regarding the
treatment of commercial dealings. Discussing the regulatory taking
of real property, the Court in Lucas declared
It seems to us that the property owner necessarily
expects the uses of his property to be restricted, from
time to time, by various measures newly enacted by the
State in legitimate exercise of its police power;... And
in the case of personal property, by reason of the
State’s traditionally high degree of control over
commercial dealing, he ought to be aware of the
possibility that new regulation might even render his
property economically worthless (at least if the
property’s only economically productive use is sale or
manufacture for sale). In the case of land, however,
....”36
This statement in Lucas, read in conjunction with the Federal
Circuit’s approach in Branch,37 casts even greater doubt on the
panel majority’s decision to subject the potential interest here at
issue to the doctrines used to evaluate takings of real property
and personal property other than money. Far from “compelling” a
per se approach, the panel majority’s analysis belies the
complexity of established Takings Clause precedent and avoids
tackling the demanding questions presented by a taking of
monetizable property as distinguished from real and tangible
personal property.
36
Id. at 1027-28.
37
See supra notes 27-28 and accompanying text.
22
III. The Amount of Just Compensation Due, If Any
The second question left open by the Supreme Court’s opinion
in Phillips is what just compensation, if any, is due. Consistent
with my dissent but contrary to the panel majority’s view, the
Ninth Circuit held that, even if there were a “taking” of
property,” it was not done without just compensation: Just
compensation for zero is zero. Relying on Justice Holmes statement
in Boston Chamber of Commerce v. City of Boston that “the question
is What has the owner lost? not What has the taker gained[,]” the
Ninth Circuit sought to determine what the plaintiffs would have
gained in the absence of IOLTA.38 Concluding that the most that the
plaintiffs lost was the esoteric right to prevent their principal
from earning interest (presumably only because they opposed the
government’s making use of that interest without their consent ——
or downright disapproval of the uses to which “their” interest
would be put), that court found that the plaintiffs suffered
neither economic loss nor the loss of a right with economic value.
The Supreme Court’s opinion in Phillips neither decreed nor
compelled an answer to the just compensation question; in fact, the
Phillips majority specifically wrote that “whether client funds
held in IOLTA accounts could generate net interest is a matter of
some dispute.”39 Traditionally, the resolution of these factual
disputes is the province of the district court. Here, following
38
271 F.3d at 862 (quoting Boston Chamber of Commerce v. City
of Boston, 217 U.S. 189, 195 (1910)).
39
524 U.S. at 169 (emphasis added).
23
remand, presentation of testimony, and hearings regarding various
accounting and economic theories, the district court determined, as
a factual matter, that individual client funds could not generate
net interest and therefore the plaintiffs’ loss totaled zero
dollars. The plaintiffs essentially conceded this point, and none
contends that this finding is clearly erroneous. The district
court’s factual finding in this regard should erase the doubts
expressed by the Phillips majority, as no dispute should currently
exist: When no just compensation is due, the taking is not
unconstitutional.
Keeping the finding of zero compensable loss firmly in mind,
our panel should have followed the chronological analysis
prescribed for all takings cases: First determine whether a
takings occurred, and then determine the amount of just
compensation, if any, that is due. Importantly, the Fifth
Amendment has never been read to proscribe a taking vel non;40
rather it is a constitutional guarantee that anything taken will be
justly compensated for, if necessary.41 Thus, the logic that flows
from this established understanding of the Fifth Amendment is that
40
First English Evangelical Lutheran Church of Glendale v.
Los Angeles (First English), 482 U.S. 304, 314 (1987) (“As its
language indicates, and as the court has frequently noted, [the
Fifth Amendment] does not prohibit the taking of private property,
but instead places a condition on the exercise of that power.”)
(emphasis added).
41
Id. (“This basic understanding of the Amendment makes clear
that it is designed not to limit the governmental interference with
property rights per se, but rather to secure compensation in the
event of otherwise proper interference amounting to a taking.”)
(emphasis in original).
24
a takings by itself, even one that is a per se taking, is not
unconstitutional; only failing to compensate the dollar value of
any resulting loss is unconstitutional. Incredulously, by invoking
the ripeness doctrine, the panel majority turned this
straightforward and controlling approach on its head, opting
instead for a circular analysis that finds no support in logic or
case law.
Assuming, arguendo, that a takings occurred (whether per se or
otherwise), the proper analysis of IOLTA should have proceeded
thusly: (1) The potential interest on an IOLTA account is property;
(2) a taking occurred (my arguendo assumption); but (3) the
plaintiffs demonstrated a monetary loss of zero as determined by
the district court’s extensive fact-finding; so (4) the amount of
just compensation due to the plaintiffs is zero; (5) the taking
(whether per se or otherwise) is not unconstitutional; ergo, no
remedy is required. Instead of dealing with the just compensation
determination in this direct manner, as it should have, the panel
majority instead jumped from a finding of a per se taking to a
prohibition of the taking through injunctive relief —— the exact
result proscribed by the Supreme Court in First English.42
When reduced to its essentials, the panel’s novel methodology
appears to proceed in this order: (1) the potential interest on the
IOLTA accounts is property; (2) a per se takings occurred under
Loretto; (3) having determined that a per se taking of property
42
Id.
25
occurred, the district court’s finding of zero loss is irrelevant;
(4) because a takings has occurred there must be some available
remedy (even though none is mentioned in the Constitution)
regardless of the district court’s finding; so (5) in the absence
of provable loss, the appropriate remedy is injunctive relief, a
prophylactic which prohibits the taking rather than simply placing
a condition on it. This logic is a perversion of all established
Fifth Amendment jurisprudence and finds absolutely no support in
case law.
Under the instant facts, the rule should be that when the
allegations specify that a monetary interest was taken, what
follows from the finding of zero loss is not that declaratory and
injunctive must be awarded, but rather that the taking is not
unconstitutional. The panel majority has conflated (1) its
determination that the appropriation of IOLTA interest is a per se
taking with (2) the determination that it is also per se
unconstitutional. This conflation puts the proverbial cart before
the horse: Finding no provable economic loss (for the alleged
taking of money), but somehow convinced of the impropriety of the
transaction and thus the need to find a remedy, the panel majority
retroactively searches for the only other possible remedy available
—— injunction.
But again, this novel creation produces a flawed methodology.
The plaintiffs in this case do not receive monetary compensation
because they have lost nothing of economic value, putting the lie
to their claim that the government has unconstitutionally taken
26
their property (specifically, their speculative interest from their
contribution to the pooled principal in the IOLTA account).43 The
very fact of their inability to prove a compensable monetary loss
should end the case, not trigger a search for alternative equitable
remedies. The absence of value means, quite straightforwardly,
that the appropriation of the plaintiffs’ property in this case is
not proscribed by the Fifth Amendment.
Finally, even if the panel majority’s per se analysis were to
be accepted, injunctive relief, although the only potential
remediation available to a plaintiff with no provable loss, is
wholly inappropriate. Rather than fabricating jurisprudence that
seeks to match some remedy with a perceived constitutional
violation, the direct (and correct) approach is to provide the
expressly prescribed constitutional remedy. In this case, because
money is the only property alleged to have been taken —— and
because money is fungible —— the only remedy is the payment of just
compensation in money. This leads to the absurdity of taking a
dollar and, in return, compensating the former owner with a dollar.
Unlike other personal property, which may have no market value but
possibly has enough subjective personal value, e.g., sentimental or
historical, to justify an injunction, money is defined only by its
facial economic value. Most importantly, an injunction in this
case contravenes the fundamental dictates of Fifth Amendment
43
See United States v. Causby, 328 U.S. 256, 261 (1946) (“It
is the owner’s loss, not the taker’s gain, which is the measure of
the value of the property taken.”).
27
jurisprudence by prohibiting the taking of property even though the
government stands willing to pay just compensation.
Furthermore, given the nature of the property at issue,
agreement with the Ninth Circuit’s en banc position or my dissent
does not equate to subscribing to a blanket rule that the taking of
property of no fair-market value results in a rule that no
unconstitutional taking has occurred each and every time. I
recognize, for example, that if, as part of its permanent
retrospective on its founders, a town wants to take Aunt Bertha’s
amateurish self-portrait (with zero net fair market value), or if,
for its historical display, a city wishes to take the remains of a
chimney (with zero net market value) from a burned-down house on my
old home place, such governmental actions may well constitute
“takings” of “property” that might properly be addressed with
injunctive relief. But when the taken property is dollars (or,
more accurately, the abstract right to potential dollars of net
interest earned when one client’s principal is pooled with the
principal of other clients of the law firm), declaratory or
injunctive relief is, at best, a highly questionable proposition.
Loss of a “monetizable” interest is a stereotypical example of a
situation in which there need be no relief, injunctive or
otherwise. When —— more accurately, if —— the plaintiff/client can
prove an actual dollar loss, he can be compensated fully for that
loss and be made whole, without resorting to declaratory or
injunctive relief; if he cannot prove deprivation of actual
monetary value, his redress against the taker must be at the ballot
28
box, not in court.
As I noted in my panel dissent, “our” district court found
that under any applicable accounting method or economic analysis ——
either in-firm pooling, sub-accounting, or net-benefit theory ——
the plaintiff/client (Summers) suffered no loss. Put simply,
Summers is in exactly the same financial position with the IOLTA
program in place as he would be in its absence. As he complains of
an outright financial taking (and not the taking of either real or
tangible, personal property), our most straightforward approach
would be —— and should be —— to determine the exact dollar amount
purportedly confiscated from Summers.
As a factual matter, the district court found (as did the
Ninth Circuit regarding similarly situated plaintiffs) that the
plaintiff’s compensable loss —— past, present, and future —— summed
to zero dollars. Thus, although Summers complains of the
confiscation of his property right to interest, he cannot under any
accounting theory or economic analysis establish a dollar —— or
cents! —— figure that is owed to him by the governmental taker. He
presents a perfect illustration of Justice Holmes’s point:
Although the state (actually, various legal services organizations)
gained money, Summers was deprived of none.
IV. Conclusion
Vested with the constitutional authority to regulate the legal
profession —— the state’s recognition of classic republican
separation of powers —— the Texas Supreme Court created the Texas
IOLTA program to address, inter alia, lawyers’ ethical
29
responsibility to provide legal services to the poor. Even if ——
unlike real or tangible personal property —— the interest earned
(or to be earned) on lawyers’ trust accounts that is used to fund
those services is, hypertechnically, the “property” of the owners
of the principal, those owners must show monetary loss before they
can state a Fifth Amendment claim to be compensated by the state.
But, they cannot show such a loss, so they cannot state such a
claim: Absent a showing of loss, any allegedly uncompensated
“taking” by the state is constitutionally permitted. Unlike the
tangible property illustrations, a taking of an intangible
financial right with no market value —— and thus not subject to
being taken unconstitutionally —— cannot lead alternatively to an
enjoined, prior-restraint proscription of the taking.
As I disagree with the reasoning and result of the panel
majority opinion, I respectfully dissent from denial to rehear this
case en banc and, as a result of that denial, from failing to
reinstate the ruling of the district court.
30