Hatfield v. Scott

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 01-11364

GARY LEE HATFIELD; ET AL.,

Plaintiffs,
GARY LEE HATFIELD,
Plaintiff-Appellee,

VERSUS

WAYNE SCOTT, ETC.; ET AL.,

Defendants,
WAYNE SCOTT, EXECUTIVE DIRECTOR
TEXAS DEPARTMENT OF CRIMINAL JUSTICE,
Defendant-Appellant.

Appeal from the United States District Court
For the Northern District of Texas, Lubbock Division
September 11, 2002

Before JOLLY, DeMOSS, and PARKER, Circuit Judges

ROBERT M. PARKER, Circuit Judge:

Appellant Wayne Scott appeals the district court’s denial of

his motion for summary judgment. We reverse and remand.

I. Background.

Appellee Gary Lee Hatfield is an inmate of the Texas

Department of Criminal Justice (“TDCJ”) who, as a prisoner since

1
September 1997, opened an inmate trust account to be able to make

purchases in the prison commissary. Inmates are not allowed to

carry cash for that purpose, or any other.

These individual trust accounts are centrally managed by

TDCJ’s Inmate Trust Fund Department. They are used solely for the

purpose of allowing inmates to make commissary purchases and are

funded by the periodic deposit of money by the inmate’s

arrangement. The accounts are not intended to be a substitute for

a savings account at a financial institution. Before opening an

account, an inmate is informed that no interest is paid to the

inmate on the account and that by depositing funds into an account

controlled by the Inmate Trust Fund Department, they and their

depositors agree to abide by the rules governing the establishment

of the account.

Inmates are not required to open an account. Inmates who do

open an account are encouraged to only keep a sufficient balance in

it to cover their day-to-day commissary expenses. Those who keep

an excessive balance are cautioned via their monthly account

statements that interest is not paid on trust fund account balances

and that they should consider depositing excess funds in a savings

account of their choice. Those few inmates who keep an account

balance of $1000 or more receive a specific notice quarterly.

The inmate trust fund was established under TDCJ

Administrative Directive 14.62, as authorized under TEX. GOV’T CODE

§ 501.014. Under the terms of the fund, interest accruing to the

2
fund is used to offset the cost of maintaining the consolidated

accounts. If excess interest is earned above the cost of

maintenance, it is invested in United States Treasury bills and any

interest earned is appropriated to TDCJ to partially fund the cost

to operate the Inmate Trust Fund Department. For the year ending

August 31, 2001, however, only $199,438.59 was earned in interest

on the consolidated account, which totaled $11,606,800, and the

fees assessed on the TDCJ to maintain the account amounted to

$228,627.25. The cost of operating the Inmate Trust Fund

Department was $871,971 and the interest earned on the already-

accrued Treasury bills was only $738,839.68. Individual inmates

are not charged any fee to maintain their own trust fund accounts.

Without such accounts, inmates would be unable to purchase the

items that the TDCJ makes available in the commissary on a day-to-

day basis.

Hatfield sued the TDCJ and Scott under 42 U.S.C. § 1983 for a

violation of the Takings Clause of the Fifth Amendment because

interest is not paid to his account. Scott moved for summary

judgment on Eleventh Amendment immunity grounds in September 2000.

On September 20, 2001, the district court issued a brief Order

denying Scott’s motion for summary judgment “because genuine issues

of material fact remain and Respondent Scott has failed to

demonstrate that he is entitled to judgment as a matter of law.”

A similar lawsuit by another prisoner, Billy Ray Cinnamon, was

consolidated with Hatfield’s at the same time. Scott then filed

3
this interlocutory appeal.

II. Jurisdiction.

We first must determine whether we have jurisdiction to

consider this interlocutory appeal. Ordinarily, denial of a

summary judgment motion does not provide grounds for federal

appellate review under 28 U.S.C. § 1291 because it is not a final

judgment. Palmer v. Johnson, 193 F.3d 346, 350 (5th Cir. 1999).

A district court’s denial of qualified immunity on a motion for

summary judgment is immediately appealable under the collateral

order doctrine, however, if it is based on an issue of law.

Palmer, 193 F.3d at 350 (citing Johnson v. Jones, 515 U.S. 304

(1995) and Mitchell v. Forsyth, 472 U.S. 511 (1985)). If the

denial is based on a genuine issue of material fact, it is not

appealable. Palmer, 193 F.3d at 351; Naylor v. State of Louisiana,

Dep’t of Corrections, 123 F.3d 855, 857 (5th Cir. 1997)(per

curiam).

Regardless, appellate review of an issue of law is not

precluded because the district court determined that there are also

genuine issues of fact. “[T]o the extent that a district court

order denying qualified immunity determines an issue of law, such

an order is appealable in spite of the existence of genuine issues

of material fact.” Naylor, 123 F.3d at 857 (citing Behrens v.

Pelletier, 516 U.S. 299, 313 (1996); Coleman v. Houston Independent

School District, 113 F.3d 528, 531 (5th Cir. 1997)). When

4
reviewing the purely legal question of whether the plaintiff

alleges a violation of a clearly established right of which a

reasonable person would have known, “we can review the materiality

of any factual disputes, but not their genuineness.” Wagner v. Bay

City, 227 F.3d 316, 320 (5th Cir. 2000)(emphasis in original)).

“In making this legal determination on the materiality of the facts

at issue, we review the complaint and record to determine whether,

assuming that all of [Plaintiff’s] factual assertions are true,

those facts are materially sufficient to establish that defendants

acted in an objectively unreasonable manner.” Chiu v. Plano Indep.

Sch. Dist., 260 F.3d 330, 341 (5th Cir. 2001).

Hatfield argues that we are limited to determining whether the

district court properly denied qualified immunity to Scott without

addressing the merits of the case. Under the framework just set

forth, we must review the facts of the case as they apply to a

determination under law whether there was a violation of some

constitutional or statutory right fueling Hatfield’s claim.

The district court did not file a memorandum opinion providing

its analysis of Scott’s motion for summary judgment. The court

did, however, file an order that stated in full:

The Court has considered Respondent Scott’s Motion for
Summary Judgment and finds that it should be denied in
all things because genuine issues of material fact remain
and Respondent Scott has failed to demonstrate that he is
entitled to judgment as a matter of law.

See Hatfield v. Scott, No. 5:99-CV-200-C (N.D. Tex. Sept. 20,

5
2001). Scott argues that Hatfield does not have a property

interest in the interest on his Inmate Trust Account, that using

the interest in the manner that TDCJ uses it does not violate the

Takings Clause of the Fifth Amendment, and that Hatfield is

compensated for such use, all as a matter of law. To the extent

that the district court considered those issues of law when

deciding Scott’s motion for summary judgment, we may examine

whether there existed a violation of Hatfield’s constitutional

rights, while reviewing the materiality of the facts in the record.

Therefore, we hold jurisdiction over this appeal.

III. Standard of Review.

We review de novo a district court’s denial of a summary

judgment motion, including those ruling on claims of qualified

immunity. Chiu, 260 F.3d at 342. We do not apply the same FED. R.

CIV. P. 56(c) standard as the district court because we do not

determine whether the record establishes genuine factual issues.

Compare Wagner, 227 F.3d at 320 (review of materiality of factual

issues is permitted, but not their genuineness), supra, with Walker

v. Thompson, 214 F.3d 615, 624 (5th Cir. 2000)(“summary judgment

will be affirmed only when [we are] convinced, after an independent

review of the record, that there is no genuine issue as to any

material fact and that the movant is entitled to judgment as a

matter of law.”)(Internal quotations omitted). The proper inquiry

here is whether the district court was correct in determining that

6
the facts alleged by Hatfield were materially sufficient to

establish that Scott’s conduct was objectively unreasonable in

light of the requirements of the Takings Clause of the Fifth

Amendment. This inquiry is purely a legal one.

IV. Analysis.

The Fifth Amendment, made applicable to the States through the

Fourteenth Amendment, provides that “private property” shall not

“be taken for public use, without just compensation.” Phillips v.

Washington Legal Foundation, 524 U.S. 156, 163-64 (1998). The

existence of a property interest is determined not by the

Constitution itself, but by reference to “existing rules or

understandings that stem from an independent source such as state

law.” Id. at 154 (quoting Board of Regents of State Colleges v.

Roth, 408 U.S. 564 (1972)).

Hatfield relies heavily on Phillips1 to argue that he has a

property interest in the interest attributable to his inmate trust

account, which was created under Texas state law.

The [TDCJ] shall take possession of all money that an
inmate has on the inmate’s person or that is received
with the inmate when the inmate arrives at a facility to
be admitted to the custody of the department and all
money the inmate receives at the department during
confinement and shall credit the money to an account
created for the inmate. The department may spend money

1
Holding that interest paid on specified lawyers’ clients’
trust accounts, which was used under the Texas Interest on Lawyers
Trust Accounts (“IOLTA”) program to fund legal services for
indigents, was the private property of the owners of the principal
under the rule that “interest follows principal.” 524 U.S. at 172.

7
 from an inmate account on the written order of the inmate
in whose name the account is established or as required
by law or policy subject to restrictions on the
expenditure established by law or policy. The department
shall ensure that each facility operated by or under
contract with the department shall operate an account
system that complies with this section, but the
department is not required to operate a separate account
system for or at each facility.

TEX. GOV’T CODE § 501.014(a). Under this statute, the TDCJ

implemented policy under TDCJ Administrative Directive 14.62,

establishing the Inmate Trust Fund and its individual accounts.

TDCJ and Scott claim that this authorization does not establish an

inmate’s property interest in any interest accruing to the trust

fund.

Prisoners have brought § 1983 suits against state agencies for

withholding inmate account interest before, the outcome of which

generally has hinged on whether a state-created interest exists.

In Schneider v. California Dept of Corrections, 151 F.3d 1194 (9th

Cir. 1998), the Ninth Circuit examined CAL. PENAL CODE § 5008, which

provided that the State “may deposit such funds in interest-bearing

bank accounts” and that, if it does so, it “shall deposit the

interest or increment accruing on such funds in the Inmate Welfare

Fund.” Schneider, 151 F.3d at 1196. The California district court

had determined that, under § 5008, an inmate had no property

interest in the interest accumulated in his account. Instead, it

ruled that “inmates in California do not have a protected property

interest in the interest income earned on Inmate Trust Accounts and

8
that they are not deprived of earning interest on the funds because

they can elect to place their money in a Passbook Savings Account.”

It further ruled that, therefore, there was no claim stated for

violation of the Fifth Amendment Takings Clause. See Schneider v.

California Dep’t of Corrections, 957 F. Supp. 1145, 1149 (N.D. Cal.

1997). The court later denied the prisoner’s application for leave

to file a motion for reconsideration.

The Ninth Circuit reversed. Although that court observed that

the California statute did not create a property interest,2 it went

on to rule that an explicit statute is not necessary to create a

property right. Schneider, 5 F.3d at 1199. Analyzing Phillips and

Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1908),3

the Ninth Circuit applied the “interest follows principal” rule to

find a protected property interest in earned interest income.

Identifying a “core” notion of constitutionally protected property

not subject to state regulation without Takings Clause scrutiny,

151 F.3d at 1200, the Ninth Circuit found “little doubt that

2
The Ninth Circuit factually distinguished this point from its
earlier decision in Tellis v. Godinez, 5 F.3d 1314 (9th Cir. 1993).
There, a Nevada statute specifically provided that interest and
income earned on a prisoner’s fund created under the statute must
be credited to that fund. Schneider, 151 F.3d at 1198-99.
3
Holding that, despite the explicit wording of a Florida
statute that interest accruing on lawyers’ clients’ interpleader
accounts would be deemed income to the office of the clerk of the
circuit court, the rule of “interest follows principal” applied and
that such interest was to be allocated to those who are ultimately
to be the owners of that principal. 449 U.S. at 162.

9
interest income of the sort at issue here is sufficiently

fundamental that States may not appropriate it without implicating

the Takings Clause.” Id. at 1201. In reversing, the court limited

its order on remand to permitting discovery as to whether interest

actually accrued on the prisoners’ trust accounts and, if so, to

allow the prisoners to amend their complaint to proceed with a

Takings Clause claim. Id.

The Fourth Circuit has taken the opposite view. In Washlefske

v. Winston, 60 F. Supp. 2d 534 (E.D. Va. 1999), a district court

found that, despite the explicit language of VA. CODE ANN. § 53.1-44

permitting the use of prisoners’ accounts interest in a general

fund for the benefit of all prisoners, under Phillips and Webb’s,

prisoners’ property interest existed in the interest income earned

on wages paid for work in prison that were placed in prison-managed

accounts. Id. at 538. The district court went on to rule that,

regardless, there was no taking without just compensation because,

first, the prisoner voluntarily chose to place funds in the account

administered by the prison and, second, the prisoner received just

compensation in the form of benefits such as books, recreation

equipment, and no imposition of administrative fees for managing

the account. Id. at 543.

The Fourth Circuit affirmed on different grounds, finding that

the prisoner had no property interest in the interest income.

Washlefske v. Winston, 234 F.3d 179, 186 (4th Cir. 2000). In

10
reaching that conclusion, the court noted that the Takings Clause

protects private property, but does not create it. Id. at 183

(citing Phillips, 524 U.S. at 163). It thus looked outside the

Takings Clause to determine whether a constitutionally protected

property interest existed. The court found that the Virginia

statutes created and defined a limited property right, which did

not grant full rights of possession, control, and disposition over

the amounts “earned” and credited to the prisoner’s account. He

could not receive the wages as cash; he could either spend them on

items in the prison commissary or direct that they be sent outside

of prison to other persons or for the purchase of other approved

items. 234 F.3d at 185. Use of the interest earned was at the

sole discretion of the Director of the Department of Corrections.

Id. The court held that no deprivation of a preexisting property

right had occurred; instead, limited property rights for

penological purposes had been created. Id. It noted that though

interest follows principal at common law, it does so only incident

to the ownership of the underlying principal. Id. (citing

Phillips, 524 U.S. at 164). Under Virginia common law, the

prisoner had no traditional private property interest in the wages

earned in prison. 234 F.3d at 185-86. Thus, there was no

traditional principle of property law in Virginia upon which the

prisoner’s claim could rest. Id. The Fourth Circuit did not

address the Virginia district court’s opinion regarding the

11
prisoner’s voluntary choice of where to place his funds or the

compensatory benefit received from the inmate account program.

In an unpublished opinion,4 the Tenth Circuit has held that an

Oklahoma prisoner, who brought a similar § 1983 suit, had no

constitutionally protected property interest in interest earned on

funds in his inmate’s accounts. See Petrick v. Fields, 103 F.3d

145, 1996 WL 699706, at **1 (10th Cir. Dec. 6, 1996). That court

did so on the basis that Oklahoma law either did not provide for or

explicitly denied a right to earned interest, depending on the

nature of the account, and that no other independent source granted

a protected property interest. Id. at **2.

Here, the Texas statute does not explicitly direct that

interest earned on the Trust Fund be used in the manner employed by

TDCJ. Instead, it permits TDCJ to establish policy regarding the

use and expenditure of funds within the fund. Thus, the statute is

different from those examined by our sister circuits. Regardless,

we need not determine whether the Texas statute establishes a

property interest because Hatfield waived any such interest as may

have existed and the earned money interest properly was paid to the

TDCJ to manage the Trust Fund.

The policy implemented by the TDCJ in its Administrative

Directive 14.62 is to use earned interest in the fund to pay for

4
We examine the Tenth Circuit’s unpublished opinion as
persuasive authority aiding us in the determination of this case in
accordance with 10TH CIR. R. 36.3(B).

12
the cost of administering the fund. It is only after all such

costs – including the fees of the financial institutions and the

TDCJ’s in-house costs such as staff overhead – that any leftover

funds are applied to provide items for the general welfare of the

prisoners. In the most recent year, the total accrued interest did

not cover TDCJ’s operating expenses.

The Supreme Court has indicated that this use may be

appropriate. In the Texas IOLTA case, the Court explained that a

State’s having mandated the accrual of interest does not mean it is

entitled to assume ownership of it. Phillips, 524 U.S. at 171. It

went on to say that “[t]his would be a different case if the

interest income generated by IOLTA accounts was transferred to the

State as payment ‘for services rendered’ by the State” and that a

State is not prohibited from imposing reasonable fees it incurs in

generating and allocating interest income. See id. We think that

such is the case here and that, as a matter of law, where earned

interest is used to pay for the administration of a fund providing

a benefit to prisoners, there is no “taking” violative of the Fifth

Amendment.

Even more compelling is that Hatfield, and TDCJ prisoners in

general, choose whether to participate in the Inmate Trust Fund.

Both Phillips and Webb’s dealt with interest accrued to clients of

lawyers under schemes mandating how the clients’ principals would

be deposited and how such interest would be used. As such, the

13
deposits were involuntary. Here, a prisoner chooses whether to

participate in the Trust Fund by opening an individual account and

having money deposited into it. The prisoner has the option of

keeping money in an interest-bearing account; in fact, the TDCJ

urges prisoners to keep only the minimum amount in the inmate

account consistent with the prisoner’s use of the commissary. We

agree with the district court in Virginia that such a knowing

choice obviates any question of whether a “taking” exists,

regardless of the potential existence of a property interest.

Washlefske, 60 F. Supp. 2d at 543.

An individual may waive a constitutional right. “The classic

description of an effective waiver of a constitutional right is the

‘intentional relinquishment or abandonment of a known right or

privilege.’” See Coll. Sav. Bank v. Florida Prepaid Postsecondary

Educ. Expense Bd., 527 U.S. 666, 682 (1999)(quoting Johnson v.

Zerbst, 304 U.S. 458, 464 (1938)); Bueno v. City of Donna, 714 F.2d

484, 492 (5th Cir. 1983)(also quoting 304 U.S. at 464).

Constructive consent to a waiver is not generally associated with

the surrender of constitutional rights. Coll. Sav. Bank, 527 U.S.

at 681. Instead, “courts indulge every reasonable presumption

against waiver” of fundamental constitutional rights. Id. at 682

(quoting Aetna Ins. Co. v. Kennedy ex rel. Bogash, 301 U.S. 389,

393 (1937)). The record must reflect a basis for the conclusion of

actual knowledge of the existence of the right or privilege, full

14
understanding of its meaning, and clear comprehension of the

consequence of the waiver. Bueno, 714 F.2d at 493.

Hatfield agrees that he was fully informed of the requirements

to open an inmate trust account, including the apportionment of any

interest, in accordance with TDCJ Administrative Directive 14.625

before he opened his account. He also was informed that he could

elect to have his money deposited in an interest-bearing account as

an alternative. He was informed by his monthly account statements

that he would earn no interest on any money kept in the inmate

trust account and that he should deposit any money in excess of his

day-to-day needs in a financial institution providing interest. He

elected, with full knowledge and intent, to open his inmate trust

account and to thereby abandon any interest that might accrue to

it.6 It cannot be said that he was a victim of a constructive

waiver, nor that he did not make an intelligent choice armed with

the knowledge of the consequences of his decision. The choice

between being able to earn interest and being able to purchase

goods in the prison commissary may seem somewhat draconian.

Hatfield, however, has not alleged that commissary access was

required for any necessity so as to force him to participate in the

5
By his response brief to Scott’s appeal, “Hatfield accepts the
Statement of Facts set forth in Scott’s Brief insofar as they refer
to his particular claims for entitlement to relief by his
Petition.”
6
The sum total of all interest that would have accrued to
Hatfield’s account from the time of his incarceration to the time
of the lawsuit would have been less than $15.

15
inmate trust account. The fair reading of these facts makes clear

that Hatfield exercised his power of waiver over any

constitutionally protected property interest that he may have had.

As a matter of law, then, the facts alleged by Hatfield are not

materially sufficient to establish that Scott’s conduct was

objectively unreasonable because there was no “taking” and hence no

violation of the Fifth Amendment.

V. Conclusion.

Because there is no effective taking, there is no

constitutional basis for a § 1983 claim. We therefore REVERSE and

REMAND this case to the district court with directions to enter

judgment consistent with this opinion.

16