Washington Leg Fdn v. Texas Equal Access, e

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; NATHAN L. HECHT, Justice;

CRAIG ENOCH, Justice; JAMES A. BAKER, Justice;

PRISCILLA R. OWENS, Justice; GREG ABBOTT, Justice;

DEBORAH HANKINSON, Justice; HARRIET O’NEILL, Justice;

SUPREME COURT DEFENDANTS,

Defendants-Appellees.

Appeal from the United States District Court

for the Western District of Texas

October 15, 2001

Before WIENER, BARKSDALE, and EMILIO M. GARZA, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

The Supreme Court having held in this case that, for purposes

of the Takings Clause of the Fifth Amendment, interest earned on

client-funds deposited in demand accounts pursuant to the Texas

Interest on Lawyers Trust Accounts (IOLTA) program is the “private

property” of the client, Phillips v. Washington Legal Foundation,

524 U.S. 156, 160, 172 (1998), and the Court having remanded this

case for consideration, inter alia, of two other subparts of the

Takings Clause (whether there has been a “taking” and, if so, what

“just compensation”, if any, is due, id. at 172), and the district

court, following a bench trial on remand, having concluded, inter

alia, there was neither a compensable loss nor a taking, the

principal issues at hand are: whether there can be a taking when,

without the cost-savings provided by the IOLTA program, client-

funds would not earn “net” interest; and whether, even if there is

a taking, prospective injunctive relief can be a remedy.

Because we hold that the Fifth Amendment is violated, we need

not reach Appellants’ claim that the IOLTA program violates the

First Amendment as well. REVERSED and REMANDED.

I.

The requisite underlying facts have been fully discussed in

prior opinions by the Supreme Court and our court. See Phillips v.

Washington Legal Found., 524 U.S. 156 (1998); Washington Legal

Found. v. Texas Equal Access to Justice Found., 94 F.3d 996 (5th

Cir. 1996). They are restated here, together with pertinent new

facts.

When attorneys hold their clients’ funds, Texas ethical rules

require placing those funds in a trust account that permits

withdrawal on demand. TEX. DISCIPLINARY RULES OF PROFESSIONAL CONDUCT, Art.

10, § 9, Rule 1.14(a). Those rules allow attorneys to aggregate

client-funds in a single trust account, but, of course, prohibit

attorneys from commingling their money with the trust fund. Id.

Prior to 1980, because federal law prohibited banks from paying

2

interest on demand accounts, these accounts were, in effect,

interest-free loans to the banks. See S. Rep. No. 96-368, at 5

(1980), reprinted in 1980 U.S.C.C.A.N. 236, 240.

In 1980, Congress enacted legislation that allowed negotiable

order of withdrawal (NOW) accounts. See Depository Institutions

Deregulation and Monetary Control Act of 1980, 94 Stat. 132, 146

(codified as amended at 12 U.S.C. § 1832). In general, NOW accounts

allow attorneys to pool client-funds in an interest-bearing trust

account.1

The creation of NOW accounts led to the creation of IOLTA

programs. When either the amount of a client’s funds to be held is

nominal or the period of time for which the funds will be held is

brief, a NOW account for such client-funds is not feasible, because

the cost of maintaining the account is greater than the interest the

client would have earned (no “net interest”). As discussed infra,

such costs are those incurred not only by the bank, but also by the

attorney. In this situation, the trust accounts are — as they were

formerly — interest-free loans to the banks. IOLTA programs

transfer this benefit from the bank to legal providers for the

1

None of the funds may belong to a for-profit corporation or

partnership. 12 U.S.C. § 1832(a)(2). But see Letter from Federal

Reserve Board General Counsel Michael Bradfield to Donald

Middlebrooks (15 Oct. 1981), reprinted in Middlebrooks, The

Interest on Trust Accounts Program: Mechanics of its Operation, 56

FLA. B.J. 115, 117 (Feb. 1982) (concluding corporate funds may be

held in NOW accounts if charitable organizations have exclusive

right to interest generated by funds).

3

indigent. Based on the assumption — later held erroneous in

Phillips — that the interest generated was not the client’s

property, the American Bar Association’s Standing Committee on

Ethics and Professional Responsibility opined that IOLTA programs

are ethical. See ABA Comm. on Ethics and Prof’l Responsibility,

Formal Op. 348 (1982).

The Texas Supreme Court created its IOLTA program in 1984. The

program was voluntary, permitting an attorney to place client- funds

that were “nominal in amount” or “reasonably anticipated to be held

for a short period of time” in an unsegregrated, interest-bearing

bank account (an IOLTA account), the interest on which was paid to

the Texas Equal Access to Justice Foundation (TEAJF), a non-profit

corporation created by the Texas Supreme Court. See TEX. GOV’T CODE

ANN. tit. 2, subtit. G, app. A, art. 11 §§ 6-7 (1987). TEAJF

manages the interest earned from the IOLTA accounts and distributes

it to non-profit organizations that “have as a primary purpose the

delivery of legal services to low income persons”, with the

exception that funds may not be used to finance class actions or to

lobby on behalf of a political candidate or issue. See TEXAS RULES

OF COURT - STATE, Rules Governing the Operation of the Texas Equal

Access to Justice Program [TEAJF rule] rule 10, 15 (West 1996).

Texas’ voluntary IOLTA program generated only $1 million

annually. Therefore, in 1988, following the lead of several other

States and the recommendation of the American Bar Association, the

4

Texas Supreme Court made mandatory attorney participation in the

IOLTA program.

An attorney ... receiving in the course of the

practice of law ... client funds that are

nominal in amount or are reasonably anticipated

to be held for a short period of time, shall

establish and maintain a separate interest-

bearing demand account at a financial

institution and shall deposit in the account

all those client funds.

TEX. GOV’T CODE ANN. tit. 2, subtit. G, app. A, art. 11 § 5 (West

Supp. 1995) (emphasis added). The rules define which funds are

“nominal in amount” and/or “held for a short period of time”. They

state that a client’s funds may be deposited in an IOLTA account

only if the attorney holding the funds determines they

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,

service charges, accounting costs and tax

reporting costs which would be incurred in

attempting to obtain interest on such funds for

the client.

TEAJF rule 6 (emphasis added).2

2

When Phillips was decided, the parties agreed that the

portion of then TEAJF rule 6 prohibiting attorneys from pooling

clients’ funds in one account in an effort to generate net interest

for the clients was not enforced. Phillips, 524 U.S. at 169. That

portion was omitted in the January 1999 revision to the TEAJF

rules. TEAJF rule 6.

Consistent with the following ruling in Phillips, this rule-

change does not affect our analysis concerning whether there has

been a taking.

Whether client funds held in IOLTA

5

The January 1999 guidelines to the TEAJF rules provide

attorneys “should consider all costs associated with such an

account” in determining whether a client’s funds are suitable for

deposit in the program. But, W. Frank Newton, past chair of TEAJF

and member of its board of directors, testified that attorneys may

disregard their overhead costs. (As Appellees note, the guidelines

have been revised — approximately when the trial on remand was held

in September 1999 — to provide that attorneys may consider all costs

associated with such an account.)

Attorneys must review periodically whether changed

circumstances require removing a client’s funds from an IOLTA

accounts could generate net interest [for a

client] is a matter of some dispute. As

written [(prior to the above-referenced

January 1999 TEAJF rules-revision)], the Texas

IOLTA program requires the calculation as to

net interest to be made “without regard to

funds of other clients which may be held by

the attorney.” [TEAJF] Rule 6. This

provision would deny to an attorney the

traditional practice of pooling funds of

several clients in one account, a practice

which might produce net interest when opening

an account for each client would not. But in

the District Court, petitioners [(Appellees

here)] agreed that this portion of the rule

was not to be enforced, and that an attorney

could make the necessary calculation on the

basis of pooled accounts. Petitioners made a

similar concession during oral argument here.

Tr. of Oral Arg. 13-16. We accept this

concession but find that it does not avail

petitioners.

Phillips, 524 U.S. at 169 (emphasis added).

6

account. TEAJF rule 6. Along this line, if an attorney determines

funds were erroneously placed in an IOLTA account, he must notify

TEAJF and seek a refund of the interest earned.

The mandatory IOLTA program generated much more revenue than

its predecessor. Recent earnings approximate over $5 million

annually.

As noted, Texas’ IOLTA program was made mandatory in 1988. In

1994, Michael J. Mazzone, a Texas attorney who regularly places

client-funds in an IOLTA account,3 William R. Summers, a Texas

citizen who currently has funds in an IOLTA account, and Washington

Legal Foundation, a public interest law firm with members similarly

situated to Mazzone and Summers (Appellants), filed this action

against the Texas IOLTA program, naming as defendants TEAJF, TEAJF’s

chairman, and the nine Justices of the Texas Supreme Court

(Appellees). Appellants claimed: the IOLTA program impermissibly

takes interest earned from client-funds, in violation of the Fifth

Amendment; and the program forces Appellants to support speech they

find offensive, in violation of the First Amendment. Appellants

sought monetary reimbursement, as well as declaratory and injunctive

relief.

The district court granted Appellees’ motion for summary

judgment, concluding clients lacked property rights in the interest

3

Mazzone’s unopposed 29 May 2001 motion (post-oral argument)

to dismiss his appeal was denied. See FED. R. APP. P. 42(b) (“An

appeal may be dismissed on the appellant’s motion on terms agreed

to by the parties or fixed by the court.”).

7

generated by their funds. Washington Legal Found. v. Texas Equal

Access to Justice Found., 873 F. Supp. 1, 7 (W.D. Tex. 1995). But,

through an opinion authored by the late Judge John Minor Wisdom, our

court reversed in part, holding the interest was the clients’

property. Washington Legal Found., 94 F.3d at 1000. On the other

hand, our court affirmed the district court’s conclusion that

Appellees have Eleventh Amendment immunity from the monetary-

restitution claim. Id. at 1005.

The Supreme Court granted certiorari, limiting its review to:

“Is interest earned on client trust funds held by lawyers in IOLTA

accounts a property interest of the client or lawyer, cognizable

under the Fifth Amendment of the United States Constitution, despite

the fundamental precept of IOLTA that such funds, absent the IOLTA

program, could [not] earn interest for the client [or] lawyer?”.

Phillips v. Washington Legal Found., 521 U.S. 1117 (1997) (emphasis

added). In June 1998, the Court affirmed, stating the issue to be

“whether interest earned on client-funds held in IOLTA accounts is

‘private property’ of either the client or the attorney for purposes

of the Takings Clause”, and holding the interest is the property of

the client. Phillips, 524 U.S. at 160. In the light of its

“hold[ing] that the interest income generated by funds held in IOLTA

accounts is the ‘private property’ of the owner of the principal

[,the client,]”, id. at 172, the Court remanded for further

proceedings, including a determination of whether the interest has

8

been “taken” by the State and the amount of “just compensation”, if

any, due. Id.

A bench trial was held in September 1999. In January 2000, the

district court granted the Texas Supreme Court Justices’ motion for

judgment on the pleadings, holding the Justices are legislatively

immune from suit. Washington Legal Found. v. Texas Equal Access to

Justice Found., 86 F. Supp. 2d 617, 624 (W.D. Tex. 2000). Later

that month, the court dismissed the remaining claims, concluding the

IOLTA program was not violative of either the Fifth or First

Amendments. Washington Legal Found. v. Texas Equal Access to

Justice Found., 86 F. Supp. 2d 624, 636, 643 (W.D. Tex. 2000).

Regarding the taking claim, the court concluded that the “just

compensation” subpart of the Takings Clause had not been violated;

this was premised on its conclusion that Appellants failed to show

an identifiable compensable loss because a client’s IOLTA-deposit

funds cannot generate “net interest” without the IOLTA program. Id.

at 643. Again, by “net interest”, the court meant interest in

excess of the costs associated with establishing and maintaining an

interest-bearing demand account. Id. at 628 (citing TEAJF rule 6);

see also TEAJF rule 4B. In the alternative, and applying the ad hoc

analysis referenced infra, the court concluded there had been no

taking. Id. at 643-47.

9

II.

The district court’s conclusions of law are reviewed de novo;

its findings of fact, for clear error. E.g., Dunbar Med. Sys., Inc.

v. Gammex Inc., 216 F.3d 441, 448 (5th Cir. 2000). Of course,

whether public interests are served by Texas’ IOLTA program is not

the question. Instead, at issue is the constitutionality vel non

of the program. Because Appellants’ Fifth Amendment claim has

merit, we do not reach their claim that the IOLTA program violates

their First Amendment rights by forcing them to finance speech they

find objectionable.

The Takings Clause of the Fifth Amendment, made applicable to

the States through the Fourteenth, provides: “nor shall private

property be taken for public use, without just compensation”. U.S.

CONST. amend. V; Phillips, 524 U.S. at 163-64. Appellants have met

their burden of demonstrating the existence of a property interest.

Id. at 172. And, there is no dispute that “private property” has

been allocated “for public use”. Therefore, has there been a

“taking”? If so, what “just compensation”, if any, is due?

A.

For determining whether there has been a taking, Appellants

urge use of the per se analysis; Appellees, the ad hoc inquiry set

forth in Penn Central Transportation Co. v. City of New York, 438

U.S. 104, 124 (1978) (three factors of “particular significance”:

economic impact of regulation; extent of interference with distinct

10

investment-backed expectations; and character of governmental

action).

On remand, the district court first rejected using the per se

analysis, and then applied the ad hoc method. Washington Legal

Found., 86 F. Supp. 2d at 643-47. We conclude, however, that

Phillips, and Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S.

155 (1980), and Loretto v. Teleprompter Manhattan CATV Corp., 458

U.S. 419 (1982), cases the Phillips Court relied upon in reaching

its property interest holding, compel applying the per se analysis.4

Webb’s, 449 U.S. at 155-56, the case most factually similar to

the one at hand, involved a state statute pursuant to which, in

addition to charging a fee for the clerk’s services in receiving an

interpleader fund into the registry of its court, a county took the

interest accruing on that deposited fund. Citing Penn Central, but

not engaging in the ad hoc analysis articulated in it, the Court

first noted it “has been permissive in upholding” governmental

action that denies a property owner the full use of his property,

if that action promotes the general welfare. Id. at 163.

[For the governmental action at issue in

Webb’s], however, [the government] has not

merely adjusted the benefits and burdens of

4

Likewise, in a similar IOLTA case, a panel of the Ninth

Circuit recently applied the per se analysis. Washington Legal

Found. v. Legal Found. of Wash., 236 F.3d 1097, 1111 (9th Cir.

2001). But, rehearing en banc was granted on 9 May 2001.

Washington Legal Found. v. Legal Found. of Wash., 248 F.3d 1201

(9th Cir. 2001).

11

economic life to promote the common good.

Rather, the exaction is a forced contribution

to general governmental revenues, and it is not

reasonably related to the costs of using the

courts.

Id. (emphasis added; internal quotation marks and citation omitted).

The exaction was found similar to that in United States v. Causby,

328 U.S. 256 (1946): “The county’s appropriation of the beneficial

use of the fund is analogous to the appropriation of the use of

private property in ... Causby”. Webb’s, 449 U.S. at 163-64.

In Causby, 328 U.S. at 258-59, the Government’s use of air

space above private property as part of the flight plan for military

aircraft was held to be a taking: the appropriation destroyed the

use of the land as a chicken farm. Causby was decided before the

per se takings analysis was articulated. But, Lucas v. South

Carolina Coastal Council, 505 U.S. 1003, 1015 (1992), classified

Causby as involving a “physical invasion of property”, one of “at

least two distinct categories of regulatory action ... compensable

without case-specific inquiry into the public interest advanced in

support of the restraint”.5 Continuing the discussion of the per se

analysis, and of great significance to the taking issue presented

by the case at hand, the Court stated:

In general (at least with regard to permanent

invasions), no matter how minute the intrusion,

5

The second type listed was “where regulation denies all

economically beneficial or productive use of land”. Lucas, 505

U.S. at 1015.

12

and no matter how weighty the public purpose

behind it, we have required compensation. For

example, in Loretto v. Teleprompter Manhattan

CATV Corp., 458 U.S. 419 (1982), we determined

that New York’s law requiring landlords to

allow television cable companies to emplace

cable facilities in their apartment buildings

constituted a taking, id., at 435-440, even

though the facilities occupied at most only 1

½ cubic feet of the landlords’ property, see

id., at 438, n.16. See also United States v.

Causby, 328 U.S. 256, 265, and n.10 (1946)

(physical invasions of airspace); cf. Kaiser

Aetna v. United States, 444 U.S. 164 (1979)

(imposition of navigational servitude upon

private marina).

Id. at 1015.

Appellees maintain the Court has repeatedly rejected

governmental appropriation of money being subjected to the per se

analysis. They rely, however, on cases where the government

provided a service and charged a reasonable fee for that service.

See, e.g., United States v. Sperry Corp., 493 U.S. 52 (1989)

(upholding imposition of reasonable fee for use of Iran-United

States Claims Tribunal). As Phillips determined, the case at hand

is not such a case:

This 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. Our holding

does not prohibit a State from imposing

reasonable fees it incurs in generating and

allocating interest income. But here the State

does not, indeed cannot, argue that its

confiscation of [a client’s] interest income

amounts to a fee for services performed.

13

Phillips, 524 U.S. at 171 (emphasis added; internal quotation marks

and citations omitted). Moreover, the analysis in Webb’s dispels

any assertion that the per se test applies solely to governmental

appropriation of real property.

Appellees also emphasize the district court’s finding, 86 F.

Supp. 2d at 643, that, absent the IOLTA program, net interest could

not have been generated on Appellant Summers’ funds. But, as

referenced earlier, the Court concluded in Loretto, 458 U.S. at 434-

35, that a government’s permanent physical occupation of property

constitutes a per se taking, regardless of the economic impact on

the owner. Even more to the point, as stated in Phillips, 524 U.S.

at 170: “The government may not seize rents received by the owner

of a building simply because it can prove that the costs incurred

in collecting the rents exceed the amount collected”. Along this

line, Phillips made clear that a client’s rights to possess,

control, and dispose of the interest earned on his funds are

valuable rights, regardless of whether the interest has economic

value. Id.6

As our court has already noted for the case at hand, in order

to prevail on their taking claim, Appellants must demonstrate the

6

The dissent at 7 maintains, erroneously, that we ignore the

district court’s factual findings. Instead, we conclude, in the

light of Phillips and Loretto, that they are not relevant.

Pursuant to these cases, the economic impact on the owner is a non-

factor in the takings analysis. See note 10 infra.

14

taking was against the will of the property owner. Washington Legal

Found., 94 F.3d at 1004. Appellant Summers testified he objected

to his interest being taken to support Texas’ IOLTA program.

However, he had no choice. IOLTA programs are structured so that

they satisfy Internal Revenue Service ruling 81-209, by which the

IRS agrees not to tax clients on the interest generated by their

funds in IOLTA accounts and paid to TEAJF if they have no control

over whether to participate in the program. See Rev. Rul. 81-209,

1981-2 C.B. 16; Phillips, 524 U.S. at 162; Washington Legal Found.,

94 F.3d at 1003. Clients have no choice whether to participate

because attorney participation in Texas’ IOLTA program is mandatory.

Therefore, a client cannot avoid the appropriation of his interest

by selecting an attorney who elects not to participate.7

7

Subsequent to oral argument, we directed the parties to file

supplemental briefs on whether this case is resolved by Paulsen v.

State Bar of Tex., ___ S.W.3d ___, 2001 WL 23180 (Tex. App. —

Austin 11 Jan. 2001), withdrawn on reh’g, S.W.3d , 2001 WL

300142 (Tex. App. — Austin 29 Mar. 2001), interpreting TEX.

DISCIPLINARY RULES OF PROFESSIONAL CONDUCT, Art. 10, § 9, Rule 1.14(a); and

TEAJF rules 21 and 22. In Paulsen, an attorney appealed the State

Bar’s refusal to grant him an exemption from IOLTA participation.

In the course of rejecting that challenge, the Texas Court of

Appeals, in its original opinion, stated:

[T]hese rules permit lawyers to make full

disclosure to clients regarding the use of

IOLTA accounts and clients’ property interest

therein.... [L]awyers must invest client

funds as directed by their clients. If a

client directs his lawyer to withdraw his

funds from an IOLTA account, the lawyer should

do so and inform the Bar that he takes such

action at his client’s insistence. The IOLTA

Rules provide that lawyers cannot be compelled

15

In reality, the linchpin for this case has already been

inserted by the Supreme Court: “interest income generated by funds

held in IOLTA accounts is the ‘private property’ of the owner of the

principal” — the client. Phillips, 524 U.S. at 172.8 And, because

the State has permanently appropriated Appellant Summers’ interest

income against his will, instead of merely regulating its use, there

is a per se taking. Compare Loretto, 458 U.S. at 432 & n.9, with

Penn Central, 438 U.S. at 124.

It is well to remember that a “taking” is distinct from “just

compensation”.

Once the fact of occupation is shown, ... a

court should consider the extent of the

to take any action in violation of the

Disciplinary Rules. Because client funds are

unquestionably client property, investing such

funds in a manner contrary to a client’s

instructions would be a violation of the

Disciplinary Rules and the lawyer’s fiduciary

duties.

Id. at ___, 2001 WL 23180, at *10. Obviously, the quoted language

could be construed as interpreting the State Bar and TEAJF rules as

making client participation in IOLTA voluntary, rather than

mandatory.

In their supplemental briefs, the parties agreed, albeit for

different reasons, that the original Paulsen opinion did not

resolve the case at hand. In any event, subsequent to our

requesting supplemental briefs, the opinion was revised to delete

the above quoted language. See Paulsen, ___ S.W.3d at ___, 2001 WL

300142, at *10.

8

Appellees request certifying to the Texas Supreme Court the

question of whether a client has any property right in a Texas

IOLTA account. Phillips has answered that question in the

affirmative.

16

occupation as one relevant factor in

determining the compensation due. For that

reason, ... there is less need to consider the

extent of the occupation in determining whether

there is a taking in the first instance.

Loretto, 458 U.S. at 437-38 (emphasis in original; footnote

omitted). In other words, once a taking is found, the question

becomes what amount of, not whether, just compensation is due. Id.

at 441; see also First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, Cal., 482 U.S. 304, 314 (1987)

(Takings Clause “does not prohibit the taking of private property,

but instead places a condition on the exercise of that power”);

Monongahela Navigation Co. v. United States, 148 U.S. 312, 336

(1893) (government “can take only on payment of just

compensation”).9 Again, as explained in Phillips, 524 U.S. at 170,

there can be a compensable taking of a property right “even when

infringement of that right arguably increase[s] the market value of

the property at issue”.10

9

The dissent, thus, creates an anomaly by assuming at 7 there

has been a “taking”, yet concluding at 20 that, because there can

be no “just compensation” for it, the taking is not

unconstitutional. Contrary to the dissent’s perception of the

taking, in play is a “physical taking[] of tangible property”,

Dissent at 18.

10

For the reasons given supra, that there has been a “taking”

is not contingent on whether the client would have had “net

interest” without the IOLTA program. Nevertheless, Appellants

posit the following: deposits in demand accounts earn some

interest, albeit at a low rate; the related costs are what preclude

net interest; and it is the client’s prerogative to incur those

costs related to his earned interest on his principal even though,

by doing so, it would probably result in a loss to the client.

17

B.

Originally, Appellants sought not only reimbursement of the

earned interest, but also the following declaratory and injunctive

relief: (1) declaring void rules requiring attorneys to place

client-funds in IOLTA accounts; (2) enjoining TEAJF from both

compiling lists of attorneys who fail to comply with IOLTA and

transmitting those lists to the State Bar; and (3) enjoining the

Justices of the Texas Supreme Court from (a) adopting any rules that

purport to require attorneys, as a condition for practicing law in

Texas, to handle client-funds in a manner designed to ensure that

interest on those funds will accrue to anyone not designated by the

client, and (b) taking disciplinary action against any attorney for

failing to deposit client-funds in an IOLTA account.

But, as noted, our court has affirmed the district court’s

holding that the Eleventh Amendment bars Appellants’ monetary-

reimbursement claim. Washington Legal Found., 94 F.3d at 1005.

Therefore, Appellants now seek only prospective declaratory and

injunctive relief.

Restated, Appellants urge that the earned interest must be

segregated from the costs; that, notwithstanding those costs, the

client has earned interest on his principal, and it is for him (his

right) to decide how to use that interest. As stated, in the light

of our foregoing analysis, it is not necessary to consider this

contention.

18

1.

19

Following the remand by the Supreme Court, Appellees, for the

first time, took the position that injunctive relief is not

available, claiming: the only remedy for an unconstitutional taking

is just compensation; and Appellants should have sought it in state

court. Although Appellees maintain that position here, they do not

strenuously urge it as a basis for affirmance.

The district court did not reach this issue. Instead, it noted

that, although Appellants were seeking only declaratory and

injunctive relief, “they must still prove that a taking occurred

‘without just compensation’ in order to establish a violation of the

Fifth Amendment, which is a prerequisite to relief”. Washington

Legal Found., 86 F. Supp. 2d at 643 n.8.

a.

Perhaps the district court did not rule on this remedy issue

because, in the prior appeal to our court, our court had stated:

“[Appellees] concede that they are subject to [Appellants’]

prospective injunction claims”. Washington Legal Found., 94 F.3d

at 1005 (emphasis added).11 Appellees are bound by that concession;

they cannot now take an inconsistent position. See Jett v. Zink,

11

The dissent at 2 - 6 posits erroneously that we hold

Appellees conceded Appellants were “entitled” to equitable relief.

Obviously, being “subject to” a claim is not the same as the party

opposite being “entitled” to the corresponding requested relief.

In any event, Appellees’ concession in the prior appeal (that they

were “subject to” Appellants’ prospective injunction claims) is

inconsistent with their position in this appeal that equitable

relief is not available, that, instead, the only remedy for an

unconstitutional taking is just compensation.

20

474 F.2d 149, 154-55 (5th Cir.) (party who argued on first appeal

that action was in personam precluded from arguing on second appeal

that action was quasi in rem), cert. denied, 414 U.S. 854 (1973).

Cf. United States v. Morris, 79 F.3d 409, 411 (5th Cir. 1996) (in

criminal case, refusing to allow Government to take position on

appeal inconsistent with that in district court); Gregory v.

Missouri Pacific R.R. Co., 32 F.3d 160, 164-65 (5th Cir. 1994)

(although “appellee generally may urge in support of a judgment any

matter appearing in the record”, it “cannot take one position before

the district court and then take an inconsistent position” on

appeal).

b.

In the alternative, Appellees’ injunctive-and-declaratory-

relief-unavailable-contention fails. Nevertheless, the contention

has some support.

In Duke Power Co. v. Carolina Environmental Study Group, Inc.,

438 U.S. 59 (1978), individuals living near planned nuclear power

facilities sought a declaration that the Price-Anderson Act, 42

U.S.C. § 2210, was unconstitutional. That Act imposed a limitation

on liability for nuclear accidents resulting from the operation of

private nuclear power plants licensed by the United States. Among

other things, one claim was “in the event of a nuclear accident,

their property would be ‘taken’ without any assurance of just

compensation”. Id. at 69. Then Justice Rehnquist, in his separate

21

opinion concurring in the judgment, maintained that the taking

claim could be adjudicated only in the Court of Claims under the

Tucker Act, 28 U.S.C. § 1491 (granting jurisdiction to Court of

Federal Claims to render judgment on claims against the United

States founded on, inter alia, the Constitution). Id. at 101-02 &

n.4 (Rehnquist, J., concurring). The majority held otherwise:

Appellees are not seeking compensation for a

taking, a claim properly brought in the Court

of Claims, but are now requesting a

declaratory judgment that since the Price-

Anderson Act does not provide advance

assurance of adequate compensation in the

event of a taking, it is unconstitutional....

While the Declaratory Judgment Act does not

expand our jurisdiction, it expands the scope

of available remedies. Here it allows

individuals threatened with a taking to seek a

declaration of the constitutionality of the

disputed governmental action before

potentially uncompensable damages are

sustained.

Id. at 71 n.15 (emphasis added).

Six years later, in Ruckelshaus v. Monsanto Co., 467 U.S. 986

(1984), the Court considered Monsanto’s request for injunctive and

declaratory relief, based on its claim that the data-disclosure and

data-consideration provisions of the Federal Insecticide,

Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. § 136, et seq.,

effected a taking of its property (trade secrets) without just

compensation. The Court stated: “Equitable relief is not

available to enjoin an alleged taking of private property for a

public use, duly authorized by law, when a suit for compensation

22

can be brought against the sovereign subsequent to the taking”.

Id. at 1016 (footnote omitted). The Court held: because Congress,

in FIFRA, had not expressly withdrawn jurisdiction under the Tucker

Act, a Tucker Act remedy was available for any uncompensated

taking. Id. at 1017-19. Accordingly, Monsanto’s challenges to the

constitutionality of FIFRA were held not ripe for resolution. Id.

at 1019.

Monsanto did not overrule Duke Power. In fact, Monsanto

cited Duke Power in support of the conclusion that Monsanto’s

claims were not ripe. Id. at 1021. See also Preseault v. ICC, 494

U.S. 1, 11 (1990) (taking claim against United States premature

until property owner has availed itself of process provided by

Tucker Act).

A year after Monsanto was decided, the Court applied its

ripeness doctrine in a case in which the owner of property being

developed as a residential subdivision claimed a county planning

commission’s application of zoning laws and regulations constituted

a taking of its property. Williamson County Reg’l Planning Comm’n

v. Hamilton Bank, 473 U.S. 172, 195 (1985). The Court held that,

because the property owner had “not yet obtained a final decision

regarding the application of the zoning ordinance and subdivision

regulations to its property, nor utilized the procedures [state

law] provides for obtaining just compensation”, its claim was “not

ripe”. Id. at 186.

23

The Court explained that the Fifth Amendment does not “require

that just compensation be paid in advance of, or contemporaneously

with, the taking; all that is required is that a reasonable,

certain and adequate provision for obtaining compensation exist at

the time of the taking”. Id. at 194 (internal quotation marks

omitted; citing Monsanto). As is the case with taking claims

against the United States, which are premature until the property

owner has sought just compensation under the Tucker Act, “if a

State provides an adequate procedure for seeking just compensation,

the property owner cannot claim a violation of the Just

Compensation Clause until it has used the procedure and been denied

just compensation”. Id. at 195.

Following Monsanto, the Ninth Circuit held that the “exclusive

remedy” for a taking claim against the United States is “a suit for

money damages under the Tucker Act”; therefore, neither declaratory

nor injunctive relief is available. Clouser v. Espy, 42 F.3d 1522,

1539 (9th Cir. 1994) (citing Monsanto), cert. denied, 515 U.S. 1141

(1995). See also Rose Acre Farms, Inc. v. Madigan, 956 F.2d 670,

673-74 (7th Cir.) (reversing grant of injunctive relief against

enforcement of federal regulation because of availability of just

compensation under Tucker Act (citing Monsanto and Presault)),

cert. denied, 506 U.S. 820 (1992).

Other circuits have held otherwise. See Student Loan Mktg.

Ass’n v. Riley, 104 F.3d 397, 402 (D.C. Cir.) (entertaining

24

declaratory relief request where alleged taking involved

“straightforward mandate[] of cash payment to the government”),

cert. denied, 522 U.S. 913 (1997); LTV Steel Co., Inc. v. Shalala

(In re Chateaugay Corp.), 53 F.3d 478, 491-93 (2d Cir.)

(distinguishing “statutes burdening real and tangible property”

from “those [as in the case at hand] requiring direct transfers of

money to the government”, and holding: Tucker Act does not “remove

from the federal district courts jurisdiction over an action for

declaratory relief where no money damages have been requested”;

Duke Power demonstrates “the clear availability of declaratory

relief for asserted Takings Clause violations”), cert. denied, 516

U.S. 913 (1995); Southeast Kan. Comty. Action Program, Inc. v.

Secretary of Agric., 967 F.2d 1452, 1456-57 (10th Cir. 1992)

(taking claim based on United States Department of Agriculture’s

failure to renew contract to administer federal child nutrition

program; Tucker Act inapplicable when declaratory and injunctive

relief sought).

More than a decade after Monsanto was decided, the Court in

Babbitt v. Youpee, 519 U.S. 234, 242-43 (1997), affirmed

declaratory and injunctive relief in an action challenging the

constitutionality of a federal statute providing for escheat of

fractional interests in land. Although at issue was whether there

had been a taking, rather than the remedy that could be provided,

Babbitt lends support to the conclusion that Monsanto and

25

Williamson County do not categorically prohibit such relief for

taking claims, especially where, as here, the claim is not against

the United States (thus, Tucker Act not in play).

In 1998, the Court considered a taking claim by a company no

longer involved in the coal industry, challenging the

constitutionality of the Coal Industry Retiree Health Benefit Act

of 1992, 26 U.S.C. §§ 9701-9722. Eastern Enters. v. Apfel, 524

U.S. 498 (1998). A four-Justice plurality concluded that the Act

violated the Takings Clause, and that the challenged provisions

should be enjoined as applied to Eastern. Id. at 538.

Citing Monsanto, the plurality acknowledged that “a claim

[against the United States] for just compensation under the Takings

Clause must be brought to the Court of Federal Claims in the first

instance, unless Congress has withdrawn the Tucker Act grant of

jurisdiction in the relevant statute”. Id. at 520. But, Eastern

was not seeking compensation; instead, similar to the case at hand,

it was requesting “a declaratory judgment that the Coal Act

violates the Constitution and a corresponding injunction against

the ... enforcement of the Act as to Eastern”. Id. “Such

equitable relief is arguably not within the jurisdiction of the

Court of Federal Claims under the Tucker Act.” Id.

The plurality noted the split among the Courts of Appeals

regarding whether, for claims against the United States, equitable

relief was available under the Takings Clause when just

26

compensation had not been sought under the Tucker Act. Id. at 520-

21. Citing Presault and Monsanto, the plurality acknowledged that

the “Court’s precedent can be read to support the ... conclusion

that regardless of the nature of relief sought, the availability of

a Tucker Act remedy renders premature any takings claim in federal

district court”. Id. at 521. But, because the Coal Act mandated

payments to a privately-operated fund, monetary relief against the

United States was not an available remedy. Id. The plurality

reasoned: “Congress could not have contemplated that the Treasury

would compensate coal operators for their liability under the Act,

for ‘[e]very dollar paid pursuant to a statute would be presumed to

generate a dollar of Tucker Act compensation’”. Id. (quoting

Chateaugay, 53 F.3d at 493). “Accordingly, the ‘presumption of

Tucker Act availability must be reversed where the challenged

statute, rather than burdening real or physical property, requires

a direct transfer of funds’ mandated by the Government.” Id.

(quoting Chateaugay, 53 F.3d at 493). “In that situation, a claim

for compensation ‘would entail an utterly pointless set of

activities.’” Id. (quoting Riley, 104 F.3d at 401).

The plurality stated Duke Power had “explained” that “the

Declaratory Judgment Act allows individuals threatened with a

taking to seek a declaration of the constitutionality of the

disputed governmental action before potentially uncompensable

damages are sustained”. Id. (internal quotation marks and citation

27

omitted). And, it noted that, in analogous situations, the Court

had “assumed the lack of a compensatory remedy ... for Takings

Clause violations without discussing the applicability of the

Tucker Act”. Id. at 521-22 (citing Babbitt, 519 U.S. at 243-45;

Hodel v. Irving, 481 U.S. 704, 716-18 (1987)). The plurality noted

also that, without addressing the basis of its jurisdiction, the

Court had “upheld similar statutory schemes against Takings Clause

challenges”. Id. at 522 (citing Concrete Pipe & Prods. of Cal.,

Inc. v. Construction Laborers Pension Trust for Southern Cal., 508

U.S. 602, 641-47 (1993); Connolly v. Pension Benefit Guar. Corp.,

475 U.S. 211, 221-28 (1986)). Finally, the plurality stated that,

although it was “‘not bound by previous exercises of jurisdiction

in cases in which [the Court’s] power to act was not questioned but

was passed sub silentio, neither should [it] disregard the

implications of an exercise of judicial authority assumed to be

proper’ in previous cases”. Id. (quoting Brown Shoe Co. v. United

States, 370 U.S. 294, 307 (1962)).

Therefore, based on the nature of the alleged taking, which

required Eastern to make payments to a privately operated fund for

retirement benefits for former coal industry workers, the plurality

concluded: “the declaratory judgment and injunction sought by

[Eastern] constitute an appropriate remedy under the circumstances,

and ... it is within the district courts’ power to award such

equitable relief”. Id.

28

Needless to say, the challenged governmental action in the

case at hand does not merely burden real or personal property;

instead, it involves TEAJF’s taking all of the interest earned on

client-funds in IOLTA accounts. In that sense, it is more

analogous to the challenged governmental actions in Eastern

Enterprises, Chateaugay, and Riley, which involved payment of money

to, or to support, a government program, than to the challenged

governmental actions in Monsanto and Williamson County, which

burdened real or personal property, and in which a procedure for

seeking just compensation was available. Again, as Chateaugay

explained, “where the challenged statute requires a person or

entity to pay money to the government, it must be presumed that

[the government] had no intention of providing compensation for the

deprivation”. Chateaugay, 53 F.3d at 493. “For such cases, use of

the [just compensation] remedy would entail an utterly pointless

set of activities, as ‘[e]very dollar paid pursuant to a statute

would be presumed to generate a dollar of [just] compensation’”.

Riley, 104 F.3d at 401 (quoting Chateaugay, 53 F.3d at 493).

Restated, because the purpose of IOLTA is to take the interest

generated from client-funds and use it to fund legal services for

the indigent, it is obvious that the program makes no provision for

payment of just compensation. If the interest earned on client-

funds were available as just compensation for the clients, the very

purpose of the program would be thwarted; therefore, it would defy

logic, to say the least, to presume the availability of a just

29

compensation remedy. Because there is no “reasonable, certain and

adequate provision for obtaining compensation ... at the time of

the taking”, Williamson County, 473 U.S. at 194, the ripeness

doctrine does not preclude declaratory or injunctive relief.12

2.

Consistent with the conclusion by the district court, the

Justices of the Texas Supreme Court claim they are legislatively

immune from suit for injunctive relief. The district court’s

ruling was premised on its conclusion that the Justices do not

possess the power to enforce compliance with the IOLTA program.

Washington Legal Found., 86 F. Supp. 2d at 624.

a.

As discussed, the Justices, together with the other Appellees,

conceded on the prior appeal to our court that they are subject to

12

The dissent asserts at 12 that, by addressing ripeness, we

have “buil[t] a straw man [and] then take[n] great pains to knock

the stuffing out of him”, because Appellees “have made no such

argument in this appeal”. But, as the dissent acknowledges, id.,

Appellees do contend Appellants cannot claim injunctive relief

because they have not availed themselves of available state

remedies, citing, inter alia, Williamson County. The state

remedies referenced by the dissent and Appellees are not

“available”. As the dissent acknowledges at 20, the Texas IOLTA

program’s provision for refunds is available only for a “client

whose funds are wrongly placed in IOLTA accounts”.

Nor, contrary to the dissent, do we rely on the ripeness

doctrine to conclude that the claim for equitable relief is

substantively viable. Dissent at 12. Instead, we hold the claim

is substantively viable because there has been an unconstitutional

taking of private property, and there is no mechanism for payment

of just compensation.

30

Appellants’ prospective injunction claims. Washington Legal

Found., 94 F.3d at 1005. As also discussed, that concession is

binding on them.

b.

In the alternative, and for the reasons that follow, we hold

that, because the Texas Supreme Court has the power to suspend

attorneys who do not comply with IOLTA rules, the Justices are not

entitled to legislative immunity from this action.

Pursuant to its inherent power to regulate the practice of law

in Texas, the Texas Supreme Court created the IOLTA program and its

underlying rules. TEXAS RULES OF COURT - STATE, Rules Governing the

State Bar of Texas Art. XI, § 2(D). Rule 24 addresses compliance

with the IOLTA program: a Texas attorney is required to annually

provide a written statement of compliance to TEAJF; if he fails to

do so, TEAJF contacts him and attempts administratively to resolve

the non-compliance; if unsuccessful, TEAJF places his name on a

list of non-compliant attorneys and sends him a notice; if, within

30 days, the non-compliant attorney still refuses to file the

required compliance statement, the State Bar of Texas notifies the

Clerk of the Texas Supreme Court of such non-compliance; and the

attorney “shall be” immediately suspended by the Clerk from the

practice of law until the compliance statement is filed. See TEAJF

rule 24; Washington Legal Found., 86 F. Supp. 2d at 622.

31

Applicable here is the holding in Supreme Court of Virginia v.

Consumers Union of the United States, Inc., 446 U.S. 719, 725-26

(1980). There, a consumer organization brought an action against

the Virginia Supreme Court and its chief justice for a declaration

they had violated the First and Fourteenth Amendments by

promulgating and enforcing rules prohibiting attorney advertising.

The Supreme Court held the court and its chief justice, although

legislatively immune from claims regarding the adoption of the

challenged rules, were properly held liable in their enforcement

capacities. Id. at 736.

III.

For the foregoing reasons, we REVERSE and REMAND this case to

the district court for entry, consistent with this opinion, of

declaratory and injunctive relief.

REVERSED and REMANDED

ENDRECORD

32

WIENER, Circuit Judge, dissenting:

In Phillips v. Washington Legal Foundation,13 the Supreme Court

held that the plaintiffs in the instant case had a property right

in the interest income from their funds deposited in IOLTA

accounts. In dissent, Justice Souter criticized the majority’s

decision to determine that a property right existed in isolation

from the questions (1) whether a “taking” had occurred, and (2) if

so, what compensation, if any, might be owed. Justice Souter wrote

that “if it should turn out that the ‘just compensation’ for any

taking was zero, then there would be no practical consequence for

purposes of the Fifth Amendment in recognizing a client’s property

right in the interest in the first place; any such recognition

would be an inconsequential abstraction.”14

After a full trial on remand, the plaintiffs in this case

(“IOLTA II”) have brought us to precisely the moment Justice Souter

foretold by proving that their loss —— and, therefore, the “just

compensation” that they are due —— is zero. By its literal terms,

the Fifth Amendment can be violated only by governmental failure to

pay just compensation: “The Fifth Amendment does not proscribe the

13

524 U.S. 156 (1998).

14

Phillips, 524 U.S. at 174-75 (Souter, J., dissenting).

Souter also compares the holding of Hooker v. Burr, 194 U.S. 415,

419 (1904) (“If a contractual obligation is impaired, but the

obligor is ‘not injured to the extent of a penny thereby, his

abstract rights are unimportant.’”).

taking of property; it proscribes taking without just

compensation.”15 This constitutional truism convinces me that even

if the Texas IOLTA program should involve the government’s “taking”

of “property,” it would not violate the plaintiffs’ constitutional

rights because just compensation for zero is zero. I therefore

respectfully dissent.

I.

At the outset, I must take issue with the majority’s assertion

that the defendants-appellees16 have conceded that the plaintiffs-

appellants17 are entitled to equitable relief: The defendants have

done no such thing. In our previous decision in this case (“IOLTA

I”), we stated —— as a parting-shot discussion of Eleventh

Amendment immunity —— that “the defendants concede that they are

15

Williamson County Regional Planning Comm’n v. Hamilton Bank

of Johnson City, 473 U.S. 172, 194 (1985); see also Suitum v. Tahoe

Reg’l Planning Agency, 520 U.S. 725, 734 (1997) (noting that “only

takings without ‘just compensation’ infringe th[e Fifth]

Amendment”); First English Evangelical Lutheran Church of Glendale

v. Los Angeles County, Cal., 482 U.S. 304, 315 (1987) (stating that

the Fifth Amendment “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”).

16

The Texas Equal Access to Justice Foundation, its chairman,

and the Texas Supreme Court justices.

17

The Washington Legal Foundation, attorney Michael J.

Mazzone, and client William R. Summers.

34

subject to the plaintiffs’ prospective injunction claims.”18 We

then concluded that the defendants were immune from a claim for

monetary restitution.19 There is a vast difference between

conceding that the Eleventh Amendment is not a bar to the assertion

of a claim, on the one hand, and conceding entitlement to the

relief sought by asserting a claim, on the other.

I am sure that, as it states, the panel majority understands

the distinction between a party being “subject to” a claim and the

party opposite being “entitled to” equitable relief.20 Yet, despite

this voiced cognizance, the majority still concludes that the

appellees somehow take a position here that is inconsistent with

18

Washington Legal Found. v. Texas Equal Access to Justice

Found., 94 F.3d 996, 1005 (5th Cir. 1996) (emphasis added). In

context, the entire paragraph reads thus:

Finally, the district court also granted the defendants’

request for immunity under the Eleventh Amendment with

respect to the plaintiffs’ claim for monetary

restitution. The parties now only dispute whether the

district court erred by declaring the defendants immune

to the plaintiffs’ restitution claim. The parties do not

seriously challenge this portion of the district court’s

ruling; the defendants concede that they are subject to

the plaintiffs’ prospective injunction claims and the

plaintiffs admit that their “principal concern all along

has been in obtaining prospective injunctive relief.” We

suggest another reason for the parties’ lackadaisical

approach to this part of the decision: they realize that

the district court is correct.

Id.

19

Id.

20

The majority at 20, n. 11.

35

their former concession by arguing on appeal that equitable relief

is unavailable. In doing so, the majority strains Judge Wisdom’s

simple jurisdictional statement in IOLTA I to the point of

incredulity. Consistent with a jurisdictional submission,

appellees may still vigorously refute the availability of equitable

relief for appellants on grounds unrelated to jurisdiction. The

appellees in their brief to this court in IOLTA II argue that

equitable relief is not available to the appellants because (1) the

appellants have failed to seek state administrative remedies and

(2) compensation, not injunctive relief, is the only proper remedy

for a 5th Amendment violation. Neither of these contentions

undermine a concession that appellees are subject to, ie., must

address, the appellants’ claims for injunctive relief.

Moreover, the majority’s willingness to dispose of the issue

based on its reading of the admission is premature. Even assuming,

arguendo, that appellees have taken an inconsistent position by

reasserting an 11th Amendment claim on appeal, the inquiry cannot

possibly end there. At most, under the majority’s reading, the

appellees would have been holding an inconsistent position on the

necessity to deal with the appellants’ claims. Determining the

apparent inconsistency, for argument’s sake, against the appellees

only clears the initial jurisdictional hurdle; it does not, in any

way, resolve the merits of the remedy issue. Yet, the majority

36

decides both jurisdiction and the merits based on the concession,

and, indeed, only resumes discussion of the merits of the

prospective injunction claim “in the alternative.” Hence, despite

the majority’s protestations to the contrary, it has effectively

equated appellees’ concession to hear and respond to appellants’

remedy claims with a concession that appellees will not or even

cannot contest those claims.

What the defendants-appellees actually wrote in their IOLTA I

appellate brief is this: “Appellees concede that the Eleventh

Amendment is not a jurisdictional bar to the claims asserted by

Appellants for prospective injunctive relief against Appellee

Newton21 as a state official.” At another point in their brief, the

defendants wrote:

The Texas IOLTA Program Appellees concede that the

Eleventh Amendment is not a jurisdictional bar to

Appellants’ claims. Rather, the Texas IOLTA Program

Appellees contend that they are entitled to Eleventh

Amendment immunity from Appellants’ claims for damages,

including restitution, and any other claim than a claim

for prospective injunctive relief.22

21

Defendant W. Frank Newton, then-chairman of the Texas Equal

Access to Justice Foundation.

22

Emphasis added. Similarly, defendants-appellees the Texas

Supreme Court justices wrote in their 1995 brief to this court in

37

Thus, the defendants successfully asserted Eleventh Amendment

immunity from monetary damages while acknowledging nothing more

than that the Eleventh Amendment does not bar governmental

defendants from having to defend claims of prospective relief on

the merits.

This is no quibble on my part: A concession that something is

not a bar to a claim is a far cry from a concession that a

plaintiff is entitled to relief. As the defendants have vigorously

contested the plaintiffs’ claims both times that they have come

before this court, I must protest the majority’s attempts to

portray the defendants as having conceded the issue of the

plaintiffs’ entitlement to equitable relief.

II.

The Takings Clause of the Fifth Amendment reads, in pertinent

part: “nor shall private property be taken for public use, without

just compensation.”23 To prove a violation of the Takings Clause,

a plaintiff must prove that (1) property (2) has been taken for

public use (3) without just compensation.

IOLTA I: “Even assuming that some violation of the Constitution

could be established, however, the relief available to plaintiffs

is limited to prospective injunctive relief only.” (emphasis

added). I will not address the justices’ claim of legislative

immunity because I discern no constitutional violation.

23

U.S. Const. amend. V.

38

The Supreme Court held in Phillips that the plaintiffs have a

property right in the interest income on their IOLTA accounts,

satisfying part one of the three-part inquiry. And I am willing to

concede for purposes of this dissent (even though I would have

resolved the issues differently) that a “taking” occurred in this

case, satisfying part two.24 Although this puts the plaintiffs two-

thirds of the way home, that is as far as they get —— legitimately,

at least. Because the Fifth Amendment does not forbid the

government from (1) taking (2) property, but requires only that,

when property is taken, “just compensation” be paid, “the crux of

this case rests on the issue of just compensation.”25 And, clearly,

“just compensation” is payment of value for equal value.26 None can

argue that the equal value of zero is anything other than zero ——

at least not forthrightly.

The majority discourses on the nature of takings remedies in

the abstract, but chooses to ignore the specific factual findings

made by the district court in its detailed opinion in this case.

That court conducted a two-day bench trial, during which it

considered evidence that the plaintiffs presented regarding three

24

As the majority points out, there is no dispute that any

taking in this case was “for public use.”

25

Washington Legal Found. v. Texas Equal Access to Justice

Found., 86 F. Supp. 2d 624, 637 (W.D. Tex. 2000).

26

See United States v. Reynolds, 397 U.S. 14, 16 (1970).

39

separate accounting approaches to handling client funds —— in-firm

pooling, sub-accounting,27 and the net benefit theory. Weighing all

the evidence presented, the court concluded that the only plaintiff

with funds in a Texas IOLTA account, William R. Summers, suffered

no loss —— zero. Indeed, Mr. Summers himself testified candidly

and unequivocally to that fact.

Solidly grounded in trial testimony, the court found that the

plaintiffs proved no loss under any of the three accounting

approaches that they proffered: (1) Mr. Summers’s funds could not

earn net interest if placed in a non-IOLTA pooled account with

funds of a law firm’s other clients; (2) the plaintiffs did not

establish that their funds could earn net interest in a sub-

account, given the costs associated with such accounts; and (3) the

plaintiffs failed to prove that they could gain a “net benefit”

from their funds even if they could not earn net interest on them.

The court concluded soundly that the plaintiffs did not satisfy

their burden of proof:

Plaintiffs failed to establish an actual number

denominating Mr. Summers’ loss. With regard to this case

and Mr. Summers’ monies, Plaintiffs have failed to carry

27

Sub-accounting is a banking product that allows a law firm

to open a master account and link a sub-account for each client.

Although apparently not now available in Texas, a firm

theoretically could open a sub-account using an out-of-state bank.

40

their burden of proof. Although this case turns on

endless abstractions and near impossible mathematical

conclusions it is without doubt that at a minimum

Plaintiffs must present evidence to this Court that

Mr. Summers is materially worse off because of IOLTA. At

trial Mr. Summers testified that he is no worse off

because of IOLTA.28

The plaintiffs insist that the district court’s factual

conclusions contain errors, most notably the court’s failure to

acknowledge that the rules determining whether client funds are to

be placed into IOLTA accounts require attorneys to consider the

administrative costs of opening and maintaining non-IOLTA accounts,

but not IOLTA accounts.29 When these costs are factored in, argue

28

Washington Legal Found., 86 F. Supp. 2d at 643; see also

Marion & Rye Valley Ry. Co. v. United States, 270 U.S. 280, 282

(1926) (affirming denial of a compensation claim and stating that

even if a taking technically occurred, “[n]othing was recoverable

as just compensation, because nothing of value was taken from the

company, and it was not subjected by the government to pecuniary

loss”).

29

Texas attorneys may place client funds in IOLTA accounts

only if:

such 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, service charges, accounting costs and tax

reporting costs which would be incurred in attempting to

obtain the interest on such funds for the client.

41

the plaintiffs, clients could realize a net benefit, i.e., a

smaller gap between interest earned and the lawyers’ costs

(ultimately passed along to the clients) of maintaining the account

even though clients can never realize net interest.

The plaintiffs are just plain wrong. The record confirms that

the district court specifically considered evidence on this issue

and rejected the claim.30 The court’s conclusion jibes with its

finding that the costs of administering the money placed in a non-

IOLTA account exceed those in an IOLTA account.31 The plaintiffs’

other allegations of factual error are equally feckless.

At no point do the plaintiffs ground their theoretical

arguments in an assertion of any specific monetary loss suffered by

Mr. Summers —— indeed, they could not. This failure absolutely

precludes their ability to demonstrate clear error in the district

Tex. R. Equal Access Rule 6.

30

Washington Legal Found., 86 F. Supp. 2d at 638 (“Plaintiffs

argue that client funds can generate a net benefit to the client

when not placed in IOLTA. The Court finds that the testimony at

trial established otherwise. There are innate costs to the firm or

lawyer in a non-IOLTA account that differ from those in an IOLTA

account.”).

31

Id. at 646. The defendants attribute this fact to lower

in-firm administrative costs for IOLTA accounts and the fact that

bank fees on those accounts typically are paid by IOLTA or waived

by banks.

42

court’s factual finding that Mr. Summers’s loss was “zero.”32 The

Supreme Court defines “just compensation” for a taking as “the full

monetary equivalent of the property taken.”33 Payment of just

compensation is an effort to put the claimant, from his own

viewpoint, “‘in as good a position pecuniarily as if his property

had not been taken.’”34 It follows inescapably that when the

owner’s loss is zero, he is owed no compensation.35

Unable to prove any monetary loss whatsoever, the plaintiffs

have abandoned their claim for monetary restitution.36 Instead they

32

Id. at 643. The court’s factual findings and inferences

are reviewed for clear error. Fed. R. Civ. P. 52(a); Anderson v.

City of Bessemer City, 470 U.S. 564, 574 (1985); Robicheaux v.

Radcliff Material, Inc., 697 F.2d 662, 666 (5th Cir. 1983).

33

Reynolds, 397 U.S. at 16; see also Kimball Laundry Co. v.

United States, 338 U.S. 1, 5 (1949) (disregarding subjective value

as a measure of compensation: “In view, however, of the liability

of all property to condemnation for the common good, loss to the

owner of nontransferable values deriving from his unique need for

property or idiosyncratic attachment to it, like loss due to an

exercise of the police power is properly treated as part of the

burden of common citizenship.”).

34

United States v. 564.54 Acres Land, 441 U.S. 506, 510

(1979) (quoting Olson v. United States, 292 U.S. 246, 255 (1934));

see also Boston Chamber of Commerce v. City of Boston, 217 U.S.

189, 195 (1910).

35

The finding of zero compensation due distinguishes this

case from a similar challenge currently on en banc rehearing by the

Ninth Circuit. The Ninth Circuit panel opinion, now vacated, would

have remanded that case to the trial court to determine what

compensation was owed. Washington Legal Found. v. Legal Found. of

Washington, 236 F.3d 1097, vacated, 248 F.3d 1201 (9th Cir. 2001).

36

We have held that the Eleventh Amendment bars the

plaintiffs’ monetary reimbursement claim. IOLTA I, 94 F.3d at

1005.

43

seek only declaratory and injunctive relief against the Texas IOLTA

program. Yet these equitable remedies, standing alone, are

obviously inappropriate to the situation at hand, in which the

absence of economic loss and the concomitant absence of

compensation due proves that there has been no Fifth Amendment

violation at all.

We need not pause to ponder whether freestanding equitable

relief can ever be an appropriate remedy for an unconstitutional

taking, for in this case there is no unconstitutional (i.e.,

uncompensated) taking. This immutable fact eschews any

justification for legal or equitable remedy whatsoever. The

plaintiffs are absolutely wrong to argue —— and the panel majority

to accept —— that their “entitlement to just compensation is of

limited relevance to this appeal.” To the contrary, such

entitlement —— or the absence thereof —— lies at the very heart of

this appeal. As the plaintiffs have not been denied just

compensation, they could not prove —— and have not proved —— any

violation of their constitutional rights.

III.

The panel majority nevertheless strains to justify its award

of prospective equitable remedies here by implying that the

ripeness doctrine —— of all things —— does not preclude them. But

not precluding a remedy is far different from justifying a remedy.

44

On its path to injunctive relief, the majority first builds a straw

man then takes great pains to knock the stuffing out of him, based

on the defendants’ apparent argument at an earlier stage of this

case that the plaintiffs should have sued for compensation in state

court. The defendants have made no such argument in this appeal,

IOLTA II, a fact that the plaintiffs themselves now call to our

attention. Rather, the defendants address ripeness only to make

the valid point that plaintiff Summers has failed to seek and

exhaust the available administrative remedy of a refund of any

interest due to him under the IOLTA rules. The district court did

not reach this issue, and I am willing to concede it for the

purposes of this dissent, accepting the plaintiffs’ assertions that

they were unaware of the refund policy until 1998 and that a state

suit would be futile. The outcome of this case does not turn,

however, on any issue of ripeness.37 The mere fact that this claim

may be ripe does not mean that it is substantively viable, and it

certainly does not justify the award of equitable remedies here.

The cases relied on by the majority to address the

(nonexistent) ripeness issue are easily distinguishable. Eastern

37

See Texas v. United States, 523 U.S. 296, 300 (1998) (“A

claim is not ripe for adjudication if it rests upon contingent

future events that may not occur as anticipated, or indeed may not

occur at all.”) (internal quotations omitted).

45

Enterprises v. Apfel,38 LTV Steel Co. v. Shalala (In re Chateaugay

Corp.),39 and Student Loan Marketing Association v. Riley40 all

analyze the threshold jurisdictional question of whether a federal

court has the power to award equitable relief for a taking that

involves a direct transfer of a determinable sum of money to the

federal government, relieving the plaintiffs of the need first to

sue for compensation in the Court of Federal Claims under the

Tucker Act.41 In each of these three cases, which involve alleged

regulatory takings with a quantifiable economic impact on the

plaintiffs, the court found that a suit for money damages would be

pointless because the claimed (in two of the three cases, failed

claim of a) taking would have necessitated a dollar-for-dollar

monetary reimbursement. Unlike the instant case, these cases did

not involve plaintiffs whose monetary compensation claim was

pointless because they had gone to trial and lost, having suffered

38

524 U.S. 498 (1998).

39

53 F.3d 478, 492 (2d Cir. 1995) (rejecting claim that Coal

Act resulted in unconstitutional taking after noting that “the

question of jurisdiction in this case masks a broader question of

ripeness: Can a takings claim ever be brought in a district court

without first seeking compensation in the Court of Federal

Claims?”).

40

104 F.3d 397 (D.C. Cir. 1997) (rejecting claim that 0.3

percent “offset fee” on principal amount of each student loan held

by the Student Loan Marketing Association (“Sallie Mae”) imposed an

unconstitutional taking).

41

28 U.S.C. § 1491.

46

no monetary loss. The Declaratory Judgment Act may offer one

remedy for an unconstitutional taking, that is, an uncompensated

taking; it is no substitute, however, for proof of loss.42

Another case relied on by the majority, Southeast Kansas

Community Action Program Inc. v. Secretary of Agriculture,43

implicated a due process claim —— not a takings case at all —— in

which the plaintiffs’ primary purpose in bringing suit was to

receive the classic due process remedy: a hearing. Finally, in

Babbitt v. Youpee,44 the Court approbated equitable relief in a

situation in which the statute in question already had been found

to take interests in other lands valued at $100, $1,816, and

$2,700, with no possibility of compensation.45 In Youpee, those

taken property interests were worth $1,239 —— not “zero.” Once the

Supreme Court determined that an amendment to the statute aimed at

curing that defect still did not rectify the uncompensated taking,

42

I note further that two of these three cases apply the ad

hoc takings analysis of Penn Central Transportation Co. v. City of

New York, 438 U.S. 104, 124 (1978), and Kaiser Aetna v. United

States, 444 U.S. 164, 175 (1979), which the majority rejects in

favor of a per se analysis. See Eastern Enters., 524 U.S. at 523-

24; Chateaugay, 53 F.3d at 494. The third case found that a

regulatory action was not a taking at all because the burden was

“‘a fair approximation of the costs of benefits supplied.’” Riley,

104 F.3d at 402 (quoting United States v. Sperry Corp., 493 U.S.

52, 60 (1989)).

43

967 F.2d 1452 (10th Cir. 1992).

44

519 U.S. 234 (1997).

45

Hodel v. Irving, 481 U.S. 704 (1987).

47

it sanctioned equitable relief against enforcement of the statute,

just as it had upheld the award of appropriate relief before the

unconstitutional provision was amended. In affirming the Ninth

Circuit, the Supreme Court quoted that circuit court’s suggestion

that, although the government could not constitutionally apply the

statutory scheme, it could obtain the interests by other means,

such as purchasing the land in question or condemning it and paying

just compensation to the plaintiffs.46

The panel majority seeks to rely on these cases by analogy to

justify an award of equitable relief alone, but they simply are not

analogs to this case. The reasoning in that line of cases cannot

be stretched far enough to cover the facts at hand; yet the

plaintiffs, having themselves proved that they have not been denied

just compensation, nonetheless ask us to impose a prior restraint

on a program that has found favor in all fifty states.47 That the

plaintiffs —— and others —— may (and obviously do) oppose on

ideological grounds a state program funded with IOLTA interest does

46

Youpee, 519 U.S. at 242 (citing Youpee v. Babbitt, 67 F.3d

194, 200 (9th Cir. 1995)). Irving and Youpee involved attempts to

reduce highly fractionated interests in Indian-owned lands.

47

Every state, plus the District of Columbia and the Virgin

Islands, operates an IOLTA program.

48

not vest us with the judicial right to meddle with that plan, which

itself does not violate the U.S. Constitution.48

And make no mistake about it: We are not here contemplating

some threatened taking that the mandatory Texas IOLTA program,

which became effective in 1989, might inflict on some as-yet

unidentified plaintiff, or on these specific plaintiffs at some

future date. This case is about these plaintiffs, here and now.

Funds owned by Mr. Summers —— a $1000 retainer Mr. Summers paid to

Mr. Mazzone in 1993, and a $250 retainer he paid in 1999 —— have

been held in IOLTA accounts since 1993, prior to the commencement

of this litigation and throughout its pendency as well. The

plaintiffs now have had a full trial, during which they failed to

carry their burden of proving that they are due any just

compensation whatsoever. They have not shown clear error in the

district court’s conclusion that they are due no compensation at

all, or a legal basis for awarding prospective relief. And because

it cannot, the panel majority has not identified any specific

amount that the plaintiffs have not been compensated; neither has

48

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) (“In Phillips, what is being ‘taken’ is the

right to exclude in its purest form —— that is, the psychological

satisfaction of denying a benefit to another. This is the legal

equivalent of the legendary ‘dog in the manger,’ a metaphor in

which a dog aggressively prevents other animals from access to

something —— hay in the manger —— that is of no practical use to

the dog itself.”).

49

the majority demonstrated any valid support for decreeing

injunctive or declaratory relief under these facts. To me, it is

just that plain.

IV.

To recap, the Takings Clause “was not meant to prevent the

government from pursuing legitimate goals; it was meant only to

assure that no individual would be unduly burdened in the process

of doing so.”49 The Texas IOLTA program, which generates

approximately $5 million a year in total revenues from attorney

trust funds —— nominal and short-term deposits from individual

clients as well as monies from for-profit corporations and

partnerships —— does not implicate the classic takings problem of

fairness, in which an individual or small group is singled out to

bear burdens that should be borne by the public as a whole.50

Neither does it offend the original purpose of the Takings Clause,

which was narrowly crafted to require compensation only for

physical takings of tangible property by the federal government.51

49

Id. at 892.

50

See Penn Central, 438 U.S. at 123-24. The plaintiffs argue

that “virtually all client funds” held by attorneys end up in IOLTA

accounts, spreading the “burden” of funding legal services for the

poor among many users of the court system, not a small group.

51

See, e.g., William Michael Treanor, The Original

Understanding of the Takings Clause and the Political Process, 95

Columbia L. Rev. 782, 859-60 (1995) (“[T]he federal Takings Clause

and its predecessor clauses, as they were originally understood,

divided governmental actions affecting property into two groups.

50

The clause was never intended to usurp the role of the people in

deciding what social programs are appropriate, and “has not been

understood to be a substantive or absolute limit on the

government’s power to act. The Clause operates as a conditional

limitation, permitting the government to do what it wants so long

as it pays the charge.”52

It is important to remember that we cannot substitute concerns

about due process —— addressing the legitimacy and purpose of

Texas’s operation of its IOLTA program, which I perceive to be the

plaintiffs’ real complaint in this case —— for concern about a

taking, which turns on the availability of just compensation.53 Our

role is strictly limited to ensuring that initiatives such as the

Texas IOLTA program provide a mechanism for providing “just

When the government physically took property, it owed compensation.

Any other governmental action, no matter how severely it affected

the value of property, did not give rise to a compensation

requirement. This requirement applied to physical takings because

the framers believed that majoritarian decisionmaking processes

would not give fair consideration to the individual’s interest in

not having her property physically seized by the government.

“The clause sought to remedy failures in the political

process. But the underlying idea was not that all majoritarian

decisions should be reviewed to determine whether the process

behind any particular decision was fair or unfair. Rather,

heightened constitutional protection was provided only for the

limited category of decisions in which unfairness was most

likely.”).

52

See Eastern Enters., 524 U.S. at 545 (Kennedy, J.,

concurring in the judgment and dissenting in part).

53

See id.

51

compensation” for any taken property.54 The Texas IOLTA program has

just such a mechanism, a provision for refunding any interest that

could have been earned by a client whose funds are wrongly placed

in IOLTA accounts. And, the state routinely grants requests for

such refunds.

The plaintiffs in this case have had their day in court, and

have themselves proved that they have not been denied “just

compensation” for any purported governmental taking of property

that they may have experienced from the enforcement of the Texas

IOLTA program. No deprivation of just compensation means no

possibility of a constitutional violation. As I would in all

respects affirm the judgment of the district court, I respectfully

dissent.55

54

See Williamson County, 473 U.S. at 194 (explaining that the

Fifth Amendment requires the government to “provide[] an adequate

process for obtaining compensation”).

55

Because the majority did not address the plaintiff’s

claimed First Amendment violation, I do not, either. I merely note

in passing that the argument will fall of its own weight.

52