Opposition Brief — Tracy Guerin, Petitioner v. Mickey Fowler, et al.

No. 18-1545

In the

Supreme Court of the United States

TRACY GUERIN, Director of the Washington State

Department of Retirement Systems,

Petitioner,

v.

MICKEY FOWLER, LEISA MAURER,

and a class of similarly situated individuals,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of A ppeals for the Ninth Circuit

BRIEF IN OPPOSITION

Of Counsel:

Stephen K. Festor

290678

Stephen K. Strong

Counsel of Record

David F. Stobaugh

A lexander F. Strong

Bendich, Stobaugh & Strong, P.C.

126 NW Canal Street, Suite 100

Seattle, WA 98107

(206) 622-3536

skstrong@bs-s.com

A

(800) 274-3321 • (800) 359-6859

i

QUESTIONS PRESENTED

Director Tracy Guerin contends the Ninth Circuit did

something “unprecedented” when it only applied established

principles from this Court’s opinions on the Takings Clause

and sovereign immunity. By misstating facts concerning

the retirement accounts at issue and Washington state law,

she tries to create the impression that the Ninth Circuit

“created a new constitutional mandate,” Pet. 1. Guerin

says this case concerns public funds, not private property,

and the funds did not “earn interest,” Pet. 18-19, when the

record shows this case concerns teachers’ private property

under Washington law-retirement accounts earning 5.5%

annual interest holding employee contributions.

Guerin’s petition (1) ignores her agreement that injunctive

relief to return the teachers’ property by correcting their

accounts would be the remedy and, (2) ignores precedents

establishing that there is no sovereign immunity to a claim

against a government officer seeking the return of property

that was unconstitutionally taken. Although Guerin concedes

that any hypothetical indirect financial impact will not be on

the state, but school districts (Pet 7, 35), she complains the

Ninth Circuit made no factual inquiry whether the school

districts are arms of the state, even though she submitted

no facts. Pet. 33-35. This Court, however, has held that a

school district is not an arm of a state.

To conform to the issues that were decided below, the

questions are the following:

1. Webb’s, Phillips, and Brown all hold that “interest

follows principal” and a state violates the Takings Clause

when it denies owners of principal accrued interest by

ii

crediting it to others. Did the Ninth Circuit err when it

ruled that Guerin could not take the teachers’ accrued

interest earned at the rate of 5.5% annual interest (dating

back to before 1996) by crediting some of it to others based

on her much later 2018 regulation purporting to exercise

unfettered discretion over how to credit accrued interest?

2. Under Washington law the interest earned on

the teachers’ employee retirement contributions is the

teachers’ private property rather than the state’s. Where a

state officer (Guerin) stipulated that the skimmed interest

can be returned simply by correcting the account records

she controls, and no public funds are involved, does this

remedy constitute an award of damages against the

state itself simply because she is a state officer handling

accounting functions for retirement funds that are not the

state’s property?

iii

RELATED CASES

• Mickey Fowler and Leisa Maurer v. Tracy Guerin,

No. 16-35052, United States Court of Appeals Ninth

Circuit. Judgment Entered August 16, 2018.

• Mickey Fowler and Leisa Fowler v. Marcie Frost, No.

CV15-5367 BHS, United States District Court Western

District of Washington. Judgment Entered December

22, 2015.

iv

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . i

RELATED CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . iv

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . . vi

COUNTERSTATEMENT OF THE CASE . . . . . . . . . 1

A. Factual Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

B. Proceedings in Federal District Court . . . . . . . . 6

C. Proceedings in the Ninth Circuit . . . . . . . . . . . . . 7

D. Proceedings Since the Ninth Circuit’s

Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. The Ninth Circuit’s Fowler Decision

Was Simply the Routine Application of

Well-Established Principles; Petitioner’s

Argument that the Decision Established

a “ Ne w P r o p e r t y R i g h t ” a n d I s

“Unprecedented” Depends Entirely on

Mischaracterizing the State Retirement

Program and Washington Law . . . . . . . . . . . . . 11

v

Table of Contents

Page

1.

The Fowler Decision Is a Straightforward

Application of the Court’s Decision

in Phillips v. Washington Legal

Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . 11

C. The Director Agreed That If a Taking

Occur red the Cour t Could Issue an

Injunction Directing Her to Correct the

Accounts She Controls and Therefore

Under Established Precedents of this

Court Applied by the Ninth Circuit There

Is No Sovereign Immunity Issue . . . . . . . . . . . . 22

D. Eleventh Amendment Immunity Also Does

Not Apply Because the State Agrees That

the Teachers’ Employer School Districts,

Not the State Itself, Are Responsible for

Any Indirect Effects and Under Mt. Healthy,

429 U.S. 274 (1997), the School Districts

Are Not Part of the State for Purposes of

Eleventh Amendment Immunity . . . . . . . . . . . . 27

E. Director Guerin, the Amici, and Judge

Bennett All Discuss Defined Benefit Plans;

This Case Involves a Defined Contribution

Plan and Does Not Threaten the Legitimacy

of Pension Plans Nationwide . . . . . . . . . . . . . . . . 30

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

vi

TABLE OF CITED AUTHORITIES

Page

CASES

American Timber & Trading Co. v.

Fist Nat. Bank of Oregon,

511 F.2d 980 (9th Cir. 1973) . . . . . . . . . . . . . . . . . 16, 17

Bowles v. DRS,

121 Wn.2d 52, 847 P.2d 440 (Wash. 1993) . . . . . . 14, 30

Brabson v. U.S.,

73 F.3d 1040 (10th Cir. 1996) . . . . . . . . . . . . . . . . . . . 16

Brown v. Legal Foundation of Washington,

538 U.S. 216 (2003) . . . . . . . . . . . . . . . . . . . . . . . passim

City of Monterey v.

Del Monte Dunes at Monterey Ltd,

526 U.S. 687 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Dean v. Lehman,

143 Wn.2d 12, 18 P.3d 523 (Wash. 2001) . . . . . . . . . . 14

Eason v. Clark County School Dist.,

303 F.3d 1137 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . 29

Eastern Enterprises v. Apfel,

524 U.S. 498 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Edelman v. Jordan,

415 U.S. 651 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . 22, 26

vii

Cited Authorities

Page

Ford Motor Co. v.

Department of Treasury of State of Indiana,

323 U.S. 459 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Fowler v. Guerin,

899 F.3d 1112 (9th Cir. 2018), rehearing and

rehearing en banc denied, 918 F.3d 644

(9th Cir. 2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Givens v. Alabama Dep’t of Corr.,

381 F.3d 1064 (11th Cir. 2004) . . . . . . . . . . . . . . . . . . 13

Gore v. Glickman,

137 F.3d 863 (5th Cir. 1998) . . . . . . . . . . . . . . . . . . . . 16

Holz v. Nenana City Public School Dist.,

347 F.3d 1176 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . 28

Homestreet Inc. v. Dept. of Revenue,

166 Wn.2d 444, 210 P.3d 297 (Wash. 2009) . . . . . . . . 16

Hutto v. South Carolina Retirement System,

773 F.3d 536 (4th Cir. 2014) . . . . . . . . . . . . . . . . passim

In the Matter of Continental Ill. Sec. Litigation,

962 F.2d 566 (7th Cir. 1992) . . . . . . . . . . . . . . . . . . . . 16

Kanongata’a v.

Washington Interscholastic Activities Assn.,

No. C05-1956C, 2006 WL 1727891 (W.D. Wash.) . . 29

viii

Cited Authorities

Page

Kreisler & Kreisler LLC v. National City Bank,

657 F.3d 729 (8th Cir. 2011) . . . . . . . . . . . . . . . . . . . . 16

Malone v. Bowdoin,

369 U.S. 643 (1962) . . . . . . . . . . . . . . . . . . . . . . . . 23, 26

McIntyre v. Bayer,

339 F.3d 1097 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . 12

Mt. Healthy City School Dist. Bd. of Education

v. Doyle,

429 U.S. 274 (1997) . . . . . . . . . . . . . . . . . . . . . . . . 27, 28

O’Brien v. Shearon Hayden Stone,

90 Wn.2d 680, 586 P.2d 830 (Wash. 1978) . . . . . . . . .16

Penn. Dept. of Corr. v. Yeskey,

524 U.S. 206 (1988) . . . . . . . . . . . . . . . . . . . . . . . . 13, 15

Phillips v. Washington Legal Foundation,

156 U.S. 156 (1998) . . . . . . . . . . . . . . . . . . . . . . . passim

Probst v. DRS,

167 Wn. App. 180, 271 P.3d 966 (2012) . . . . . . . passim

Probst v. DRS,

185 Wn. App. 1015, 2014 WL 7462567 (2014) . . . . . 1, 6

Savage v. Glendale Union High School,

343 F.3d 1036 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . 29

ix

Cited Authorities

Page

Schneider v. Calif. Dept. of Corr.,

151 F.3d 1194 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . 12

Schneider v. Calif. Dept. of Corr.,

345 F.3d 716 (9th Cir. 2003) . . . . . . . . . . . . . . . . . . . . 12

State Ret. Bd. v. Yelle,

31 Wn.2d 87, 201 P.2d 172 (Wash. 1948) . . . . . . . 13, 14

Suever v. Connell,

579 F.3d 1047 (9th Cir. 2009) . . . . . . . . . . . . . . . . . . . 24

Taylor v. Westly,

402 F.3d 920 (9th Cir. 2005) . . . . . . . . . . . . . . 23, 24, 26

Texas State Bank v. Unites States,

423 F.3d 1370 (Fed. Cir. 2005) . . . . . . . . . . . . . . . 11, 31

United States v. Lee,

106 U.S. 196 (1882) . . . . . . . . . . . . . . . . . . . . . 23, 24, 26

Washlefske v. Winston,

234 F.3d 179 (4th Cir. 2000) . . . . . . . . . . . . . . . . . . . . 13

Webb’s Fabulous Pharmacies v. Beckwith,

449 U.S. 155 (1980) . . . . . . . . . . . . . . . . . . . . . . . passim

Williamson County Regional Planning

Commission v. Hamilton Bank of

Johnson City,

473 U.S. 172 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8

x

Cited Authorities

Page

Young v. Wall,

642 F.3d 49 (1st Cir. 2011) . . . . . . . . . . . . . . . . . . . . . 13

STATUTES AND OTHER AUTHORITIES

U.S. Const., amend. XI . . . . . . . . . . . . . . . . . . . . . . 7, 9, 28

Fed. R. Civ. P. 23(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Fed. R. Civ. P. 23(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

RCW 41.04.445(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 14

RCW 41.32.010(1)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

RCW 41.32.010(38) . . . . . . . . . . . . . . . . . . . . . . . . . 4, 14, 18

RCW 41.32.817 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

RCW 41.32.817(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

RCW 41.34.120 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

RCW 41.45.010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

RCW 41.45.060 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

RCW 41.50.033 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

RCW 41.50.110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

xi

Cited Authorities

Page

RCW Ch. 41.32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

RCW Ch. 41.40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

WAC 415-02-150 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 19

WAC 415-02-150 §3(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

WAC 415-02-150(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Dictionary of Banking Terms (4th ed. 2000) . . . . . . . . . 15

Webster’s Third New International Dictionary

(1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15s

1

COUNTERSTATEMENT OF THE CASE

A. Factual Record.

Guerin’s petition omits record citations, contains

significant factual inaccuracies, and misstates Washington

law to create an appearance that questions other than

those presented above were decided and to erroneously

imply this case has similarity to other cases involving

different state retirement programs. The following briefly

summarizes the record facts in this case.

The parties’ litigation began more than 16 years ago,

before an agency, then to state trial and appellate courts,

and federal trial and appellate courts. In a 2015 joint status

report in district court, the Director1 agreed that “the

complete record and all pertinent materials to decide this

matter…is contained within the administrative, superior

court, and appellate record in the Washington state courts

for Probst v. DRS, 167 Wn. App. 180, 271 P.3d 966 (2012)

and 185 Wn. App. 1015, 2014 WL 7462567 (2014). See Dkt.

No. 1 Complaint ¶¶52-73 (prior proceedings) [Pet. A5963] and Dkt. No. 14 Def. Mot. at 2-6 (prior proceedings).”

ER 74. The Ninth Circuit had an excerpt of this record

before it.

Pla inti ffs a re t eachers who a re members of

Washington’s Teachers Retirement System (TRS) Plan 3.

Fowler, A28. Defendant is the Director of the Department

1. In this brief, Tracy Guerin, the petitioner, is referred to

by name with respect to actions she has personally taken and

arguments she has personally made. Her position title, Director,

refers to her predecessors.

2

of Retirement Systems (DRS), Tracy Guerin, who controls

the accounting function for plaintiffs’ retirement accounts

holding contributions and interest.

Prior to 1996, these teachers were in TRS Plan 2,

a defined benefit pension plan for school teachers. ER

5. In Plan 2, pensions are funded by contributions from

employers and employees plus investment returns. Pet.

7-8. Employee contributions were placed in interestbearing accounts, ER 23-24, 31, 34, but the amount

of money in the employee accounts did not affect the

teachers’ benefits because a defined benefit pension in

Plan 2 is based on years of service and average final salary,

not on the account balance. ER 30; Pet. 7; Alaska 12, 22.

The undisputed record shows the contributions in their

individual accounts in Plan 2 always earned 5.5% annual

interest compounded quarterly. ER 23, 36, 37, 39; Pet A57.

In 1996, Washington created a new hybrid defined

benefit and defined contribution plan, TRS Plan 3. Pet. 9.

It gave teachers the option of transferring their employee

contributions (including interest) from TRS Plan 2 to Plan

3. Under Plan 3 the teachers who transferred had a defined

benefit plan (half of TRS 2’s defined benefit) funded solely

by employer contributions and a defined contribution

plan funded solely by employees’ own contributions plus

interest. ER 30; Pet. A53; Revised Code of Washington

(RCW) 41.32.817.

The teachers opted to transfer their Plan 2 employee

contributions plus accrued interest to TRS Plan 3

investment accounts. ER 19; Fowler, A28. Unbeknownst to

the teachers, the Director had been using an undisclosed

computer accounting program that did not credit interest

3

on employee contributions during the quarters they were

made (even though the teachers’ contributions were

placed in interest-bearing accounts after receipt) and

also did not credit interest on deposits for a quarter or

more when it treated accounts as empty (even when the

funds actually remained in the account for the entire

quarter). Pet. 9 n. 5; ER 31-32, 66-67; Fowler; A27-28; Pet.

A55-A57; Probst, A70. Guerin characterizes that practice,

by understatement, as “not a straightforward quarterly

crediting method.” Pet. 9 n. 5. Thus, when the teachers

transferred their contributions in 1996, the Director did

not provide them “the interest earned during that quarter

or the prior quarter,” Fowler, A28.

The erroneous computer program reduced the

amounts transferred to the teachers’ newly created

Plan 3 investment accounts because the program did not

transfer the interest actually earned at the established

rate of “5.5% annual interest compounded quarterly.” ER

23, 36-37, 39; Fowler, A27-28; Pet. A59. The Ninth Circuit

referred to this withholding as interest being “skimmed”

from the teachers’ accounts. Id. at A27-28, A37. The Ninth

Circuit found the Director “kept the [skimmed] interest

and used it to pay benefits to other members.” Id. at A28;

ER 59 (interest at the stated 5.5% annual rate, but not

credited, is “allocated” to others).

In 1996, when the teachers withdrew their contributions

plus accrued interest to transfer to new Plan 3 defined

contribution accounts, no statute or regulation gave the

Director authority over crediting of interest. Nor did the

Director have any authority to deny interest; the statutes

mandated (as they still do) passing accrued interest on to

members who withdraw or transfer. RCW 41.04.445(4),

4

41.32.817(5). The Director could only set the interest

rate, RCW 41.32.010(38), and in 1978, the Director chose

5.5% annual interest, compounded quarterly. Fowler,

A28; Probst, A70. The agency simply had an erroneous

computer program that resulted in non-crediting of some

accrued interest.

The inaccurate computer program was discovered

in 2002 by Jeffrey Probst after he transferred to PERS

Plan 3. 2 ER 46; Probst A70, Pet. A59. He discovered the

transferred amount in his retirement account was short,

and he requested the Director to transfer to his Plan 3

account all the interest he had earned at the Director’s

promised rate of “5.5% annual interest compounded

quarterly.” ER 23, 46; Pet. A59; Probst, A70.

The parties partially settled the claims in Probst in

2008. The settlement included the post-2002 transferring

members of both TRS and PERS. 3 These transfers were

not affected by the agency’s statute of limitations defense.

ER 41; Probst, A59-60; Pet. A70-71. The settlement did

not include the teachers who transferred to TRS Plan 3

between 1996 and 2002. They were certified for a new

subclass in 2009. Probst, A71-72.

2. PERS refers to the Public Employees Retirement System.

PERS Plan 2 is a defined benefit plan for many state and local

public employees. PERS Plan 3 has an individual retirement

account like TRS Plan 3. TRS is separate from PERS and includes

only school teachers who are not state employees. RCW Ch. 41.32,

teachers; RCW Ch. 41.40, public employees. The dissent on the

petition for rehearing in Fowler confuses the two separate plans

for reasons related to Guerin’s sovereign immunity argument.

Pet. A5, 7, 11.

3. The agency conceded the PERS and TRS plans both had

the same non-crediting problem. Probst, A72 n. 5.

5

Before the Probst settlement was f i na l i zed,

unbeknownst to the teachers, DRS asked the Legislature

to give the Director authority over crediting, saying its

bill “stems from the result of recently settled [Probst]

litigation.” SB 6167, House Bill Report 2007. The new

statute, RCW 41.50.033, states the “amounts [of interest]

to be credited and the method of doing so shall be at the

director’s discretion.” Pet. A85. Since then, the Director

has used the 2007 law (and her long-promised regulation

under this statute, finally adopted in 2018) as a defense

against the teachers. Probst A75-76; Fowler A30. This is

emphasized in the petition, Pet. 4, 8-9, 16-17, where Guerin

cites the regulation as if it existed in 1996 and treats the

regulation as if it overcame the record and changed the

historical facts concerning the interest earned by the

teachers, apparently because it purports to be retroactive.

WAC 415-02-150.

The Superior Court rejected the agency’s statute of

limitations defense because the teachers “would have had

the expectation that interest was being calculated as of

the date of the transfer.” ER 67. But it ruled against the

teachers based on the 2007 statute. Pet. A60.

The Washington Court of Appeals said that under the

2007 statute the Director had discretion to decide when

interest is credited and therefore rejected the teachers’

statutory claims. Probst, A75-77. It also held, however,

that DRS’s prior practice of not crediting some accrued

interest was “unfair,” “contrary to industry standards,”

and “arbitrary and capricious” under the Washington

Administrative Procedure Act. Probst, A81-83; Pet. A6162. It did not reach the teachers’ Takings Clause argument

about skimming accrued interest. Probst, A69-70, n. 1;

Fowler, A29.

6

On remand, the Superior Court remanded the case

to the agency for rulemaking, Pet. A61-62, and then the

Director issued a notice of rulemaking, WSR 13-15-128.

ER 92; Fowler, A30. The remand for rulemaking was

affirmed. Probst v. DRS, 2014 WL 7462567 (Wash. App.

2014) (unpublished) (saying the Takings Clause argument

was “premature” until the Director issued a rule. Id. at

*6.).

Frustrated with the lengthy delay, the teachers

brought this action in federal court to obtain relief on

the federal taking claim because the state courts kept

deferring the issue and the Director was engaged in an

interminable rulemaking process (ultimately taking five

years).

B. Proceedings in Federal District Court.

The teachers filed this action against the Director

in June 2015. In the parties’ joint status report the

Director agreed that the teachers’ claim is “that when

they withdrew their contributions and interest from TRS

Plan 2 to transfer to their new individual Plan 3 accounts,

not all of their interest earned on their accounts was

transferred to their new individual Plan 3 accounts, which

plaintiffs allege constitutes an unconstitutional taking of

property.” ER 74. The Director agreed that “[p]laintiffs

seek an order requiring her to transfer that earned

interest to their individual Plan 3 accounts.” The Director

also “agree[d] that the injunctive relief to the class will

likely involve a computerized formula to determine the

amount of interest that should be moved to class members’

TRS Plan 3 accounts.” ER 75.

7

Thereafter, the Director stipulated to class certification

under FRCP 23(a) and (b)(2). ER 18-20. In this stipulation

the Director agreed that the “plaintiffs allege interest

was ‘taken’ by the defendant and therefore remains in

the Plan 2/3 trust fund for the benefit of others. Plaintiffs

allege that the...Director of the Department of Retirement

Systems (DRS), should be required to correct class

members’ Plan 3 accounts.” ER 18. The Director further

stipulated injunctive “relief will likely be based on a

formula applied to defendant’s computerized records to

calculate the interest up to the present.” ER 19; Fowler,

A37 (quoting stipulation).

The District Court denied without prejudice the

stipulated motion for class certification. ER 15-17. The

Director moved for summary judgment, arguing that

the teachers’ action should be dismissed based on (1)

the Rooker-Feldman doctrine; (2) claim preclusion from

the state court proceedings; (3) Eleventh Amendment

immunity; and (4) the merits of the taking claim. The

District Court sua sponte asked for briefing on prudential

ripeness under Williamson County Regional Planning

Commission v. Hamilton Bank of Johnson City, 473

U.S. 172 (1995); ER 12-14; Pet. A44. The District Court

subsequently dismissed the teachers’ action on prudential

ripeness grounds. Id. at A48.

C. Proceedings in the Ninth Circuit.

The teachers appealed. Less than a month before the

May 2018 oral argument, after a five-year delay, Guerin

finally issued a rule codifying the formerly secret interest

accounting practice embedded in the computer program

that withheld all accrued interest that was not credited.

8

Fowler, A30; WAC 415-02-150. The teachers, not Guerin,

informed the Ninth Circuit of her new rule and the Ninth

Circuit asked for supplemental briefing. Guerin again, as

in her Respondent’s Brief, asked the Court to rule based

on the existing record and, if the Court of Appeals did not

agree that the case was premature, to rule on the same

four alternative grounds for affirmance argued in the

district court. Guerin Supplemental Brief 2 n. 1.

The Ninth Circuit panel, Ronald M. Gould and Sandra

S. Ikuta, Circuit Judges, and John R. Tunheim, Chief

District Judge for the District of Minnesota, reversed

on prudential ripeness, finding that under Brown v.

Legal Foundation of Washington, 538 U.S. 216, 235

(2003), “the withholding of the interest accrued on the

Teachers’ accounts constitutes a per se taking” to which

Williamson County does not apply. Fowler, Pet. A32.

The Ninth Circuit ruled against Guerin on her other four

grounds for affirmance. It held, applying the “interest

follows principal” rule of Phillips v. Washington Legal

Foundation, 156 U.S. 156, 165, 167 (1998), that Guerin

could not use her 2018 regulation to deny interest that

had accrued under the established rate – 5.5% annual

interest compounded quarterly – by simply not crediting

some interest. Fowler, A32, 33-34.

Guerin petitioned for rehearing en banc, raising

new arguments that were mainly based on factual

misstatements without record citations. Answer to

Petition for Rehearing at 1, 15. The panel denied

rehearing and recommended against rehearing en banc.

On a vote of the 24 active judges, rehearing en banc was

denied, with a dissent by Judge Bennett. Judge Bennett

accepted misstatements in the rehearing petition and

9

added misunderstandings of fact and Washington law.

For example, Bennett confuses crediting interest with

accruing interest and confuses the rate of interest with the

compounding period, see Pet. A14, n. 3. He misunderstands

what it means to have an account. Pet. A17-18. He conflates

PERS with the separate TRS system (p. 4 n. 2 supra).

And he says the teachers’ accounts did not earn interest,

not based on the record which shows they did, but solely

by citing Guerin’s 2018 post hoc regulation. Pet. A6, A10.

D. Proceedings Since the Ninth Circuit’s Decision.

After the Ninth Circuit issued its mandate, the

teachers renewed their previous motion for an accounting

in the parallel state court case, Probst v. DRS, Thurston

County No. 05-2-00131-1, on the basis of the Ninth Circuit

decision. The Superior Court denied the motion without

prejudice pending the outcome of Guerin’s petition for

certiorari. 4

In the District Court the teachers renewed their

motion for class certification. Guerin agreed there could

be declaratory relief concerning the unconstitutionality

of the interest practice (Fowler v. Guerin, 2019 WL

3337964 *3): “Guerin does not oppose class certification

to the extent plaintiffs are seeking relief in the form of a

declaration that defendant violated the takings clause of

the Fifth Amendment.” But Guerin sought to postpone

certification of the class for injunctive relief, despite her

4. Guerin says the teachers may pursue their Takings

Clause claim in state court whatever the outcome of its Eleventh

Amendment sovereign immunity argument in this case. Pet. 31

and n. 11. Assuming this is correct, Guerin’s argument about

sovereign immunity is rather theoretical.

10

previous agreement. Id. The District Court certified the

class. Id. at *4. The teachers may seek to expand the class

to bring the class up to the present. Id.

ARGUMENT

A. Introduction.

Director Guerin contends the Ninth Circuit created

a “new constitutional mandate,” but her arguments

show that she actually complains (incorrectly) that the

Ninth Circuit misapplied established principles of law.

First, Guerin argues the Ninth Circuit created a right

to interest on contributions for all defined benefit plans.

Actually, the Ninth Circuit only applied the rule “interest

follows principal” where, as a matter of Washington law,

employees’ contributions were their property and earned

5.5% annual interest and those employee contributions

and accrued interest were transferred to a defined

contribution plan, except for the “skimmed” interest.

Second, Guerin contends the Ninth Circuit “ignored

settled Eleventh Amendment analysis.” Actually, the

Ninth Circuit cited Guerin’s agreement that the teachers

could receive prospective injunctive relief requiring her to

return their property. Further, Guerin concedes that any

indirect effect of returning the teachers’ money would fall

on school districts and she failed to submit any evidence

or arguments that school districts are arms of the state.

Contrary to Guerin’s fact-free arguments, the Ninth

Circuit applied established principles of law.

11

B. The Ninth Circuit’s Fowler Decision Was Simply the

Routine Application of Well-Established Principles;

Petitioner’s Argument that the Decision Established

a “New Property Right” and Is “Unprecedented”

Depends Entirely on Mischaracterizing the State

Retirement Program and Washington Law.

1.

The Fowler Decision Is a Straightforward

Application of the Court’s Decision in Phillips

v. Washington Legal Foundation.

Director Guer in contends “ the Ninth Circuit

[determined] that the Takings Clause creates a property

right to interest that Washington has not awarded.” Pet.

18. She says “the Ninth Circuit created a new constitutional

mandate that a state must provide daily interest for state

retirement benefit programs.” Pet. 1. Guerin says that

rule is “unprecedented” and “would invalidate laws of the

federal employment retirement system and retirement

systems of numerous states in addition to Washington.” Id.

And a few other states, whose statutes would supposedly

be “invalidated,” adopt Guerin’s argument. Alaska 5

summarized Guerin’s argument (Alaska 23):

The idea that there is always a property right

to interest – daily or otherwise – regardless

whether interest is earned also conflicts with

the Federal Circuit’s interpretation of Phillips’

“interest follows principal” exception [in Texas

State Bank v. U.S.]. Phillips did not hold that a

person always has a right to receive interest on

a principal sum that is held by another. Rather,

5. Alaska submitted an amici brief on behalf of several states.

12

the Court stressed that “the interest that does

accrue attaches as a property right incident

to the ownership of the underlying principal.”

Following Phillips, the Federal Circuit has a

repeatedly held that there is no property right

to “interest” on a non-interest bearing account.

(Emphasis original; citations omitted.)

Put simply, the Ninth Circuit did not decide whether

there is a “property right to ‘interest’ on a non-interest

bearing account.” Id. It held that interest “actually

earned” under Washington law was skimmed off by

Guerin’s post hoc 2018 rule on crediting. Fowler, Pet.

A27-28, A32-35, A37. Nothing new in constitutional law

was created by this holding; it follows directly from

Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S. 155

(1980); Phillips, 524 U.S. 156; and Brown, 538 U.S. 216,

as well as previous Ninth Circuit decisions applying those

precedents. McIntyre v. Bayer, 339 F.3d 1097 (9th Cir.

2003); Schneider v. Calif. Dept. of Corr., 151 F.3d 1194 (9th

Cir. 1998) (Schneider I); Schneider v. Calif. Dept. of Corr.,

345 F.3d 716 (9th Cir. 2003) (Schneider II). Indeed, Guerin

concedes that “[t]he panel relied on Supreme Court and

Ninth Circuit cases that had previously held that ‘interest

follows principal’ is a traditional and common law right

that could not be abrogated by state law.”6 Pet. 12, citing

Schneider and Phillips. In her Respondent’s brief below,

6. This concession makes Guerin’s lengthy discussion of

“abrogation” of common law, Pet. 20-24 (also Alaska 18-20),

irrelevant. Further, the Uniform Principal and Income Act does

not abrogate a principal owner’s right to interest, as Guerin

contends (Pet. 25), but rather affirms that owners of principal

have the right to dispose of their interest in any manner they wish.

Phillips, 524 U.S. at 167-68.

13

Guerin’s argument was only one-half page and it argued

only that state law abrogated the rule that interest follows

principal. Her current arguments are new and therefore

should not be considered. Penn. Dept. of Corr. v. Yeskey,

524 U.S. 206, 212-13 (1988).

Guerin does not contend the Ninth Circuit was wrong

in its decisions leading to Fowler, except to say that in

Schneider the Ninth Circuit differs from other circuits by

“ignoring context.” Pet. 20; Alaska 20. Actually, all circuits

agreed with the Ninth Circuit that accrued interest may

not be credited to others under the Takings Clause; they

only questioned whether the Ninth Circuit gave “due

weight to the truncation of prisoners’ property rights.”

Young v. Wall, 642 F.3d 49, 54 (1st Cir. 2011) (emphasis

added); Washlefske v. Winston, 234 F.3d 179, 185-86

(4th Cir. 2000). Indeed, in Givens v. Alabama Dep’t of

Corr., 381 F.3d 1064, 1068 (11th Cir. 2004), the Eleventh

Circuit said that, while prisoners in Alabama do not have

a property right to interest, “[c]ertainly, non-inmates

have such a property right.” In Washlefske, the Fourth

Circuit agreed that “it is true that at common law interest

follows principal” and disagreed only about the rights of

prisoners. 234 F.3d at 185-86. Accordingly, the alleged

conflict among the circuits only exists for an element of

Schneider not present here – prisoners’ property rights.

The Ninth Circuit’s Fowler decision flows directly

from the specific facts of this case, not from any argument

that all retirement contributions must earn interest. Pet.

18-19, 22 n. 22. Here, retirement accounts containing the

teachers’ employee contributions belong to the teachers

under Washington law, and so does the interest earned

on their accounts. In State Ret. Bd. v. Yelle, 31 Wn.2d

14

87, 201 P.2d 172, 181-82 (Wash. 1948), the Washington

Supreme Court held that public employee retirement

accounts belong to the members “and are not state funds.”

Id. (emphasis added). The Court explained that employee

contributions and interest are not public funds because, in

part, “any member [who] withdraws his contributions…is

entitled to interest thereon.” Id. See also Bowles v. DRS,

121 Wn.2d 52, 847 P.2d 440, 452 (Wash. 1993) (“employees’

contributions are not public funds” [emphasis added]);

RCW 41.04.445(4) (“All member contributions plus

accrued interest earned thereon shall be paid [by DRS]

to the member upon the withdrawal of funds or lump

sum payment of accumulated contributions” [emphasis

added]). 7

Accordingly, under Washington law the teachers are

the owners of the accounts containing their contributions

and they are entitled to all the interest that accrues

in their accounts. Yelle, 201 P.2d at 181-82; Dean v.

Lehman, 143 Wn.2d 12, 18 P.3d 523, 535-36 (Wash. 2001)

(following Ninth Circuit’s decision in Schneider and

applying Washington statute similar to RCW 41.04.445(4)

above); see also RCW 41.32.010(1)(b) and -.010(38);

RCW 41.32.817(5). Thus, Guerin’s statement that the

contributions are not the teachers’ funds – i.e., “there are

no private funds” in TRS accounts, Pet. 18 – is directly

contrary to Washington law. Just as Alaska says it should,

Br. 2-3, the Ninth Circuit recognized that Washington law

created the right to interest. Fowler, Pet. A28-29.

7. The members have no claim on their contributions,

however, when they receive a defined benefit pension. Pet 7;

Alaska 12, 22.

15

Guerin recognizes the Fowler opinion relied on

Phillips and Schneider, Pet. 12, but then contends the

Court misapplied (“conflicts with”) Phillips. Pet. 15.

While she concedes that under Phillips the teachers

have a property right to “any interest that does accrue”

on their accounts, Pet. 18, Guerin contends that interest

accrues only to the extent that she determines in her

total unilateral discretion that the accrued interest is

also credited, relying on the 2018 regulation she adopted

two weeks before oral argument below. Pet. 4, 8-9, 16-17;

Fowler, A30.

Guerin disregards what it means to “accrue” interest.

“Accrued interest” means “interest earned, though

not credited or otherwise paid.” Dictionary of Banking

Terms (4th ed. 2000), p. 7; see also Webster’s Third New

International Dictionary (1976), p. 13: “accrued interest”

is “interest earned since the last settlement date but not

yet due or payable.” “Crediting” interest is not the same

thing as “accruing” interest because “crediting” is just a

periodic accounting of earned interest that has already

accrued on an account. A failure to “credit” interest does

not affect whether that interest was “actually earned,” as

Guerin would like it (Pet. 18). If it did, Phillips would have

been decided differently because there the client funds

“accrued” interest, but under Texas law the interest was

credited to the legal foundation, rather than to the clients.

524 U.S. at 162-63. The Supreme Court ruled that the

accrued interest is the property of the client and could

not be diverted to charity. Id. at 168.

The key question here is what interest is “accrued” or

is “actually earned” on teachers’ accounts, since Guerin

admits the teachers have a right to that interest. Pet. 18.

16

And she concedes that under Phillips this right “could

not be abrogated by state law.” Pet. 12. The Ninth Circuit

said that interest accrues daily, following longstanding

tradition and common law. Fowler, A34. Guerin purports

to abrogate daily interest accruals in her 2018 regulation.

Pet. 16-17; WAC 415-02-150(5). Guerin, however, disregards

what interest is; “interest” is simply the amount of money,

in dollars and cents, that accrues over a certain period of

time at a particular interest rate, as in Brown, supra, 538

U.S. at 229 (“Brown made a payment of $90,521.29 that

remained in escrow for two days… he estimated that the

interest on that deposit amounted to $4.96.”).

The purpose of interest is “to compensate one for

the time value of money.” Gore v. Glickman, 137 F.3d

863, 868 (5th Cir. 1998). 8 Thus, an “interest rate” is the

measure of how much interest will accrue over time on a

given amount of money and “time” for an interest rate is

measured in days. O’Brien v. Shearon Hayden Stone, 90

Wn.2d 680, 586 P.2d 830, 836 (Wash. 1978) (interest “per

annum” means “by the year” and “a year is considered

to be 365 days”). 9 Accordingly, the concept of “annual

interest” inherently assumes that interest accrues daily

because we calculate years in 365 days – the same as the

8. Accord, Brabson v. U.S., 73 F.3d 1040, 1044 (10th Cir.

1996); In the Matter of Continental Ill. Sec. Litigation, 962 F.2d

566, 571 (7th Cir. 1992); Homestreet Inc. v. Dept. of Revenue, 166

Wn.2d 444, 210 P.3d 297, 301 (Wash. 2009).

9. Accord, American Timber & Trading Co. v. Fist Nat.

Bank of Oregon, 511 F.2d 980, 983-84 (9th Cir. 1973); Kreisler &

Kreisler LLC v. National City Bank, 657 F.3d 729 (8th Cir. 2011);

Gulf Federal Savings and Loan Association of Jefferson Parish,

651 F.2d 259 (5th Cir. 1981) (each discussing the methods used to

determine annual or per annum interest).

17

common law rule, de die in diem. Fowler, A33-34. Thus,

any “annual” interest rate assumes that interest is accrued

on each of the year’s 365 days at the specified interest

rate, here 5.5%.

Nonetheless, Guerin wants to somehow omit days from

the calculation of “annual” interest. She tries to do this by

simply equating “crediting” with “earning” as though they

were the same thing.10 Pet. 9. Guerin says her crediting

“methodology is not a straightforward quarterly crediting

method, because it does not credit any interest for the

prior quarter if the balance on the account at the end of

any quarter is zero.” Pet. 9 n. 5. In American Timber, the

Ninth Circuit noted that calculating borrowers’ interest

based on a 360-day year, but applying it to a 365-day

year, changed a 12% interest rate to 12.167%.11 511 F.2d

at 982. Guerin’s crediting practice is more drastic. For

example, applying Guerin’s crediting method, if a teacher

transferred on December 31 (and thus had no account

balance at the end of the fourth quarter), he received no

interest for Q3 or Q4 on the entire account (Pet. 9 n. 5;

Pet. A56-57) and thus received interest for only 180 days

out of 365, the interest rate on the account balance is

reduced from the promised 5.5% to approximately 2.7%

for that year.

10. At oral argument in the Ninth Circuit, Judge Ikuta

explained that “earning” interest and “crediting” interest are

two different things: “[Guerin is] saying ‘earned’ happens when

the State decides to ‘credit’ an account. I read that in [Guerin’s]

briefs and I couldn’t quite understand that because ‘crediting’ an

account is an accounting function. It’s making the numbers go

up in the account, but ‘earning’ is the time value of money that

happens on a time basis.” Oral Argument at 16:40.

11. DRS itself uses a 365-day calendar year to determine the

daily interest owed to DRS by employers and employees. ER 44.

18

The record shows that the Director undisputedly

did not credit the teachers with some interest that was

“actually earned” on their accounts at the established

rate. Pet. 9, n. 5; Fowler, A27-28; ER 23-24, 31, 34, 3637, 39. Indeed, Guerin admitted below that the earned

interest not credited to the teachers’ accounts is diverted

(“allocated”) to others. ER 59. The Ninth Circuit referred

to this diversion of accrued, but not credited, interest

as “skim[ing].” Fowler, A27-28, 37. The Ninth Circuit

noted “DRS kept the [skimmed] interest and used it to

pay benefits to other members.” Id. at A28. The Court

said “the withholding of the interest accrued on the

teachers’ accounts constitutes a per se taking.” Id. at A32.

The Fowler decision is entirely consistent with Phillips

because there, as here, the funds accrued interest (ER 2324, 31, 34, 36-39), but the interest was allocated to others.

524 U.S. at 162-63; ER 59.

Phillips assumes (524 U.S. at 168) that states have

some latitude over interest calculation, such as setting

the interest rate and compounding period. Both Guerin

and the amici emphasize that states vary greatly in

rates of interest and how and when interest is earned

on defined benefit retirement accounts. Pet. 5-6; Alaska

Br. 11-16. This case does not concern that latitude; in

Washington, the Director determined the “regular rate of

interest” for retirement accounts back in 1978, pursuant

to statute. RCW 41.32.010(38); ER 23, 36, 37, 39 (“5.5%

annual interest compounded quarterly”); Fowler, Pet.

A27. In her recent 2018 regulation Guerin reiterated

the 5.5% annual interest rate, but said she determined

in her discretion that some accrued interest will just not

be “credited.” Fowler, A28, A30; WSR 18-03-1837; WAC

19

415-02-150 (2018).12 This is the same as the earlier secret

and inaccurate computer program by which the teachers

were simply not credited with or paid the regular 5.5%

annual interest, as discovered by Jeff Probst. Probst,

A70-71; ER 46; Pet. A58-59.

Guer i n’s 2 018 reg u lat ion is on ly a post h oc

rationalization for that inaccurate computer program

by which some earned interest was not credited on the

teachers’ accounts, by just making that old computer

program into official policy. Guerin’s position is that

interest is not earned unless she, in her unfettered

discretion, decides that it will be “credited.” Pet. 9, 16-17;

WAC 415-02-150. And her discretion to outright deny, by

simply not crediting, accrued interest (at the promised

5.5% annual interest rate) is supposedly unlimited. At

argument in the Ninth Circuit, when asked if Guerin could,

in her discretion, credit interest “every other quarter,” her

counsel responded “yes.” Ninth Circuit Oral Argument

at 18:56. Because Guerin contends that the accounts still

earn the time-value of money (5.5% interest rate) and

that the “value,” i.e., the rate, did not change, Pet. A87,

then her position is she can retroactively declare that

whole quarters (not just days) never occurred. In essence,

Guerin’s argument is that for transfers that occurred in

1996, the 2007 statute and the 2018 regulation gave her

the discretion to abrogate “time” in the time-value of

money inherent in any annual interest rate. Nothing in

Phillips says that a state can abrogate time. For example,

12. Guerin’s 2018 regulation describes the crediting practice

with examples. WAC 415-02-150 §3(b). It also says interest does

not accrue daily. Id. But it continues to define “regular” interest

as 5.5% “per year.” Id.

20

in Brown the plaintiff had a right to interest accrued over

only 2 days. 538 U.S. at 229.

Guerin’s “discretion” argument also turns Phillips

upside down. The holding that “interest follows principal,”

524 U.S. at 165, would, under her approach, change

to “interest follows principal in 5.5% interest-bearing

accounts only to the extent that the Director, in her

discretion, decides to credit that interest to the account

owner and otherwise it may be diverted.” Cf. Pet. 9,

16-17; ER 59. It nevertheless remains undisputed that

the teachers’ accounts earned 5.5% annual interest

compounded quarterly; Guerin just did not credit all the

earned interest. 13 Pet. 9, 16-17; ER 23, 34-39; Fowler,

A27-28, 32.

Guerin’s notion that accrued interest can be withheld

just by saying interest is not “earned” unless she

unilaterally decides it should be “credited,” and then

simply not crediting it, has been rejected by this Court.

In Webb’s, 449 U.S. 155 (1980), prior to Phillips, the Court

13. Like funds deposited at a bank, account owners are

paid interest on interest-bearing accounts at a rate lower than

the investment returns in the state trust fund. At oral argument,

Judge Ikuta disagreed with Guerin’s contention that the teachers’

interest-bearing accounts were different from interest-bearing

bank accounts. Judge Ikuta explained that “[money] doesn’t sit

in a bank account either. We all know that the bank takes all of

the money that’s deposited and invests it…[Y]ou can’t go to your

bank and ask to see your money in the account so I’m not sure I

see that much of a difference here.” Oral Argument at 19:58. Here,

the comingled trust fund, including the teachers’ funds, earned

over 8% annual return on a “smoothed” basis, greater than the

5.5% rate promised to the teachers. ER 71-72.

21

held a Florida statute allowing the state to keep interest

earned on the funds deposited with the clerk of the

court violated the Takings Clause. Id. at 164. The Court

explained that interest cannot be withheld by defining

away the principal owner’s rights by statute (id.):

[E]arnings of a fund are incidents of ownership

of the fund itself and are property just as the

fund itself is property…[A] State by ipse dixit,

may not transform private property into public

property…This is the very kind of thing that

the Taking Clause of the Fifth Amendment was

meant to prevent.

Webb’s rejected Florida’s argument, similar to

Guerin’s here, that deposited funds are “considered ‘public

money’” from the date of deposit until they leave the

account, and its argument “[t]here is no unconstitutional

taking because interest on the clerk’s … registry account

is not private property.” Id. at 159. This Court again

applied the “interest follows principal” rule in Brown, 538

U.S. at 229. Interest accrued over even two days belonged

to clients, id., and there was no taking only when the

amount of accrued interest for those days was less than

the administrative cost of distribution. Id. at 239-40. 14

14. Here, administrative costs were levied before the

accounts earned interest. RCW 41.50.110.

22

C. The Director Agreed That If a Taking Occurred

the Court Could Issue an Injunction Directing

Her to Correct the Accounts She Controls and

Therefore Under Established Precedents of this

Court Applied by the Ninth Circuit There Is No

Sovereign Immunity Issue.

Eleventh Amendment immunity applies when the

State is a party and the judgment is “paid from public

funds in the state treasury.” Edelman v. Jordan, 415

U.S. 651, 663 (1974). Here the teachers seek an injunction

requiring Guerin, who is in charge of their accounts,

to correct their account balances by transferring their

skimmed interest held in the “comingled trust fund” to

their defined contribution account. Fowler, A27, Pet. A38.

No public funds are involved because under Washington

law both the teachers’ retirement contributions and

accrued interest are the property of the teachers. (See

authorities cited supra at 13-14.) Under Washington law,

the teachers’ funds for TRS Plan 3 are held in trust for

their exclusive benefit. RCW 41.34.120.

Moreover, the lawsuit is not against the State or the

Department of Retirement System, but, rather, against

Guerin, the official under Washington law who is in

charge of accounting for the teachers’ property and who

purported to exercise her discretion to withhold accrued

interest contrary to the “interest follows principal”

rule of Phillips, Webb’s, and Brown.15 Indeed, Guerin

15. This case differs from that in Hutto v. South Carolina

Retirement System, 773 F.3d 536, 540-41 (4th Cir. 2014), the case

on which Guerin and amici repeatedly rely. There, the plaintiffs

sued the South Carolina Retirement System, an arm of the state,

concerning a defined benefit plan, to obtain refunds on top of

23

twice stipulated that the teachers’ action only seeks an

injunction directing her to correct the teachers’ accounts.

The injunction here thus only directs Guerin to return the

teachers’ interest, relief she agreed would be appropriate.

The injunction procedure that Guerin agreed to,

and the Ninth Circuit found appropriate in Fowler, flows

directly from Taylor v. Westly, 402 F.3d at 924 (9th Cir.

2005), upon which the Ninth Circuit relied in Fowler.

Taylor cites and discusses Supreme Court precedents,

holding there is no sovereign immunity for suits against

government officials seeking the return of property that

is unconstitutionally taken. Taylor, 402 F.3d at 932-35,

discussing United States v. Lee, 106 U.S. 196 (1882), and

Malone v. Bowdoin, 369 U.S. 643 (1962). In Malone this

Court reaffirmed that there is no sovereign immunity for a

lawsuit against a government officer seeking the return of

property that the plaintiff alleges was unconstitutionally

taken. Malone, 369 U.S. at 647-48; see also Tindal v.

Wesley, 167 U.S. 204 (1897) (action not against State

for purposes of Eleventh Amendment immunity when

individual sues State official for the return of property

under official’s control). The Director does not argue that

Taylor was wrong in rejecting sovereign immunity when

the plaintiff seeks an injunction for the return of property

unconstitutionally taken. Pet. 13, 30 n. 10.

Guerin argues that the Fowler opinion “conflicts” with

Hutto, Pet. 30, 32-33, but she never cited it (or any of the

their pension payments. The other pension plan cases relied on

by Guerin (Pet. 32) and amici (NCPERS 13-15) are the same as

Hutto, defined benefit plans where the plaintiffs sought money

damages from states.

24

pension cases cited here) in the Ninth Circuit. Moreover,

Hutto – the principal case relied on by Guerin and amici –

recognized, as the Ninth Circuit did in Taylor and Fowler,

that actions for the return of property are not barred

by sovereign immunity when they are brought against

the officials who have control over private property. The

Hutto court found that these cases did not apply because

Hutto had sued the State itself (773 F.3d at 552 (parallel

citations omitted)):

The plaintiffs direct our attention to numerous

cases in which suits to recover property illegally

seized by the government were held not to have

been barred by sovereign immunity. But in none

of those cases did the plaintiffs sue either the

sovereign itself or its alter ego. For example, in

United States v. Lee, 106 U.S. 196, 222 (1882),

the Court permitted an ejectment action to

proceed against federal officers who served as

custodians of the estate of General Robert E.

Lee because the suit was not against the United

States. In Tindal v. Wesley, 167 U.S. 204 (1897),

the Court permitted a suit against two state

officials to recover property wrongly held by

them on behalf of the State, because the case

was “a suit against individuals,” id. at 221, and

the Court could not perceive how it could “be

regarded as one against the state,” id. at 218.

Accord, Suever v. Connell (case relied on by Guerin, Pet.

31), 579 F.3d 1047, 1058-59 (9th Cir. 2009): “the Eleventh

Amendment does not bar claims by plaintiffs for return

of their own property…because such claims are not for

‘damages’ against the State.”

25

Guerin accuses the Ninth Circuit of “recasting” the

relief sought by the teachers from “money damages

into a prospective injunction.” Pet. 26. But there was no

“recasting” by the Ninth Circuit; it relied on Guerin’s

concession that the teachers sought injunctive relief

requiring her to return their property: “as the Director

previously has conceded, and as the Teachers’ complaint

plainly shows, the Teachers actually seek an injunction

ordering the Director to return savings taken from them[,]

[r]ather than requiring payment of funds from the State’s

treasury[.]” Fowler, A37.

In a claim involving the taking of interest, such as the

one here, the appropriate remedy for the unconstitutional

taking is the return of the interest, not damages paid from

the State treasury. In Webb’s, a case involving interest,

this Court reversed a Florida Supreme Court decision

that denied the plaintiff the specific interest that was

taken from it, as a lower court had held. 449 U.S. at 15859. In Eastern Enterprises v. Apfel, 524 U.S. 498, 521

(1998), this Court also said that “a claim for compensation

‘would entail an utterly pointless set of activities’” when

the “compensation” due would simply be the return of the

money wrongly taken.16

16. Guerin and the Bennett dissent cite City of Monterey

v. Del Monte Dunes at Monterey Ltd, 526 U.S. 687, 710 (1999),

a regulatory taking case where the issue was the right to a jury

trial. Guerin contends – by a misleading partial quotation – that it

establishes that all taking cases are actions for damages (Pet. 30)

and that the Fowler opinion conflicts with Del Monte Dunes and

circuit court cases. Id. Actually, the Court in Del Monte Dunes

explained that some taking cases are for the return of property

in which the proper remedy is an injunction. 526 U.S. at 713. In

contrast to the situation here, the Eleventh Amendment immunity

taking cases cited by Guerin, Pet. 30-31, were actions against

26

Guerin and amici argue that because the teachers

seek their own money, i.e., the accrued interest on their

accounts that the Director skimmed, their taking claim is

barred by sovereign immunity under Edelman, 415 U.S.

651; Pet. 26. This is the same argument the defendant

in Taylor made: “any recovery would come in the form

of money from the state, which Edelman prohibits.”

Taylor, 402 F.3d at 935. The Ninth Circuit, relying on

Supreme Court cases, rejected the argument because in

Edelman “the plaintiffs unquestionably sought money

that belonged to the government” and “[t]hey did not seek

reinstatement of possession of property that they owned.”

Id. The Taylor Court said that “[p]roperly viewed, the

claim is for return of property held in trust for the owners,

not for compensation for property full title to which has

passed to the state. This makes the claim one for return

under Lee and Malone, not one for compensation from the

state’s general fund under Edelman.” Id. As the Ninth

Circuit concluded in both Taylor and Fowler -- “Money

that the state holds in custody for the benefit of private

individuals is not the state’s money, any more than towed

cars are the state’s cars.” Fowler, quoting Taylor, Pet. A37.

Here, as in Taylor, no public funds are involved.17 Rather

the teachers seek an injunction, as Guerin agreed, that

would correct the accounts she controls by crediting the

“skimmed” interest.

states that would result in a judgment against states that would

be paid by public funds in the state treasuries. They were not

actions for injunctions for the return of property.

17. Guerin contends Fowler conflicts with Ford Motor Co.

v. Department of Treasury of State of Indiana, 323 U.S. 459

(1995) (Pet. 29), but Ford Motor is nothing like Fowler. Ford sued

the state and sought a money judgement to be paid by the state

treasury for taxes it had paid.

27

D. Eleventh Amendment Immunity Also Does Not

Apply Because the State Agrees That the Teachers’

Employer School Districts, Not the State Itself, Are

Responsible for Any Indirect Effects and Under Mt.

Healthy, 429 U.S. 274 (1997), the School Districts

Are Not Part of the State for Purposes of Eleventh

Amendment Immunity.

Implicitly recognizing that no public funds would be

affected by an injunction returning the teachers’ interest,

Guerin argues that the state funding might be indirectly

affected because the TRS Plan 2 fund might theoretically

need additional funds which would be obtained “by

increasing employee and employer contribution rates”

for school districts. Pet. 34-35, citing RCW §§41.45.010,

-.060 (“employee and employers contribution rates

set to fully fund TRS Plan 2 system”); see also Pet. 7,

“employer contributions made by school districts.” Thus,

Guerin acknowledges that the teachers’ “employers here

are school districts,” not the state, and that the school

districts, not the state itself, will be responsible if any

increased contributions were needed. Pet. 7, 34-35. (Amici

failed to notice this important point.) The state’s obligation

here is accordingly unaffected even indirectly (if employer

contributions were involved), because any indirect effect,

if any, of the injunction will fall on the school districts. 18

This is in contrast to Hutto where Hutto sued the state

18. W hether contr ibution rates for school distr icts

might increase is doubtful because the TRS 2/3 fund has

almost $14.5 billion, w ith assets exceeding liabilities by

almost $0.5 billion. https://w w w.drs.wa.gov/administration/

annual-report/cafr/CAFR-2018.pdf p. 24. And there has been

no determination of the amount that Guerin should transfer to

plaintiffs’ TRS Plan 3 accounts.

28

and the effects of the judgment would fall on the state

because it was both the employer owing contributions and

because the state constitution required it to fully fund the

defined benefit plan with funds from the public treasury.

773 F.3d at 544-45. Guerin nonetheless implicitly argues

that because the employer school districts receive funding

from the state, Eleventh Amendment immunity should

apply here. Id. at 7, 35. In doing so Guerin completely

ignores this Court’s decision holding a school district has

no Eleventh Amendment immunity because it is not an

arm of the state.

In Mt. Healthy City School Dist. Bd. of Education

v. Doyle, 429 U.S. 274, 280-81 (1997), this Court said

that Eleventh Amendment sovereign immunity does not

extend to “counties and similar municipal corporations.”

The issue was whether a school board “is to be treated

as an arm of the State partaking of the State’s Eleventh

Amendment immunity, or instead to be treated as a

municipal corporation or other political subdivision to

which the Eleventh Amendment does not extend.” Id. at

250. The Court concluded that although the school board

“receives a significant amount of money from the State[,]”

the local school board “is more like a county or city than it

is like an arm of the State” and thus there was no sovereign

immunity Id. at 280-81. Guerin is now asking the Court

to overrule, or at a minimum distinguish Mt. Healthy,

without even discussing the case.

Guerin does not mention any of the cases applying Mt.

Healthy in finding that school districts are not arms of

the state for purposes of Eleventh Amendment immunity.

See, e.g., Holz v. Nenana City Public School Dist., 347 F.3d

1176, 1181-82 (9th Cir. 2003) (Alaska) (school districts are

29

not arms of the state even though nearly all their funds

come from the state); Savage v. Glendale Union High

School, 343 F.3d 1036 (9th Cir. 2003) (Arizona); Eason

v. Clark County School Dist., 303 F.3d 1137, 1141 (9th

Cir. 2003) (Nevada). Nor does it cite, mention, or discuss

Kanongata’a v. Washington Interscholastic Activities

Assn., No. C05-1956C, 2006 WL 1727891 (W.D. Wash.), in

which the District Court applied Mt. Healthy and found

that school districts in Washington are not arms of the

state and therefore they have no sovereign immunity.

Guerin criticizes the Ninth Circuit for failing to

conduct a “factual inquiry” about whether “the State is

the real party in interest.” Pet. 33. But even though she

admits the school districts are the responsible entity, the

Director submitted no evidence and made no argument

to show that the school districts are entitled to Eleventh

Amendment immunity. “[S]overeign immunity is akin to

an affirmative defense, which the defendant bears the

burden of proving.” Hutto, 777 F.3d at 543 (case relied on

by Guerin). Therefore Guerin cannot complain about the

lack of a factual inquiry when she failed to raise this issue

below and submitted no evidence.

Moreover, after the Ninth Circuit ruled, Guerin told

the district court that declaratory relief is proper on their

taking claim. See p. 9 supra. This agreement, coupled

with the fact that the indirect effect of the injunction, if

any, will fall on the school districts, not the state, further

shows that there is no significant sovereign immunity

issue warranting review.

30

E. Director Guerin, the Amici, and Judge Bennett All

Discuss Defined Benefit Plans; This Case Involves a

Defined Contribution Plan and Does Not Threaten

the Legitimacy of Pension Plans Nationwide.

Judge Bennett’s dissent, amici, and Guerin all

maintain that the Ninth Circuit’s opinion in Fowler

threatens “the legitimacy of many public pension

programs through the country.” Bennett Dissent Pet.

A21-22; Alaska 2, 9; NCPERS 2; Pet. 4-6, 35-37. They

predict dire consequences because: “the vast majority of

governmental employees participate in a defined benefit

plan.” NCPERS 13; see also Pet. 4, 15-19. This “parade of

horribles” argument ignores the unique facts of this case

and of Washington law.

This case involves only individual defined contribution

accounts. Rather than a state-guaranteed public pension,

the teachers in TRS Plan 3 defined contribution plan

are entitled only to their contributions, interest, and

investment returns. The State makes no promises about

the investment returns and all the investment risk is

on the teachers, not the state. In contrast, as noted by

amicus, NCPERS 12, under a defined benefit plan – such

as TRS Plan 2 – all the investment risk is on the state,

which is contractually responsible for the stream of

payments to retired employees if the investments are

insufficient. Wash. Fed of State Employees, 26 P.3d at

1005 n. 5; Bowles, 847 P.2d at 450; Pet. 33 n. 12. All the

retirement plan cases, such as Hutto, on which Guerin and

the amici rely, involve defined benefit plans under which

the State is contractually responsible for the stream of

payments to employees if there is a shortfall in the fund.

No one has pointed to a state retirement system that is

like Washington’s TRS Plan 3 defined contribution plan.

31

Amici say they are concerned that the Ninth Circuit

opinion may lead to challenges to their plans’ provisions

for refunds of employee contributions from defined benefit

plans upon termination of employment. Alaska 12. Because

a defined benefit plan promises the employee a pension,

there is no constitutional requirement that a government

allow refunds of employee contributions or to provide

interest on those contributions in a defined benefit plan.19

Creation of a right to refunds, and any interest thereon,

are purely matters of state law, just as Guerin and amici

say. Pet. 15-16; Alaska 10. But once interest accrues at

the rate set by the state it cannot be taken away under

Phillips. Presumably the other states provide employees

whatever interest they are entitled to under state law

and do not “credit” interest that belongs to employees to

someone else, as Washington does.

Here, Washington law gives the teachers a property

right to their contributions earning 5.5% annual interest

compounded quarterly. See p. 13-14, supra. This became

particularly important when Washington created TRS

Plan 3 and encouraged the teachers to transfer their

contributions plus interest to the new defined contribution

plan. When the teachers transferred in 1996 the Director’s

secret and inaccurate computer program resulted in

the non-crediting of earned interest when the teachers

transferred their contributions plus interest to TRS Plan 3

19. Texas State Bank v. Unites States, 423 F.3d 1370 (Fed.

Cir. 2005) (case relied on by Guerin and amici), illustrates this

point. The Federal Reserve did not place the bank’s reserves in

an interest-bearing account and therefore there was no taking

of interest. Here the teachers’ contributions were placed in an

interest-bearing account entitling them to the interest at the

established rate, 5.5% annual interest compounded quarterly.

32

in 1996. Guerin defends the taking of the interest based on

a 2007 statute and a 2018 regulation she adopted giving

her discretion over crediting. The teachers do not seek a

refund, rather a correction by Guerin to the accounts that

she controls. The facts of this case are unique.

Guerin is also in a unique position because she is

personally in charge of the teachers’ accounts and she can

simply correct them without using public funds. Indeed,

she agreed that if the teachers prevailed she could be

ordered to correct their accounts.

The Ninth Circuit applied established precedents to

the unique facts of this case and consequently its Fowler

decision does not threaten “the legitimacy of public

programs nationwide.” Alaska 9.

CONCLUSION

Guerin’s Petition should be denied.

Respectfully submitted.

Stephen K. Strong

Counsel of Record

David F. Stobaugh

A lexander F. Strong

Bendich, Stobaugh & Strong, P.C.

126 NW Canal Street, Suite 100

Seattle, WA 98107

(206) 622-3536

skstrong@bs-s.com

Of Counsel:

Stephen K. Festor