### IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 18

- 10423

LADONNA DEGAN; RIC TERRONES ; JOHN MCGUIRE; REED HIGGINS; MIKE GURLEY; LARRY EDDINGTON; STEVEN MCBRIDE,
Plaintiffs

- Appellants

v. THE BOARD OF TRUSTEES OF THE DALLAS POLICE AND FIRE PENSION SYSTEM,
Defendant

- Appellee

Appeal from the United States District Court for the Northern District of Texas U S D C

. No. 3:17

- CV

- 1596

Before BARKSDALE, SOUTHWICK, and HAYNES, Circuit Judges

. HAYNES, Circuit Judge : Several retired City of Dallas police officers and firefighters (collectively, “Plaintiffs”) sued the Board of Trustees of Dallas Police and Fire Pension System (the “Board”) over changes to their pension fund they contend violate the United States and Texas Const itutions. Plaintiffs alleged that limiting their ability to withdraw from their Deferred Retirement Option Plan (“DROP”) funds constituted an unlawful taking under the Fifth Amendment of the United States Constitution and violated article XVI, United States Court of Appeals Fifth Cir cuit 

### FILED April 27, 2020 Lyle W. Cayce Clerk Case: 18-10423 Document: 00515395516 Page: 1 Date Filed: 04/27/2020No. 18

- 10423

2 section 66 , of the Texas Constitution (“Section 66”), which prohibits reducing

or otherwise impairing a person’s accrued service retirement benefits

. Concluding that this case involved important and determinative questions of Texas law, w e certified two questions t o the Supreme Court of Texas regarding Plaintiffs’ Texas constitutional claim

. Degan v. Bd. of Trs. of Dall. Police & Fire Pension Sys. , 766 F. App’x 16 , 17 (5th Cir. 2019) (per curiam). Specifically, we asked (1 ) whether the method of withdrawing DROP f unds is a service retirement benefit protected under Section 66 , and (2 ) whether the Board’s decision to change the withdrawal method for Plaintiffs’ DROP funds violates Section 66. Id. at 20. We stayed Plaintiffs’ federal claim, concluding that their ta kings claim depended on how the Supreme Court of Texas answer ed the certified questions. Id. at 17, 20. The Supreme Court of Texas accepted our certification and recently issued an opinion answering the questions. Degan v. Bd. of Trs. of Dall. Police & Fire Pension Sys. , 594 S.W.3d 309 (Tex. 2020). It held that (1) although Plaintiffs’ DROP funds are service retirement benefits protected by Section 66, the method of withdraw ing DROP funds is not , and (2 ) the Board’s decision to change the withdrawal met hod of Plaintiffs’ DROP
account s did not violate Section 66

. Id. at 312, 317

. We ordered supplemental briefing by the parties on whe ther any further issues remain to be resolved by this court. The parties agree that the se answers dispose of Plaintiffs’ state law claim , but they disagree as to the resolution of the remaining federal constitutional claim

. Plaintiffs argue that they still have a valid claim , arguing both a per se taking and a regulatory taking. We hold that Plaintiffs failed to state a t akings claim because they do not have a property interest in the method of with drawing DROP funds , and thus we affirm the district court’s dismissal of their takings claim. “ The Fifth Amendment

. . . provides that ‘ private property ’ shall not ‘ be taken fo r public Case: 18-10423 Document: 00515395516 Page: 2 Date Filed: 04/27/2020No. 18

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3 use, without just compensation. ’ ” Phillips v. Wash. Legal Found. , 524 U.S. 156, 163

– 64 (1998) ( quoting U.S. C ONST

. amend. V ). Thus, to allege a takings claim, Plaintiffs must have a property interest in their method of withdrawing DROP funds. “[T]he existence of a property interest is determined by reference to existing rules or understandings that stem from an independent source such as state law.” Id

. at 164 (internal quotation marks and citation omitted); see also Van Houten v. City of Fort Worth , 827 F.3d 530, 540 (5th Cir. 2016) (holding that “ the right to public pension benefits in Texas is subject to legislativ e power ” and “ [l]egislative reductio n of such benefits therefore cannot be the basis of a

. . . takings clause challenge ”). Here, Texas law determines whether Plaintiffs have a protected right to their method of withdrawal, and t he Supreme Court of Texas has held that Plaintiffs have no su ch protected right

. Degan , 594 S.W.3d at 312, 317. Because Plaintiffs have no property interest in the method of withdrawing DROP funds , they failed to state a takings claim. 1 Degan makes clear that the situation here is not like that of a government oc cupying a property without compensation. See, e.g

. , T ahoe

- Sierra Pres. Council , Inc. v. Tahoe Reg ’ l Planning Agency , 535 U.S. 302, 322 (2002) (citing United States v. Gen.

1 Plaintiffs contend that because they have a property interest in their accrued DROP funds, this property interest extends to having the right to withdraw from them. But Plaintiffs cite no authority for support; to the contrary, merely limiting an individ ual’s access to a property interest does not constitute a taking. See Andrus v. Allard , 444 U.S. 51, 65

– 66 (1979) (holding that the government’s restriction on an individual’s ability to dispose of his or her private property did not amount to a taking be cause the individual retained other rights associated with his or her property); Matagorda Cty. v. Russell Law , 19 F.3d 215, 224 (5th Cir. 1994) (holding that the “mere delay in exercising a property right” did not constitute a taking). Case: 18-10423 Document: 00515395516 Page: 3 Date Filed: 04/27/2020No. 18

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4 Motors Corp. , 323 U.S. 373 (1945), and United States v. Petty Motor Co. , 327 U.S. 372 (1946) ). 2 Thus, there is no per se taking. Having concluded that this withdrawal is not a per se taking, we briefly address the regulatory taking arguments Plaintiffs make. “ A regulatory restriction on use that does not entirely deprive an owner of property rights may not be a taking under Penn Central [ Transportation Co. v. City of New York , 438 U.S. 104 (1978)].” Horne v. Dep’t of A g ric. , 135 S. Ct. 2419, 2429 (2015)

. Penn Central provided three factors: “(1) the economic impact of the regula tion on the claimant; (2) the extent to which the regulation has interfered with distinct investment

- backed expectations; and (3) the character of the governmental action.” Murr v. Wisconsin , 137 S. Ct. 1933, 1937 (2017). All factors weigh against the Pl aintiffs. Plaintiffs will continue to receive payments to compensate them for the DROP accounts. Further, at the time the Plaintiffs chose their method of withdrawal from their DROP accoun ts, they had only three options: they could withdraw the funds as ( A

) a single

- sum distribution ; ( B ) a monthly annuity based on the member’s life ; or (C) substantially equal monthly or annual payments designated by the member

. See T EX

. R EV

. C IV

. S TAT

. A NN

. art. 6243a

- 1, § 6.14( d ) (1)

– (3) (2 011). They are now subject to o ption B , but that does not support the conclusion that their investment

- backed expectations were “taken.” As far as government al action, this is not a traditional takings claim; there is no invasion of real estate or appropriation of physical property

. See Penn Cent. , 438 U.S. at 124 (concluding that “[ a ] ‘ taking ’ may more readily be found when the interference with property can be characterized as a physical

2 By contrast, temp orary restrictions on what an individual may do with their property

— but where the government does not appropriate it

— are not subject to the same rule. See Tahoe

- Sierra Pres. Council , 535 U.S. at 323

– 24. Case: 18-10423 Document: 00515395516 Page: 4 Date Filed: 04/27/2020No. 18

- 10423

5 invasion”). Texas and the Board are working to save a pension fund by modifying its mechanic s. The goal is to protect the pension fund, including the Plaintiffs’ funds. Thus, this factor also weighs against the Plaintiffs. All told, they have no t pleaded a regulatory taking. We AFFIRM the district court’s dismissal for failure to state a claim

. Case: 18-10423 Document: 00515395516 Page: 5 Date Filed: 04/27/2020