Document: 524 U.S. 156118 S.Ct. 1925141 L.Ed.2d 174 Thomas R. PHILLIPS, et al., Petitioners,v.WASHINGTON LEGAL FOUNDATION al. No. 96-1578. Supreme Court of the United States Argued Jan. 13, 1998. Decided June 15, Syllabus * Under Texas' Interest on Lawyers Trust Account (IOLTA) program, an attorney who receives client funds must place them in a separate, interest-bearing, federally authorized "NOW'' account upon determining that "could not reasonably be expected to earn interest for or [that] which might earned . is likely sufficient offset cost establishing and maintaining account, service charges, accounting costs tax reporting would incurred attempting obtain interest.'' IOLTA income paid Texas Equal Access Justice Foundation (TEAJF), finances legal services low-income persons. The Internal Revenue Service does attribute such individual clients federal purposes if they have no control over decision whether do designate will receive interest. Respondents-a public-interest organization having members opposed regularly deposits businessman whose retainer has been so deposited-filed this suit against TEAJF other petitioners, alleging, inter alia, program violated their rights under Fifth Amendment, provides "private property'' shall "be taken public use, without just compensation.'' District granted petitioners summary judgment, reasoning respondents had property proceeds. Circuit reversed, concluding belongs owner principal. Held: 1.Interest held accounts Takings Clause purposes. existence determined by reference existing rules understandings stemming from independent source as state law. Board Regents State Colleges v. Roth, 408 564, 577, 92 2701, 2709, 33 548. All agree law principal client's property.'' Moreover, general rule "interest follows principal'' applies Texas. See Webb's Fabulous Pharmacies, Inc. Beckwith, 449 155, 162, 101 446, 451, 66 358. Petitioners' contention because examples income-only trusts marital community demonstrate not, fact, adhere rejected. These miss point Webb's. Their exception firm basis traditional principles, whereas principles allowing temporarily deposited trust deprived generates. further only it allowed assist cause. They argue prohibits payment funds, but, rather, actually "earned'' private principal's owner. Regardless constitutionally cognizable anticipated generation his any accrue attaches right incident ownership underlying final argument money transferred cannot generate own plainly incorrect requirement "if earned'' insufficient charges obtaining it. It placed interest, but net This indicated physical item lack "property'' status simply positive economic market value. See, e.g., Loretto Teleprompter Manhattan CATV Corp., 458 419, 435, 437, n. 102 3164, 3175-3176, 3177, 73 868. While may economically realizable value its owner, possession, control, disposition are nonetheless valuable rights. Hodel Irving, 481 704, 715, 107 2076, 2083-2084, 95 668. States' implicated here "government-created value'' factually erroneous: nothing create value; created respondents' funds. Federal Government, through banking taxation regulations, imposes citizens attempt exercise Waiver these remitted hardly constitutes value.'' In event, rejected similar Webb's, supra, at S.Ct., 451. Pp. ____-____. 2.This leaves consideration remand question "taken'' State, well amount "just compensation,'' any, due respondents. P. ____. 94 F.3d 996, affirmed. REHNQUIST, C. J., delivered opinion Court, O'CONNOR, SCALIA, KENNEDY, THOMAS, JJ., joined. SOUTER, filed dissenting opinion, STEVENS, GINSBURG, AND BREYER, Darrell E. Jordan, Dallas, TX, petitioners. Edwin S. Kneedler, Washington, DC, amicus curiae special leave Court. Richard A. Samp, Arlington, VA, Chief REHNQUIST 1 Texas, like 48 Columbia,1 adopted program. programs, certain connection with practice bank accounts. generated foundations finance individuals. presented case either Amendment. We hold client. 2 course practice, attorneys frequently required various lengths time. Before 1980, generally non-interest bearing, insured checking all were pooled. provided administrative convenience ready access bearing prohibited banks savings loans paying 12 U.S.C. §§371a, 1464(b)(1)(B), 1828(g). When lawyer large sum client, interest-bearing outweighed inconvenience caused check-writing capabilities. 3 Congress creation Negotiable Order Withdrawal (NOW) accounts, first time permitted pay demand deposits. §303, Stat. 146, amended, §1832. NOW "consist solely entire beneficial one more individuals operated primarily religious, philanthropic, charitable, educational, political, profit.'' §1832(a)(2). For-profit corporations partnerships thus earning ibid. However, interpreting §1832(a), Reserve concluded corporate pursuant charitable organizations "the exclusive Letter General Counsel Michael Bradfield Donald Middlebrooks (Oct. 1981), reprinted Middlebrooks, Accounts Program: Mechanics Operation, 56 Fla. B.J. 115, 117 (Feb. 1982) (hereinafter Reserve's Letter).2 4 Beginning Florida 1981, number moved quickly capitalize change regulations programs. followed 1984. Its issued order, now codified Article XI Bar Rules, providing "nominal short period time'' (an account). Tex. Rule, Art. XI, §5(A); Rules 4, 7 Governing Operation Program. Client considered amount'' "held holding determines 5 "such regard attorney, professional corporation, could client.'' Rule 6. 6 (TEAJA), nonprofit corporation established §§3, 4; 9(a). TEAJA distributes "have primary purpose delivery low persons.'' 10. long account. Rev.Rul. 81-209, 1981-2 Cum.Bull. 16; 87-2, 1987-1 18. Respondents Washington Legal (WLF), Mazzone, William Summers. WLF policy center App. 26. Mazzone admitted maintains into he Id., 82. Summers citizen work requires him make regular use attorney. January 1994, learned was being 85. February petitioners-TEAJF, W. Frank Newton, official capacity chairman TEAJF, nine Justices alleged, taking compensation. 8 judgment proceeds Foundation, 873 F.Supp. (W.D.Tex.1995). Appeals "any accrues principal.'' 1004 (1996). Because split Amendment's Clause,3 we certiorari. 521 ----, 2535, 138 1011 (1997). II 9 made applicable Fourteenth Chicago, B. & Q.R. Co. 166 226, 239, 17 581, 585-586, 41 L.Ed. 979 (1897), Const., Amdt. V. Constitution protects rather than creates interests, "existing stem law.'' 548 (1972). 10 (discussing circumstances "client funds'' account); 1.14(a) (lawyers "shall belonging whole part separate lawyer's property''); see also Brief Amicus Curiae ("There can doubt respondents''). remain freely available demand. As principal, then, most "regulate [the] Yee Escondido, 503 519, 522, 112 1522, 1526, 118 153 (1992). contend State's regulation manner manage amounts property. whom held.4 11 English common since least mid-1700's. Beckford Tobin, Ves.Sen. 308, 310, 27 Eng.Rep. 1049, 1051 (Ch. 1749) (" [I]nterest follow shadow body''). Not surprisingly, become firmly embedded States.5 case, two three judges Texans, rule, citing Sellers Harris County, 483 S.W.2d 242, 243 (Tex.1972) ("The deposit owned parties lawsuit increment owners''). Indeed, 358 (1980), cited demonstrative addressed statute accruing interpleader fund registry court ""shall deemed office clerk circuit court.''' (Emphasis deleted.) 156, 1, 448, (quoting §28.33 (1977)). appellant action tendered issue, nearly $2 million, court. addition deducting $9,228.74 fee "for rendered,'' retained $100,000 authorizing confiscate Clause. explained, "a ipse dixit, transform compensation'' legislatively abrogating "earnings incidents itself U.S., 164, 452. words, confiscatory (as those regulating property), sidestep disavowing interests recognized id., 163-164, 451-453; Lucas South Carolina Coastal Council, 505 1003, 1029, 2886 2900-2901, 120 798 13 Petitioners nevertheless "at elevated level absolute rule.'' 22. several examples, rules, where According another rule. 14 find dispel presumption deference given views within jurisdiction. Bernhardt Polygraphic America, 350 198, 204, 76 273, 276-277, 100 199 (1956). our principles. Permitting distribute designated beneficiary entirely consistent fundamental maxim dispose sees fit. Motors 323 373, 377-378, 65 357, 359, 89 311 (1945) (property "denote[s] group inhering citizen's relation thing, it''). Similarly, governing distribution assets historical pedigree tracing back laws four years after became republic. McClanahan, Community Property Law §3:23, pp. 123-124 (1982). But "background principles'' law, Lucas, 1030, 2901, lead conclusion 15 incomplete explication Reply 11. explain "allowed fixed parties.'' Cavnar Quality Control Parking, Inc., 696 549, 552 (Tex.1985). fail how assists petitioners' government great latitude earned. explained Andrus Allard, 444 51, 66, 318, 327, 62 210 (1979), "anticipated gains ha[ve] traditionally viewed less compelling property-related interests.'' law'' Rather, 9, regardless 16 Finally, "cannot own.'' initial matter, assertion express terms rules. "cost Whether matter some dispute. written, calculation "without attorney.'' provision deny pooling produce when opening each not. agreed portion enforced, necessary pooled concession during oral here. Tr. Oral Arg. 13-16. accept avail 18 never lacks For example, 868 (1982), even infringement arguably increased issue. 15. Our premised longstanding recognition value, 3175-3176; consists so-called exercises dominion thing,'' "as possess, it,'' Motors, 378, 359. issue inhere 2083, 668 (1987) (noting pass on'' "is right''). seize rents received building prove collecting exceed collected. 19 States, curiae, additionally argues 20. disagree. erroneous. product efficiency, economies scale, government. noted above, conceded way (such funds) ethically obligated because: (1) Government generate, 18; (2) for-profit permits TEAJA, Letter. structuring 20 There, argued clerk's authority invest statutorily right, 163, 451-452. argument, explaining mandated accrual mean entitled assume 21 different rendered'' State. 157, 448-449. prohibit imposing reasonable fees incurs generating allocating income. 451; cf. Sperry 493 52, 60, 110 387, 393-394, 290 (1989) (upholding imposition "reasonable "user fee''' utilizing Iran-United Claims Tribunal). indeed cannot, confiscation performed. Unlike safeguarded invested managed attorneys. III 22 sum, view State; nor issues remand. 23 Affirmed. 24 Breyer join, dissenting. 25 holds property' Ante, __. I join today's ruling Court's limited enquiry led announce essentially abstract proposition; assumption abstraction proposition correct statement ultimately turn out significance resolving real raised scheme violates Since sounder vacate similarly broader outlined below, respectfully dissent. 26 recognizes distinct takings claim: asserted plaintiff property, denied compensation taking. careful address questions, ibid., ruled. affirmative answer attributable states, essence, constitutional protection, (1972), 2886, instance relevant said embrace principle earned, ante, __, treats derive directly method management investment produced, __-__. 28 addressing leaving questions later day litigation action, have, however, postponed salient fact relied contesting respondent's Amendment respondent effectively barred receiving subject combination unchallenged regulation, CFR §204.130 (1997); discipline, 10, §9, 1.14(b); interpretations Tax Code, 81-209; 16, contrary emphasize now. rest understanding scope law,1 very regulatory framework prevent IOLTA, did exist.2 course, includes facially inconsistent principal; components structure owns obvious relevance provisions effects results And yet route becomes well, resolve bears ought If should meaning today, zero, then there practical consequence recognizing place; inconsequential abstraction. Cf. Hooker Burr, 194 415, 706, 708, 1046 (1904) (If contractual obligation impaired, obligor "not injured extent penny thereby, unimportant''). structure, compensation, therefore today. 29 Approaching conjunction others would, faithful repeatedly bar see, First Evangelical Lutheran Church Glendale County Los Angeles, 482 304, 315, 2378, 2385-2386, 96 250 (1987); Williamson Regional Planning Comm'n Hamilton Bank Johnson City, 473 172, 194, 105 3108, 3120-3121, 87 126 (1985). makes good sense consider what compensable taking, approach analysis avoid spending theoretical reduce risk placing undue emphasis generalized distort analyses necessarily before known.3 30 That say, here, them. determine remaining resolved respondents; so, resolution favor now, return first. Suffice say both serious ones 31 First, start Penn Central Transp. New York 438 104, 98 2646, 57 631 (1978), guidance about sorts facts particular importance supposed "ad hoc, factual'' enquiry, 124, 2659, "go[ne] too far.'' Pennsylvania Coal Mahon, 260 393, 43 158, 160, 67 322 (1922). Attention nature government's impact, degree interference reasonable, investment-backed expectations. Central, 2659. Here enough note possible occupation seizure tangible 426, 3170-3171, (1982) intrusion "unusually serious'' context); apparent impact (since go pocket, IOLTA); present neither anything resembling (for reason given) expecting certainly proposal departure vindicating circumstances, application bode claimants 32 Second, requirement, inability outside raises entitlement (which, required, convert "taking'' wash transaction standpoint). "Just means full monetary equivalent taken.'' Reynolds, 397 14, 90 803, 805, (1970). seeks claimant ""in position pecuniarily taken.''' 564.54 Acres Land, 441 506, 510, 99 1854, 1857, 60 435 (1979) Olson 292 246, 255, 54 78 1236 (1934)), calculating loss objectively independently claimant's subjective valuation, Kimball Laundry 338 5, 69 1434, 1437-1438, 93 1765 (1949). Thus, deciding award needed enjoyed presumably look putative absence Boston Chamber Commerce Boston, 217 189, 195, 459, 460-461, 725 (1910), consequently measure loss, (or public's) gain, obviously much benefit suggested occur enhanced, Loretto, dealt occupation, rested finding consequences actual enhancement occurred. today suggestion deflect objection lost nothing, observes notion concept equating pocket failing business IOLTA's received. Neither equation, guarantee immune question. 34 But, however someday adjudicated, things clear now: happen, stand 35 guaranteed harmless, again much, beyond spent reaching wary propositions common-law tradition one, abstractions pose peculiar risks. THE CHIEF JUSTICE related context, danger "cutting loose compensation' property.''' Almota Farmers Elevator Warehouse 409 470, 486, 791, 800, (1973) (REHNQUIST, dissenting); 482-483, 798-799 ("While inquiry condemnor valued identical ones, divorced seriously undermining dealing eminent domain''). 36 One wonder skew follow, far unsettle accepted governmental elsewhere. By "actually "earned''' party's __-__, raise possibility challenges whenever parties, does? When, National engaged excessive withholding, refund between withholding issuance refund. reasons unrelated nonrecognition tied seems unlikely practices violate Nevertheless, encourage claims sort. 37 To dangers abstraction, plenary consideration. If, abstract, recast BREYER done join. 38 SOUTER GINSBURG 39 Question Presented funds,'' interest'' "IOLTA program,'' "property lawyer'' i; ("nor compensation''). 40 assumptions: lawyers sometimes small clients' periods time; second, normally third, require where, mixed interest; fourth, distributed groups represent Insofar factual question, requiring depriving funds' owners subsequently undoubtedly property,'' namely, i.e., (appropriately framed) lower courts fashion dictated deprivation and, compensating deprive otherwise latter ---- (SOUTER, dissenting). 42 Although believe wrong stake alleged deprivation, terms. And, majority's assumptions, one. rests truism, principal,'' (1980). my view, truism hypothetical addresses. help assumes differ dramatically ordinarily Ordinarily, capable whoever Here, (because pre-existing law) intervention. expectation Nor excluded, prevented, his. "confiscat[ed]''? 44 right), keep sterile, put productive others. Bd. YMCA 395 85, 92-93, 1511, 1515-1516, (1969) takes property). whatever cases forces confer, him, fruits rendered fertile lawful Cf., ex rel. T.V.A. Powelson, 319 266, 276, 63 1047, 1053, 1390 (1943) (no need "power domain'' creates); Sage, 239 57, 61, 25, 26, 143 (1915) (city added unifying parcels unification impracticable absent domain); Twin City Power Co., 222, 228, 259, 263, 240 (1956) (to "would Thus "interest,'' result barren "follows slogan answers King Diarmed's legendary slogan, " [T]o every cow her calf.'' Birrell, Seven Lectures History Copyright Books (1889) (internal quotation marks omitted). Berkey Third Avenue Railway 244 N.Y. 84, 94, 155 N.E. 58, 61 (1926) (Cardozo, J.) ("Metaphors narrowly watched, starting devices liberate thought, end often enslaving 45 Pharmacies Presented. intervention 156-157, nn. 2, (state party court, claim fee). ensured that, intervention, nothing. places ordinary kind (which unjustifiably keeps) says little barren. virtually tell us belong fruit another. __ (citing (1982); 2082-2083, (1987)). 46 necessary, analogies precedents provide. Land valuation cases, bounded "lost,'' "taker gained.'' (1910) (opinion Holmes, J.); Miller, 317 369, 375, 280-281, 336 [S]pecial excluded element value''); Chandler-Dunbar Water 229 53, 75-76, 667, 676-677, 1063 (1913). suggests current condemned land, highway builds creates. condemnation of, riparian order build dam, rights, electricity dam produce. 76, 677; 226-228, 261-263; Appalachian Elec. 377, 423-424, 427, 291, 306-307, 308-309, 85 (1940). was, purposes, owner's "taking,'' 47 key Presented, "absent "interest'' syllabus prepared Reporter Decisions reader. Detroit Timber Lumber 200 321, 337, 282, 287, 50 499. Ala. Prof. Conduct 1.15(g) (1996); Alaska 1.15(d) Ariz. Sup.Ct. 44(c)(2) Ark. 1.15(d)(2) Cal. Bus. Prof.Code §6211(a) (1990 Supp.1998); Colo. 1.15(e)(2) Conn. (1998); Del. 1.15(h) D.C. 1.15(e) 5-1.1 (1994 Ga.Code Responsibility 3-109, DR 9-102 Haw. Idaho Ill. Iowa Code Kan. 1.15(d)(3) Ky. 3.830 La. Me. 3.6(e)(4) Md. Occ. Ann. §10-303 (1995); Mass. 3:07, Mich. Minn. (1993); Miss. Mo. Mont. 1.18(b) Neb. Acct. 1-8 Nev. Petition Hampshire Assn., 122 N.H. 971, 453 A.2d 1258 N.J. Gen. Application 1:28A-2 N.M. 16-115(D) Jud. §497 (Supp.1997 1998); N.C. 1.15-3 N.D. 1.15(d)(1) Ohio Rev.Code §4705.09(A)(1) Okla. Ore.Code 9-101(D)(2) Pa. (1997) Disciplinary Enforcement 601(d) R.I. S.C.App.Ct. 412 (1988); S.D. 1.15(d)(4) Tenn.Code 9-102(C)(2) re Lawyers' Accounts, 672 P.2d 406 (Utah 1983); Va. Pt. 6, §4, para. Vt.Code 9-103 Wash. 1.14(c)(1) Wis. 13.04, 20:1.15 Wyo. 1.15(II) Indiana implemented Association Petition, 550 N.E.2d (Ind.1990). reasonableness interpretation §1832(a). Chevron U.S.A. Natural Resources Defense 467 837, 844, 104 2778, 2782-2783, 81 694 (1984). Cone Fla., 819 F.2d 1002 (C.A.11), cert. denied, 484 917, 108 268, 225 N.H., 975-976, A.2d, 1260-1261; Minnesota 332 N.W.2d 151, 158 (Minn.1982); 402 So.2d 389, 395-396 (Fla.1981). certiorari [is] lawyer, Amendmen[t] '' Pet. Cert. i. contends improper answered apart questions. Petitioners, petition error alone. Because, 14(1)(a), [o]nly set forth petition, fairly included therein,'' sua sponte SOUTER. E.g., Freeman Young, 507 109, (Ala.Civ.App.1987) earnings omitted)); Pomona School Dist. Payne, Cal.App.2d 512, 822, 823 (1935) [O]bviously accretions owner''); Vidal Realtors Westport, Harry Bennett Assocs., Conn.App. 297-298, 471 658, 662 (1984) ("As attached used profit, profit impounded attaching creditor same ultimate incident'' Burnett Brito, 478 845, 849 (Fla.App.1985) [A]ny interpleaded allocated whomever found principal''); Morton Grove Park American Nat. Ill.2d 353, 362-363, Ill.Dec. 767, 771, 399 1295, 1299 (1980) mere ''); B M Corp. Mine Workers, 501 401, 405 (Ind.1986) fund''); Unified 490, Butler Commissioners 237 697 64, (1985) Pontiac Pontiac, 294 715-716, N.W. 141, 144 (1940) [T]he understood applied merely accounted for''); Highway Spainhower, 504 121, (Mo.1973) ("Interest thereto'' Siroky Richland 271 67, 74, 894 309, 313 (1995) interest''); Bordy Smith, 150 272, 331, 334 (1948) ("Once settled clearly definitely person Montoya, 91 421, 423, 575 605, 607 (1978) accretion it''); Stuarco, Slafbro Realty A.D.2d 80, 82, 289 N.Y.S.2d 883, 885 (1968) (plaintiff accrued despite agreement deposit, precisely thereon''); McMillan Robeson 262 413, 417, 137 S.E.2d 105, (1964) itself''); Des Moines Mut. Hail Cyclone Ins. Assn. Steen, 298, 301, 175 195 (1919) [A]ccruing Educ., Woodward Public Schools Hensley, 665 331 (Okla.App.1983) generates University S.C. Elliott, 248 218, 220, 149 433, 434 (1966) fund, making Laramie One, 884 946, 953 (Wyo.1994) ("In general, owning fund''). highest always supports challenge. (owner costs). hands fiduciary, expense. fall category defining (1972) ("Property interests'' "created dimensions defined law''). respect determination "goes far'' diminishing instructed "parcel divided left demonstrating former complete hence compensable.'' Concrete Pipe Products Cal., Construction Laborers Pension Southern 508 602, 644, 113 2264, 2290, 124 539 130-131, 2662-2663, (1978). With narrow focus read (albeit erroneously, view)

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