Warren E. Burger: We'll hear arguments next in Webb's Fabulous Pharmacies v. Beckwith. I think you may proceed now whenever you're ready, Mr. Alper.
Harvey M. Alper: Mr. Chief Justice, and may it please the Court: The question presented on this appeal is whether or not a state statute which purports to make all interest earned on certain court registry monies, public monies in an ultimate sense, violates the Fifth and Fourteenth Amendments to the Constitution of the United States as well as Article IV, Section 4, thereof.
Speaker: We have a very narrow question, then, here today and, from your point of view, a very simple one.
Harvey M. Alper: Yes, sir, I think so. I think this is a basic property question which could be boiled down in a very few words, Mr. Chief Justice, to a question as follows: is interest earned on monies held by a court property in a constitutionally protected sense within the parameters of the Federal Constitution?
Speaker: Well, haven't we held for a long time that the republican form of government version in the Constitution is a political one and not capable of judicial enforcement?
Harvey M. Alper: Mr. Justice Rehnquist, this Court has so held for a long time. I don't believe that this case will either rise or fall on that particular question, but insofar as Article IV, Section 4 is pertinent to this case, we would ask the Court to consider receding from its position that the Article IV, Section 4 provision is political and give it some judicial life in situations where it may be merited.
Speaker: Was the constitutional issue raised in the trial court?
Harvey M. Alper: We believe it was and we believe that the record will so reflect. There were due process and equal protection arguments made. There was a claim that this statute created a taking without due process of law. Mr. Justice Blackmun?
Speaker: All the Court speaks of is just plain constitutionality, and... as I read your appendix and jurisdictional statement. But in any event, it was raised in the Supreme Court of Florida, was it not?
Harvey M. Alper: Yes, Mr. Justice Blackmun, indeed it was. The facts of the case, if I may deal with them for a moment, are these. Approximately four years ago a pharmaceutical firm in Seminole County, Florida, which is just north of Orlando, found itself in grave financial difficulties. That firm was Webb's Fabulous Pharmacies. Webb's attempted to find a way out other than bankruptcy and towards such end it entered into an agreement with Eckerd's of College Park, a larger, hopefully more solvent firm, for the purchase of the assets of Webb's Fabulous Pharmacies by Eckerd's. That step, that sale, was to be effective pursuant to provisions of the Uniform Commercial Code and in particular Chapter 676.6106, the bulk sales provision of the Uniform Commercial Code. The bulk sales provision as adopted in Florida contains certain optional language, and that optional language as adopted in Florida provides that in the event of a bulk sale, if the claims of creditors appear to exceed the purchase price... which was in fact the case here... the purchaser may interplead, pay into court the purchase price, and in so doing, if an interpleader action is taken and if interpleader is permitted, the statute provides the bulk sales statute.
Speaker: But would it make any difference what kind of a lawsuit was involved if there's a deposit in the registry of the court?
Harvey M. Alper: I think not, but as to this particular case, I think it makes the Appellant's case stronger, because the Uniform Commercial Code, Mr. Chief Justice, provides that if an interpleader is taken, the money "shall be paid into the registry of the court." on court order. Chapter 28, and in particular the statute which we seek here to have held unconstitutional, Florida Statute 28.33, directs that the clerk of the court may hold the money at interest. But interestingly enough in the case before the Court today, prior to the time that the money was paid into the registry of the court, as is clearly revealed in the appendix, the trial court was aware of the fact that the Clerk was asserting a claim to the interest which would be earned, sizeable in light of the principal sum being $1.8 million, and consequently the trial judge specifically directed before the money was paid into the registry of the court that he was reserving ruling on the question of whether or not the Clerk would be entitled to this interest. We add, additionally, that in Florida, pursuant to another statute, 28.24, the clerk received a fee of over $9,200 for holding this money.
Speaker: You're not complaining about that?
Harvey M. Alper: We're not complaining about that, but we believe that that leads to an incongruous result which is that the Uniform Commercial Code which provides in its substance that it exists for the protection of trade, and the Bulk Sales Act, which provides that it exists for the protection of creditors, creates a situation here where, when taken in conjunction with Florida Statute 28.33, the creditors are actually receiving less back from the court than was paid in, despite the fact that in the year's time that the Clerk of the court held this money prior to my appointment as Receiver, there was approximately $93,000 of interest earned on this money.
Speaker: Could they have complied with this statute by depositing in kind the equivalent amount in high yield Government bonds?
Harvey M. Alper: Mr. Chief Justice, I believe that that raises an extremely interesting question to which I don't know the answer. Certainly if what had been paid into court were something other than cash, it would seem that logic and good sense would dictate that the accretions would follow the principal. In other words, if for some reason the court were holding breeding livestock, if the court were holding coupon bonds, something of that nature, it would seem inequitable for the Clerk of the court to clip the bonds and go and collect the interest and keep them for the account of the court. We also believe that, even more egregious, the fact of the matter is that ultimately this money is returned to the general fund of the County. That isn't the matter in dispute. That was conceded in the brief to the Supreme Court of Florida.
Speaker: Well, you're getting something, though, for this money that's being held, that is being taken by the Clerk. You're getting a depositary that is probably absolutely liable in the event of theft or negligent loss. At least I've looked at a Florida case that would suggest that.
Harvey M. Alper: But, Mr. Justice Rehnquist, I would respectfully disagree with that conclusion. Florida has considered that matter in three cases, Fitz v. Watson, Mordt v. Robinson, and another which escapes me at this moment. And in those three cases the court ruled, where in fact money had been paid into the registry of the court and where in fact the banks failed, that the loss of the principal as well as the interest lay on the shoulders of those persons ultimately found entitled to the principal sum.
Speaker: And not on the County or the--
Harvey M. Alper: --or the party paying the money in. It's a law of Florida and as I understand it, it is the general rule, Mr. Justice Blackmun, that when money is paid into court as a matter of equity title passes at the time of payment from the party paying money into the registry of the court, if he asserts no claim thereto, automatically to the person ultimately entitled to that fund even if that person cannot at the time of payment be ascertained with certainty.
Speaker: --I won't burden you with any case citations because I don't claim to be an authority on Florida law, but the paragraph which I have found in Florida Jurisprudence, 2d, says, "Court clerks are generally required by statute to account for all money received by them as public officers." "It would appear therefore that such clerks are unconditionally liable as insurers for the loss of money that comes into their hands because the statutory duty to account is an absolute one." "Thus, an action may be brought against a court clerk by a county in the event that a clerk unlawfully withholds funds from it."
Harvey M. Alper: Mr. Justice Rehnquist, I am not familiar with that citation from Florida Jurisprudence, but I have cited in my brief three Florida Supreme Court decisions. They are, Masser v. London Operating Company, Mordt v. Robinson, and Fitz v. Watson.
Speaker: Are they in your briefs?
Harvey M. Alper: Yes, sir.
Speaker: Well, I don't know that you're so much different. Those cases deal with loss, not by the clerk but by somebody else. The bank failed. He put them in the bank, but I would suppose that if he himself lost it he would still be absolutely liable.
Harvey M. Alper: I suppose, Mr. Justice White, that's correct. But I am thinking that in a sense while the money reposes in the court it is constructively in the hands of the clerk. He is the one who is responsible for those funds.
Speaker: Well, what if the law didn't require an investment of funds in the court's hands and the court didn't invest?
Harvey M. Alper: I think that in that situation there would be no claim to interest because none would have been created.
Speaker: What if the law didn't require an investment but the clerk did invest and earned interest? Then you would be here making the same claim, would you not?
Harvey M. Alper: I believe that the argument could be made, Mr. Justice, that if the investment were made in the discretion of the clerk pursuant to a statute which provided that the money be invested, there might be a slightly different way of looking at the problem than we have here, where the clerk was acting under court order, and we're saying that the court's order would have to take precedence over the statute. But more important than that is what we believe is the ultimate issue, which is whether or not this interest constitutes property in a federally protected sense.
Speaker: Well, would you say that if an order requires investment and he does invest, that you are not only entitled to the interest but to the best interest the clerk could have gotten?
Harvey M. Alper: I believe that the rules governing any fiduciary relationship would apply to a clerk of the court.
Speaker: Sort of a prudent man rule?
Harvey M. Alper: Yes, Mr. Justice.
Speaker: So that if he went into high yield governments, he'd be on pretty safe--
Harvey M. Alper: Well, Mr. Chief Justice, in Florida the fact of the matter is that there are rules in other statutes which have not been cited to the Court which govern the investment of public money. And that is one of the problems in this case, because the Florida Supreme Court declared that this was "public money". The Florida Supreme Court declared, "There is no unconstitutional taking because interest earned on the Clerk of the Court's registry account is not private property." It premised this on the fact, I believe, in my reading of the decisions, that while the money was held by the government, while it was held by the clerk as a representative of Florida government, the character of that money changed from private money to public money. But it should be urged, I believe, that the individual claimants to this fund who at the time numbered somewhere between 200 and 300 had no way of actually going down to the courthouse and applying for their money and getting it promptly. This was so because the validity of the claims was in dispute as were the amounts of the claims. And ultimately there were certain adversary actions taken... this is outside the scope of the record and I'll limit myself, except to say that it was not possible for the claimants to then go to the courthouse and get that which the stakeholder had said was theirs. It also appears from the record that when the stakeholder paid the money into court, Eckerd's of College Park, it paid the money into court with interest, although it was not required so to do. If I may continue with my argument, this Court has long ago stated a principle of basic equity law which we believe is totally applicable here. It was stated through Mr. Justice Johnson in a case styled Himely v. Rose, where he said that interest is to principal as fruit is to the tree. And insofar as the federal courts have reviewed this particular question, we believe that the preponderance of authority is supportive of the position taken by the Receiver, and on behalf of the creditors of Webb's Fabulous Pharmacies.
Speaker: --Well, there is a federal interpleader act. Does that require that the money paid into court, that interest be paid on it?
Harvey M. Alper: Mr. Justice Rehnquist, according to my reading of it, it does not require it, but in at least three circuits it has been held that it is altogether proper for interest to be earned upon this money and if and when earned the money should be paid over to the ultimate recipient of the fund. And the authorities that I would cite to the Court for that are, in the 5th Circuit, which is our circuit in Florida, the case of Talcott v. Allahabad Bank, which was a complex piece of federal litigation heard in Savannah, Georgia, by a judge of the Court of Appeals. His decision, which in part awarded interest... although that was not the only issue... was subsequently appealed to the 5th Circuit. The 5th Circuit affirmed saying that the award of interest was proper. In another case styled Murphy v. Travelers Insurance Company, the 5th Circuit applied the Texas rule because it was subject to the laws of Texas and awarded interest. Those are both cases from the early 1970s. The 7th Circuit in a case styled Brooks v. Woodington said that it was proper to award interest. And the 8th Circuit did so in the case of Baxter v. United Forest Products. There are also decisions cited in our briefs from many lower courts, one out of the, I believe, the Western District of Missouri, where the award of interest has been upheld.
Speaker: Where the clerk has in fact invested--
Harvey M. Alper: --and, Mr. Justice Rehnquist, where he has done so because as in our case the court ordered that the money be held at interest.
Speaker: --Well, but what if under a particular statute there was no requirement that the court or clerk invest it and all you got back was the principal, would you make your same constitutional arguments?
Harvey M. Alper: I don't think you'd have a claim for the simple reason that no interest would have been created. I'm not arguing here today that the rules applicable to interpleader, the common law equity rules and the rules governing the registry of the courts require that money be invested at interest, but rather that when interest is earned, that interest becomes the property of the ultimate owner of the principal, it being a rule of equity and I believe a rule followed by both the federal courts and the majority of state courts that the interest follows the principal as a matter of natural right as well as as a matter of law.
Speaker: Well, is this a new rule in Florida?
Harvey M. Alper: I don't believe I understand the question, Mr. Justice.
Speaker: Well, had the Florida courts held to this effect before?
Harvey M. Alper: There is no contrary case law that I can find in the State of Florida. I believe that in effect this was a case of first impression insofar as it related to interest on private monies held in the court registry.
Speaker: Well, who initiated the case and put the money in the court?
Harvey M. Alper: The case was initiated by the purchaser of the assets of Webb's Fabulous Pharmacies, Eckerd's of College Park, which was a stakeholder. They paid the purchase price into the registry of the court and then--
Speaker: How did they know to do that? Had the creditors--
Harvey M. Alper: --Because the Uniform Commercial Code at 676.6106 provides for that procedure with specificity.
Speaker: --But how, under that Section... is it perfectly clear to everybody... the law doesn't require anybody to go through this procedure, does it?
Harvey M. Alper: This is one way that a purchaser of business assets, where the business, in effect, owes more than it's receiving for its assets, one way where the purchaser can obtain clear title.
Speaker: It's one way also where the creditors can be protected.
Harvey M. Alper: Yes, the purpose of the Bulk Sales Act is to see the creditors get notice. A further purpose of--
Speaker: Suppose this case... suppose this decision had been made by the Florida courts ten years ago, that it was perfectly clear what the Florida law was. Receiver's monies that earn money, or that earn interest, the interest belongs to the public, belongs to the court. Suppose that had been the question ruled before this case was ever started?
Harvey M. Alper: --I would argue, Mr. Justice, that it is a taking of property, to take interest, and if interest--
Speaker: The statute does provide exactly what Mr. Justice White suggests in his question, and how long has the statute been on the books?
Harvey M. Alper: --This statute was adopted in Florida approximately in 1972 or '73.
Speaker: So, for seven or eight years, this has been the law of Florida, so far as the statutory law goes.
Harvey M. Alper: Yes, Mr. Justice. One of the things that this statute says is that the clerk "may" deposit money in interest-bearing accounts. The court has said--
Speaker: But it further says that "all interest accruing from monies deposited shall be deemed income of the Office of the Clerk."
Harvey M. Alper: --That's correct. But it says earlier on, "Monies deposited in the registry of the Court shall be deposited in interest-bearing certificates at the discretion of the Clerk." In this case we believe--
Speaker: Then it says, if he does do that, the income shall be his, the court's, or the property of the County.
Harvey M. Alper: --That's correct. In this case the court acted even before the Clerk had an opportunity, telling the Clerk in advance of receiving the first dollar, as the appendix will reveal, a day before, that this money was going to be held at interest and the court would determine later on whether or not this interest would accrue to the benefit of the Clerk or to the benefit of the court, and--
Speaker: Was there some other device to accomplish this protection for the purchaser and the protection of the creditors?
Harvey M. Alper: --Mr. Justice White, the County will be arguing, I'm sure, in just a few moments that the other device is me. I was appointed as receiver to hold this money for the court and to obtain interest for the court as well as to make distribution to the creditors. However, we think that that is a little... it strains reason, that the court can--
Speaker: I know, but if you have two ways of doing, performing, reaching some end, and one of them requires sacrificing the interest and the other one doesn't, then you choose the former. Are you going to say that the State is committing a constitutional violation?
Harvey M. Alper: --I believe that the State commits a constitutional violation, and we are arguing in this case that the State commits a constitutional violation where in the event there is a crucial--
Speaker: It says "will provide"... and will provide this mechanism to perform this distribution, but the only thing is that we're going to keep the interest.
Harvey M. Alper: --In that situation we say that there is an unconstitutional taking of property.
Speaker: Even though you could have gone to a title company or a bank and deposited the money with them? You didn't have to deposit it in the registry of the Court in order to-- --It could even have been in federal bankruptcy, I suppose.
Harvey M. Alper: Mr. Justice Rehnquist, Mr. Justice White, the Uniform Commercial Code says, "the Court shall require the consideration to be deposited into the registry of the Court." and that's at 676. 106, Subsection 4.
Speaker: If what? It's optional, isn't it?
Harvey M. Alper: That is an option with the interpleader who is seeking to be discharged from the proceedings, a person, the stakeholder, who has no further claim. But at this point the identity of the claimants to the fund may or may not be ascertained with certainty. They certainly are not in the position to protect themselves.
Speaker: So they didn't make any election? The claimants didn't?
Harvey M. Alper: That's correct. The state courts, which have considered this problem, have for the most part, we believe, found a constitutional problem to exist, a due process problem, a problem of taking without compensation, a taxation on the courts. The Texas case of Sellers v. Harris County involved $1 million being interpleaded into the local court in Texas. There was a statute similar to the statute in Florida. The Texas court said that the taking of interest was unconscionable, that the County would profit enormously and unfairly if the litigation lasted for more than a short period of time... half as much money being involved in Texas as was involved in the case here... and as a consequence of that, citing Myles Salt, found there to be a Fourteenth Amendment violation. In a similar case, McMillan v. Robeson County, the North Carolina Supreme Court said that there were constitutional problems, due process problems, where interest earned on registry monies became property of the state without an effort to give notice to the ultimate owners of those funds that the money was there so that they could come into court and "fortify themselves" with constitutional safeguards.
Speaker: Well, doesn't your argument spill over very largely into the probate field too, where there are frequently funds temporarily held in the custody of the court? Wouldn't it require radical revision of some of the probate procedures in the various states?
Harvey M. Alper: I don't personally see it that way, Mr. Justice Rehnquist. There may be great wisdom to what you're saying. It reminds me, though, of a case which we've cited in our brief, Malin v. LaMoure County, where the probate fees in North Dakota were set to depend on how much money was involved in the estate. And a constitutional argument was made that since the fees charged became very, very large as the size of an estate went up, that this was a tax upon access to the courts rather than a fee. And I think that's what we have here. If you have a million dollars at registry earning 10 percent, the tax could be $100,000 a year; $2 million, it could be $200,000 a year without any regard to the benefit which the fund had received. And this is on top of the fact that the Clerk has already received a fee under 28.24 for his services.
Speaker: Now suppose that fee were not on the statute, would your case be different?
Harvey M. Alper: I would still make the same argument. If that fee were not in the statute, we would have a case essentially on all fours with the Sellers case in Texas. In Sellers there was no fee, and the appellate court, the Supreme Court of Texas determined that the proper fashion in which to avoid the constitutional issue, avoid a violation of the Constitution and still treat the clerk fairly, was merely to award the clerk a fair sum of money in consideration of his efforts. We would wish to reserve the balance of our time for purposes of rebuttal, if we may.
Speaker: Could I just ask you, do you think this... a creditor could have put this seller into involuntary bankruptcy?
Harvey M. Alper: This seller did go into involuntary bankruptcy and through an arrangement with the Bankruptcy Court which I don't entirely understand, there were essentially two proceedings, one in the state court, one in the federal court. We distributed the assets--
Speaker: Well, how come the property then... I thought that the Bankruptcy Court inherited the bankrupt's property.
Harvey M. Alper: --I did too, but there was an election made in this case prior to my appointment to permit the state court proceedings to continue to their conclusion.
Speaker: Because if the trustee in bankruptcy took over, then the bankruptcy rules would apply.
Harvey M. Alper: I would agree with you but that did not, in fact, happen. There was a bankruptcy proceeding--
Speaker: Did any creditor try to protect himself from this Florida statute?
Harvey M. Alper: --The creditors were the ones who originally raised this issue.
Speaker: I know. I would think they would, but they didn't attempt to avoid the application of this Texas provision by precipitating a bankruptcy proceeding?
Harvey M. Alper: No. The bankruptcy proceeding, I believe, was precipitated for different reasons with which I am not familiar. Thank you.
Warren E. Burger: Mr. Stewart.
Harry A. Stewart: Mr. Chief Justice, and may it please the Court: The decision of the Florida Supreme Court in this case basically did two things. The first thing it did was it authorized the Clerk of the circuit court to deposit monies that were deposited in the registry of the court in interest-bearing accounts. The second thing--
Speaker: Wouldn't it have satisfied the statute if they had deposited the equivalent amount in high yield government, United States Government bonds?
Harry A. Stewart: --Florida law authorizes that; yes.
Speaker: Then what would the Clerk be doing to earn all this interest for himself?
Harry A. Stewart: I don't understand the question.
Speaker: Well, the Clerk gets quite a large fee under this Florida Supreme Court decision, or he gets a yield, a return for holding this money. Now, if they had deposited that amount in government bonds, all he would have had to do was put it in a safe deposit box in the best bank and once in a while go down and cut coupons. Isn't that right?
Harry A. Stewart: That's correct. However, this is not money that necessarily goes to the Clerk, according to the--
Speaker: No, not to the Clerk, but it goes to... it doesn't go to the creditors or the principals involved in the transaction, does it?
Harry A. Stewart: --No, sir, it does not. And the Florida Supreme Court specifically found the second part of the statute that created the interest, that gave the Clerk the authority, which he did not have before and could not invest without such authority, once they gave him that authority, the second part of that statute dictated the disposition of the funds, the interest that was earned. That, and as I will point out later on, is another rule applied in this Court in the Arnett decision which is cited in the brief, which says that one cannot challenge the constitutionality of an important part of the act while claiming rights and benefits under the same act. And that's exactly what's being done here. The appellant in this case is asking that the Clerk be allowed to put the interest in, just like the Act says and without the Act he couldn't put it in. But he is saying that the disposition that the Florida Legislature made of the funds when they authorized such deposit is unconstitutional. But the Court noted that it was the statute itself that created the authority and it also outlined the method of disposition. The Court found as a matter of law in Florida that these funds are considered public funds and they are not private funds.
Speaker: Well, that's the issue in the case, isn't it?
Harry A. Stewart: That's precisely the issue.
Speaker: This is... by giving it a name the Court can't make it so, can it?
Harry A. Stewart: No, sir.
Speaker: Well, suppose the statute said that in a proceeding of this type the money held shall be deemed to be held by the individual, shall be deemed to be public money and the interest shall be paid to the County? Would that be your idea of due process?
Harry A. Stewart: Mr. Justice Marshall, I believe that the due process as you are outlining it is going to have to have some property attached to it before you can apply the Fifth and the Fourteenth Amendments, and what I'm suggesting is that the Receiver and Appellant in this case is begging the question. He is saying, first, I have property and I've been deprived of it--
Speaker: Well, may I say you are begging the question in answering my question.
Harry A. Stewart: --I'm suggesting, Your Honor, that you have got to come to the conclusion that it is property to begin with, and that's what this statute says that it is not private property.
Speaker: Well, I think $1.8 million could be considered property. Don't you agree?
Harry A. Stewart: Yes, sir, I certainly do.
Speaker: That's what I'm talking about, that in a proceeding of this type the holder of the $1.8 million shall be from this moment on holding government money, public money, the interest of which shall be paid to the government. Would that be due process?
Harry A. Stewart: Yes, sir, I believe it would, because you are creating the very--
Speaker: If that's due process, then you win.
Harry A. Stewart: --You are creating the property which you are ultimately disposing of. The $1.8 million is not in question, it's the interest earned on that property. The $1.8 million was paid back out. If fact, it's important to note that the statutory scheme in Florida was that the money be deposited in the registry of the court, the Clerk would earn interest on those monies, those monies became public monies... the interest only. The court, after one year, when it went in, the court knew of the Clerk's claim. After one year that money came out of the registry of the court and went into the hands of the Receiver and was invested wherever he invested it.
Speaker: How does the interest become public money?
Harry A. Stewart: Because Florida law--
Speaker: Oh, because Florida law says so.
Harry A. Stewart: --defines property. And you've got to look to some manifestation of enactment of a state legislature to determine what your property rights are. Florida law said, when you turn money over to the clerk of the circuit court, he is ultimately responsible for that money. That money becomes public money. They authorize interest to earned on that money and the interest accrues to the benefit of all the people of Florida. That's Florida law.
Speaker: What if they said that the principal also accrues to the benefit of all the people of Florida? Would that be consistent with the Takings Clause?
Harry A. Stewart: No. That would... well--
Speaker: You said it was property.
Harry A. Stewart: --I don't think there's any question that the money going in is property; it is something that the person has a right to, they're turning it over to the court. They have a right to get it back, but they have no right, no unilateral expectation to earn interest. There's no common law right to earn interest on monies, otherwise every lawyer in the United States would have a very serious problem with his trust fund, if his client came in and demanded interest. There's no statutory requirement that they pay interest on trust fund monies. There's no authority for the clerk to invest those monies and earn interest in the State of Florida unless he has statutory authority, which the statute gives him and at the same time says where the interest goes, and characterizes that interest as public monies.
Speaker: Let me pursue that, then. If a client deposits some money with a lawyer and he puts it in an account, a savings account, instead of just a non-interest checking account, whose property is the interest on that account? Does it belong to the lawyer or the client?
Harry A. Stewart: Those monies... under Florida law you may not do that. He has misappropriated that money and can be held liable.
Speaker: If he puts it in the savings account as a trust account?
Harry A. Stewart: Unless he pays the interest of that money.
Speaker: To whom?
Harry A. Stewart: To the owner of the principal.
Speaker: Yes. Well, then... but you don't apply that proposition of law here?
Harry A. Stewart: But there is no statutory authority for him to invest those funds. In fact, he's precluded from doing so. But if he does, he has misappropriated that money unless that money, the interest earned, goes to the owner of the principal. But that's under Florida law. I want to point out, again, that it's very important that you've got to look to the enactment of the state legislature to define what property is here. And the Florida Legislature has said that interest earned on monies in the registry of the Court is not private monies but public monies. This--
Speaker: Did Florida law require that this money be paid into the registry of the court in order for the sale which the parties contemplated to be completed? Or could they have gone about it another way?
Harry A. Stewart: --They not only could have gone about it another way, after one year they did go about it another way. They took the money out of the registry of the court and turned it over to the Receiver who invested the money, at the direction of the court, and the interest earned for the next several years became property of the ultimate owners of the principal. But if the Court utilizes the statutory vehicle which is provided to earn interest on that money through the clerk of the court, then they've got to use the statutory vehicle that that same statute requires for the disposition of the interest earned.
Speaker: But you also want the other fee too?
Harry A. Stewart: Excuse me?
Speaker: You also want the $9,500 fee too? $9,200?
Harry A. Stewart: Yes, sir, that's an entirely different fee for the setting up of the account and for the disposition of the case itself. That's a separate fee. In this case, as I pointed out, the Clerk is absolutely liable for mishandling of the funds. The greater the amount of the funds that he handles, the more liability he incurs.
Speaker: Well, the greater the amount of the funds he handles, the greater the amount of the other statutory fee also.
Harry A. Stewart: That's correct. That's under Florida law.
Warren E. Burger: We will resume there at 10 o'clock tomorrow morning, counsel. We will resume arguments in No. 79-1033, Webb's Fabulous Pharmacies v. Beckwith. You may proceed whenever you are ready, counsel.
Harry A. Stewart: Mr. Chief Justice, and may it please the Court: The case before this Court that we started yesterday presents a very simple question. That question, is interest earned on money in the registry of the court in the State of Florida private property which can be afforded the protections of the Fifth and Fourteenth Amendments to the United States Constitution? Construing Florida law, the Florida Supreme Court said, no, that it is not private property, that it is in fact public monies, referring to the interest. There is no common law right to earn interest on monies. If you earn interest on money, you've got to look to a statutory right or a contractual right. The general rule is that if interest is earned, it will follow the principal unless otherwise provided. Florida provides otherwise. The statutory scheme in Florida says that the government will benefit from that interest and it will go to the benefit of all the people. That statutory scheme does not interfere with the judiciary in any way. It does not present any anti-republican problems for this Court to be considering. In the jurisdictional brief that I presented to this Court, I represented that that particular argument raised by appellant, that it violates the separation of powers, was not properly raised before the Florida Supreme Court. The question must be specifically raised and stated with specificity. The question before the Florida Supreme Court and the one that they answered in paragraph 5 of their opinion stated that the separation of powers doctrine was not violated as it applied to the Florida Constitution. The allegations made were that the separation of powers was violated according to the Florida Constitution and other similar provisions. That does not meet the rule for bringing to this Court a question of whether or not it violates the United States Constitution. The cases in that area, however, all talk about one branch of government usurping or invading the powers of another branch. That's not what happened in this case. The law in this case says that the money is in the registry of the court, it earns interest, and that interest goes to the County. The court in that case attempted to utilize that statutory provision by picking and choosing those parts that it liked and ignoring the parts that it didn't like. If there were any usurpation here, it was by the judiciary and not by the legislature. The court finally exercised its inherent power, took the money out of the registry of the court, put it in the hands of the Receiver, where then the interest on the money, on the principal that was put into the registry of the court in this interpleader action, went to those people who were ultimately decided to be the owners of the principal.
Speaker: I think I put a question to either you or your friend yesterday. I'd like to go back to that. Suppose they had put, deposited physically high yield government bonds paying 8, 9, 10 percent and there were no services that needed to be performed, no investment of the property, just a matter of keeping them in a secure place, the Florida statute would operate on the coupons that were clipped?
Harry A. Stewart: No, sir, it would not. It applies only to monies, and it specifically says, monies. If it were held in custody, simply the bonds, the physical bonds themselves, whatever coupons would accrue or interest would accrue would go with the bonds. But if money is deposited and the statute specifically speaks to money, then interest earned on that money must go to the County, or accrue to the benefit of the clerk and pass it through to the county.
Speaker: Mr. Stewart, your opponent here sues here on behalf of the Receiver for the creditors, does he not?
Harry A. Stewart: Yes, sir, Mr. Justice Rehnquist. In fact, my opponent here is the Receiver.
Speaker: He is the Receiver. And under Florida law does his fee for services as Receiver come off the top, so to speak, regardless of whether the creditors are paid in full or not?
Harry A. Stewart: That's my understanding of the law; yes, sir. The problem in this case was, as I pointed out, the court attempted to utilize a statutory vehicle selectively. The court had the power, the inherent power all the time to put the money with the Receiver and earn interest for the benefit of the creditors. If equity demands it... and in this case it probably did, but it was the judge who didn't take action until one year after the monies had been in the registry of the court... if equity demanded that interest be earned on as huge a sum of money as this was, $1.8 million, that judge should have at that time not left the money in the registry of the court but ordered that money in the hands of a receiver to earn interest for the beneficiaries, for the creditors. The question basically is, what constitutes property rights? This Court in 1945 in the case of United States v. Willow River Power Corporation indicated that not all economic interests are property rights. Only those economic advantages are rights which are backed by law. The case most often cited for the rationale for determining property rights which are properly protected by the Fifth and the Fourteenth Amendments is the case of Board of Regents v. Roth. This Court said that property interests are not created by the Constitution, rather they are created and their dimensions are defined by existing rules or understandings that stem from an independent source, such as state law. In this regard I would suggest that appellants' brief and the argument before this Court is more important for what it does not say than for what it does say.
Speaker: Do you think a state may simply define property in any way it wants to free of any inhibitions of the Federal Constitution?
Harry A. Stewart: No, sir, I don't believe that's the case. But I believe in a case where you have absolutely no common law rights, where you must look to a statutory right, or a contractual right, that that would be the case. Unless there was a common law right to property that you can show, then you must look to the statutory rights which would be created by the state legislature or some contractual right. Receiver does not say that there was a common law right to interest because there is no common law right to interest. He does not point to a federal statute which allows him interest or gives him a right to interest, because there is no such statute.
Speaker: No, but here there was interest, that's the point.
Harry A. Stewart: Yes, sir. Yes, there certainly was.
Speaker: There was in fact interest even though he... perhaps the Clerk of the court was not under any duty to invest the monies in a way that would create interest, but here he did.
Harry A. Stewart: Yes, sir, he did.
Speaker: So we're really talking about to whom does that interest constitutionally belong, when in fact there was interest.
Harry A. Stewart: Yes, sir, there was. $92,000 worth. That sum now is in excess of $100,000 because the interest--
Speaker: In state law, the state legislature can't just by calling something public money take private property without compensation for it. He couldn't just take somebody's house in Florida and say, hereafter John Jones' house will be public property. He's just got to pay John Jones if he wants to take it, under the Constitution.
Harry A. Stewart: --Mr. Justice Stewart, I agree with that wholly, that they may not do that. In this case they did not do that.
Speaker: No, but it doesn't really answer the problem here to say, well, this is public property, does it? Under federal law?
Harry A. Stewart: What we're looking for is a definition of property and we're going to have to go to the cases where this Court has construed that definition of property. If I own a home, I have a common law right. There is a right.
Speaker: Well, if I own money I have a common law right to keep it.
Harry A. Stewart: That's correct. You have no common law right to earn interest on that money, to have interest paid on that money. You have a statutory right and a contractual right.
Speaker: But don't I have a common law right to keep that money if I get it?
Harry A. Stewart: Yes, sir, you do; yes, sir.
Speaker: Well, here he didn't get the money.
Harry A. Stewart: Well, that's not the question here. The question is, did the person that had the money--
Speaker: Didn't you say yesterday that the state can say that that whole $1.8 million, the state can take that if they want it?
Harry A. Stewart: --No, sir, I did not say that.
Speaker: Well, you said it was public property.
Harry A. Stewart: I said that the state could not take that without paying just compensation for it because that is--
Speaker: Well, how could he take the interest?
Harry A. Stewart: --Because there is no right to earn interest. The statute created the interest.
Speaker: The statute created the interest?
Harry A. Stewart: The statute created the vehicle through which the interest was earned. Without the statute--
Speaker: And the vehicle was the taking of the property, the $1.8 million.
Harry A. Stewart: --No, sir, that was an alternative that was exercised--
Speaker: Who owned that $1.8 million during the time?
Harry A. Stewart: --Eckerd of College Park, who was purchasing Webb's Fabulous Pharmacies.
Speaker: And when it was put in the registry of the bank, it became state property.
Harry A. Stewart: That was an option that they had, to put it in the registry of the court in interpleader, which they did.
Speaker: My question was, it became state property?
Harry A. Stewart: Yes, sir, according to Florida Statute that became--
Speaker: Could the state take it?
Harry A. Stewart: --No, sir, not without just compensation.
Speaker: Well, what other state property can the state not take?
Harry A. Stewart: Real property, sir. Any property in which you have a statutory right, any real property or any property defined by Congress.
Speaker: Well, but then it's not really the state's property to do what it wants with it, is it? Is it?
Harry A. Stewart: The question here... no, sir.
Speaker: But it can do one thing, it can take the interest.
Harry A. Stewart: It can invest that money. The Clerk could not invest that money without statutory authority. We're talking about interest that was earned that may not otherwise be earned.
Speaker: Well, could the state have said that you could do it? That you could collect the interest on that property and keep it?
Harry A. Stewart: That I could do it?
Speaker: Yes, sir.
Harry A. Stewart: Well, the state doesn't say that. It says that if you are using the registry of the court, if you are using a public official, when you give that public official money, then you are utilizing that state public official and that that money becomes public money and he is responsible for that money.
Speaker: And you paid $9,000 for that.
Harry A. Stewart: That's not necessarily so.
Speaker: No?
Harry A. Stewart: That is a fee that you must pay, yes.
Speaker: That's right. And in addition to that you... I hate to use the word... confiscate the interest.
Harry A. Stewart: Absolutely not. That's not a proper word at all.
Speaker: Well, what do, is "cheat"?
Harry A. Stewart: No, sir, that's not a proper characterization either. A proper characterization is--
Speaker: Well, "take". Is "take" a good word?
Harry A. Stewart: --The property was not taken.
Speaker: The interest wasn't taken?
Harry A. Stewart: The interest was decided by the Florida Supreme Court to be public money.
Speaker: Wasn't the interest taken?
Harry A. Stewart: The money was put into the registry of the Court, Justice Marshall, by Eckerd Pharmacy. That was an option they had. The money could have been handled by the Bankruptcy Court; the money could have been handled by the Receiver initially, in which the rules of the court would apply... in the former the rules of bankruptcy would apply. They opted for this particular remedy and when they do they must follow the statutory requirements in order to exercise their right under that remedy.
Speaker: May I ask you a question about the statutory requirements?
Harry A. Stewart: Yes, sir.
Speaker: As I understand it, it's the statute in Appendix B to your opponent's brief, Investment Accounting Funds... 28.33, which provides that the clerk shall make an estimate of his projected financial needs and shall invest funds in designated depositories. Now, as I understand it, the funds described in that statute include those funds that a private party deposits with the Clerk. Does it therefore mean that the Clerk could use those funds for the general purposes of the County? Because they come within the statutory description of all funds subject to his control, which are to be invested in a particular way?
Harry A. Stewart: No sir, he may not.
Speaker: Why not? What's to prohibit that?
Harry A. Stewart: The funds are put in, into the registry the court has.
Speaker: More specifically, could he commingle those funds with county funds? And if not, why not?
Harry A. Stewart: He cannot commingle them with county funds which may be spent for general county purposes--
Speaker: Why not?
Harry A. Stewart: --because the statute specifically requires that these be kept in a separate fund, but that they be invested. Then, at the end of every year, at the end of every calendar year--
Speaker: This statute doesn't require separate accounting for deposited funds.
Harry A. Stewart: --No. Others do.
Speaker: So there are more statutes that control this case than the one in the--
Harry A. Stewart: Yes, sir.
Speaker: --I see. Could the Clerk make any use of the money that's deposited with him, other than to earn interest by it, by its deposit?
Harry A. Stewart: No, sir.
Speaker: Could he pledge it or anything like that?
Harry A. Stewart: No, sir.
Speaker: But he can make one use of the private parties' funds?
Harry A. Stewart: That's correct. I'd like to point out to the Court that a number of cases have been cited for the proposition that interest should go to the successful litigant. I would suggest to this Court that they fall into two categories. One is that there is no state or federal statute involved, and in that case, and in every case cited where they fall into that category, the courts followed the general rule, that is the interest followed the principal. That's in the absence of a state or federal statute. And in all of the other cases, every case cited, the state statutory scheme was followed. That was the other category; it was where the cases fall where there is a statutory scheme. For instance, in the case of Sellers v. Harris cited by Appellant, the Supreme Court in that case looked at two articles in the State of Texas. One was a general... characterized and I quote, "General Statute on Public Monies". The other was a comprehensive... I quote again... characterized by the court as a "comprehensive statute" for handling trust funds. The court in that case decided that these monies are trust funds and applied the proper statutory scheme to them. In the other cases... and, for instance, Metropolitan Water District of Southern California v. Adams, in that case the interest didn't go to the successful litigant. The interest went to the depositor of the original funds. That case... if that case were followed, the person, the proper party to get the interest would be Eckerd's, not the Receiver. Because what happened there, it was a condemnation case. The Water District put money into the registry. The successful litigants were those people whose properties were taken; they took their money out. While it was there it earned interest. It didn't go to the property owners. It went back to the Water District. That was the court's version in Metropolitan Water District. And the other cases are the same. The court found a statutory scheme to follow and they followed such a scheme. Appellant has shown what the federal courts have done in the absence of a general statute. He has cited various states to show how the states handle the same problem. It becomes painfully obvious that state statutory schemes vary quite broadly, just as property rights vary from state to state. Water right, for instance, in Texas, are... almost--
Speaker: Counsel, do you happen to know, because I don't find in the briefs, the citation of the Florida statute that requires the clerk to keep these funds separate?
Harry A. Stewart: --No, sir, right off hand I do not.
Speaker: It's not cited in the briefs or the opinion of the court.
Harry A. Stewart: No, sir. At the time that was really not a question. The question was... that we have addressed, I believe, exhaustively... is whether it is property or not, to make that determination. I believe that's the key here. But again, property rights in the various states vary widely. For instance, as I pointed out, water rights in Texas are almost diametrically opposed to the same right in Florida. Appellant wasn't in a Texas court, he wasn't in a California court, he wasn't in an Oregon court, he was in the Supreme Court of Florida, and that court characterized the money under Florida law as public money.
Speaker: But if he had had a million dollars, in whatever of the 50 states he was, a state court couldn't conclusively characterize it as public money, could it?
Harry A. Stewart: No, sir.
Speaker: There comes a point at which it is property whether the state court says it's property or not.
Harry A. Stewart: The problem with this case is that this is pre-judgment. There's no determination as yet by the court as to who owns the money. So the money when its goes into the registry of the court in that instance is pre-judgment. All of the cases that say that interest goes to the owner of the fund, they are post-judgments, where the principal has been determined and the court is holding it for the owner. In those cases interest--
Speaker: The one thing that's clear is that it's not owned by the Clerk of the court, isn't it? That much is clear.
Harry A. Stewart: --I'm sorry, I didn't hear.
Speaker: The one thing that is clear is the money is not owned by the County.
Harry A. Stewart: That's correct. I would suggest that this Court has said what constitutes property for purposes of the Fifth and Fourteenth Amendments and the Court has said that it's a matter for the states to determine. Florida has characterized the money in question here as public and not private, and therefore found no taking. This Court should respect the right of the Florida Legislature and the Florida Supreme Court to say what is property in Florida. Florida law creates the property, the U.S. Constitution protects the property, not vice versa. Thank you.
Speaker: Mr. Stewart, before you sit down, I have one little trouble with your statute. This is a sentence from 28.33: "Monies deposited in the registry of the court shall be deposited in interest-bearing certificates." Now, if it stopped there, there would be compulsion to make it productive. But it goes on to say, "at the discretion of the clerk." I think there were remarks made yesterday that there was no obligation on the part of the Clerk to invest. What do the words, modify? I would have thought on first reading that it meant that he had discretion in the investments he selected and not in the duty, whether to invest or not.
Harry A. Stewart: Mr. Justice Blackmun, that is my interpretation and I believe the court's, the Supreme Court of Florida's interpretation of that statute, that he shall invest the money. The discretion is where he invests it. There are a number of things under Florida law that allows him to invest it in different types of securities, in bonds or--
Speaker: In other words, there is a mandate to invest and--
Harry A. Stewart: --Yes, sir.
Speaker: --the discretion is as to the selection of the investment?
Harry A. Stewart: Yes, sir. The modification--
Speaker: I think there were remarks made yesterday, perhaps by your opponent, that there was no duty to invest.
Harry A. Stewart: --I believe you're correct.
Speaker: Well, you told us that this morning. You've told us that this morning, have you not, that there is no duty on the Clerk to invest the monies that are paid into the registry of the Court?
Harry A. Stewart: No, sir, I don't believe so.
Speaker: Well, I misunderstood you, then. But in any event your position now is that he must invest?
Harry A. Stewart: The statute says he shall, and then it's modified, with the modification I believe as to the clause that follows, and that is where the monies get invested.
Speaker: Okay. Maybe Mr. Alper will have something else to say on that.
Warren E. Burger: Mr. Alper.
Harvey M. Alper: Mr. Justice Blackmun, to respond to that for a moment, looking at the decision of the Supreme Court of Florida, the Florida Supreme Court said, "It is the statute itself which gives the authority to the Clerk and outlines the method of disposition." So I believe, insofar as the question of whether there was a requirement or an option to investment, that helps. I believe that the statute by plain reading indicates that the Clerk may invest at interest but is not so required. As far as the characterization--
Speaker: I take it then, you are in disagreement on this. Maybe it isn't very important, but I take it there is no authoritative Florida decision?
Harvey M. Alper: --To our knowledge, Mr. Justice Blackmun, that is correct. I would also suggest to the Court that special consideration given to this statement by the Florida Supreme Court: "These funds are considered "public money" from the time they are deposited in the general registry of the court to the time they leave the account." I would point out as well, that in condemnation cases in Florida, Florida follows the rule set out in the case of Sarasota v. Burch, that interest on condemnation monies follows the principal.
Speaker: Let me ask at this point, suppose these were clearly county funds, wholly apart from Eckerd's and Webb's and so forth. And the county had an excess of funds, $1 million. Must the clerk invest it?
Harvey M. Alper: Mr. Justice Blackmun, I don't know, and I have never been asked that question before. I would suggest to the Court in closing that the situation here is analogous to love and marriage. You can't have one without the other. You can't have principal without interest, you can't have love without marriage. It's true that you can have physical love without the benefit of marriage and that you could have principal without benefit of interest, but if there's going to be a marriage one has to have love to sustain it, and if there is going to be interest one must own the principal to receive it.
Speaker: Well, Mr. Alper, in your receivership presumably there are monies invested with banks or in securities that will eventually bring some return over and above the principal they started out with. Now, in the final accounting of the receivership, won't the accountant and the receiver and the attorney be paid right off the top to the frequent, not necessarily detriment, but so that the creditors may not even receive their entire principal?
Harvey M. Alper: Mr. Justice Rehnquist, I have already distributed to the creditors the bulk of the estate. My fee was a small portion of the amount of interest which was earned on it during the time that I held it, so that the creditors benefited from the money being held outside the court in that they received a portion of interest.
Speaker: Isn't it possible, though, under Florida receivership statutes or any other receivership statutes, that a receiver, accountant, lawyer, anyone else who aids in the costs of administration of a bankrupt estate or receivership estate will get paid first so that the creditors get only a portion of the principal and no interest, even though there may have been interest earned?
Harvey M. Alper: Mr. Justice Rehnquist, that is possible. I don't know that it is applicable to this particular case, but it is indeed possible. Thank you.
Warren E. Burger: Thank you, gentlemen. The case is submitted.