Opinion ID: 2349793
Heading Depth: 1
Heading Rank: 5

Heading: Interest on Funds Deposited in the Court Registry

Text: We begin with background information relating to the claims for interest. During his oral resolution of issues on July 26, 2000, Judge Mize did not address Mr. Arthur's claim for interest on sums deposited in the court registry (the $14,500.00 in proceeds remaining from the sale of the marital home; and the court-ordered $350.00 paid by Mr. Arthur). Instead, Judge Mize informed the parties that they should file post-trial motions. Neither the District nor Mr. Arthur followed the trial court's suggestion. Rather, the District submitted a brief on the interest issue. And, Mr. Arthur lodged a motion for leave to file a supplemental complaint; this motion was denied. [20] In its September 13, 2000 brief on the issue of interest the District made several arguments. [21] The trial court did not address the District's specific arguments, but in a short order filed on October 4, 2000, agree[d] with the District's [ ] arguments that there is no legal basis for interest to accrue in plaintiffs' favor on the Stipulated Proceeds (or on $350 ordered to be returned to [Mr.] Arthur on August 31, 1999). Because the February 1981 stipulation did not specify interest, Judge Mize concluded the parties waived their right [to interest] by virtue of their signing the stipulation. The order did not mention specifically the constitutional arguments under the Fifth Amendment takings clause, nor the discussion of that issue in a hearing before Judge Bowers on December 19, 1997. In post-appellate oral argument filings, the District maintains that Mr. Arthur did not properly challenge the trial court's order denying prejudgment interest, and Mr. Arthur argues that he did and his main brief on appeal discusses the issue. We are satisfied that Mr. Arthur properly raised and addressed the interest issue in the trial court and on appeal both in his main and reply briefs. Mr. Arthur squarely raised the interest issue in his August 6, 1997, motion for summary judgment against the District, even asserting that the interest earned on the $14,850.00 sum from February 17, 1988 to August 6, 1997, amounted to $8,000.00. And, in his proposed conclusions of law, Mr. Arthur specifically cited Webb's Fabulous Pharms., supra, note 8. He also had asserted the constitutional claim in his earlier March 12, 1999 motion for leave to file supplemental complaint. Count VI of that complaint was styled, Constitutional Violation: 5th Amendment. He claimed a property right in the interest that was earned, or should have been earned, on the registry funds, and alleged that his property has been taken by the defendants ... [without] just[ ] compensation. A virtually identical claim was contained in the supplemental complaint attached to his August 18, 2000 motion for leave to file supplemental complaint. The trial court denied these motions. In considering the arguments by Mr. Arthur, the District, and amici curiae; in reviewing the trial court's short order denying prejudgment interest which does not specifically reflect consideration of all arguments presented to the court regarding interest; and in examining the record as a whole, we conclude that the purely legal question can be resolved in this appeal, but that part of the interest issue must be remanded to the trial court for resolution of such factual questions as: (1) How much interest, if any, has been earned on each of the sums deposited with the Superior Court? What was the amount of administrative costs or bank fees incurred in administering each of the sums deposited? (2) If no interest was earned on the deposited sums, or if interest on these sums was earned only in some but not all of the years since deposit, or if it is impossible to determine how much interest may have been earned on these sums, did the District have a fiduciary duty to see that interest was earned, and that it could be computed? Did Mr. Arthur's delay in or failure to serve Ms. Arthur in 1982, as ordered by Judge Hannon, occasion the difficulty in tracking the funds deposited in the court registry and any interest earned on those funds? To facilitate final resolution of the interest question through the application of pertinent legal principles to the trial court's factual findings, which we review under a clearly erroneous standard, we now address the constitutional Fifth Amendment takings issue since our review of purely legal questions is de novo. See D.C.Code § 17-305 (2001); M. Pierre Equip. Co., Inc. v. Griffith Consumers Co., 831 A.2d 1036, 1038 (D.C.2003) (We review the legal issues de novo. ). Applying the principle of interest follows principal, the Supreme Court of the United States held in Phillips v. Washington Legal Found., 524 U.S. 156, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998) that the interest income generated by funds held in IOLTA [Interest on Lawyers Trust Account] accounts is the `private property' of the owner of the principal. Id. at 172, 118 S.Ct. 1925. However, the court did not address whether there was an unconstitutional taking within the meaning of the Fifth Amendment takings clause. [22] Earlier, in Webb's Fabulous Pharms., Inc. v. Beckwith, 449 U.S. 155, 101 S.Ct. 446, 66 L.Ed.2d 358 (1980), however, a case concerning interest on an interpleader fund deposited in a court registry, the Supreme Court reached the question whether a taking had occurred under the Fifth Amendment. In a narrowly crafted holding, based in part upon the existence of a state statute, the court declared: We hold that under the narrow circumstances of this case  where there is a separate and distinct state statute authorizing a clerk's fee for services rendered based upon the amount of principal deposited; where the deposited fund itself is concededly private; and where the deposit in the court's registry is required by state statute in order for the depositor to avail itself of statutory protection from claims of creditors and others  Seminole County's taking unto itself, under [Florida law], the interest earned on the interpleader fund while it was in the registry of the court was a taking violative of the Fifth and Fourteenth Amendments. We express no view as to the constitutionality of a statute that prescribes a county's retention of interest earned, where the interest would be the only return to the country for services it renders. Id. at 164-65, 101 S.Ct. 446. Not only did Webb's Fabulous Pharms., reinforce [t]he usual and general rule ... that any interest on an interpleaded and deposited fund follows the principal and is to be allocated to those who are ultimately to be the owners of that principal,..., id. at 162, 101 S.Ct. 446 (citation omitted), but it also emphasized that: [A] State, by ipse dixit, may not transform private property into public property without compensation, even for the limited duration of the deposit in court. This is the very kind of thing that the Taking Clause of the Fifth Amendment was meant to prevent. That Clause stands as a shield against the arbitrary use of governmental power. Id. at 164, 101 S.Ct. 446. As its takings jurisprudence has evolved, the Supreme Court has distinguished between two types of takings, a physical taking and a regulatory taking. See Brown v. Legal Found. of Washington, 538 U.S. 216, 233, 123 S.Ct. 1406, 155 L.Ed.2d 376 (2003) (The text of the Fifth Amendment provides a basis for drawing a distinction between physical takings and regulatory takings.). Where there has been a physical taking, or what is sometimes called a categorical taking or a per se taking, just compensation is required in accordance with a clear rule. Id. (When the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner ...) (citing United States v. Pewee Coal Co., 341 U.S. 114, 115, 71 S.Ct. 670, 95 L.Ed. 809 (1951)). In contrast, a regulatory taking, involving regulations that prohibit a property owner from making certain uses of [his or] her private property, id., entails complex factual assessments of the purposes and economic effects of governmental actions, id. at 234, 123 S.Ct. 1406, before ascertaining whether a regulation amounts to an unconstitutional taking requiring just compensation has occurred. See also Tahoe-Sierra Preservation Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 321-24, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002). Where there is a forced contribution to general governmental revenues, and it is not reasonably related to the costs of using the courts, Webb's Fabulous Pharms., 449 U.S. at 163, 101 S.Ct. 446, an unconstitutional taking, which may require just compensation, has occurred. [23] Whether such a taking requires payment of just compensation depends upon the property owner's loss rather than the government's gain. Brown v. Legal Found. of Washington, 538 U.S. 216, 235-36, 123 S.Ct. 1406, 155 L.Ed.2d 376 (2003). Here, as the Supreme Court did in Brown, we assume that [Mr. and/or Ms. Arthur] retain[ ] the beneficial ownership of at least a portion of the [ ] escrow deposits until all the funds [are] disbursed at the [end of this litigation], that those funds [have] generated some interest ..., [24] and that their interest was taken for a public use when it was ultimately turned over to the [D.C. Treasurer]. [25] Id. at 235, 123 S.Ct. 1406. If the sums deposited in the court registry were placed in interest bearing accounts initially, or if the practice of Superior Court prior to 1994 or the court's fiduciary obligations required placing voluntary or court-ordered deposits in interest bearing accounts, Webb's Fabulous Pharms., Inc., supra, note 8, dictates that the interest belonged to the owners of the principal. We are loathe to interpret the silence of February 9, 1981 stipulation between Mr. Arthur and Mr. Kamins concerning interest as a waiver of that constitutional right where its inclusion would have benefitted both parties. Thus, on remand, the trial court must determine factually whether one or the other or both of the Arthurs sustained net losses since any pecuniary compensation must be measured by ... [their] net losses rather than the value of the public's gain. Id. at 237, 123 S.Ct. 1406; see also Schneider v. California Dep't of Corrs., 345 F.3d 716 (9th Cir.2003) (Because the Fifth Amendment does not proscribe the taking of property [but] it proscribes taking without just compensation, on remand the trial court must determine whether the interest earned by [the owner's] principal is exceeded by his [or her] share of the costs of administering the [$14,850.00]). Id. at 720, 721 (citation omitted). In other words, the trial court must find whether there would be any net return on any interest generated by the $14,850.00. Without any factual findings as to the administrative cost required to administer the $14,850.00 sum, or the bank charges imposed, we cannot at this stage of the litigation, determine whether the Arthurs suffered net losses on the sums deposited in the court registry and transferred to the D.C. Treasurer. Accordingly, for the foregoing reasons, we vacate the judgment in this matter and remand the case to the trial court with instructions to address three matters consistent with this opinion: (1) the appropriate standard governing its decision to vacate the entry of default against Ms. Arthur; (2) the question of ownership of the $14,500.00 principal paid into the court registry, and whether Mr. and Ms. Arthur have consented to a partition of their marital property which they acquired as tenants by the entireties and if they have consented, their relative equities in the property; and (3) the determination of how much, if any, interest was earned on the $14,500.00 principal sum and the court-ordered $350.00 security deposited in the court registry and later transferred to the District's general fund, and whether the District had a fiduciary duty to see that interest was earned and computed. So ordered.