Document: 538 U.S. 216 BROWN ET AL.v.LEGAL FOUNDATION OF WASHINGTON AL. No. 01-1325. Supreme Court of United States. Argued December 9, 2002. Decided March 26, 2003. Every State uses interest on lawyers' trust accounts (IOLTA) to pay for legal services the needy. In promulgating Rules establishing Washington's program, required that: (a) all client funds be deposited in interest-bearing accounts, (b) that cannot earn net an IOLTA account, (c) lawyers direct banks Legal Foundation Washington (Foundation), and (d) use such tax-exempt law-related charitable educational purposes. It seems apparent from court's explanation its a lawyer who mistakenly account money could would violate Rule. That court subsequently made applicable Limited Practice Officers (LPOs), nonlawyers are licensed act as escrowees real estate closings. Petitioners, have by LPOs others sought enjoin respondent state official continuing this requirement, alleging, among other things, taking earned their violates Just Compensation Clause Fifth Amendment, requirement placed is illegal beneficial those funds. The record suggests petitioners' generated some was paid Foundation, but without they produced no either petitioner. District granted respondents summary judgment, concluding, factual matter, petitioners not make any returns accrued and, if could, subject program; that, constitutional issue focused what owner has lost, taker gained, had lost nothing. While case appeal, decided Phillips v. 524 156, 172, held private property principal. Relying case, Ninth Circuit panel program caused unconstitutional remanded determination whether entitled just compensation. On reconsideration, en banc affirmed Court's reasoning under ad hoc approach applied Penn Central Transp. Co. New York City, 438 104, there because suffered neither actual loss nor interference with investment-backed expectations, were taking, compensation due zero. Held: 1. A law requiring otherwise generate earnings "regulatory taking," transferred different legitimate public per se payment "just compensation" client. Pp. 231-235. Amendment imposes two conditions State's authority confiscate property: must "public use" owner. overall, dramatic success programs serving compelling providing literally millions needy Americans qualifies Foundation's distribution use." 231-232. first addresses type involves. jurisprudence concerning condemnations physical takings involves straightforward application rules, while regulatory characterized essentially hoc, inquiries designed allow careful examination weighing relevant circumstances. Tahoe-Sierra Preservation Council, Inc. Tahoe Regional Planning Agency, 535 302, 322. Petitioners separately challenged (1) (2) later transfers Foundation. former merely transfer principal therefore does effect confiscation interest. Even viewed step which should analyzed factors, it clear transaction adverse economic impact did interfere expectation. U.S., at 124. more consistent than Central's analysis. Because "is `private property' principal," Phillips, here akin occupation small amount rooftop space Loretto Teleprompter Manhattan CATV Corp., 458 419, rules. assumes retained ownership least portion escrow deposits until disbursed closings, taken when turned over This end inquiry, however, now determine due. 233-235. 2. measured owner's pecuniary — zero whenever obeyed been violation Clause. 235-241. unambiguous holdings support conclusion rather government's gain. E.g., Boston Chamber Commerce Boston, 217 189, 195. Applying teachings cases question here, petitioner nonpecuniary consequences his funds, losses value public's Thus, zero, also 235-237. Although may occasionally deposit clients, follow need further hearings respondents. unambiguously require non-IOLTA If income, violated Rules, consequence LPOs' incorrect decisions action. Such mistakes give valid claim against LPOs, provide or mandates can client, nil, compensated. 237-240. 271 F.3d 835, affirmed. STEVENS, J., delivered opinion Court, O'CONNOR, SOUTER, GINSBURG, BREYER, JJ., joined. SCALIA, filed dissenting opinion, REHNQUIST, C. KENNEDY THOMAS, joined, post, p. 241. KENNEDY, 253. 1 CERTIORARI TO THE UNITED STATES COURT APPEALS FOR NINTH CIRCUIT. 2 Charles Fried argued cause petitioners. With him briefs Daniel J. Popeo, Richard A. Samp, James Purcell, Donald B. Ayer. 3 David Burman et al. brief Nicholas P. Gellert, Kathleen M. O'Sullivan, Carter G. Stephen Kinnaird. 4 Walter Dellinger Justices Court. Christine O. Gregoire, Attorney General Washington, Maureen Hart, Senior Assistant General.* 5 JUSTICE STEVENS 6 like every Union, provided Some created statute, most States, established pursuant regulate practice law. 156 (1998), involving Texas we "that income principal." Id., 172. We not, express "taken" "as `just compensation,' any, respondents." Ibid. confront questions. 7 * As explained id., 160-161, course practice, attorneys frequently hold clients' various lengths time. long recognized professional fiduciary obligation avoid commingling own, unethical pool several single account. Before 1980 typically non-interest-bearing federally insured checking accounts. federal banking regulations since Great Depression prohibited paying inured institutions. 8 1980, Congress authorized limited category demand referred "NOW accounts." See 87 Stat. 342, 12 U.S.C. § 1832. includes individuals organizations, include for-profit corporations partnerships unless organizations "the exclusive right interest."1 9 response change law, Florida adopted 1981 authorizing NOW used Nation Columbia followed Florida's lead through legislatures highest courts.2 result whereas before today, adoption programs, entities poor. aggregate contributions 2001 apparently exceeded $200 million.3 10 1984, amending Professional Conduct. Adoption Order, 102 Wash. 2d 1101. amendments after years deliberation, during received hundreds comments heard oral argument Seattle-King County Bar Association, designated represent proponents Rule, Walla opponents 11 explaining order, noted earlier "in separate own funds," 1102, lawyer's advantage, address how invested. Commenting then-prevalent observed: "In conformity usually invest clients large enough period time investments economically feasible, is, exceeds bank charges costs setting up However, so nominal short justify cost creating simply noninterest-bearing containing clients. attorney. banks, contrast, interest-free money." 13 then described four essential features program: explained: 14 "1. All firm identifiable non-trust firm. mandatory lawyers. CPR DR 9-102(A). 15 "2. new rule provides kinds bears paid, costs, form each pooled subaccounting much second directly financial institution (hereinafter Foundation), nonprofit entity order following opinion. 9-102(C)(1), (2). 16 "3. Determining bearing benefit left discretion lawyer, specifies shall base decision solely invested positive return considering enumerated factors: expected deposited, administering capability institutions calculate individual 9-102(C)(3). 17 . 18 "5. Lawyers firms depository dividends, service fees, send certain regular reports depositing 9-102(C)(4). 19 "The purposes within meaning section 501(c)(3) Internal Revenue Code, directed court. Articles Incorporation Bylaws 100 2d, Advance Sheet 13, ii, vi (1984)." 1102-1104. 20 responded three objections our inquiry case. First, rejected contention "constitutes process compensation." 1104. Like Courts considered question, distinguished Webb's Fabulous Pharmacies, Beckwith, 449 U. S. 155 (1980), ground "`program creates where none before, thus never set circumstances.'" 1108 (quoting re Interest Trust Accounts, 402 So. 389, 395 (Fla. 1981)). 21 Second, rely factor client's best interests deciding endorsed, added emphasis to, forth proponents' reply brief: 22 "`Although proposed list factors attorney consider ... these really facets question: Can will produce client? so, Only go into account.' 23 "Reply Brief Proponents, 14. correct statement attorney's duty well proper interpretation published comment. even clearer only cannot, circumstances, (after deducting administrative fees) amended accordingly. makes absolutely ultimate profitably can, investment mandatory." 1113-1114. 24 failed significance advances computer technology time, convert participation distributed pointed fact Rule expressly requires consideration added: "Thus, effective become available, making possible increasingly smaller amounts shorter periods rule. self-adjusting adequately accommodate changes running afoul constitutions." 1114. 25 Given depositary Hence, liable interest, however minuscule might be. 26 1995, them (LPOs) closing transactions. lawyers, often temporarily control II 27 action commenced citizens officials Appeals do standing,4 848-850 (CA9 2001), holding limit discussion claims asserted Allen Brown Greg Hayes. defendants, justices receives redistributes president 28 complaint, Hayes describe particular reference activities recipient both allege regularly purchase sell transactions deliver They object having "used finance Recipient Organizations" "to anyone themselves receiving derived funds." App. 25. count complaint alleges "being forced associate First rights, 25, 27-28; "taking" 28-29; third "an 29. prayer relief refund plaintiffs' declaration unconstitutional, injunction enforcement LPOs. 30. 29 Most pretrial discovery related 1995 indirectly lessened longer receive credits escrowed Each petitioners, identify specific 30 Petitioner man named Fossum earnest $2,000 August 14, 1996, $12,793.32 28, connection closed 30, 1996. 117-118. went Presumably half belonged Fossum, sales price, off liens obtain releases title being conveyed." 98. explain exactly recipients cashed checks issued escrowee, parties agree part owned closing. 31 May 1, 1997, $90,521.29 remained days, see 53; he estimated amounted $4.96, place.5 suggests, although facts crystal clear, ultimately 32 After discovery, defendants' motion judgment. matter concluded event client-depositors Indeed, able return, program." C97-0146C (WD Wash., Jan. 1998), Pet. Cert. 94a. "`taker'" "lost nothing." 33 (1998). three-judge proceedings necessary concluded: sum, customers whose trust, government appropriation entitling Amendment. But less taken, nothing, depending determining remedy remand." 236 F. 3d 1097, 1115 (2001). 34 reconsidered banc. 835 2001). majority judgment 104 (1978), regulation permissible. Moreover, majority's view, 35 judges original panel, joined Judge Kozinski, dissented. reliance misplaced "per se" taking. 3d, 865-866. dissenters adhered panel's view remand decide 36 petition certiorari, asked us resolve disagreement between about issue, answer reached, namely, injunctive available render recovery litigation impractical. certiorari. 536 903 (2002). III 37 confirms property, text exercise authority: owner.6 condition unquestionably satisfied. imposed special tax, perhaps system user supported legitimacy money.7 fees representing tenant dispute landlord compelled contribute undermine character "use" Provided she her conscientious pacifist standing formerly production munitions. occasional misuses certainly 38 moving condition, last term: 39 itself basis drawing distinction takings. Its plain language acquires purpose, acquisition condemnation proceeding appropriation. Constitution contains comparable prohibit property. Our old Republic part, jurisprudence, recent vintage `essentially inquiries,' Central, S., 124, `careful circumstances.' Palazzolo [v. Rhode Island], 533 [606,] 636 [2001] (O'CONNOR, concurring). 40 "When physically takes possession categorical compensate owner, States Pewee Coal Co., 341 114, 115 (1951), regardless constitutes entire parcel thereof. mandated leasehold occupies purposes, though temporary. Motors 323 373 (1945), Petty Motor 327 372 (1946). Similarly, appropriates cable TV access apartment tenants, 419 (1982); planes airspace airport, Causby, 328 256 (1946), share small. prohibits landlords evicting tenants unwilling higher rent, Block Hirsh, 135 (1921); bans Village Euclid Ambler Realty 272 365 (1926); Keystone Bituminous Assn. DeBenedictis, 480 470 (1987); forbids airspace, constitute `The courts apply rule; necessarily entails complex assessments effects actions.' Yee Escondido, 503 519, 523 (1992). Loretto, 440; Keystone, 489, n. 18." 321-323 41 challenge (Count III) whatever thereafter II). Conceivably taking" Central. Under analysis, 42 disagree proposition forecloses effected program. focus step, likened kind occurred (1982). 43 Loretto. 44 assume explained, though, inquiry. Instead, IV 45 proscribe property; proscribes Williamson Comm'n Hamilton Bank Johnson 473 194 (1985). Judges confronted agreed cases. 46 cited Justice Holmes' characteristically terse gained." 195 (1910). Also point Brandeis' why mere technical rise compensation: 47 "We occasion President took assumed Marion & Rye Valley Railway. For technically defendant right. Nothing recoverable compensation, nothing company; subjected Government loss." R. 270 280, 282 (1926). 48 few again party put good position pecuniarily taken. He whole more." Olson 292 246, 255 (1934). 49 Kimball Laundry 338 (1949), measure condemned, common "not gets loses." (Douglas, dissenting). majority, Frankfurter given liability good," attributable "his unique idiosyncratic attachment it, police power, properly treated burden citizenship." 5. 50 teaching us, reason, majority8 dissenters9 V 51 Posing hypothetical 52 "Even expect distribute expectation turn out incorrect, discussed above. Several illustrate complexities remedies, development remand. Suppose 5% stays days. earns $.55, probably stamp envelope, along clerical expenses, needed $.55 reasonable charge expense, fair market spending $5.00 hand, suppose, hypothetically, $30,000, $29.59 get exceed expense fund. hard days difference fund earns, companies lose, adds sustain valuable depriving practical entirely undeveloped record. leave remedial phase litigation." 883.10 53 These hypotheticals persuade follow, 54 administered supra, 224-225. Rules. Any conceivable State, finding 55 choice independent work regard Brown's Hayes's protects way operates, nil. There compensated." 861-862. holding.11 VI 56 To recapitulate: taking." use, unnecessary discuss presented certiorari petition. Accordingly, 57 ordered. Notes: Burling Pacific amicus curiae urging reversal. Briefs amici affirmance California Bill Lockyer, California, Frank, Chief General, Matthew Rodriguez, L. Siegel, Supervising Deputy Christiana Tiedemann, Thomas Reilly, Massachusetts, William W. Porter Amy Spector, Attorneys respective jurisdictions follows: Janet Napolitano Arizona, Ken Salazar Colorado, Blumenthal Connecticut, Robert Butterworth Florida, Earl I. Anzai Hawaii, E. Ryan Illinois, Steve Indiana, Miller Iowa, Carla Stovall Kansas, Ieyoub Louisiana, Steven Rowe Maine, Joseph Curran, Jr., Maryland, Jennifer Granholm Michigan, Mike Hatch Minnesota, Moore Mississippi, McGrath Montana, Frankie Sue Del Papa Nevada, Philip T. McLaughlin Hampshire, Samson Jersey, Patricia Madrid Mexico, Eliot Spitzer York, Roy Cooper North Carolina, Wayne Stenehjem Dakota, Betty D. Montgomery Ohio, Drew Edmondson Oklahoma, Hardy Myers Oregon, Michael Fisher Pennsylvania, Sheldon Whitehouse Island, Charlie Condon South Mark Barnett Paul Summers Tennessee, Shurtleff Utah, H. Sorrell Vermont, Darrell V. McGraw, West Virginia, Anabelle Rodríguez Puerto Rico; City San Francisco Andrew Schwartz John Echeverria; AARP Pickering, Seth Waxman, Preston, Jody Manier Kris, Stuart Cohen, Rochelle Bobroff, Schuster, Saunders, Burt Neuborne, Udell, Laura K. Abel; American Association Alfred Carlton, Smith, Rummage; Conference Brian Serr, Days III, Beth Brinkmann, Galanter; National League Cities Timothy Dowling; Associations Cordray, Joanne Garvey, N. Freiberg, Brown; Cornyn, Texas, Long, Caroline Brown, Julie Caruthers Parsley, Hohengarten, Jordan, Schenck. Christopher Home Builders curiae. Letter Federal Reserve Board Counsel Bradfield Middlebrooks (Oct. 15, 1981), reprinted Middlebrooks, Accounts Program: Mechanics Operation, Fla. 115, 117 (1982) Five legislatures. Cal. Bus. Prof. Code Ann. 6211(a) (West 1990); Conn. Gen. 51-81c (Supp. 2002); Md. Occ. 10-303 (2000); N.Y. Jud. Law 497 Supp. 2003); Ohio Rev. 4705.09(A)(1) (Anderson 2000). remaining governed rules State. Ala. Conduct 1.15(g) (1996); Alaska 1.15(d) (2001); Ariz. Sup. Ct. 44(c)(2) (2002); Ark. 1.15(d)(2) (1987-2002); Colo. 1.15(e) Del. 1.15(h) D.C. B(a) 5-1.1 (2002 Supp.); Ga. 1.15(II) Haw. Idaho (2003); Ill. Ind. Iowa Responsibility 9-102 (rev. ed. Kan. 1.15(d)(3) Ky. 3.130, 1.15 La. Ann., Tit. 37, ch. 4, App., Art. 16, Me. 3.6(e)(4) Mass. Mich. Minn. Miss. Mo. 4-1.15 Mont. 1.18(b) Neb. Nev. Sup.Ct. N.J. Application 1:28A-2 N.M. 16-115(D) (June 2002 N.C. 1.15-4 N.D. 1.15(d)(1) Okla. Ore. DR9-101(D)(2) Pa. Conduct, V, S.C. 412 (1990); S.D. 16-18, (1995); Tenn. 8, 9-102(C)(2) Tex. 1.14 Utah Vt. 9-103 Va. pt. 6, II, Wis. 20:1.15 Wyo. (2002) legislature overridden Acts 93 (making optional adding 54.1-3915.1 (2002)). legislation struck down Indiana impermissible encroachment power Public 154-1990, 561 N.E.2d 791 (1990). Later, Remondini, Arrives Indiana: Trial Play Key Role Pro Bono Plan, Res Gestae Likewise, passed Pennsylvania suspending statute IOLTA. Azen, Building Base Law. (Mar.-Apr. 2002). appear suggest analysis legislative one judiciary. 23, 7; Tr. Oral Arg. 50-51. assume, procedure irrelevant issue. asAmici Curiae (citing ABA Commission Lawyers' Handbook 98, 208 (Jan. updated July 2002)). "a policy center members supporters nationwide, [that] devotes substantial resources protecting speech rights undue interference." 13. found alleged amendment adversely affected previously so; "taken." "Q Are you saying place $4.96 transaction? "A Without I anything sense earning company case." 130. Often Clause, final provides: "nor applies GovernmentChicago, Q. Chicago, 166 226, 239 (1897). observed opinion: "IOLTA spread rapidly exceedingly intelligent idea. Money always earnings, IOLTA, produced. extracted gave charities, largely very worthy purpose." (2001) dissent Kozinski wrote: "It doubt true serves salutary support. citizen member bar, applaud state's effort poor disadvantaged." 867 constituted nil." 864 883-884. posed illustrates fundamental flaw SCALIA'S gross recover 2-day $2.00. approach, incur accounting many pennies sellers, equal (which, course, zero). above, inconsistent precedents. Seesupra, Ironically, SCALIA believe bizarre result. Webb's, postage Circuit's (and potential case) clerk's fee $9,228.74, deducted interpleader 157, 160. creditors recovered loss. narrow circumstances case," 164, reserved clerk charged fee. 164-165. mistaken stating "petitioners Post, 244 (dissenting opinion). actually operation Washington. 1101, 1114 (1984) ("IOLTA client"). Contrary assertion, depend "was beneficence program."Post, rests instead 58 whom CHIEF JUSTICE, THOMAS join, dissenting. 59 today concludes seize owners "net loss" confiscated novel exception oft-repeated owed What more, embraces line explicitly precedents compel (IOLTA). contrary. 60 1984 "identifiable 150. "positive return" pays payable (LFW), organization indigent. consent, notify regarding LFW. 151. dismissed now-discredited "property" 158; cf. supra. 61 correctly notes, comprises steps: seizes Ante, 234. one, belongs principal, two, assumes, arguendo, "taking,"1 holds pooling arrangements (step one) place.2 239-240. contravenes effectively refusing treat brushes aside 80 precedent 62 When date appropriated. Acres Land, 469 24, (holding "`market taking'" (emphasis added) (1934))); Kirby Forest Industries, 467 (1984); 564.54 Monroe Pike 441 506, 511 (1979); Almota Farmers Elevator Warehouse 409 470, 474 (1973); Commodities Trading 339 121, 130 (1950); River Collieries 262 341, 344 (1923). 372, 377 condemnor so-called `market value.'" situations standard used: too difficult ascertain, "`manifest injustice'" public. Inc., 10, 63 pretends ascertain asserts falls exceptions determined. proclaims determined loss," endorses simultaneously competing irreconcilable theories measured. agreement 862 2001) ("[W]ithout definition, account"). At same approves minus keep themselves. 238-239, 10. ways realized options lower choose equate 64 theory, because, savings defines separate, ante, ("[I]f [Limited (LPOs)] action"). 65 definition foundation reason. Once 168 ("[A]ny accrue attaches incident underlying principal"). LFW assessed. be, asserts, absent IOLTA's arrangements, happened world exist. LFW, obviously value. devoid giving creation indefensible. 66 Consider implications involved allowed court, discretion, certificates, deemed "`income office circuit court.'" 28.33 (1977)). appellant tendered nearly $2 million filing action, retention $100,000 uncompensated property.3 164. 67 today's analysis? consist place. since, registry deposit, 161. Section 28.33's authorization scheme, state-created opportunity moneys lie fallow. observed, "[i]nterest accrues 28.33. creates." Beckwith 374 951, 953 (1979) added). 68 unanimously scheme's generation come existence license itself. possibly contrary today? Surely look favorably upon nationally emulated (hurrah!) indigent local inspiring courts. surely unprincipled distinction. real, principled remains disclosed. And disclosed, endorsement giveth, taketh away," potentially far-reaching consequences. welfare benefits, los[s]," 237, recipient? Cf. Goldberg Kelly, 397 254 (1970).4 69 calls "private property" An encumbered compatible notion property." True, allows appropriate use"). defend worthless, arrangements. thereby precisely Phillips: "cannot reasonably own." 169 (internal quotation marks omitted); 183 (BREYER, B 70 rival theory fares better. aforementioned description 239-240, declares petitioners," 239, consisting "transaction fees" expended extracting ibid. concept value," cites 235-237, establish consists gained. two. says rightfully fear "windfall" saved based unfounded assumption satisfy returning seized, leaving seek extract 71 event, "property "government's gain" say reducing "net" amount. Remarkably, cite ours specifically context IOLTA-type scheme. flatly reduced sustained retaining 170 ("The rents building prove incurred collecting collected");5 ("It safeguarded [the] Constitutio[n]"). someone's paycheck, deduct governments taxed, repeatedly "market value" "Market taxes exactions. "`[J]ust compensation' means full monetary equivalent taken." Reynolds, (1970). 72 irrationality aspect blatant contradiction (Phillips) promulgated sit today. (rather value") whatsoever pronouncing removing accounts.6 arbitrarily recovering interest" (even compensation) entitled. reason fall class unable nevertheless (who shared first) voted is. 73 confuse confusion yet again, justifies falling back espoused ("Brown actuality seeking program"). conform, announced petitioners." added).7 Assessing "actually earned" IOLTA-generated By undertake reveals facade. below rest (notwithstanding rejection Phillips): virtue 74 75 Perhaps witnessing emergence jurisprudence: Robin Hood Taking, extraction wealth cleverly achieved, larcenous highly favored (taking rich defendants) normal suspended. One hope extend run rationale supporting hath given, freely take away disastrous. 76 respectfully dissent. scheme property,Washington 861 (2001), attempt decision. 235. ruminations satisfies Amendment's requirement,ante, 231-232, surprise, inasmuch nonjurisdictional raised amici. Petitioners' sole Takings 18-48; Reply 1-20. needlessly addressing announces criterion use": "unquestionably satisfied" purpose "special tax" "system fees," 232. reduces negligible impediment indeed, am unaware constitutionally devoted. poor, rich, (insofar concerned) girlfriend retiring Governor. Taxes "takings," Sperry 493 52, (1989), vel non use. raising analogy tax does, usefully call attention offensive devised Court: enacted democratically elected legislature. circumvents politically accountable decisionmaking, purportedly regulating ethics, (The course.) Aseparate 28.24 (1977), 158, Clerk "charges rendered," including 28.24(14). earned, 157-158. sued 28.33, "any interpleaded follows allocated 162. "does program," "rests zero."Ante, 240, omitted). disclaims appealing proximate ground: finds zero" merging all. say, "interest muster toPhillips' suggestion doctrine stare decisis adopts hierarchy: opinions Appeals. "comparable to" (1980). 28.24(14) costs" rendered 157. Here, characterize fashion. companies, seizure earlier, 3, approved disapproved it. 158. quotes "only client."Ante, deleted)). prior declared thisreprise cover embarrassing disposition, assertion independently (thus rendering factually inapplicable), still required, "[a]ny [would be] [lawyer's] decisio[n] action." 239. correct. misbegotten occurs generating otherwise. How got "value." owe included properties scheduled condemnation. relegate remedies party, bizarre. Imagine fruitful principle "intervening fault" fields: "Yes, brutally unlawful search raid street corner drugs distributed. taxi dropped wrong address, Yellow Cab your remedy." authored sets precise, complete, convincing rejecting join full. seem add observation. mandating serve causes prefer, Fourteenth Amendments grants monopoly viewpoints. Had help Congress, acted responsibilities concede 235; 172 free diverse amounts. option views policies choosing. stand opt monopoly. addressed serious there. Abood Detroit Bd. Ed., 431 209 (1977); Keller Cal., 496 Today's holding, then, doubly unfortunate. (the property) likely another (compelled speech). matters course.

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