Schneider v. California Dept. of Corrections

• Decision Date: 04 August 1998
• Docket Number: No. 97-15820,97-15820
• Citation: 151 F.3d 1194
• Parties: 98 Cal. Daily Op. Serv. 6089, 98 Daily Journal D.A.R. 8471 Paul John SCHNEIDER; Todd Lewis Ashker; Brian Devlin Healy; Steve Olivares; Dwayne McElwee; Earl Wilson; Anthony Lee Likai; Daniel Demarco; Michael Ray Hanline; Katherine Caldwell; Theresa Fredericks, and Rick Terflinger, Plaintiffs-Appellants, * v. CALIFORNIA DEPARTMENT OF CORRECTIONS; James Gomez, in His Capacity as Former Director of the Department of Corrections, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1194

151 F.3d 1194

98 Cal. Daily Op. Serv. 6089, 98 Daily Journal

D.A.R. 8471

Paul John SCHNEIDER; Todd Lewis Ashker; Brian Devlin

Healy; Steve Olivares; Dwayne McElwee; Earl Wilson;

Anthony Lee Likai; Daniel Demarco; Michael Ray Hanline;

Katherine Caldwell; Theresa Fredericks, and Rick

Terflinger, Plaintiffs-Appellants, ^* v. CALIFORNIA DEPARTMENT OF CORRECTIONS; James Gomez, in His

Capacity as Former Director of the Department of

Corrections, Defendants-Appellees.

No. 97-15820.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 12, 1998.

Submission Deferred March 23, 1998.

Resubmitted July 1, 1998.

Decided Aug. 4, 1998.

Herman A.D. Franck V, Franck & Associates, San Francisco, CA, for plaintiffs-appellants.

Allen R. Crown, Deputy Attorney General, San Francisco, CA, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California; Susan Illston, District Judge, Presiding. D.C. No. CV-96-01739-SI.

Before: SNEED, WOOD, ^** and O'SCANNLAIN, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

We are asked to decide whether the California Department of Corrections' policy of withholding from prisoners the interest that is earned on their inmate trust accounts contravenes the Takings Clause of the Fifth Amendment.

I

The appellants are inmates currently and formerly incarcerated at several California state prisons. For security reasons, inmates are not permitted under California law to possess money while in prison. See 15 C.C.R. § 3006(b). The California Department of Corrections ("State") has therefore established two separate types of trust accounts into which prisoners may place personal funds during their incarceration. The first, an Inmate Passbook Savings Account ("IPSA"), is administered by Bank of America, and pays interest directly to the inmate. The second, an Inmate Trust Account ("ITA"), does not pay interest to the inmate. Each prisoner has the option of authorizing the State to establish and maintain an ITA on his behalf, but he is not required to do so. See 15 C.C.R. § 3075.1(d)(3) ("CDC Form 345"). There are, however, two obvious incentives to establish an ITA. First, in order to set up an IPSA interest-bearing account, an inmate is required to maintain an ITA with a minimum balance of $25.00. Second, and more significantly, only those funds placed into an ITA are available to the inmate for purchases in the prison canteen, such as soap and toothpaste. CDC Form 345, which a prisoner must sign in order to set up an ITA, specifically provides: "I authorize the Director of Corrections to maintain a trust fund account in my name, thus enabling me to make purchases from the canteen. I also understand that if I do not complete and sign this form, my canteen privileges will be lost." Id.

There is, on the other hand, also a distinct disincentive to maintain an ITA. The California Penal Code specifies that any interest earned on inmate funds placed in ITAs shall be allocated, not to the prisoners themselves, but rather to the "Inmate Welfare Fund." See Cal.Penal Code § 5008. In fact, in signing CDC Form 345--the same form that sanctions the establishment of an ITA--a prisoner expressly "authorize[s] any interest earned on monies held for [him] in such trust [to] be deposited into the Inmate Welfare Fund." 15 C.C.R. § 3075.1(d)(3). According to California law, funds placed in the Inmate Welfare Fund "shall be used for the benefit, education, and welfare of inmates of prisons and institutions under the jurisdiction of the Department of Corrections," including but not limited to the establishment and maintenance of prison canteens and hobby shops. Cal.Penal Code § 5006.

To summarize, then, an inmate must maintain an ITA in order to purchase items in the prison canteen. However, as a matter of California statutory law, the inmate cannot himself collect any interest earned on funds placed in his ITA. A prisoner, as the appellants put it, "has one choice: canteen or interest. Not both."

The prisoners who are parties to this controversy filed suit in federal district court pursuant to 42 U.S.C. § 1983, arguing that the State's policy of not paying interest on inmates' ITAs constitutes a taking of private property for public purposes in violation of the Fifth and Fourteenth Amendments. Rejecting the prisoners' contention, the district court dismissed their suit without leave to amend:

[T]he Court finds that inmates in California do not have a protected property interest in the interest income earned on Inmate Trust Accounts and that they are not deprived of earning interest on their funds because they can elect to place their money in a Passbook Savings Account. Therefore, the Court concludes that plaintiffs have not stated, and cannot state, a claim for violation of the Fifth Amendment Takings Clause.

Schneider v. California Dep't of Corrections, 957 F.Supp. 1145, 1149 (N.D.Cal.1997). After the district court denied the prisoners' application for leave to file a motion for reconsideration, the prisoners timely appealed.

II

A dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) is a ruling on a question of law that we review de novo. See Cohen v. Stratosphere Corp., 115 F.3d 695, 700 (9th Cir.1997). In examining the district court's Rule 12(b)(6) dismissal, we must "take as true all allegations of material fact stated in the complaint and construe them in the light most favorable to the nonmoving party." Warshaw v. Xoma Corp., 74 F.3d 955, 957 (9th Cir.1996). As the Supreme Court has stated, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence in support of the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Rather, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

Our review in this case is even more searching than usual because the district court dismissed the prisoners' complaint without leave to amend. "[D]ismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment." Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir.1996).

III

The State contends, as an initial matter, that the funds deposited in the inmates' ITAs never actually accrued any interest. Because there was no interest earned, the State maintains, there was none to be unconstitutionally "taken."

The State is not required by California law to place ITA monies in an interest-bearing account. Rather, the Penal Code merely provides that the State "may deposit such funds in interest-bearing bank accounts" and that, if it does so, it "shall deposit the interest or increment accruing on such funds in the Inmate Welfare Fund." Cal.Penal Code § 5008 (emphasis added). Whether, as a factual matter, the funds deposited in the ITAs involved in this case actually generated interest that was withheld from the inmates, or instead failed to accrue interest at all, is a subject of some doubt. Indeed, counsel for each side, when asked at oral argument whether the prisoners' ITA funds actually netted any interest, offered the same response: "I don't know." Somewhat surprisingly, on its face, the prisoners' own complaint suggests that the ITAs here at issue might not have earned any interest. Although, in places, the complaint refers alternatively to "the actual and/or constructive accrual of interest" (indicating that the inmates were themselves uncertain whether their funds actually generated interest), in others, it refers to the ITA as "purportedly [being] a non-interest bearing account" and as having a "non-interest-bearing" quality. Moreover, attached as Exhibit B to the inmates' complaint is a copy of a denial of an internal prison administrative appeal, signed by prison officials, which states quite specifically that "Inmate Trust funds are deposited in a non-interest bearing account; and therefore, there is no interest earned to be paid to the inmates." ¹

Ordinarily, the face of the plaintiffs' complaint, see Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996), and the exhibits attached thereto, see Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995), would control the Rule 12(b)(6) inquiry. However, because the district court below dismissed the inmates' action without leave to amend, the situation with which we are presented is somewhat different. Pursuant to well-established circuit precedent, "dismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment." Chang, 80 F.3d at 1296 (emphasis added). Here, the prisoners' complaint assuredly could have been cured by an appropriate amendment. Specifically, the inmates could have alleged (if true) that the ITA funds did in fact accrue interest, but that the interest was paid to the Inmate Welfare Fund pursuant to California Penal Code § 5008 rather than to the inmates themselves. ²

There is but one circumstance under which such an amendment would not have saved the prisoners' complaint, namely, if the confiscation and redistribution of actually-accrued interest on ITA accounts would not violate the Takings Clause. Both the district court in its order and the State on appeal concluded precisely that. In its decision, the district court deemed the parties' factual dispute over the accrual of interest to be of no particular constitutional moment: "[W]hether interest is actually earned on these funds does not affect the constitutional analysis." Schneider, 957 F.Supp. at...