Washington Legal Found. v. TEXAS EQUAL ACCESS

Citation873 F. Supp. 1
Decision Date19 January 1995
Docket NumberCiv. No. A-94-CA-081 JN.
PartiesWASHINGTON LEGAL FOUNDATION, Michael J. Mazzone, and William R. Summers v. TEXAS EQUAL ACCESS TO JUSTICE FOUNDATION, W. Frank Newton, Thomas R. Phillips, Raul A. Gonzalez, Jack Hightower, Nathan L. Hecht, Lloyd Doggett, John Cornyn, Bob Gammage, Craig T. Enoch and Rose Spector.
CourtUnited States District Courts. 5th Circuit. Western District of Texas

Steven W. Smith, Austin, TX, Daniel J. Popeo, Richard A. Samp, Washington Legal Foundation, Washington, DC, for Washington Legal Foundation, William R. Summers.

Michael J. Mazzone, pro se.

Darrell E. Jordan, Hughes & Luce, Dallas, TX, H. Robert Powell, Brittan L. Buchanan, Hughes & Luce, Harry G. Potter, III, Atty. General's Office, Nancy A. Trease, Asst. Atty. Gen., Austin, TX, for Texas Equal Access To Justice Foundation, W. Frank Newton, Thomas R. Phillips, Raul Gonzalez, Jack Hightower, Nathan L. Hecht, Lloyd Doggett, Bob Gammage, Craig T. Enoch, John Cornyn, Rose Spector.

MEMORANDUM ORDER AND JUDGMENT

NOWLIN, District Judge.

Before the Court are the Motion for Summary Judgment filed by Defendant Texas Equal Access to Justice Foundation's ("TEAJF") and Defendant W. Frank Newton, its chair, the Motion for Summary Judgment filed by Defendants Thomas Phillips, Raul Gonzalez, Jack Hightower, Nathan Hecht, Lloyd Doggett, John Cornyn, Bob Gammage, Craig Enoch, and Rose Spector ("the Supreme Court Defendants"),1 and the Motion for Summary Judgment filed by the Plaintiffs, Washington Legal Foundation, William R. Summers, and Michael J. Mazzone. Also before the Court are the Responses addressing these motions, and the Replies addressing these Responses. Having considered these pleadings, the evidence submitted by the parties, the arguments of counsel, and the relevant law, the Court enters the following decision.

NATURE OF THE CASE

The Plaintiffs in this action are the Washington Legal Foundation, a self-described non-profit public interest law and policy center, Michael Mazzone, a Texas resident and attorney licensed to practice by the Texas Bar, and William Summers, a Texas resident and consumer of legal services rendered by members of the Texas Bar. The Plaintiffs have filed this action pursuant to 42 U.S.C. § 1983, claiming that the Texas Interest on Lawyers' Trust Accounts ("IOLTA") Program, which is implemented and overseen by the Texas Equal Access to Justice Foundation ("TEAJF"), violates their rights under the First and Fifth Amendments of the United States Constitution. In addition to a declaratory judgment finding the IOLTA Program unconstitutional, the Plaintiffs seek injunctive relief prohibiting mandatory participation in the IOLTA Program, a return of the full amount of interest earned on Plaintiffs' money placed in IOLTA trust accounts, and an award of costs and attorneys' fees.

The Defendants have responded that the IOLTA Program neither effects a taking of the interest generated by the Program in violation of the Fifth Amendment, nor compels speech or involuntary association in violation of the First Amendment. The Defendants alternately contend that the IOLTA Program serves a significant state interest through means narrowly tailored to serve that interest, and, accordingly, there is no First Amendment violation. Finally, the Defendants contend that they are entitled to Eleventh Amendment immunity and that the TEAJF Defendants are not "persons" subject to suit under 42 U.S.C. § 1983.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if the record discloses "that there is no genuine issue of material fact, and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). To determine whether there are genuine fact issues, the court must first consult the applicable law to ascertain what issues are material. Lavespere v. Niagara Machine & Tool Works, 910 F.2d 167, 178 (5th Cir.1990), cert. denied, ___ U.S. ___, 114 S.Ct. 171, 126 L.Ed.2d 131 (1993), abrogated on other grounds, Little v. Liquid Air Corp., 37 F.3d 1069 (5th Cir.1994). Next, the court must review the evidence on those issues, viewing the facts and inferences in the light most favorable to the nonmoving party. Id.

A party seeking summary judgment bears the initial burden of identifying those portions of the pleadings and discovery on file, together with any affidavits, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the movant carries its burden, the burden shifts to the nonmovant to show that summary judgment should not be granted. Id. at 324-25, 106 S.Ct. at 2553-54. While the Court must review the facts drawing all inferences most favorable to the party opposing the motion, Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986), that party may not rest upon mere allegations or denials in its pleadings, but must set forth specific facts showing the existence of a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986). Factual controversies are resolved in favor of the nonmoving party, but only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts. Little, 37 F.3d at 1075. However, the court does not, in the absence of any proof, assume the nonmoving party could or would prove the necessary facts. Id.

FACTUAL BACKGROUND

For the most part, the Parties concede that there is no dispute as to any material fact underlying this cause of action. The material facts relating to the operation of the Texas IOLTA Program are set out below.

Article XI of the Rules of the State Bar of Texas establishes the Texas Equal Access to Justice Program (hereinafter "the IOLTA Program"). Under this program, an attorney receiving client funds that are "nominal in amount" or "reasonably anticipated to be held for a short period of time" is required to place the funds in an unsegregated interest-bearing bank account. See State Bar Rules Governing Operation of Equal Access to Justice Program Rule 6. More specifically, the only funds eligible for the IOLTA Program are those which

could not reasonably be expected to earn interest for the client or if the interest which might be earned on such funds is not likely to be sufficient to offset the cost of establishing and maintaining the account, service charges, accounting costs and tax reporting costs which would be incurred in attempting to obtain interest on such funds for the client. Id.

Under the IOLTA rules, when a client tenders a nominal amount of funds, or funds that will be held for only a short term, the lawyer is obligated to first make an initial determination, using his or her good faith judgment, of whether such funds can be deposited into an account that could reasonably be expected to earn an amount of interest sufficient to offset the cost of establishing and maintaining the account. Id. For purposes of the Plaintiffs' claims, it is important to stress that the only funds eligible for deposit in an IOLTA account are those that have no reasonable possibility of legally generating net interest income benefiting the client. Nothing prohibits an attorney from placing funds into a non-IOLTA account, if such funds are capable of generating net interest income to the client.2

Interest generated by these IOLTA accounts is to be paid to the Texas Equal Access to Justice Foundation, a non-profit corporation. Id., Rule 9. The Foundation is charged with administering these funds, awarding them as grants to non-profit organizations that have a primary purpose of delivering legal services to low income persons. Id. Rules 10-12.3 As evidenced by the TEAJF's annual reports, the beneficiary organizations provide a wide range of legal services, ranging from providing legal assistance to permanent resident aliens seeking naturalization, to documentation for Central American refugees seeking asylum, to legal services to death row inmates, to various AIDS organizations.4

Originally, the Texas IOLTA Program was voluntary. However, with only voluntary participation by Texas lawyers, the Program generated insufficient funds to meet the legal needs of indigent Texans. Consequently, in 1988, the Texas Supreme Court entered an order amending the State Bar Rules and converting the voluntary IOLTA program into the mandatory program presently in operation.5

FIFTH AMENDMENT CLAIMS

The Plaintiffs allege that the IOLTA Program violates their Fifth Amendment rights by taking their property without just compensation. More specifically, the Plaintiffs allege both 1) that the Program effects a taking of the interest generated by the funds deposited into pooled IOLTA accounts, and 2) that the Program effects a taking of the "beneficial use" of their property by compelling them to deposit their funds in IOLTA accounts to generate income to support the Program.

The Fifth Amendment provides that private property shall not be taken for public use without just compensation. U.S. Const. amend. V.6 For there to be a "taking" within the purview of the Fifth Amendment, the government must interfere "with interests that (are) sufficiently bound up with the reasonable expectations" of the plaintiff asserting the deprivation. Penn Central Transp. Co. v. New York City, 438 U.S. 104, 125, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631 (1978); see also Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. at 161, 101 S.Ct. at 450 ("A mere unilateral expectation or an abstract need is not a property entitled to protection."). In other words, the Plaintiffs must be able to assert a cognizable property interest to raise a Fifth Amendment takings claim. Ruckelshaus v. Monsanto, 467 U.S. 986, 1001, 104 S.Ct. 2862, 2871, 81 L.Ed.2d 815 (1984). Whether such an interest exists is a question of state law. See, e.g., Webb's, 449 U.S. at 161, 101 S.Ct. at 450 ("Property...

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11 cases
  • Phillips v. Washington Legal Foundation
    • United States
    • United States Supreme Court
    • June 15, 1998
    ...no property interest in the interest proceeds generated by the funds held in IOLTA accounts. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 873 F.Supp. 1 (W.D.Tex.1995). The Court of Appeals for the Fifth Circuit reversed, concluding that "any interest that accrues......
  • Washington Legal Foundation v. Texas Equal Access
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • January 28, 2000
    ...but for the IOLTA program, no interest could be earned on the funds in the IOLTA account. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 873 F.Supp. 1, 7 (W.D.Tex.1995). The Fifth Circuit reversed this court, concluding that the interest earned on client funds held......
  • Garneau v. City of Seattle
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • May 4, 1998
    ...I should note that the Fifth Amendment case currently before the Supreme Court, Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 873 F.Supp. 1 (W.D.Tex.1995), aff'd in part, rev'd in part, 94 F.3d 996 (5th Cir.1996), reh'g denied by, 106 F.3d 640 (5th Cir.1997), is d......
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1 books & journal articles
  • Limited Practice Officers and Admission to Practice Rule 12: Taking or Not?
    • United States
    • Seattle University School of Law Seattle University Law Review No. 23-02, December 1999
    • Invalid date
    ...amount' or 'reasonably expected to be held for a short period of time'." Washington Legal Found, v. Texas Equal Access to Justice Found., 873 F. Supp. 1, 4 (W.D. Tex. 1995), rev'd, 94 F.3d 996 (5th Cir. 1996), aff'd sub nom. Phillips v. Washington Legal Found., 524 U.S. 156 (1998) (quoting ......

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