Mickey Fowler v. Tracy Guerin , 918 F.3d 644 ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICKEY FOWLER; LEISA MAURER, No. 16-35052
and a class of similarly situated
individuals, D.C. No.
Plaintiffs-Appellants, 3:15-cv-05367-
BHS
v.
TRACY GUERIN, Director of the ORDER
Washington State Department of
Retirement Systems,
Defendant-Appellee.
Filed March 13, 2019
Before: Ronald M. Gould and Sandra S. Ikuta, Circuit
Judges, and John R. Tunheim, * Chief District Judge.
Order;
Dissent by Judge Bennett
*
The Honorable John R. Tunheim, Chief United States District
Judge for the District of Minnesota, sitting by designation.
2 FOWLER V. GUERIN
SUMMARY **
Civil Rights
The panel denied a petition for panel rehearing and
denied a petition for rehearing en banc on behalf of the court.
In the underlying opinion, the panel reversed the district
court’s denial of a stipulated motion to certify a class and
dismissal, as prudentially unripe, of an action brought by
Washington public school teachers seeking an order that the
Director of Washington State Department of Retirement
Systems return daily interest that was allegedly wrongfully
withheld from plaintiffs’ state-managed retirement accounts.
The panel held that the district court erred in dismissing
plaintiffs’ takings claim as prudentially unripe because the
withholding of interest that had accrued on plaintiffs’
accounts constituted a per se taking, as to which the
prudential ripeness test did not apply. The panel further held
that the plaintiffs’ claim could be certified for class treatment
under Fed. R. Civ. P. 23(b)(2) because the relief sought of
correcting the records system for the class members’
accounts was in the nature of injunctive relief.
Dissenting from the denial of rehearing en banc, Judge
Bennett, joined by Judge R. Nelson as to Part III, stated that
the merits panel wrongfully stripped the State of Washington
of its Eleventh Amendment immunity from suit by
permitting a damages claim to proceed against the State
under the guise of an injunction. Judge Bennett further
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
FOWLER V. GUERIN 3
stated the panel erred in concluding that Washington’s
decision to abrogate the common law rule of daily interest
violated the Takings Clause.
COUNSEL
Stephen K. Festor (argued), Stephen K. Strong, David F.
Stobaugh, and Alexander F. Strong, Bendich Stobaugh &
Strong P.C., Seattle, Washington, for Plaintiffs-Appellants.
Jeffrey A.O. Freimund (argued) and Michael E. Tardif,
Freimund Jackson & Tardif PLLC, Olympia, Washington;
Peter Gonick, Deputy Solicitor General; Robert W.
Ferguson, Attorney General; Office of the Attorney General,
Olympia, Washington; for Defendant-Appellee.
ORDER
The panel, as constituted above, has unanimously voted
to deny the petition for panel rehearing. Judges Gould and
Ikuta voted to deny the petition for rehearing en banc, and
Judge Tunheim has so recommended.
The full court was advised of the petition for rehearing
en banc. A judge requested a vote on whether to rehear the
matter en banc, and the matter failed to receive a majority of
the votes of the nonrecused active judges in favor of en banc
consideration. Fed. R. App. P. 35. The petition for panel
rehearing and the petition for rehearing en banc are
DENIED.
4 FOWLER V. GUERIN
BENNETT, Circuit Judge, with whom R. NELSON, Circuit
Judge, joins as to Part III, dissenting from the denial of
rehearing en banc:
I respectfully dissent from our decision not to rehear this
case en banc. I believe that the panel made two fundamental
errors of enormous scope, both of which we should have
corrected en banc.
First, the panel has wrongfully stripped the State of
Washington of its Eleventh Amendment immunity from suit
by permitting a damages claim to proceed against the State
under the guise of an injunction requiring the State to return
to Plaintiffs “their” property. The property was never
Plaintiffs’, and, in any case, is simply money—uncredited
interest that will now be paid to Plaintiffs from the State’s
treasury. That decision, which contravenes clear Supreme
Court and Ninth Circuit precedent and creates a circuit split,
strips the Eleventh Amendment of much of its vitality. It
takes little in the way of imagination to foresee future
plaintiffs recasting their otherwise-barred claims for money
damages against a state as injunctive relief claims for return
of what is supposedly their property.
Having bypassed Washington’s immunity from suit, the
panel then created a Fifth Amendment property right no
court has ever recognized. According to the panel, when a
state chooses to hold individuals’ funds in an interest-
bearing account, that account must, constitutionally, accrue
interest day-to-day, because that was the way the common
law worked in centuries past:
Because the right to daily interest is deeply
ingrained in our common law tradition, this
property interest is protected by the Takings
Clause regardless of whether a state
FOWLER V. GUERIN 5
legislature purports to authorize a state
officer to abrogate the common law.
Fowler v. Guerin, 899 F.3d 1112, 1119 (9th Cir. 2018).
In other words, neither the Washington legislature, nor
the legislatures of its sister states, nor even Congress, may
constitutionally allow interest to accrue weekly, monthly, or
annually on retirement (or other) accounts they establish by
statute. The panel’s decision is wholly untethered to the text
of the Fifth Amendment and unsupported by any case. Many
states and the United States currently have retirement
systems with interest-bearing accounts that, just like
Washington’s, do not accrue interest daily. If the panel is
correct, these states and the United States are all currently
violating the Fifth Amendment and have been for decades.
Both of the panel’s errors—stripping Washington of its
constitutional immunity from suit and creating a never-
before-recognized constitutional right—independently
warrant rehearing en banc. Thus I respectfully dissent.
I
I start with a bit of background. Washington State public
school teachers participate in the Teachers Retirement
System, which is a part of the Public Employees Retirements
System (“PERS”). This case concerns PERS Plan II, a
defined benefit retirement plan. Wash. Rev. Code
§ 41.32.760. “A defined-benefit plan gives current and
former employees property interests in their pension benefits
but not in the assets held by the trust.” Johnson v. Ga.-Pac.
Corp., 19 F.3d 1184, 1189 (7th Cir. 1994).
To fund Plan II benefits, participants and their employers
make monthly contributions throughout their employment,
6 FOWLER V. GUERIN
and their individual accounts reflect those contributions. Id.§ 41.45.050. However, a state agency maintains the funds in
a comingled account that is not itself interest-bearing. Id.
§§ 41.50.077, 080. Rather, the State invests the funds, and
those investments have a return of about eight percent
annually. The State uses contributions and investment
returns to pay benefits to participants upon retirement.
Washington law requires the Director of the Department
of Retirement Systems (the “Director”) to “make an
allowance of regular interest” on the participants’ PERS Plan
II contributions, Wash. Rev. Code § 41.50.215, and defines
“regular interest” as “such rate as the director may
determine,” id. § 41.32.010(38). The Washington legislature
expressly “affirms that the authority of the director . . .
includes the authority and responsibility to establish the
amount and all conditions for regular interest, if any.” Id.
§ 41.50.033(3). The Director thus has complete statutory
“authority to determine how interest is earned.” Probst v.
State Dep’t of Ret. Sys., 271 P.3d 966, 970 (Wash. Ct. App.
2012) (emphasis added). For more than forty years, PERS
Plan II accounts earned interest quarterly, and “do[] not
‘earn’ or accrue regular interest on a day by day basis.”
Wash. Admin. Code § 415-02-150(5). Where a withdrawal
or transfer of a participant’s funds takes place mid-quarter,
no interest accrues on the funds between the end of the
previous quarter and the date of the withdrawal or transfer.
The Washington Court of Appeals has stated as a definitive
matter of state law: “The legislature’s intent to abrogate the
daily interest rule . . . is plainly evident.” Probst, 271 P.3d
at 971.
Because only tenure and yearly compensation define
Plan II participants’ retirement benefits, the amount of
money in an individual participant account becomes
FOWLER V. GUERIN 7
immaterial upon the participant’s retirement and eligibility
for benefits. But if a participant leaves service early and
withdraws his or her contributions, or transfers them to a
different retirement fund, the participant receives (or
transfers) the amount shown in the individual account.
Otherwise, “PERS . . . employees have no claim on the fund
until they complete their term of employment and qualify for
a pension.” Bowles v. Wash. Dep’t of Ret. Sys., 847 P.2d 440,
454 (Wash. 1993) (en banc).
Here, Plaintiffs are Washington teachers who
participated in PERS II before transferring their PERS II
accounts into a new plan where the accounts became seed
money for an employee investment account. Because
Plaintiffs’ account transfers took place mid-quarter, their
accounts did not earn any interest between the end of the
previous quarter and the date of transfer. Plaintiffs’ lawsuit
seeks to recover that purportedly “taken” interest.
With this background in mind, I turn to discuss the two
areas of the panel’s opinion that I believe should have been
addressed en banc.
II
“The Eleventh Amendment confirms that the
fundamental principle of sovereign immunity limits the
grant of judicial authority in Art. III.” Green v. Mansour,
474 U.S. 64, 68 (1985) (internal quotation marks omitted).
Where, as here, a plaintiff sues a state official in his or her
official capacity, sovereign immunity bars the claim. See
Pennhurst St. Sch. & Hosp. v. Halderman, 465 U.S. 89, 101
(1989) (“The Eleventh Amendment bars a suit against state
officials when the state is the real, substantial party in
interest.” (internal quotation marks omitted)); see also Hafer
v. Melo, 502 U.S. 21, 25 (1991) (“Suits against state officials
8 FOWLER V. GUERIN
in their official capacity . . . should be treated as suits against
the State.”).
A claim under the Takings Clause seeks “not just
compensation per se but rather damages for the
unconstitutional denial of such compensation.” City of
Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S.
687, 710 (1999). Thus “the Eleventh Amendment bars
reverse condemnation actions brought in federal court
against state officials in their official capacities.” Seven Up
Pete Venture v. Schweitzer, 523 F.3d 948, 956 (9th Cir.
2008). Our holding in Seven Up Pete Venture, which is in
agreement with every court of appeals to consider the issue,1
should have ended the panel’s analysis. Plaintiffs here are
suing the Director in her official capacity for violations of
the Takings Clause—precisely the sort of claim that we, and
each of our sister circuits to consider the issue, have held
violates the Eleventh Amendment immunity that the states
enjoy. By permitting the Plaintiffs’ claims to proceed, the
panel departs from this long and heretofore unbroken line of
authority.
A
By construing Plaintiffs’ claim as seeking an
“injunction,” the panel tries to shoehorn the claim into Ex
parte Young’s narrow Eleventh Amendment exception for “a
suit for prospective relief against a state official in his
official capacity” to correct an ongoing violation of the
1
See, e.g., Hutto v. S.C. Ret. Sys., 773 F.3d 536, 552 (4th Cir. 2014);
DLX, Inc. v. Kentucky, 381 F.3d 511, 526 (6th Cir. 2004); John G. &
Marie Stella Kenedy Mem. Found. v. Mauro, 21 F.3d 667, 674 (5th Cir.
1994); Robinson v. Ga. Dep’t of Transp., 966 F.2d 637, 638–39 (11th
Cir. 1992); Garrett v. Illinois, 612 F.2d 1038, 1040 (7th Cir. 1980);
Citadel Corp. v. P.R. Highway Auth., 695 F.2d 31, 33 n.4 (1st Cir. 1982).
FOWLER V. GUERIN 9
Constitution. Cardenas v. Anzai, 311 F.3d 929, 934–35 (9th
Cir. 2002) (citing Ex parte Young, 209 U.S. 123, 159–60
(1908)). Edelman v. Jordan, 415 U.S. 651 (1974) taught us
long ago that plaintiffs cannot sidestep the Eleventh
Amendment merely by using forward-looking labels to
achieve what is, in essence, a backwards-looking result.
Ex parte Young is inapplicable where the relief sought
“is measured in terms of a monetary loss resulting from a
past breach of a legal duty on the part of the defendant state
officials,” Edelman, 415 U.S. at 668, or where “the state is
the real, substantial party in interest . . . as when the
judgment sought would expend itself on the public treasury
or domain, or interfere with public administration,” Va.
Office for Protection & Advocacy v. Stewart, 563 U.S. 247,
255 (2011) (internal citation and quotation marks omitted).
Under Edelman and Stewart, Plaintiffs’ claims clearly do not
fall within the Ex parte Young exception. Regardless of the
prospective label that Plaintiffs give their claim, it is
functionally retrospective, and the Supreme Court
commands us to treat it that way. Edelman, 415 U.S. at 668.
1
The panel holds that the relief sought is prospective
because the Plaintiffs are merely seeking an injunction for
the return of money that the Director “skimmed” from their
accounts. Fowler, 899 F.3d at 1120. This characterization
incorrectly assumes that the accounts in fact accrued interest
that the Director then took from the Plaintiffs. As discussed
supra p. 6, though, the Plaintiffs’ accounts “do[] not ‘earn’
or accrue regular interest on a day by day basis.” Wash.
Admin. Code § 415-02-150(5). Because the interest never
existed until credited by the Director (and here the Plaintiffs’
actual claimed constitutional violation is the failure to
credit), Plaintiffs cannot claim that the Director wrongly
10 FOWLER V. GUERIN
took it from them. Properly understood, the Plaintiffs’ claims
are for money supposedly owed to them, not money actually
taken from them—a critical distinction for Eleventh
Amendment purposes. See Edelman, 415 U.S. at 668 (stating
that where “equitable restitution” “is measured in terms of a
monetary loss resulting from a past breach of a legal duty on
the part of the . . . state,” “it is in practical effect
indistinguishable in many aspects from an award of damages
against the State”).
By asking the district court to order the state to pay
money it allegedly owes but withheld from them, Plaintiffs
seek a purely retrospective damages award.
2
Ex parte Young is also inapplicable here because the
State, not the Director, is the real party in interest. As in
Edelman, the “restitution award” “will to a virtual certainty
be paid from state funds, and not from the pockets of the
individual state officials who were the defendants in this
action.” 415 U.S. at 668. The Director of the Washington
DRS is, of course, not personally liable—the money at issue
will have to come from the State.
And although the panel opinion hardly addresses the
State treasury’s liability—“the most salient factor in
Eleventh Amendment determinations,” Hess v. Port
Authority Trans-Hudson, 513 U.S. 30, 48 (1994)—the
record here shows clearly that the state treasury will be liable
for any award to the Plaintiffs, whether or not the court calls
the award an injunction.
Plaintiffs’ employers (local school districts) make
employer contributions to the PERS II fund, and those
districts receive their funding for employee benefits directly
FOWLER V. GUERIN 11
from the State. See Bowles, 847 P.2d at 450 (noting that
where a state retirement plan has a defined-benefits
structure, “employer contributions must be increased to
whatever level becomes necessary to fund the statutorily
defined benefits” and thus “all risk of a shortfall rests on state
and local government employers and ultimately, on
taxpayers”). If Plaintiffs get their “injunction” and receive
money from the PERS II fund, someone (the State) will have
to provide the money needed to replenish the fund.
The panel says that the State treasury will be safe from a
judgment in Plaintiffs’ favor because the relief that Plaintiffs
seek is simply interest that accrued on Plaintiffs’ accounts
but that the State did not credit to them. Fowler, 899 F.3d
at 1120. Again, this misstates Washington law: the “taken”
interest is not in the PERS II fund because it never came into
existence to begin with. But even if that were not the case
and Plaintiffs sought their own money that sits in the wrong
retirement fund, that money is being used to fund PERS II
retirement benefits, and the State, to meet its PERS II
obligations, would still have to replace the amounts
transferred with money from the treasury.
Plaintiffs’ contention that the State treasury will not be
the immediate source of funding for a judgment in their favor
misses the mark. We have found sovereign immunity to
apply even where “the state is not directly liable for a
judgment against [the named defendant].” Alaska Cargo
Transp., Inc. v. Alaska R.R. Corp., 5 F.3d 378, 381 (9th Cir.
1993) (barring, on sovereign immunity grounds, a suit
against a partially state-funded railroad because “state law
provides to [the railroad] a financial safety net of broad
dimension”); see also Morris v. Wash. Metro. Area Transit
Auth., 781 F.2d 218, 225–26 (D.C. Cir. 1986) (“Given the
practicalities of Maryland and Virginia’s financial
12 FOWLER V. GUERIN
commitments to WMATA, a judgment against WMATA
would directly affect the treasuries of Maryland and
Virginia.”). Likewise here, the State is statutorily obligated
to adequately fund the retirement accounts at issue, and a
judgment in Plaintiffs’ favor that requires a debit from the
PERS II account would clearly require the State to expend
additional funds to cover the difference.
B
The sole case on which the panel relies to hold that the
Plaintiffs’ claim falls outside the Eleventh Amendment’s
ambit is Taylor v. Westly, 402 F.3d 924 (9th Cir. 2005). But
Taylor involved an escheat statute whereby supposedly
abandoned property was seized by the State of California
and held in express trust for the property’s owners. Id. at
931–32. We ultimately allowed only the plaintiffs’ due
process claims to proceed, reasoning that “[m]oney that the
state holds for the benefit of private individuals is not the
state’s money, any more than towed cars are the state’s cars.”
Id. at 932.
In the years since we decided Taylor, we have essentially
limited its application to escheat statutes. See N.E. Med.
Servs., Inc. v. Cal. Dep’t of Health Care Servs., 712 F.3d
461, 469 (9th Cir. 2013). To paraphrase Northeast Medical
Services, here, unlike in Taylor, the State “did not receive
the [interest] pursuant to a unique statutory scheme. There is
no [Washington] law requiring the state to hold the [interest]
in a custodial trust. Any monetary award to the [Plaintiffs]
would necessarily come from the state treasury.” Id. 2 Taylor
2Undergirding the panel’s discussion of Taylor is the apparent
assumption that the allegedly missing interest is held in trust for the
Plaintiffs’ benefit. See Fowler, 899 F.3d at 1120 (“Washington’s
FOWLER V. GUERIN 13
simply does not shoulder the weight that the panel places
upon it.
* * *
The ruling here strikes at the very heart of the federalism
interests the Eleventh Amendment was designed to protect.
Not just Washington, but its sister states as well, will no
doubt read this decision for what it is—an invitation to
plaintiffs with money claims against states to press those
claims in federal court, the Eleventh Amendment
notwithstanding. We should have taken this case en banc to
withdraw that invitation.
III
The panel erred in concluding that the Washington
legislature’s unremarkable decision to abrogate the common
law rule of daily interest violated the Takings Clause. This
decision has far-reaching consequences for other
government pension plans, like those established by the
United States and states in and outside the Ninth Circuit that
credit interest less frequently than daily.
A
The panel held that the Plaintiffs have a constitutionally
protected property interest in daily interest earnings,
sovereign immunity [does not] shield[] investment funds held for the
benefit of its employees.”). Not so. The relevant Washington retirement
accounts “are not trusts.” Retired Pub. Emp. Council of Wash. v. Charles,
62 P.3d 470, 481 (Wash. 2003) (en banc).
14 FOWLER V. GUERIN
notwithstanding clear state law to the contrary. 3 This holding
is unprecedented. As far as I know, no court has held that
when a state establishes and holds a retirement (or other
account) for someone, and chooses to pay interest on that
account, the owner of the funds has a constitutional right to
daily interest that a state cannot abrogate. In reaching this
conclusion the panel ignored Supreme Court guidance
permitting states “great latitude” in awarding interest,
misapplied the “interest follows principal” rule, and
improperly created a new property right to daily interest.
1
Assuming the Plaintiffs have an ownership interest in the
principal in their individual accounts, it does not follow they
are entitled to daily interest. The Supreme Court has
recognized that state governments have “great latitude in
regulating the circumstances under which interest may be
earned.” Phillips v. Wash. Legal Found., 524 U.S. 156, 168
(1998). The panel disregards the traditional discretion
afforded to the states and holds, instead, that when a state
awards interest, it must do so on a daily basis. As explained
below, though, neither the panel nor the Plaintiffs identify
any authority for the proposition that when a state decides to
provide some amount of interest, it must, as a matter of
constitutional law, do so daily.
In this case, the Director has done what the Court has
permitted: “regulating the circumstances under which
interest may be earned.” Id. Pursuant to her statutory
3
It is an odd constitutional right the panel creates. Even were the
panel correct, there is no right to interest at any particular rate. So,
Washington could, for example, even under the panel’s view of the law,
provide for 0.01% interest, compounded daily, but not for ten percent
interest, compounded monthly, quarterly, or annually.
FOWLER V. GUERIN 15
authority (Wash. Rev. Code § 41.50.033(3)), the Director
has defined the Teachers’ property rights with respect to
interest in the Plan II account: “if the amount in your
individual account on the last day of a quarter is more than
zero dollars, the department will calculate an amount of
regular interest to be credited to your account”; that account
“does not ‘earn’ or accrue regular interest on a day by day
basis.” Wash. Admin. Code § 415-02-150(3), (5). 4
Because the Supreme Court has preserved a state’s right
to define how it pays interest, and by extension, the property
rights related to how interest is earned, the panel erred in
concluding that the Plaintiffs state a claim under the Fifth
Amendment.
2
The panel did not expressly invoke the “interest follows
principal” rule discussed in Schneider v. California
Department of Corrections, 151 F.3d 1194, 1199 (9th Cir.
1998), but “clarified” Schneider’s holding to conclude the
Plaintiffs were entitled to daily interest. Fowler, 899 F.3d
at 1118. The panel’s understanding of the interest-follows-
principal rule, though, is deeply flawed. The rule that the
principal’s owner is entitled to interest earned thereon does
not mean that all funds in a state account must earn interest,
and by extension cannot require a state voluntarily awarding
interest to do so daily.
In this case, the Plaintiffs are seeking additional interest
earned on a state-held account that the State pools with other
4
And again, under Washington law, the statutory right to access an
individual account only accrues if an individual seeks a refund or transfer
of contributions—otherwise, the individual’s right is only to a pension.
16 FOWLER V. GUERIN
individual accounts in a non-interest bearing fund. The facts
of this case therefore fundamentally differ from Schneider,
Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S. 155(1980), Phillips, and Brown v. Legal Foundation of
Washington, 538 U.S. 216 (2003), all of which involved
claims for the return of interest actually generated in a third-
party bank account. In Schneider, for example, the
Department of Corrections placed inmate funds into an
account maintained by a third-party, and the inmate’s claims
could proceed only to the extent that those third-party
accounts actually bore interest. See 151 F.3d at 1201 (“On
remand, the district court shall permit discovery to determine
whether or not interest actually accrues on the prisoners’
ITA funds.”).
The same is true of Phillips and Brown—both cases
involved Interest on Lawyers Trust Account (“IOLTA”)
programs, and considered whether the state committed a
taking by mandating that interest actually generated on a
lawyer’s client trust fund (which was generated in a bank or
other financial institution) be used for charitable purposes.
Likewise, Webb’s involved interest actually earned in an
account maintained at a local bank by the clerk of court.
449 U.S. at 157 n.1. In all three cases interest actually
accrued to accounts because of the contractual relationship
between the depositor and the financial institution that held
the principal for the attorney. See Phillips, 524 U.S. at 159(assessing ownership of interest generated in an IOLTA fund
held by a bank); Brown, 538 U.S. at 228–29 (determining
whether an attorney and clients stated a takings claim for
IOLTA interest); Tex. State Bank v. United States, 423 F.3d
1370, 1379 (Fed. Cir. 2005) (“In contrast to Webb’s,
Phillips, and Brown, where the deposited funds were held by
third party banks, here Texas State did not provide funds to
FOWLER V. GUERIN 17
a third party that were then deposited in an interest-bearing
account in a private bank[.]”).
Because the pooled PERS funds here do not bear interest,
the individual account holders cannot use the “interest
follows principal” rule to claim a constitutional right to a
share of that non-existent interest. Rather, their entitlement
to interest arises entirely from Washington law.
Under Washington law, the individual accounts, which
employees can access to withdraw or transfer funds, bear
interest (at a rate of 5.5% with the accrual and compounding
rules set by statute and the Director). But the “interest
follows principal” cases neither hold, nor suggest, that where
a state has discretion whether to award interest on a
retirement account, and chooses to do so, it offends the
Takings Clause by doing so less frequently than daily.
3
Even if the panel was correct in holding that (1) the
contributions in the Plan II account can form the basis for an
independent claim on the earnings of that account; and
(2) the Plaintiffs had a property interest in the Plan II
account, the panel was still wrong to hold the State could not
statutorily modify the common law daily-interest rule, as the
Probst court found the State had, based on seventy-five years
of Washington statutes.
The only basis the panel provided for its holding that
interest must accrue daily is the “impressive common law
pedigree” of the daily interest rule. Fowler, 899 F.3d at 1118.
It may be that interest de die in diem was the default at
common law, but states are free to modify common law
default rules, and the panel never explains why this rule is
any different.
18 FOWLER V. GUERIN
“Property interests . . . are created and their dimensions
are defined by existing rules or understandings . . . that
secure certain benefits and support certain claims of
entitlement to those benefits.” Bd. of Regents of State
Colleges v. Roth, 408 U.S. 564, 577 (1972). “But not all
economic interests are ‘property rights’; only those
economic advantages are ‘rights’ which have the law back
of them, and only when they are so recognized may courts
compel others to forbear from interfering with them or to
compensate for their invasion.” United States v. Willow
River Power Co., 324 U.S. 499, 502 (1945).
Even assuming that the panel correctly identified a
common law rule favoring daily interest, it does not remotely
follow that the rule is immutable and immune from
legislative modification. At common law, the entitlement to
a proportionate share of an annual rate of payment was
highly dependent on context. Annuities, for example, were
earned and paid annually and not apportioned if the
annuitant died before the day payment was due. See In re
Bailey’s Estate, 23 Pa. C. C. 139, 142 (Pa. Orphans’ Ct.
1899). Dividends for share of stock in corporations and rent
were similarly not subject to apportionment. See Mann v.
Anderson, 32 S.E. 870, 871 (Ga. 1899); Bank of Pa. v. Wise,
3 Watts 394, 403 (Pa. 1834).
I am unaware of any court to hold that a state violates the
Fifth Amendment by statutorily modifying any of these
common law rules. To the contrary, cases cited in the panel
opinion suggest that a state could permissibly do so. See
Mann, 32 S.E. at 871 (“Interest was apportionable at
common law because it was held to accrue de die in diem,
and therefore to be susceptible of intermediate division. This
is the rule of the common law, and there is no statutory force
of law in this state which changes this rule in reference to
FOWLER V. GUERIN 19
dividends declared on stock in corporations.” (emphasis
added)); see also Nehls v. Sauer, 93 N.W. 346, 347 (Iowa
1903) (observing that Iowa modified by statute the common
law rule against apportionment in the case of life tenancies
but not annuities); Edwin A. Howes, Jr., The American Law
Relating to Income and Principal, 73–74 (Little, Brown, &
Co. 1905) (identifying states that have, by statute, modified
the rule against apportionment of annuities).
It is therefore not enough that the panel identify a
common law rule that might otherwise govern in the absence
of contrary state legislation. The panel must also
demonstrate why the common law rule that interest is
apportioned daily is so much a fixture of the legal landscape
that the Plaintiffs “have more than an abstract need or desire
[or] a unilateral expectation of it,” Roth, 408 U.S. at 577, to
justify setting aside otherwise lawful state modification of
the rule. And the fact that no court has, before now, held that
state governments cannot modify the daily interest rule when
they hold cash strongly suggests that the rule is not so deeply
ingrained in our tradition that states may not modify it
without running afoul of the Takings Clause.
B
Rehearing en banc is also warranted here because of the
tremendous potential impact of the panel’s incorrect
decision. It is no small thing to hold that a significant aspect
of a State’s retirement system is unconstitutional,
particularly when the state has used that system, in some
form, since the 1930s. See Probst, 271 P.3d at 972 (citing
Washington Laws of 1937, ch. 221 § 1(22)). The impact of
the panel’s decision, though, will be felt well beyond
Washington’s borders.
20 FOWLER V. GUERIN
The panel’s holding will cast significant doubt on the
legitimacy of retirement systems administered by numerous
states and the federal government that apportion interest less
frequently than daily. 5 Congress and the administrators of
the Federal Employees Retirement System (“FERS”) will, I
imagine, be very surprised to discover that they are
committing an unconstitutional taking by failing to pay daily
interest on refunds of employees’ contributions to FERS
defined-benefit plans. 6
In addition to Washington and the United States, public
employee retirement systems in Alabama, Alaska,
Connecticut, Kansas, Kentucky, South Dakota, Virginia, and
Wisconsin all apportion interest on retirement account funds
less frequently than daily. 7 By the panel’s logic, these states
5
Or, for that matter, any account that a private party maintains with
a state.
6
See 5 U.S.C. § 8401(19)(D)(ii); 5 C.F.R. § 841.605(b)(1) (interest
based on number of full months); CSRS and FERS Handbook, Chapter
32, § 32B1.1-3(H), p. 28 (available at https://www.opm.gov/retirement-
services/publications-forms/csrsfers-handbook/c032.pdf) (“No interest
is paid on a refund of FERS contributions: For a fractional part of a
month.”).
7
See Alaska Public Employees Retirement System Information
Handbook, at 6 (available at http://doa.alaska.gov/drb/pdf/pers/handboo
k/2011/PERS_handbook_2011_web.pdf) (semi-annual); Alabama
Employees’ Retirement System, Members Handbook, at 9 (available at
https://www.rsa-al.gov/uploads/files/ERS_Member_Handbook_T2_bo
okmarked.pdf) (interest based on previous year’s average balance);
Conn. Gen. Stat. § 5-166(b)(1) (monthly); Kansas Public Employees
Retirement System Application for Withdrawal of Contributions
(available at https://www.kpers.org/forms/k13.pdf) (annually or
quarterly, depending on plan); Kentucky Employees Retirement System
Comprehensive Annual Financial Report, 2017, at 39–40 (available at
https://kyret.ky.gov/Publications/Books/2017%20CAFR%20(Compreh
FOWLER V. GUERIN 21
are committing an unconstitutional taking, and I have little
doubt that lawyers in these jurisdictions will use the panel’s
opinion as a basis for Takings Clause challenges to these
retirement plans.
IV
If the Eleventh Amendment is to continue to have
meaningful force, we cannot permit plaintiffs to attain
otherwise prohibited retrospective relief against a state’s
treasury simply by describing that relief in terms of an
injunction or other equitable remedy. Nor should we as a
court create a property right to daily interest when nothing
in the precedents of the Supreme Court or this court have
ever even suggested that when a state awards interest, it must
do so daily. The effects of the panel’s novel holding will be
felt around the country in the form of legal challenges to state
and federal retirement plans that similarly award interest less
frequently than daily. We should have taken this case en
banc to correct our errors.
I respectfully dissent.
ensive%20Annual%20Financial%20Report).pdf) (annually); S.D.
Codified Laws § 3-12-47.8 (annually); Va. Code Ann. § 51.1-147(C)
(annually); Wisc. Stat. § 40.04(4)(a)(2), (3) (interest based on previous
year’s closing balance).