There's a lot to digest in the Ninth Circuit's opinion in Fowler v. Guerin, No. 16-35052 (Aug. 16, 2018). (We've been following the case, but the court's issuance of the opinion slipped by -- our thanks to a colleague for pointing it out).
The plaintiffs filed a class action alleging that state officials failed "to return interest that was allegedly skimmed from their state-managed retirement accounts." The District Court denied class action status and granted the State summary judgment, concluding the case was "potentially unripe" because the State had not finished the process of administrative rulemaking, which might, in the court's view, address the plaintiffs' claims for interest.
The Ninth Circuit reversed. The opinion is a worthy read, especially because it is coming out the Ninth Circuit, a court not known for being particularly property friendly.
Here's the rundown of the various issues the opinion analyzed:
- Ripeness. The District Court dismissed the takings claim as unripe under Williamson County's final decision prong. The Ninth Circuit held otherwise, first labeling Williamson County the "prudential ripeness" doctrine which governs regulatory takings, and not per se takings (like the one here). Slip op. at 9 ("Here, the Teachers bring a per se taking claim because DRS’s withholding of interest earned on funds in interest-bearing accounts is a direct appropriation of private property."). Interest, as we all know, is the property of the principal. And the plaintiffs' alleged that officials physically took their interest, and didn't merely regulate it. The case is ripe.
- No property? The court rejected the argument that because the Washington Court of Appeals held that the statute at issue didn't require the payment of interest, there was no "property" that was taken when the state officials kept the interest. If it ain't property under state law, the state argued, it ain't "property." Not quite, held the Ninth Circuit. Interest on principal is one of those "core" and "traditional" property rights that a state simply cannot disavow. In short, while state law usually defines property, there are certain sticks that transcend a state's ability to redefine them out of existence. If there a quotable page in the opinion, it is pages 10-11. Check it out. (We've made that same point in several briefs over the years, including this one.)
- Rooker-Feldman. (This one raises nightmares from your law school Federal Courts class, no?) The Ninth Circuit held that this wasn't a de facto appeal of a state court's decision to a U.S. District Court. The Ninth Circuit held that the Washington Court of Appeals never reached the takings issue, which is an issue of "federal constitutional law." Slip op. at 13 ("Its discussion of the Teachers’ entitlement to daily interest turned solely on an issue of Washington statutory law, not federal constitutional law.").
- Issue preclusion/full faith and credit. See the above reasoning. For the same reasons that the federal lawsuit wasn't an appeal of a state court judgment, it wasn't res judicata or collateral estoppel: the Washington state court didn't address or resolve the federal takings issue. [Barista's note: it's good to see a federal court - especially the Ninth Circuit - acknowledge that Fifth Amendment takings claims are "federal constitutional" claims. You might think that would be obvious. But to many courts, it isn't.
- Eleventh Amendment. A request for money damages against state officials is usually treated by federal courts as a suit against the state itself, which, of course, is prohibited by the Eleventh Amendment. But the devil is in the details: here, the court noted, the plaintiffs are not seeking an award of money, but rather equitable relief: an injunction ordering the state officials to return the wrongly withheld interest.
- Class action. Finally, the court's Eleventh Amendment analysis also solved the class certification issue. The District Court denied certification because it viewed the relief sought as money damages. But as noted above, the Ninth Circuit held that the plaintiffs were not seeking money damages, but rather equitable relief.
We recommend you read the entire opinion. Well worth it.