Texas State Bank v. United States

junc- anticipated, present- at that and I saw the case as suspension that an indefinite inappropriate. was ing only ture a close call.” Not is state- ment inaccurate in view of this court’s case brings That us to the issue before indicating suspension law that an indefinite is the arbitra appeal, which whether us only emergency is intended use attorney denied in properly tor fees view but it procedure, is also inconsistent on the merits. of his decision Under the arbitrator’s own earlier decision over- Act, Pay Back Morrison is entitled to rea ruling agency’s action. attorney fees in accordance with sonable standards established under 5 U.S.C. an award of fees Whether 5596(b)(1)(A); 7701(g). § See U.S.C. justice under the second Allen Dep’t Affairs, Dunn v. Veterans by examining factor must be determined (Fed.Cir.1996). 1308, 1311 That statute decision, the arbitrator’s not the evidence provides attorney may that reasonable fees and information available to the arbitrator. if employee pre be awarded was the Bd., Sys. See Yorkshire v. Merit Prot. vailing party and fee award is “warrant There justice.” in ed the interest of 5 U.S.C. fore, may the arbitrator not revise the § 7701(g)(1). As far as the former re denying merits decision as a basis for at concerned, quirement undisputed it is torney In doing fees. See id. at 1458. so prevailing party Morrison was the case, in this the arbitrator acted arbitrari determining whether arbitration. ly. Accordingly, we the arbitra reverse satisfied, requirement the latter has been attorney tor’s denial of fees and remand we look to five non-exclusive criteria first proceedings the case for further consistent articulated the Board Allen v. United opinion. with this Service, States Postal MSPB (1980). Dunn, M.S.P.R. 98 F.3d at and REMANDED. REVERSED category 1311-12. Under the second set Allen,

forth a fee award is in the inter justice if agency

est of action was

“clearly wholly without merit or unfound employee “substantially

ed” or the was charges” brought

innocent of the Dunn,

him agency. 98 F.3d at (successor by BANK TEXAS STATE Morrison, relying on the second Allen Community merger to Bank & factor, argues that suspen- his indefinite Trust), Plaintiff-Appellant, clearly sion was without merit. In dis- agreeing with point, Morrison on this arbitrator retreated from posi- his earlier STATES, Defendant-Appellee. UNITED agency’s tion that the decision to wait until No. 04-5126. suspend after the trial court decision to “a misconception Morrison was of the na- Appeals, United States Court of ture and purpose suspen- of the indefinite Federal Circuit. Instead,

sion.” the arbitrator his fee Sept. “[tjhere decision nothing stated existing respecting literature the use suspension] [indefinite mechanism holding which the should have been Firm, Bailey Henry Bailey,

Blake Law Texas, Tyler, argued plaintiff-appel- Trust) v. merger Cmty. Bank & him on the brief was J. Ben- lant. With Wilson, Knowles, 60 Fed.Cl. White, Sheehy, Rob- United nett Cornelius, P.C., of Federal Claims Tyler, We hold Texas. ertson & Act jurisdiction had under the Tucker be- Chadwick, Attorney, Trial Kyle Com- claim on ac- cause Texas State’s is based Branch, Division, Litigation Civil mercial by the States and not the tions Justice, Department United States conclude that Federal Reserve Board. We DC, for defendant- Washington, argued be dismissed the case must nonetheless him were Pe- With on the brief appellee. because Texas State has failed assert General, Keisler, Attorney D. ter Assistant valid claim. Cohen, Director, Mary A. David M. and Melnick, Director. Of counsel Assistant BACKGROUND Ashton, Richard M. As- on the brief were System The Federal Reserve was estab- Counsel, and Katherine sociate General in to the Federal pursuant lished Counsel, Wheatley, Assistant General (“FRA”). Act Reserve Reserve Federal Board of of the Federal Re- Governors 63-43, Act, Pub.L. No. codi- Stat. System, Washington, DC. serve seq. §§ 221 et fied as amended at U.S.C. NEWMAN, SCHALL, DYK, (1913).

Before and A function of the Federal Judges. System Circuit Reserve has been determine monetary policy “so as to implement and for the court filed Circuit Opinion effectively goals of maximum promote DYK. Judge employment, prices, and moderate stable long-term interest rates.” U.S.C. Opinion Judge filed Circuit System composed 225a. The part, dissenting concurring NEWMAN Board of Governors of the Federal Re- part. System regional Reserve serve and twelve DYK, Judge. Circuit (“the Reserve”). Monetary Federal banks (“Texas Appellant Texas State policy Open is set the Federal Market State”) is a state-chartered bank that implemented through and Committee (and held) in accor- holds has reserves is, open operations, pur- market requirements dance with the of the Mone- government chase and sale of securities. tary Act of Control Pub.L. Open operations market are funded with I, Title 132. Texas claims Stat. banks, supplied by participating reserves a Fifth Amendment occurred profitable for the operations these are allegedly when the United directed Federal Reserve. The Federal Reserve pay the Federal Reserve Board to earn- provide clearing banks also check and oth- ings generated by Texas State’s mandated banking er services to financial institu- reserves to the United States §§ generally tions. 221 et See U.S.C. (“Treasury”). seq.

The Court of Federal Claims dismissed passage Monetary Before the jurisdiction, holding for lack of that Texas 1980, only Act of national Control banks State’s “action directed [was] join were the Federal Reserve Board”; activities of the Federal Reserve System and to maintain non-interest bear- the Federal Reserve Board was ing, or “sterile” with the Federal reserves non-appropriated instrumentality could Reserve. State-chartered banks (“NAFI”); join, and that the NAFI doctrine in the participation elect but' their subject precluded system mandatory. the exercise of matter Member was not (successor reserves, jurisdiction. Tex. State Bank banks did not earn interest on services, free vault result in were entitled to several cash Federal including check-clearing. free When infla- Reserve Banks the same manner the rates late 1970’sand inter- tion rose maintenance of reserve balances increased, voluntary participation est rates accounts the Federal Reserve Banks of state-chartered banks generate income for the Federal [sic] Re- System declined as did the level Reserve serve Banks.” PI. Together Contentions ¶65. deposits. generally of reserve See Joshua with Responses Defendant’s Feinman, Requirements: His- N. generated by income sterile Practice, and Re- tory, Current Potential cash pay vault is used to the expenses form, Fed. Res. Bull. Reserve, of the Federal and the remainder is transferred the Federal Reserve sought to this Congress In reverse the Treasury yearly Banks to on basis. through the of the Mone- passage trend year by This transfer occurs each direction Act, all tary required Control and that Treasury. 1997, 1998, years fiscal institutions, i.e., banks, all hold depositary and the statutorily transfer was man- reserves, form of sterile non-interest Budget dated. Omnibus Reconciliation bearing deposits at Federal the Reserve § 3002(a), Act of Pub.L. 103-66 Bank, in or the form Federal Reserve 312; Appendix Stat. to District of Colum- (that is, currency) stored at de- notes the Act, bia Appropriations Pub.L. pository currency depos- institution. The (Nov. 302,113 29,1999). § . Stat. 1501 Id.; known cash.” its are as “vault 461(c). § The Federal Reserve has U.S.C. Texas has State maintained sterile re consistently, unsuccessfully, urged vault serves and in accordance cash of a payment to allow Congress Monetary Control Act since 1980. on required market-rate of interest re- Cmty. Bank & Trust v. United hand, Treasury On the serves.1 other (2002).3 Fed.Cl. In October opposed views as has what it “the use brought Texas against, suit the Unit purpose.”2 taxpayer resources for Claims, ed States the Court of Federal jurisdiction Act, alleging under Tucker parties stipulated that have 1491(a)(1). Texas U.S.C. State did open operations, Federal Reserve’s market reserves, challenge requirement generate statutory to required funded parties pursuant maintain reserves to substantial income. The have also the Mone Act, tary allege ¶ Id. at 32. earnings plus to the interest. matter a as a of [was] of a of sought It also certification class 54 at 360. law.” Fed.Cl. similarly depositary institutions situated opinion, In an initial the court declined 1980 maintained re- since jurisdiction to for lack of under the dismiss Monetary accordance with serves doctrine, judgment NAFI and “reserve[d] ¶¶ 20, Act. Id. at 22. Control of consequence on the relevance dismiss, government moved to The Board of Governors’ NAFI status until arguing jurisdiction precluded was be facts Id. additional available.” at [became] was a non- cause the Federal Reserve of respect 356. With merits instrumentality appropriated funds claim, govern- court denied the (“NAFI”), and the NAFI doctrine barred motion dismiss for failure to ment’s to Trust, at Cmty. suit. Bank & 54 Fed.Cl. claim, “[f]or state and held that The NAFI doctrine is “an estab 355-59.5 dismiss, purpose limited of this motion to ... to Tucker Act exception lished finds plaintiff the court has government premise based in the of its reserve ac- sovereign immunity never has waived counts, cognizable under the Fifth Amend- private parties bring allow to to breach However, at Id. the court ment.” AINS, contract NAFIs.” claims “clear, instance, that it for noted was States, Inc. v. F.3d United placed are plaintiffs type (Fed.Cir.2004). response, In ... separate, bearing account out that this a tak pointed case involves potentially at in” analogous issue cases. ings claim rather than to an effort recover plaintiffs Id. The court denied the also government on a contract. partial summary judgment motion. The argued stayed, that it the actions then pending also was of Con- case was outcome limitations, obligation pay money ... of an to does not statute of U.S.C. 2501. The Takings give disagreed, holding rise to a claim Clause under Court Federal Claims of the Fifth Amendment.” 271 F.3d that Texas State's cause action—as limited (en (Fed.Cir.2001) banc). damages statutory claimed for the six complaint years prior to date of the —had government period. Cmty. argued accrued within the limitations 5. The also that the claim 355-56, Trust, six-year was Act's & Fed.Cl. at time-barred Tucker portion Court’s decision Brown the net of the Federal Washington, during Legal years ques- Foundation 538 Reserve Board tion.” 155 L.Ed.2d (2003), granted where certiorari had been DISCUSSION not a taking

to determine whether or oc- Washington when the State of re- curred I that interest earned IOLTA ac- quired A decision the Court of Federal paid to government-designated counts be Claims “to complaint dismiss a lack for organizations providing legal services jurisdiction a question subject of law poor. independent review this court.” Supreme Court decided Broum States, Shearin 992 F.2d 2003, holding that transfer of March inter- (Fed.Cir.1993); AINS, see also pay est earned in IOLTA accounts to 1336; Flo., F.3d at Concepts Core Inc. v. legal for the poor services constituted (Fed. per taking, compensation se but that no Cir.2003). We conclude that due because no net there was loss in dismissing Federal Claims erred principal. the clients who owned the action lack jurisdiction pursuant 123 S.Ct. 1406. June the NAFI doctrine. evidentiary briefing after further recently We had occasion to review the merits, hearing on the the Court of Feder- NAFI doctrine in the takings context in al Claims dismissed this action lack Raisins, Lion Inc. v. United jurisdiction reaching without the merits. 1365-66 State, Tex. 60 Fed.Cl. 821. The court origins doctrine has the held the Federal Reserve was a NAFI Court’s decision in Standard Co. v. Oil NAFI juris- the doctrine barred Johnson, 481, 485, takings against diction over claims the (1942), Court, L.Ed. where the by based United States on actions taken ruling Army quali- “post-exchanges” rejected NAFIs. The court Texas State’s fied government exemption federal argument that the United the States was tax, from a California state found the responsible party, finding that bottom “[a]t “post exchanges operated as now are arms ... against its action directed the activi- of the Government” that the “Govern- ties the Federal Id. Reserve.” at 819. ment 'assumes none obligations timely appealed. haveWe Oil, exchanges.” Since Standard jurisdiction pursuant to U.S.C. we repeatedly have held that the NAFI 1295(a)(3). States, § Folden v. United precludes doctrine of Tucker exercise Following F.3d jurisdiction Act over contract claims argument, parties oral we to ordered against upon the United States based briefing addressing supplemental submit contracting activities of that are NAFIs “[wjhether question Texas not mentioned in 28 U.S.C. expressly 1491(a)(1).6 Raisins, § a cognizable property any had Lion See F.3d 1970, Congress Exchanges, Exchange amended Tucker Act Coast Guard or Coun- jurisdiction allow over contract Space claims cils National Aeronautics and against exchanges, adding the armed forces express Administration shall be considered an following sentence 28 U.S.C. implied or contract with the States.” United 1491(a)(1): purpose para- "For the of this generally v. Corp. See McDonald’s United graph, express implied or contract with States, (Fed.Cir.1991) 926 F.2d 1129-31 Service, Army Exchange and Air Force Navy Exchanges, Corps Exchanges, Marine Federal Reserve can (collecting court the actions cases at 1365-66 liability the Court predecessor, takings and of our on the United impose Claims). applied have “[t]he These cases that, contrary to the hold States. We that the Court Federal general rule Claims, it decision of Court Federal jurisdiction grant judg- lacks Claims States, and actions of the United is the on a claim ment the United States Reserve, which are those of Federal the United against NAFI because States give takings to the claim. alleged to rise obligations the financial has not assumed by funds to appropriating of those entities II them.” El-Sheikh United in its com originally As stated (Fed.Cir.1999) (quotation plaint, filings in its before the confirmed omitted); also marks and citations see Claims, and reiterated Hopkins, 427 States v. during argument, court oral before this 2508, 49 L.Ed.2d by being challenged action Texas only that, under The United States asserts or Congress compulsion State is Board precedent, our the Federal Reserve Treasury the Federal Reserve trans 1340; AINS, a NAFI. 365 F.3d at See Treasury earnings, fer to its net earn Denkler on income part which were based ings (Fed.Cir.1986); accord Research 1004-05 funded open operations market from Triangle Bd. Fed. Res. Inst. v. Gov. of Indeed, reserves. required (4th Cir.1997). The Sys., 132 F.3d 985 contends that transfers were effect these urges further that the NAFI government objections ed of the Federal Re over beyond con- jurisdictional bar be extended serve, “compels and that the United States claims, encompass tract claims to send the Federal Reserve on actions against the United States based argument recently This rather required a NAFI. reserves Raisins, rejected in con- Lion where we pay depository than such insti may proper- that the United cluded that maintain reserves.” tutions ly sued in the Court of Federal Claims Together PI. Contentions with Defendant’s any takings allegedly that are consum- ¶ argues at 1.7. Responses by agents, acting mated NAFIs as its find- earnings property, these were its and ing “no in the text of the Tucker Act basis by directing the Federal Reserve to itself; legislative history of the 1970 the Treasury, to transfer its the the amendments; inor the decisions of the accomplished a Fifth United States court, limiting or Supreme Court this taking. Amendment scope jurisdictional grant the over the Here, alleged it is that the United ‘against claims the States United directing responsible was the States the to exclude upon founded Constitution’ Treasury, the transfer of to and takings claims the United States had no discretion but Reserve by on actions NAFIs.” Lion Rai- based sins, Here, however, comply.7 to the action consti When 416 F.3d at 1367-68. govern- taking compelled by is question we do not reach whether tutes 819, no (discussing their the Federal Reserve exercises dis- amendments and history). legislative alleged respect with to the action to cretion taking constitute transfer —the earnings "de- 7. While the calculation of net by generated Texas State’s to use of reserves Reserve, expenses pends the Federal on the Treasury. largely discretionary,” which 60 Fed.Cl. are ment, government can government alleged only be held to have had then the taking. example, For for the liable mere awareness of actions of the third States, Paper Co. v. United see, International States, party, e.g., v. United Shewfelt S.Ct. 75 L.Ed. 410 (Fed.Cir.1997); 104 F.3d .or the (1931), found the Court Unit government only to alleged have en taking liable for a when the ed States gaged “friendly persuasion” with re private Secretary power ordered a War see, spect that activity, e.g., to Langeneg company water from the owners to divert States, ger v. United F.2d power water-rights produc to increase (Fed.Cir.1985); party or the third has ex case, In that government tion for uses. discretion, see, e.g., ercised own Ero requisition order “all of the covered Superior Regulation sion Victims Lake capable being diverted” ánd was water States, v. United 300-01 being off taken “intended to cut the water Paper Company [pur the International sure, every requirement by To-be power compa suant their lease with the party the United States that third take ny] thereby power increase com [the adversely action that affects economic Id. at pany’s] productive capacity.” 405- entity interests another implicates “it 176. The found that S.Ct. Clause, Takings requires hard what or pri- to see more Govern [was] ment could do take the use” when the party equivalent vate actions treated as power requisition order directed the com where, government here, But action. pany petition to withdraw water from the government party command to a third elsewhere, produce mill and turn it er’s alleged private results transfer of government. for the power benefit States, we think United .to responsi- that the United must bear bility government if a direct appropriation recognized Our decisions also have itself a compensable would constitute tak- taking may that a Fifth Amendment occur ing. theory State’s Under Texas government when the commands actions case, alleged taking accomplished party third that would constitute by the Federal directly compliance gov if undertaken See, Congress. the command of e.g., ernment. Hendler (Fed.Cir.1991); alleged Treasury compelled Tur It ney 126 Ct.Cl. Texas State’s transfer (1953); F.Supp. 457 see also Aerolineas thus United States.8 We hold that there is States, 77 Argentinas v. United F.3d 1564 claim jurisdictional no bar (Fed.Cir.1996). taking compensable “[A] against United States. the government’s not occur does unless the actions on party the intermediate third Ill a ‘direct and impact have substantial’ on That is not the of Al- end the matter. plaintiff asserting takings the claim.” though the Court of Federal erred S.A., Claims de de v. Casa Cambio Comdiv C.V. (Fed. dismissing jurisdic- in States, 1356, the suit lack of 291 United F.3d 1361 Cir.2002). tion, time, may we appropriate- At the we we conclude that same have held potential taking ly that there no is when the address the merits. government dispute plaintiff's well-pled appears appéal, accept

8. The we that this alle- compelled non-statutory gations v. transfer in the true. Leider United 301 1290, purposes years considering but for the of 1292

1378 Leider, 301 F.3d at ings challenge. not in dis

The facts are relevant a taking Wyatt does assert v. 271 F.3d pute. (citing Texas State (Fed.Cir.2001)). Here, it respect requirement 1090, to the that Texas the Federal maintain sterile reserves with a valid property State has failed assert solely case turns on Reserve. This interest. Texas purely legal question of whether argues property its property a inter compensable owned in share of the net interest by generated the Fed est in generated Reserve that was the Federal re through eral Reserve investment its indistinguishable the reserve See, Webb’s, 449 U.S. at e.g., serves. property from the interests owners Babbitt, 446; v. 234 F.3d 101 S.Ct. Cermak ac- principal interest-bearing deposited (Fed.Cir.2000) (holding counts claim to interest earned a question nature of interests accounts, by the those and that decisions law); Cmty. Coast Indian have Supreme Court held constitutional

States, 213 Ct.Cl. Supp’l at App. Br. 7-8. “property”. (1977) (determination of plaintiffs’ owner re- principal” The “interest follows cases ship a interest compensable property law). all situa- upon lied involved question was a parties held plaintiffs’ tions where third merits claim were The interest-bearing ac- separate fully of Federal briefed twice Webb’s, 157-61, at counts. U.S. question The legal Claims. whether 446; at Phillips, 524 U.S. S.Ct. a interest in the Texas State had 1925; Brown, at 538 U.S. S.Ct. earnings of was ad- Webb’s, filed a company S.Ct. In court, and argument at oral in this dressed complaint interpleader in state court yet opportunity parties had another creditors, and Webb’s Webb present supplemental briefing this issue court. disputed tendered the amount argument. supplemen- after oral their 156-57, at 101 S.Ct. 446. briefing, objected party tal neither to our statutorily prescribed considering merits. conclude that court deducted We merits, it is appropriate depos- to address the for maintenance the fund and fee prop- we that Texas State had conclude no “assignable ited the remainder inter- erty generated interest in the income est-bearing highest account at the inter- through open the Federal Reserve mar- in a bank. Id. at est” operations, complaint ket and that ultimately Florida court ordered should be dismissed failure state claimants, paid See, Gowran, e.g., Helvering claim. $100,000 than retained more 238, 245, 82 L.Ed. principal. earned on the 101 S.Ct. 446. The Court found appropriation court the interest only persons “It is axiomatic that fund, interpleader in excess earned with a valid the time services, taking. of a fee resulted to compensa are entitled 160-61, 164-65, at 101 446. 449 U.S. S.Ct. tion.” Chancellor Manor v. United applied general The Court “usual and 891, Indeed, any ... an interplead- rule that interest on plaintiffs that previously we have observed fund deposited principal ed and follows identify property cogniza a must and is to be to those who are under the Fifth as a “bed allocated ble Amendment ultimately requirement” any princi- rock successful tak- to be the owners pal,” county’s taking of All and held additional cases upon by relied Takings implicated the earned Supplemental its simi- Brief 162, 165, Clause. Id. S.Ct. 446. larly involve claims to interest that was generated actually by specific funds ac- v. Phillips Washington Legal Foun to the cording terms the investment in dation, question Court addressed question.9 of whether interest earned on clients’ in private funds held in IOLTA accounts Webb’s, In contrast Phillips, and private banks pur constituted Brown, deposited where the funds were poses Takings of the Clause. U.S. by banks, held third party here Texas 156, 118 1925, 141 S.Ct. L.Ed.2d 174. Tex provide State did not funds to a third as, states, like that lawyers other party deposited that were then in an inter holding funds, nominal amounts client est-bearing bank, private account in a that would otherwise unable be to earn depositor entered into a direct relationship ' interest, such in a separate, funds place with the Federal Reserve. Under normal interest-bearing Negotiable Order of With law, principals banking relationship “the (NOW) (an drawal bank account IOLTA between a bank depositor and its that account). Id. “All agree[d] under debtor and creditor.” Michie on Banks Texas law the held in IOLTA (1994). Banking, IX, ch. As the trust ‘private property’ [was] accounts .the Supreme put Court it century almost a 164, of the client.” Id. at 118 S.Ct. 1925. ago, when a bank deposits, receives applied The Court the “interest follows bank, “belong funds to the part become set principal” rule forth in Webb’sand held funds, general can be it loaned the interest earned client moneys.... as other general doctrine held IOLTA accounts was the customer, upon deposit made private Takings client ... title money to the is immedi 160, 101 Clause purposes. S.Ct. 446. in, ately vested and becomes the further clarified of, bank, open is not to question.” Legal Washing

Brown v. Foundation of 283, v. Burton per ton that a se occurred when the (1905) 243, 25 S.Ct. 49 L.Ed. 482 state then withdrew this interest and used (internal omitted); quotations City see also pay legal it to for the indigent. services Dallas, Douglas v. Fed. Bank However, Id. at 123 S.Ct. 489, 492-94, “just compensation” case no was due (1926). L.Ed. 1051 A rela debtor/creditor taking, to the clients as result tionship also existed with respect because “without IOLTA those funds paid amounts Re receive interest,” produced any would not have net serve notes held vault cash. id. at and the value argument during conceded oral that “there compensation “must measured qwed private [the net is no account to which Plaintiffs] losses rather than the interest was public’s gain,” id. at 123 S.Ct. 1406. recognize credited.”10 Texas State fails to See, e.g., of Corr., Dep't colloquy v. argument proceeded Schneider Cal. 10. The at oral (9th Hobbs, 1998); Hampton F.3d 1194 Cir. as follows: (6th Cir.1997); 106 F.3d 1281 Gillihan Question: private But there is no account (10th Cir.1989); Shillinger, 872 F.2d 935 to which interest credited? Morton Grove Park Dist. v. Nat’l & Am. agree. big pot. Answer: It’s all in one I Co., Trust 78 Ill.2d Ill.Dec. (1980); Smith, Bordy v. N.E.2d 1295 150 Neb. 34 N.W.2d 331 address, change Id. at 1293. Due to a by their deposits, its which reserve income, Id. generate not were did not receive check. As

own terms did Leider statute, fundamentally from the interest- by different after Leider’s check required Webb’s, in bearing accounts issue days, for 90 the un- remained uncashed Brown, And, contrary to Phillips. and to funds were transferred claimed argument, the mere fact that Texas State’s bankruptcy deposit court for with the compelled to maintain Texas State was Treasury, pending filing United States requirement deposit law—a reserves claiming his distributive petition a challenged not here—did not itself later, years Approximately share. two underlying nature their transform the filed a and received Leid- petition Leider such circum- rights. Under property estate, with- bankruptcy of the er’s share stances, if received even the funds a subsequently interest. Id. He filed out were used to earn inter- Federal Reserve Claims, alleg- in the Court of Federal suit est, property a acquire Texas did not pay failure to ing government’s “that the earnings. in the interest distributive share interest his very question court considered this Our a bankruptcy unclaimed funds constituted Corporation in Shoe v. Unit- United States property under Fifth Amend- taking of ed that, in contrast to ment.” Id. We found There, paid a harbor mainte- exporters Phillips, “be- the situations Webb’s subsequently nance tax that was found interest, there there existed no cause payments The tax be unconstitutional. Id. at nothing that could be taken.” refunded, exporters also were accords the traditional immuni- “This with to interest on the re- claimed entitlement ty from the burden of of the Government Takings tax under the Clause. Id. funded specifically agreed it interest unless takings claim al- exporter’s at 1384. The upon by imposed by legisla- or contract leged “government’s retention Goltra, tion.” United States on the the interest income earned tax rev- L.Ed. taking.” continuing enue a Id. We [was] here, no deposit was made a So “tax noted that revenue became bank, private party, third such as Treasury upon pay- mere earned interest. The fact resulted , [and][a]ccordingly, ment that the Federal Reserve owed debt to payments on the tax is also the earned not entitle Texas State to Texas State did government.” Id. re- property of the We or imputed an return on those funds to a claim, takings jected exporter’s Reserve. share held that “for the accrued interest to rise private property, princi- to the level of has failed to state a claim pal private must held an identified granted, relief as it had for which can be account,” example, by party a third interest, cognizable under the no our bank. Id. Under decision Amendment, earnings gener- Fifth Shoe, had no property through its ated Federal Reserve through right any generated Texas investment reserves. its the Federal Reserve’s investment of lack of State’s required reserves. by its earnings generated mandated re- claim, only fatal serves is its again this issue in Leider

We addressed illegal exaction and due but also no case, process illegal claims. There can be court issued a bankruptcy Leider, if process or violation check unsecured creditor. exaction due money argument property briefing exacted was never the requested. we ap This State. Texas was peal solely jurisdictional taken on the and, question NAFI having decided that

CONCLUSION question, adjudication the merits require reasons, foregoing For the affirm the we by the Court of Federal Claims. of Federal of this

Court Claim’s dismissal action. I

AFFIRMED. Since the substantive issue is nonethe- being by my less decided colleagues, I

COSTS must dissent from the panel majority’s costs. No misapplication of law and unsupported beyond conclusion. It is debate that mon- NEWMAN, Judge, concurring in Circuit ey property, is and that the earnings on part, dissenting in part. money that property. are In Webb’sFab- agree I the United is States Pharmacies, Beckwith, ulous Inc. v. funds appropriator for which Texas 155, 446, U.S. 101 S.Ct. 66 L.Ed.2d 358 compensation; claims thus it is (1980)the Court stated: irrelevant whether the Federal Reserve earnings of a fund are the incidents System is or is a Non-Appropriated of the ownership fund itself and are Instrumentality (NAFI), Funds for the re- n property just fund prop- itself is as.the quirement earnings Texas on erty. deposits State Bank’s with the Federal U.S. 446. Again must be paid Reserve Banks over to the Phillips Washington Foundation, Legal United States is an action of the 524 U.S. 118 S.Ct. States. Thus I concur in United (1998) L.Ed.2d 174 implemented Court holding court’s was States this right: properly before the Court of Federal question presented by this case is Claims, improperly and that the case was whether interest client earned on grounds. dismissed NAFI held on Lawyers [Interest Trust Ac- The case should now be remanded “private property” counts] is of either Claims determination attorney the client or the purposes question. respectfully the substantive I the Takings of the Fifth Clause Amend- from majority’s dissent under panel ment. We that it hold is the taking, sponte sua and at the behest of the client. party, ques neither the complex decide Legal Again Brown Foundation appropriation by tions raised Washington, (2003) 155 L.Ed.2d 376 the Court deposits. banks’ Reserve This issue was held that the interest earned on not decided the Court of Federal client, Claims, clients’ funds is the and no merits decision Although not of the presented for It state. the Court rec- appellate review. is as parties irregular ognized unfair as it no when earned court paid, undisputed to reach out and none had to it is decide this complex question upon post- the limited substantial is here earned.1 year fiscal Treasury. Federal Reserve was billion to the General fund of $3,752 App. Supplemental to transfer net Br. at Br. at 3.

1382 a mere incident of deposited funds are property. interest are

Principal and itself’); B & by Texas of the fund M ownership brief filed post-argument Workers, testimony 501 explain- Mine expert Corp. v. United contained Coal (Ind.1986) (“interest percent- specified 401, a ing placement that 405 N.E.2d compul- is the age earnings principal funds Reserve must follow and banks’ must met sory, deposits minimum that to the ultimate owners of be distributed the own their penalty paid, fund”); or banks Dist. No. the School Unified and can them deposits, 490, withdraw County County Butler v. Board of funds market.” and them in the “Fed trade County, Butler 237 Commissioners of the Indeed, disputed (1985) (“[I]n- it is not banks 6, 64, 9, Kan. 697 P.2d 69 They deposits. also own own their reserve Pontiac principal”); follows terest deposits. those the interest earned Pontiac, City v. 294 School Dist. principal’ “The rule that ‘interest follows 141, 708, 294 144 Mich. N.W. English com- has established under (“The been (1940) generally and understood at least the mid-1700’s.” mon law since merely is applied principles interest 165, 524 118 S.Ct. Phillips, the and must be principal an incident of Phillips representative cited for”); Highway accounted states, holding from the various cases 121, Spainhower, 504 Comm’n v. S.W.2d is the owner interest (“Interest (Mo.1973) by a 126 earned principal: funds is an increment deposit special 109, E.g., Young, Freeman v. 507 So.2d (internal accruing quotation thereto” (“The earnings (Ala.Civ.App.1987) omitted)); Siroky v. marks Richland ownership are of the fund incidents 67, 74, 309, P.2d County, 271 Mont. just are as fund itself and (1995) (“[Ijnterest belongs to earned (internal is property” quota fund itself generated of the funds that the owner omitted)); City tion marks Pomona interest”) .... Payne, Cal.App.2d v. School Dist. list into con- The Court’s extensive drums (1935) (“[OJbvious 512, 50 P.2d universality of the rule that sciousness belong ly interest accretions to such belongs deposited owner”); Westport, Realtors Vidal Phillips, deposited of the funds. owner Assocs., Inc., 1 Harry Inc. Bennett & 5,n. 1925. No 524 U.S. at 165 291, 297-298, 471 Conn.App. A.2d exception has been noted. (“As (1984) long the attached leave no precedent Law and doubt is profit, profit is used for fund money prop- deposited are the impounded for the benefit of attach erty depositor, of the the custodian ing subject creditor and is the same not of state. If this court is to and disposition principal as the ultimate depos- unique exception create bank (internal quota which it is the incident” Reserve, sup- more its with the Brito, omitted)); tion marks Burnett majority’s port panel than the (Fla.App.1985) So.2d theory deposits are not that because interpleaded (“[A]ny interest earned on and earn- “interest-bearing” labeled deposited and funds follows the big “in ings placed pot” are one be allocated to and shall whomever banks, maj. n. op. see Federal Reserve principal”); found entitled to the Morton is not the the interest Park Dist. v. American Nat. Grove depositor. Co., 362- Bank & Trust Ill.2d Indeed, 767, 771, government does not take 35 Ill.Dec. 399 N.E.2d (1980) (“The position that owns on the (or Congress, either the Reverse banks and years only some cash) thereon; or the demand. The the vault entire case is rife unexplored legal, economic, government’s poli- position is that the Federal considerations, cy high. are stakes Reserve owns the interest because the ac- The ultimately correct answer to all the designated counts are as non-interest- questions resolution, awaits for the court’s bearing, and thus when Texas State decision today is as unsupported as it is Bank made in a non- premature. It demands the considered account, interest-bearing yielded it all judgment, instance, in the first by the right to the interest earned those de- Federal Claims.2 posits. That accounting argument does support appropriation not of billions of II depositors’ dollars of property. bank panel majority, justifying its treat- The United States describes its diver- issue, ment of this unappealed states that gener- sion of the Reserve simply affirming it is the trial court’s deci- al “a tax upon the Federal on an ground. However, sion alternative System.” Supplemental issue, Br. the trial court did decide the any ground. Only at 3 n.3. Texas State Bank observes that threshold NAFI decided, question was only such a “tax” not on the Federal Re- NAFI question is us. before System, serve but on all persons who and, place money their in banks absent

taxing authority, raises Fifth Amendment Indeed,

concerns. years some the di-

version of the Reserve income act majority opinion suggests par- panel that the requested was not commensurate with object" "considering" ties "did not to our the merits. parties merits. The were told never that we Indeed, going were to decide the merits. scope supplemental briefing that “Federal notes nor that stipulated Reserve Control such a mandatory Rather, requirement taking.4 held reserves the form constituted a Finance, position Banking, 1.The Federal Reserve has taken the on House Committee and "[n]oninterest-bearing 1992). require- (March 6, reserve Urban Affairs represent depository on ments tax institu- suppliers tions is not borne other Testimony Acting Treasury Under Secre- 2. impairs services ef- [and which] financial tary V. before Donald Hammond the Sub- ficiency Paying of resource allocation.... on Financial and committee Institutions Con- such interest would circumvent the ill-effects of the sumer Credit Committee Financial requirements preserving reserve while Services, Representatives, U.S. House of advantages monetary policy.... their March 2001. requirements provide for a [R]eserve reason- ably predictable for overall demand reserve by merger Texas State is the successor to balances for the [which] is essential effective Trust, Communily party Bank and which implementation operations.” open market deposits years. made the in earlier Chairman, Greenspan, from Letter Alan Sys- Board of Governors Federal Reserve tem, Neal, Chairman, Rep. decision Stephen Under our in Commonwealth Edi- Sub- Monetary Policy imposition committee on "mere Domestic son Co. v. cause gress and that were the its asserted complaint, Texas State Feder “[ijncome alleged taking, not those of the principal is the on the Reserve, al and that the NAFI doctrine such, As principal. the owner of the Trust, apply. Cmty. Bank & did not belong vault cash income on alternative, In the at 356. Fed.Cl. depository institutions [sic] failure government moved to dismiss for required reserves.” have maintained claim, moved and Texas State state ¶28. alleged Complaint at respect to partial summary judgment with engaged in a States had claim, contending its liability on by directing the Fifth Amendment princi light of the “interest follows “earnings transfer deci pal” holdings Court’s by depos- reserves maintained Pharmacies, Inc. in Webb’sFabulous sions Treasury. Id. at itory institutions” to the Beckwith, 155, 101 449 U.S. ¶¶ complaint alleged, 28-31. The also (1980), Phillips v. Wash L.Ed.2d alternative, process a violation of due Foundation, Legal ington ¶¶ exaction. Id. at 30-31. illegal or 1925, 141 (1998), L.Ed.2d 174 sought money damages equal “payment of interest on

Case Details

Case Name: Texas State Bank v. United States

Court Name: Court of Appeals for the Federal Circuit

Date Published: Sep 21, 2005

Citation: 423 F.3d 1370

Docket Number: 2004-5126

Court Abbreviation: Fed. Cir.