California Penal Code allowing or requiring the Director of Corrections to pay interest earned from funds in an ITA to an inmate. Thus California law specifically does not create a protected property interest that can be vindicated by the Fifth and Fourteenth Amendments.
Plaintiffs cite Tellis v. Godinez, 5 F.3d 1314 (9th Cir. 1993), for the proposition that prisoners have a constitutionally protected property right in interest income from an ITA. In Tellis, the Ninth Circuit held that a Nevada statute requiring that interest earned on prisoners' personal funds be credited to prisoners' accounts created a protected property interest in the interest income. Id. at 1317.
The facts of Tellis are wholly distinguishable from the facts of the instant case, because the state law in Nevada is quite different from the law in California. The decision in Tellis was based entirely on the language of Nevada Revised Statute § 209.241, which provides that "the interest and income earned on the money in the fund, after deducting any applicable charges, must be credited to the fund." The Ninth Circuit held that this language required the prison to credit the interest earned on this fund back to the fund and proscribed the prison from spending the interest or withdrawing the interest for other purposes. The Court found that the Nevada statute "created a protected property interest in the interest and income" earned in the account. Id. at 1317.
Unlike the Nevada statute, Cal. Penal Code § 5008 does not mandate that interest earned on prisoner trust accounts be credited back to the individual prisoners account. To the contrary, Cal. Penal Code § 5008 specifically provides that such interest shall be deposited in the Inmate Welfare Fund. The California regulations at issue in this matter are thus very different from the Nevada regulations in Tellis.
Tellis does not hold broadly that inmates always have a constitutionally protected right to interest earned in prisoner bank accounts; rather it holds that they have such a right if state law provides it to them. In California, it does not.
Several district courts have also ruled on this issue and have rejected the argument that prisoners have a constitutionally protected property interest in interest income. See, e.g., Cole v. McGinnis, 843 F. Supp. 320, 325 (E.D. Mich. 1994) (no state statute provided prisoners with a protected property interest in interest earned on accounts; therefore failure to pay interest was not a taking); Gray v. Lee, 486 F. Supp. 41 (D.Md. 1980) (failure to pay interest on inmates' funds held in spending accounts not unconstitutional because inmates had an option of transferring funds to commercial interest-bearing accounts); Smith v. Robinson, 456 F. Supp. 449 (E.D. Pa. 1978) (courts have yet to recognize a right to earn interest on funds received while incarcerated).
Plaintiffs also contend that their entitlement to the interest generated by funds in an ITA springs from an independent source. Plaintiffs cite two cases, Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 66 L. Ed. 2d 358, 101 S. Ct. 446 (1980), and United States of America v. $ 277,000 U.S. Currency, 69 F.3d 1491 (9th Cir. 1995), in support of this proposition. However, the Court finds that these cases are distinguishable from the instant case and do not support the plaintiffs' assertion that they have a constitutionally protected property interest in the interest income earned from inmate trust accounts.
In Beckwith, the Supreme Court struck down as unconstitutional a Florida statute that allowed a Florida county to keep $ 100,000 in interest earned on an interpleader fund deposited in the county court. In its decision, the Supreme Court emphasized that there was a Florida statute that provided for a separate fee to be paid to the county for holding the funds and thus there was insufficient justification for the county to take the interest on the interpleaded funds. The Court emphasized the narrowness of its holding:
We hold that under the narrow circumstances of this case -- where there is a separate and distinct state statute authorizing a clerk's fee . . . where the deposited fund itself concededly is private; and where the deposit in the court's registry is required by state statute . . . the interest earned on the interpleader fund while it was in the registry of the court was a taking violative of the Fifth and Fourteenth Amendments.
449 U.S. at 164. The facts of the instant case distinguish it from the holding in Beckwith. The narrow holding of that case cannot be expanded to create a constitutionally protected property interest in interest income that is not created by state statute.
$ 277,000 is also distinguishable from the instant case. $ 277,000 involved funds that were seized by the United States and were found later to be the lawful property of the owner. The Ninth Circuit recognized that the government had immunity from a civil damages suit but held that "it must disgorge benefits that it has actually and calculably received from an asset that it has been holding improperly." Id. at 1498. In this case there has been no seizure of the prisoners assets by the government and their funds have not been held improperly or illegally.
Thus, the 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.
For the foregoing reasons and for good cause shown, the Court hereby GRANTS defendants' motion to dismiss for failure to state a claim without leave to amend.
IT IS SO ORDERED.
Dated: March 21, 1997
United States District Judge
In accordance with the Court's Order of March 21, 1997, judgment is hereby entered in favor of defendants and against plaintiffs.
IT IS SO ADJUDGED.
Dated: March 24, 1997.
United States District Judge