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March 22, 2000


The opinion of the court was delivered by: Illston, District Judge.


On February 11, 2000, the Court heard argument on a motion for summary judgment by defendant C.A. Terhune, Director of the California Department of Corrections ("CDC") and a motion for preliminary injunction by plaintiffs. Having carefully considered the arguments of counsel and the papers submitted, the Court GRANTS defendant's motion for summary judgment and DENIES plaintiffs' motion for preliminary injunction.


1. Procedural History

Plaintiffs are fifteen current and former California inmates who have brought a § 1983 action against defendants California Department of Corrections ("CDC"), James Gomez, former Director of the CDC, and C.A. Terhune, current Director of the CDC. Plaintiffs allege that defendants committed an unconstitutional taking and violated prisoners' equal protection rights by failing to pay interest on funds deposited by prisoners in Inmate Trust Accounts ("ITAs").

On March 24, 1997, this Court held that plaintiffs did not possess a property interest in the interest income earned on money placed in ITAs and dismissed plaintiffs' complaint without leave to amend. See Schneider v. California Dept. of Corrections, 957 F. Supp. 1145, 1149 (N.D.Cal. 1997). After this Court denied reconsideration of its ruling, plaintiffs appealed. On August 4, 1998, the Court of Appeals for the Ninth Circuit reversed and remanded, holding that plaintiffs possessed a constitutionally cognizable property right in the interest earned on funds deposited into the ITAs. Because such a property right triggered Fifth Amendment takings scrutiny, the Court ordered further discovery and proceedings regarding accrual of actual or constructive interest on ITA funds. See Schneider v. California Dept. of Corrections, 151 F.3d 1194, 1201 (9th Cir. 1998).

On May 14, 1999, plaintiffs filed an amended complaint, alleging § 1983 damages resulting from defendants' alleged unconstitutional taking and violation of plaintiffs' equal protection rights. Plaintiffs also requested injunctive relief. On August 20, 1999, this Court dismissed defendants CDC and James Gomez from this action. See Schneider v. California Dept. of Corrections, No. 96-1739 SI (N.D.Cal. Aug. 20, 1999) (Order Granting Motion to Dismiss). Now before the Court is defendant Terhune's motion for summary judgment, and plaintiffs' motion for preliminary injunction.

2. Factual History

Plaintiffs are current and former state inmates of Pelican Bay State Prison, California. Correctional Institution, and the Central California Women's Facility. The inmates allege that defendant Terhune has violated the Fifth Amendment Takings Clause and the Fourteenth Amendment Equal Protection Clause by failing to pay constructive interest on funds deposited by prisoners into ITAs, but offering interest to state parolees. See Compl. ¶¶ 30-31, 39-41.

For security reasons, state prisoners are not permitted to possess money while in prison. See 15 C.C.R. § 3006(b); Flores Decl. ¶ 3. Should prisoners wish to have access to funds while incarcerated,*fn1 inmates can choose to place their money in either an ITA, which does not earn interest to the prisoner, or in a Passbook Savings Account, which does earn interest.*fn2 See Flores Decl. 1 6; Response to Plffs' Second Set of Interrogatories, No. 1. Only those funds placed in an ITA are available to inmates for use in the prison Canteen*fn3 to purchase items such as soap and toothpaste. See Flores Decl. ¶ 6. The CDC does not charge the prisoners a fee for maintaining the ITAs. See id. ¶ 2.

The California Penal Code provides that, when specifically authorized on a separate written form by the inmate, the CDC may place ITA funds into an interest-bearing bank account. See Cal.Penal Code § 5008; Declaration of Counsel in Supp. of Mtn. for Prelim. Inj., Exh. E. Prior to October 1998, ITA funds that exceeded the estimated current needs of inmates were deposited into the Inmate Welfare Fund ("IWF"), a fund which is used to improve prison conditions and provide prisoner programs, such as movies and library materials. See Flores Decl. ¶¶ 7, 9. In turn, IWF funds in excess of the estimated needs of the IWF program were deposited into the State Treasury. See Flores Decl. ¶ 7. Any interest earned on these excess IWF funds was returned to the IWF account. See id.*fn4 However, as of October 1998, excess ITA funds are no longer transferred into the IWF account or the State Treasury. Rather, these funds remain in the individual inmates' non-interest-bearing ITAs.

Based upon a survey performed by R. Flores, Chief of the Inmate Welfare Fund and Trust Accounting Section of the CDC, defendant estimates that operating the current non-interest-bearing ITA system costs $1,1789,892 per year (or $7.84 per prisoner), no part of which is actually charged to the prisoners. See Flores Decl. T ¶ 2, 11. The CDC further estimates that the annual interest earned on ITA funds would total $516,116.28, or $3.43 per prisoner. See id. ¶ 12. In order to institute and maintain a system in which ITA funds earn interest and in which that interest is accounted for to each individual inmate, additional staffing, equipment, and office space costs may also be necessary. See id. ¶ 10. As such, interest-bearing ITA accounts would generate substantial, systemic net losses. See id. ¶ 13.


A motion for summary judgment may be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses which demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. However, on an issue for which the nonmoving party will have the burden of proof at trial, the movant can prevail merely by pointing out that there is an absence of evidence to support the nonmoving party's case. Id. If the moving party meets its initial burden, the nonmoving party must then set forth, by affidavit or as otherwise provided in Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Fed.R.Civ.P. 56(e).

In judging evidence at the summary judgment stage, the Court does not make credibility determinations or weigh conflicting evidence and draws all inferences in the light most favorable to the nonmoving party. See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Assn., 809 F.2d at 630-31. The evidence presented by the parties must be admissible. Fed.R.Civ.P. 56(e). Hearsay statements found in affidavits are inadmissible. See, e.g., Fong v. American Airlines, Inc., 626 F.2d 759, 762-63 (9th Cir. 1980). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. See Falls Riverway ...

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