#18 Fall 1996


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TAFOL President Michael J. Mazzone emerged victorious as both a Plaintiff and a participating lawyer recently when the U.S. Court of Appeals for the Fifth Circuit dealt a potentially fatal setback to programs that siphon money from lawyers' bank accounts to fund liberal legal causes.

In the case of Washington Legal Foundation, et al. v. Texas Equal Access to Justice Foundation, decided on September 12, 1996, the Fifth Circuit held that clients have a property right in the interest that accrues on their funds held in lawyers' trust accounts. In this one stroke, the Court cut the legs out from under a Texas program that finances liberal lawsuits by skimming the interest off the trust accounts that lawyers establish to hold their clients' funds.

The name of this program is IOLTA, which stands for "Interest on Lawyer Trust Accounts." Such programs are active not only in Texas but in virtually every state in the Union. All IOLTA programs rest on one basic premise, which the Fifth Circuit ruling smashed to pieces---the premise that clients have no property rights in the interest that their money earns while sitting in a lawyer's trust account.

Under Article XI of the State Bar Rules, Texas lawyers are required to maintain IOLTA accounts for all client funds that are "nominal in amount or are reasonably anticipated to be held for a short period of time." The interest earned on these accounts is then paid to the Texas Equal Access to Justice Foundation ("TEAJF"), which in turn pays money to organizations who are supposed to provide legal services to the poor in civil matters.

On its face, the idea that a money holder has no right to the interest on his money is preposterous. But for many years, the courts have held just that, placing great weight on the fact that the amount of interest accruing to any one client is normally so small as to be negligible. When the interest is pooled together, however, it totals in the millions. Texas IOLTA revenues have climbed as high as $9 million in a year, although falling interest rates have reduced the flow of funds in recent years.

The Fifth Circuit case began in 1994 when Mazzone, who is a Texas lawyer, and one of his clients, along with the Washington Legal Foundation, sued the Texas Supreme Court and the TEAJF, claiming that Texas’ mandatory IOLTA program violates the First and Fifth Amendments of the U.S. Constitution. Mazzone donated many hours of professional effort to the cause, while TAFOL funded his expenses at the trial and appellate levels.

The Fifth Circuit reversed the district court's judgment, which had upheld the constitutionality of

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the Texas IOLTA program. The appellate court also remanded the case to the trial court for a determination of whether the clients' interest income was taken against their will.

The Fifth Circuit rejected the State's argument that IOLTA is "modern day alchemy," that property can be created from nothing. The court refused to base property rights on anomalies in banking regulations and the "fickle" tax code, which the State relied upon to support its arguments. "This short-sighted view of property renders it unacceptable," the Court said.

The Fifth Circuit's decision should end mandatory IOLTA in Texas and perhaps other states in the Fifth Circuit. However, the Court's decision conflicts with decisions of the First and Eleventh Circuits, both of which held that clients have no property rights in the interest earned on their funds held in IOLTA accounts, that IOLTA interest belongs to no one, and that, therefore, the state can take the interest. This important matter may very well be headed to the Supreme Court. If so, Mazzone intends to continue acting as a spokesman for the constitutional protection of property rights, and TAFOL will continue
to support him.

In his brief to the trial court, after many pages of closely reasoned legal argumentation, Mazzone asserted that the only moral purpose of government is to protect individual rights. He then included the following quotation from Ayn Rand:

     It was the concept of individual rights that had given birth to a free society.
     It [is] with the destruction of individual rights that the destruction of freedom
     [has] to begin. A. Rand, "Man's Rights," The Virtue of Selfishness 95 (1964).

The Fifth Circuit's opinion can be found and downloaded on the Internet at: http://www.law.utexas.edu/us5th/us5th.html

* * *

TAFOL was planning to file an amicus brief with the U. S. Supreme Court in Hopwood v. Texas, but the Court let stand the Fifth Circuit decision, which had struck down the University of Texas Law School's affirmative action program. This deprived TAFOL of the opportunity to submit an amicus brief. However, affirmative action in education is not dead, and the Fifth Circuit's decision applies only to states within that judicial circuit. So, further court challenges are virtually certain.


Robert S. Getman, Vice President of TAFOL, recently spoke on the Leonard Peikoff radio show, discussing the insanity defense. Getman supported the common law M'Naghten test as an objective test based on cognitive disorder: did the accused know what he did and, if so, whether it was wrong. This test determines whether a person is out of his mind, out of touch with reality, and unable to exercise volition. Criminally, we punish intentional, willful acts (or those one can know to be so reckless as to be equivalent). Getman reasoned that the burden of proof should be high and should rest on the accused. He also distinguished between insanity brought about by the accused (e.g., through drug use or a history of abusing one's own mind) that should not eliminate punishment and insanity by involuntary causes (e.g., mental illness caused by a brain tumor) that may mitigate or eliminate punishment. Getman criticized, as prime examples of non-objective law, the insanity tests used in one state (simply let the jury decide without any particular instruction) and for a time in Washington D.C. (simply asking if the crime was the "product" of a "mental disease or defect"). A tape of the show may be obtained through Second Renaissance Books.

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On July 7, 1996, TAFOL continued its tradition of making presentations at Objectivist conferences. Last year, at the Lyceum International Conference in San Francisco, a panel consisting of former TAFOL presidents Arline Mann and Stephen Plafker joined with philosopher Gary Hull in answering questions from the audience about Objectivism and the law. This year, a panel at the Second Renaissance Conference in McLean, Virginia consisted of Gary Hull and TAFOL's Board of Directors: Thomas A. Bowden, Stephen Plafker, and Robert S. Getman. Questions and comments from the audience were entertained. The most controversial question was whether a criminal defense lawyer who knows his client to be guilty may ethically point out to a jury the prosecution's failure to establish guilt beyond a reasonable doubt.


Thomas A. Bowden, a member of TAFOL's Board of Directors, gave a course entitled "Concretizing the Principles of Objective Law" at the 1996 Second Renaissance Conference, "Ideas for the Rational Mind, " in McLean, Virginia. After a theoretical introduction, the lectures employed a variety of actual court cases to demonstrate that law must be objectively derived, formulated, enacted, applied, and enforced. Each of the cases, which were chosen for their unusual and memorable facts, illustrated a certain aspect of legal objectivity. The four one-hour lectures were taped for distribution through Second Renaissance Books and should be available early in 1997.

Bowden also appeared on the Leonard Peikoff radio show on Columbus Day, October 14, 1996. Guest Host Gary Hull led the discussion, in which Bowden addressed Columbus' historical significance and praised him for bringing Western civilization to a savage wilderness.


The following individuals have recently provided welcome financial support to TAFOL through their contributions: Curtis Weidler, Peter J. Marsala, Mark A. Nikitman, Julie Repass, Dana Landrum, Robert Prince, Brigid McMenamin, Joseph Giblin, Lisa A. Williams, Magaly Spector, and Paul L. Svitenko.


The winner of TAFOL's Second Annual Essay Contest is Donald Kochan of Cornell Law School, whose winning essay---written in the form of an appellate court opinion applying Objectivist principles---is reproduced below. The second place winner was Dana Maloch Landrum of the University of California, Hastings College of Law, and the third place winner was Curtis Weidler of the University of Michigan Law School.

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[The following is a comparison of the result and reasoning of City of Oakland v. Oakland Raiders, 32 Cal. 3d 60, 183 Cal. Rptr. 673, 646 P. 2d 835 (1982), with the result and reasoning had the case been decided on the principles stated by Ayn Rand in "Man's Rights" and "The Nature of Government." To facilitate this comparison, this essay will be in the format of a fictional dissent to the actual opinion by the Supreme Court of California from a justice with views paralleling those of Ayn Rand.]

* * *

City of Oakland v. Oakland Raiders

Justice Narragansett, dissenting

The City of Oakland appeals from a summary judgment dismissing its action to acquire by eminent domain the property rights associated with Oakland Raiders' ownership and franchise of a professional football team. Because the nature of government restrains the City of Oakland from using the force of eminent domain unless it is acting as an objective agent facilitating retaliatory force, I respectfully dissent. I conclude that the trial court was correct in granting summary judgment and would vote to affirm that ruling.

In 1980, contract negotiations between the Raiders and the Oakland-Alameda County Coliseum, Inc. broke down and the Raiders announced its intention to move the football
team to Los Angeles. The City of Oakland commenced an action in eminent domain to condemn the "property" in the Raiders franchise in order to retain the team in the City.

The City insists that it has the power of eminent domain and that what it seeks to condemn is "property" which is subject to that power. The Raiders argue that the law of eminent domain does not permit the taking of intangible property thereby rendering impossible City's condemnation of the football franchise which respondents describe as a "network of intangible contractual rights." Further, respondents claim that the taking contemplated by the City cannot as a matter of law be for any "public use."

Before addressing these specific issues, two preliminary inquiries must be made: (I) whether eminent domain is a protected power found within the scope of legitimate government action; and (II) whether the exercise of eminent domain furthers the legitimate aims of government, or whether it actually frustrates them. The power of eminent domain is contrary to the principles underlying the nature of government and man's rights and, therefore, void. Eminent domain goes beyond the powers inherent in the nature of a legitimate government which respects man's nature, is violative of those individual rights in property which must be protected by a legitimate government, and, in this case, is contrary to the individual rights to contract necessary to a capitalist society.

The majority would remand this case for a determination on whether the City has satisfied the requirement of "public use." This remand is unnecessary, however, because the government does not have the power of eminent domain and may not take property for any purpose other than as retaliatory punishment. The noted philosopher Ayn Rand emphasizes the necessity for prohibiting the government from having powers such as eminent domain:

     "[G]overnment holds a monopoly on the legal use of force. It has to hold such
     a monopoly, since it is the agent of restraining and combating the use of force;
     and for that very same reason, its actions have to be rigidly defined, delimited,
     and circumscribed; no touch of whim or caprice

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     should be permitted in its performance; it should be an impersonal robot, with the
     laws as its only motive power. If a society is to be free, its government has to
     be controlled." [Ayn Rand, THE VIRTUE OF SELFISHNESS 109 (New American
     Library, 1964)]

To preserve a free society, the City's powers must be controlled and, consequently, the exercise of eminent domain cannot be upheld.


The majority recognizes that we have held, "The power of eminent domain is an inherent attribute of sovereignty," and claims that this premise is universally accepted and necessary to the existence of government.1 The ability to condemn land to public use, however, is neither a necessary nor a legitimate function of the state and the notion that eminent domain is an inherent attribute of sovereignty is false.

The majority is incorrect in stating that there can be "changing conceptions of the scope and functions of government."2 There is, indeed, only one permanent and defined function of government: "A government is the means of placing the retaliatory use of physical force under objective control---i.e., under objectively defined laws." [Rand at 109] Force is understood to be any intrusion upon a man's rights. Protecting man's rights through an objective system for punishing wrongs and resolving disputes is exhaustive of the powers allowable to any government in a free society. This concept of government is embraced by our Founding and should guide our decision making. Rand states:

     "The Declaration of Independence laid down the principle that 'to secure these
     rights, governments are instituted among men.' This provided the only valid
     justification of a government and defined its only proper purpose: to protect
     man's rights by protecting him from physical violence." [Rand at 95]

The taking of property through eminent domain can, therefore, only be justified if it is found to be an exercise of force in response to a wrong or to protect the rights of individuals.

Confiscating private property to put it to "public use" is not within the scope of this power. Exercising eminent domain means exercising force against man's rights in property, but the end of government is to limit the use of force. Force is only justified to combat force. "[G]overnment . . . may use force only in retaliation and only against those who initiate its use." [Rand at 95] It follows that government may exercise the force of seizing property only to proportionately retaliate against another who has first initiated force.

When a landowner uses his land in a noxious manner so as to invade the rights of his neighbors, the government is justified, through, e.g., the tort system, in forcing that owner to compensate those he has violated. In that case, the judgment against the owner is merely a retaliation for the force first exerted by the owner---that is, in defense of a prior wrong. In this case, there is no showing that the owners of the Raiders have violated or intruded upon the rights of any individual.

Though their relocation may have an economic impact on the citizens of Oakland, this cannot be defined as the initiation of a punishable wrong for two reasons: First, the government lacks the power to preempt individual action on speculation that it may impact someone's rights in the future. It may only punish actual wrongs after they have been committed, relying on the deterrent effect of such punishment to persuasively prevent the commission of wrongs. Second, the economic impact of relocation is not a deprivation of any right held by the citizens of Oakland. They are not entitled to benefit from the use of another's property. If the state grants the citizens such an entitlement, it is violating a fundamental principle of freedom. Rand states that, "If some men are entitled by right to the products of the work of others, it means that those others are deprived of rights and condemned to slave labor." [Rand at 96]

The City of Oakland is not asking for the power to retaliate against any wrong; instead it is asking to

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use its monopoly on power to gain an unearned benefit for itself. For this reason, eminent domain cannot be an attribute of the sovereign in a free society. It is beyond the scope and nature of government for an authority to have such a power.


Eminent domain is not only outside the scope of legitimate government action, it also is a violation upon those rights of man that government has both an obligation to protect and refrain from intruding upon. Our judicial power must be guided by the principle of individual rights. As Rand states, "The United States held that man's life is his by right (which means: by moral principle and by his nature), that a right is the property of an individual, that society as such has no rights, and that the only moral purpose of a government is the protection of individual rights." [Rand at 93] When man consents to be governed, he surrenders
only his right to physical self-defense, and no others.

Man's rights in property cannot be overridden by a government's desire to acquire property in the name of the public. In fact, there is no real concept of "the public", for society is only a collection of individuals. [Rand at 92] Individuals must be the focal point of every analysis of a governmental action, for the Bill of Rights is "an explicit declaration that individual rights supersede any public or social power." [Rand at 95]

Ayn Rand defines the nature of property rights as a corollary to the fundamental right to life:

     "The right to life is the source of all rights---and the right to property is their
     only implementation. Without property rights, no other rights are possible.
     Since man has to sustain his life by his own effort, the man who has no right
     to the product of his effort has no means to sustain his life. The man who
     produces while others dispose of his product, is a slave. Bear in mind that the
     right to property is a right to action, like all the others: it is not the right to an
, but to the action and the consequences of producing or earning that
     object. It is not a guarantee that a man will earn any property, but only a guarantee
     that he will own it if he earns it. It is the right to gain, to keep, to use and to
of material values." [Emphasis added; Rand at 94]

Property rights are inherent in man's nature. Eminent domain, however, presumes that property rights are merely objects conferred, and revocable, by the state. Given that this notion is contradictory to the premise that an individual may keep that which is his own, it cannot be sustained by this court.

Furthermore, the Raiders must be allowed to dispose of, or transfer, their interests in property. Rand explains that, "A private individual may do anything except that which is legally forbidden; a government official may do nothing except that which is legally permitted. " [Rand at 109-110] Given that property is connected with the individual, the rights to that property must retain mobility. Hence, the Raiders are not forbidden from relocating the team to Los Angeles, for it is merely carrying its property with its person from one location to another.

Because the government's function is to secure man's r ights, any action it takes to disturb the sanctity of property rights cannot withstand judicial scrutiny. When the sovereign retains a power to seize property at any moment, man lacks the security and stability in his rights necessary to productively exist. "Man has to project his goals and achieve them across a span of time; he has to calculate his actions and plan his life long-range." [Rand at 111] If the government instead contributes to the insecurity of those rights, the ability to plan one's life and the incentives to engage in productive behavior disappear. One cannot, under such a system, be confident that his efforts will be worthwhile.

Most threatening, is that eminent domain is criminal behavior masked behind the power of the state. A government conducts unprovoked thievery when it chooses to punish a landowner by seizing his property in a non-retaliatory action. Even if the government compensates the owner for a taking, it is still exercising illegitimate theft. A private individual cannot enter your home and steal a prized painting and go unpunished

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merely because he left behind the value of the painting in cash. This is no less theft than had the burglar taken the painting without leaving behind "compensation." Government cannot be seen as fulfilling its duty to protect men from criminals when it acts as a criminal itself.


Even if we assume that eminent domain could be exercised as a proper power held by the government, the extension of that power to the facts of this case cannot be justified. My brother, Chief Justice Bird, is correct when he states that "the potential for abuse of such a great power is boundless," and when he describes the majority's decision as an "unprecedented application of eminent domain law."3 Yet, somehow, he fails to invalidate what he calls an "aspect of creeping statism."

Our precedents have moved us to accept, though wrongfully, the power of eminent domain over real property. The majority reads the California statute as extending that power to intangible property rights, such as those interests in a professional football team. Such an extension allows the state to seize the property interests individuals have in all of their rights. James Madison recognized this threat when he wrote, "[A]s a man is said to have a right to his property, he may be equally said to have a property in his rights. Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions." [James Madison, 14 THE PAPERS OF JAME MADISON 266 (Rutland ed., 1983) (from an essay entitled "Property" published March 27, 1792 in The National Gazette)] I fear that the precedent set by today's majority threatens the sanctity of every aspect of man's freedom. At the very least, our prior decisions upholding eminent domain over real property must not be extended to intangible property rights.

Even if the statutory interpretation is reasonable, the statute itself cannot be upheld. "Since the protection of individual rights is the only proper purpose of a government, it is the only proper subject of legislation: all laws must be based on individual rights and aimed at their protection." [Rand at 110] This law seeks not to protect but to defeat property rights, and thus, is invalid.

Because eminent domain itself is invalid, it is unnecessary to discuss whether the operation of a football franchise constitutes a public use. A brief discussion of this, however, may be appropriate. If, under our current law, a public use can include the ownership of an enterprise like a football franchise, the state's powers increase dramatically. If we hold that part of the city's function is to seize and run private businesses, we have upheld the state control of industry. Such a concept is both in excess of the government's legitimate authority and contrary to capitalism.


The City of Oakland's actions are also violative of the right to contract. The Raiders persuasively argue that the City's actions infringe upon a network of contracts, affecting many individuals outside of the City's jurisdiction. More important than the jurisdictional question, however, is the need to refrain from infringing the freedom of contract. Protection of that right is a necessary condition for capitalism; and capitalism is the only system that can support a free society.4 [Rand at 92] It is for this reason that the U.S. Constitution codifies that protection by stating that, "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." [U.S. Const., Article I, Sec. 1 0(l)] The protection of these voluntary relations is necessary both to protect the rights of man and to ensure the productivity necessary for a self-sustaining community.


Ayn Rand illustrated the duty to constrain the powers of government when she wrote:

     A complex legal system, based on objectively valid principles, is required to make
     a society free and to keep it free---a system that does not depend on the motives,
     the moral character or the

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     intentions of any given official, a system that leaves no opportunity, no legal
     loophole for the development of tyranny. [Rand at 114]

Prohibiting the government from exercising eminent domain is necessary to close up a loophole that has allowed itself to invade our system of governance. When this "power" is eliminated, the opportunity for tyranny will be dealt a much needed blow.

The majority struggles to find authority to invalidate this exercise of eminent domain and finds none. It asks, "[I]f the city fathers of Oakland in their collective wisdom elect to seek the ownership of a professional football franchise are we to say them nay? And, if so, on what legal ground?"5 The answer is clear. Fundamental principles of government and man's rights. I cannot, with good conscience, uphold a power that runs contrary to these principles.

Eminent domain is outside of those limited powers in the nature of government. It exercises force without combating force, violates the rights of those who have not violated another's rights, and infringes upon the freedom of contract necessary to sustain a free society. "A government is the most dangerous threat to man's rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. When unlimited and unrestricted by individual rights, a government is men's deadliest enemy." [Rand at 98] It is our duty to protect men from the expansion of government. This duty can only be fulfilled by holding invalid the City's power of eminent domain. For these reasons, I would affirm the grant of summary judgment in favor of the Oakland Raiders.


1. City of Oakland v. Oakland Raiders, 32 Cal.3d 60, 64, 183 Cal.Rptr. 673, 676, 646 P.2d 835, 837-8 (1982).

2. 32 Cal.3d 60, 72; 183 Cal.Rptr. 673, 680; 646 P.2d 835, 842.

3. 32 Cal.3d 60, 76; 183 Cal.Rptr. 673, 683; 646 P.2d 835, 845.

4. Rand states, at 92: "If one wishes to advocate a free society---that is, capitalism---one must realize that its indispensable foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold
and protect them."

5. 32 Cal.3d 60, 73; 183 Cal.Rptr. 673, 681; 646 P.2d 835, 843.

Copyright © 1996 The Association for Objective Law. All rights reserved. The Association for Objective Law is a Missouri non-profit corporation whose purpose is to advance Objectivism, the philosophy of Ayn Rand, as the basis of a proper legal system.