Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-00156/USCOURTS-cand-5_03-cv-00156-10/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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United States District Court

For the Northern District of California

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1

 At different times in this action different individuals have served as the Controller of the

State of California and additional individuals have been named as defendants as well. The status of

some of these individual defendants is discussed below. For convenience, this Order will refer to

defendants simply as “the Controller.”

1

*E-FILED 4/1/08*

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

AGNES SUEVER, et al., 

Plaintiffs,

 v.

KATHLEEN CONNELL, et al.,

Defendants. /

NO. C 03-00156 RS

ORDER CERTIFYING ISSUE

FOR INTERLOCUTORY

APPEAL, AND DECIDING

OTHER PENDING MOTIONS

I. INTRODUCTION

Plaintiffs in this action challenge the manner in which the State of California has

administered its Unclaimed Property Law (“UPL”). Now pending are: (1) The Controller’s1

 motion

to certify for interlocutory appeal a prior order that concludes the state is constitutionally required to

pay interest when it returns property to owners; (2) Plaintiffs’ motion to amend the class definitions,

their renewed motion to certify a class, and their request for entry of a permanent injunction; (3) 

The Controller’s motion for partial summary judgment; (4) Plaintiffs’ motion in response thereto for

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a continuance under Rule 56 (f); (5) Plaintiffs’ motion to compel further discovery responses, and

(6) The Controller’s motion for a protective order and for sanctions arising from his contention that

plaintiffs have improperly obtained and used privileged documents.

For the reasons set out below, the motion to certify the interest order for interlocutory appeal

will be granted, plaintiffs’ motion to amend the class definition will be granted, the Controller’s

motion for partial summary judgment will be granted in part and denied in part, and the parties will

be ordered to engage in further meet and confer negotiations regarding their discovery disputes. The

motions will in all other respects be denied.

II. BACKGROUND

 The general factual background of this action has been discussed at length in the Court’s

prior orders, as well as in the Ninth Circuit’s opinion in this action, and will not be repeated here. A

brief synopsis, however, of the prior substantive orders issued in this action provides useful context

for consideration of many of the motions addressed below.

• In November of 2003, this Court granted the Controller’s motion to dismiss this action,

without leave to amend, based on the determination that the Eleventh Amendment to the United

States Constitution barred the claims alleged. On appeal, the Ninth Circuit reversed the resulting

judgment entered in favor of the Controller. See Suever v. Connell, 439 F.3d 1142 (9th Cir. 2006). 

While the Ninth Circuit gave examples of some claims that could go forward and others that “were

clearly barred,” it elected not to parse all of the averments of plaintiffs’ complaint or to opine on

every potential claim.

• After remand, the Controller moved for judgment on the pleadings, asking the Court to

answer the questions left open by the Ninth Circuit opinion as to which claims could go forward and

which could not. By order issued in November of 2006, the Court granted that motion in part. The

order was intended to reach as many of the issues as possible in the procedural context of a motion

for judgment on the pleadings, and to provide a more generalized framework for understanding what

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the Court saw as remaining to be decided. With respect to some important details, unfortunately, the

parties continued to hold diametrically opposed views as to the legal consequences flowing both

from that order and from the Ninth Circuit opinion.

• Plaintiffs subsequently moved for partial summary judgment on several issues, largely

based on the argument that it is beyond factual dispute that the state engaged in conduct the Ninth

Circuit had previously declared would be unconstitutional. See Suever; Taylor v. Westley, 402 F.3d

924, 933 (9th Cir. 2005) (Taylor I); and Taylor v. Westley, 488 F.3d 1197 (9th Cir. 2007) (“Taylor

II”). The Court’s order, entered on October 12, 2007, granted summary judgment to plaintiffs on

their claim that the State of California may not constitutionally withhold interest when it returns

property to owners under the UPL. The Court otherwise denied plaintiffs’ motion for the various

reasons discussed in that order.

• Shortly thereafter, on October 26, 2007, the Court issued an order denying plaintiffs’

motion for class certification, which had been heard at the same time as the motion for partial

summary judgment. “Class 2,” as described in that motion, would have consisted of persons who

have not been or will not be paid interest when their claims were or are paid under the Controller’s

past, present, or intended future practices. The Court denied the motion without prejudice to a

renewed motion, to be brought and heard upon resolution of various uncertainties identified in that

order surrounding the interest issue. The order expressly stated that the Court would “set a schedule

for any further briefing it may determine is appropriate in connection with considering a renewed

motion for certification of class 2.”

• Finally, in November 2007, the Court denied a request by the Controller for leave to seek

reconsideration of the ruling that interest is constitutionally required. Although the October 26,

2007 order had cited the Controller’s intent to seek reconsideration as one of the uncertainties that

would render class certification premature, the denial of leave to reconsider did nothing to eliminate

the other uncertainties discussed in that order.

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III. DISCUSSION

A. Controller’s motion to certify order for interlocutory appeal

1. Certification

Pursuant to 28 U.S.C. section 1292(b), the Controller requests this Court to certify for

interlocutory appeal that portion of the October 12, 2007 order finding that the state must pay

interest when returning property to owners under the UPL. Section 1292(b) provides, in relevant

part, 

When a district judge, in making in a civil action an order not otherwise appealable

under this section, shall be of the opinion that such order involves a controlling

question of law as to which there is substantial ground for difference of opinion and

that an immediate appeal from the order may materially advance the ultimate

termination of the litigation, he shall so state in writing in such order. The Court of

Appeals which would have jurisdiction of an appeal of such action may thereupon, in

its discretion, permit an appeal to be taken from such order, if application is made to

it within ten days after the entry of the order.

Although this section refers to a court stating the reasons for permitting an interlocutory

appeal “in such order,” Rule 5(a)(3) of the Federal Rules of Appellate Procedure permits a party to

seek certification after an order has issued, by bringing a motion such as the Controller has brought

here, for “amendment” of the original order to include a statement that conditions warranting

interlocutory appeal are present.

 Under section 1292(b), interlocutory appeal is appropriate where the order at issue concerns

(1) a controlling question of law; (2) about which there is substantial ground for difference of

opinion; and (3) an immediate appeal may materially advance the ultimate termination of the

litigation. The portion of the October 12, 2007 order regarding interest meets all three of these

requirements. First, the question of whether the state is constitutionally required to pay interest

when returning property under the UPL is without doubt a question of law. The resolution of that

question will control the disposition of potentially hundreds of millions of dollars or more presently

held in the state treasury. Second, there is plainly substantial ground for difference of opinion. 

See, e.g., Simon v. Wiessman, 2007 WL 2461707 (E.D. Pa. Aug. 27, 2007) and Sogg v. Ohio Dept.

of Commerce, 2007 WL 1821306 (Ohio App. 2007) (both reaching conclusions inconsistent with the

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October 12, 2007 order). There appears to be no decision by the Court of Appeals for this circuit

addressing this issue. Third, resolving this question now will only advance, and cannot impede the

ultimate termination of the litigation. The interest issue is distinct and severable from any other

issues in this litigation, as evidenced by plaintiffs’ efforts to certify a class with respect to only the

interest claims. Furthermore, the issue may have the greatest significance or weight in this litigation

given the various resolutions of other matters raised herein.

Plaintiffs offer no substantive opposition to the argument that this matter qualifies for

interlocutory appeal. Plaintiffs argue only that certifying a class and entering a permanent injunction

would facilitate even more efficient appellate review. Even assuming plaintiffs are correct in the

abstract, certification of a class and entry of a permanent injunction cannot be had at this juncture for

the reasons discussed in section B below. Accordingly, the Controller’s motion for certification is

granted. The order entered October 12, 2007 is hereby AMENDED to include the following

statement: “The conclusion that the State of California is constitutionally required to pay interest on

claims made under the UPL is a controlling question of law about which there is substantial ground

for difference of opinion, and an immediate appeal may materially advance the ultimate termination

of the litigation.” 

2. “Clarification”

As part of his motion to certify, the Controller seeks a “clarification.” The Controller asserts

that the October 12, 2007 order finding a constitutional entitlement to interest “apparently

determined” that the Eleventh Amendment does not bar claims for past unpaid interest. The

Controller suggests, however, that the Court has not been entirely clear on that point, because the

October 27, 2007 order denying class certification stated “substantial questions exist as to whether

the Court even has the jurisdiction to grant the kinds of remedial relief plaintiffs seek.”

The Controller has overlooked the context in which the statement in the order appeared. 

That portion of the order involved plaintiffs’ request for certification of Class 1, composed of those

persons purportedly aggrieved by lack of notice rather than by non-payment of interest, and the

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various claims plaintiffs are asserting under that putative class. Indeed, the existence of those

“substantial questions” of jurisdiction led the Court in that same order to direct the Controller to file

a dispositive motion within 25 days to resolve the issues of the scope of relief available to putative

members of Class 1.

In contrast, the issue of payments of interest to putative members of what is now being called

Class 2a, does not raise any Eleventh Amendment jurisdictional bar under the reasoning by which

the Court concluded such interest was constitutionally required. The October 12, 2007 order

granting partial summary judgment on the issue explained, “[b]ecause the principle itself at all times

remained the property of private individuals and not the state, so too did the interest.” (Emphasis

added). As such, plaintiffs’ claims for return of that interest, like claims for the return of the

principle, fall squarely within the holding of Suever that, “[t]he Eleventh Amendment does not bar

the class’s claims insofar as the claims request the return of the class’s property.” 439 F.3d at 1146-

1147. 

3. Stay

The final portion of the Controller’s motion for certification requests the Court to “stay” its

order regarding plaintiffs’ entitlement to interest pending a ruling on the issue from the Court of

Appeals. The request for a stay is denied, because there is no provision of any court order that can

meaningfully be “stayed.” The October 12, 2007 order reaches a conclusion that the state has

always been and still is under a constitutional obligation to pay interest when it pays claims under

the UPL. That constitutional obligation either exists, or it does not, depending on whether the

Court’s analysis is correct. The Court, though, cannot “stay” any constitutional obligation that may

exist. A court may, of course, stay any provisions of its own orders that expressly require a party to

take particular actions. Nothing in the Court’s October 12, 2007 order, however, requires the

Controller to take any particular action at any particular time. Put another way, even though this

Court has concluded that the Controller is constitutionally obliged to pay interest, no order has yet

been entered that would require him to do so upon pain of contempt. Accordingly, there is nothing

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2

 The Controller has the right to challenge the conclusions of this Court as to what the

constitution requires. Nothing in this order, however, should be seen as an endorsement of any

delay by the Controller in conforming the conduct of his office to the requirements of the

constitution.

3

 As noted above, the Court’s October 26, 2007, order provided that the Court would set a

briefing schedule at an appropriate time to readdress this issue. The Court understands plaintiffs’

desire to keep this matter moving forward, but the better practice would have been to seek leave to

renew the certification motion before simply filing it. Nevertheless, in the interest of avoiding delay,

the Court will address the merits of plaintiffs’ motion. As will appear, class certification remains

inappropriate for some of the reasons identified in the prior order.

4

 It might be more technically appropriate simply not to include the persons now defined as

Class 2b in the definition of Class 2, than to divide the class into two subclasses and then

immediately abandon pursuit of one of them. Plaintiffs’ intent, however, is clear, and the basic

notion of not including the persons plaintiffs are now calling 2b in any class that eventually may be

certified is sound.

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to be stayed.2

A. Plaintiffs’ motion to amend the class definition, to certify the class as amended, and for entry of 

permanent injunction

Plaintiffs previously sought to certify two classes: Class 1 consisted of persons making

claims that they had not been given constitutionally adequate notice before their property was taken

into custody under color of the UPL, and Class 2 consisted of persons claiming the state had failed

to pay them constitutionally adequate interest, or any interest at all. Plaintiffs are not presently

seeking to renew their motion to certify Class 1, but they do seek to amend the definition of Class 2

to create two subclasses, and then to obtain certification of one of those subclasses.3 Specifically,

plaintiffs would define Class 2a as consisting of those persons who have reclaimed the principle

amount of their property under the UPL but who were paid either no interest or inadequate interest. 

Class 2b would be persons who have yet to reclaim their property.

In the October 26, 2007, order denying the original motion for class certification, the Court

observed that any “injunctive relief requiring payment of interest on future claims would inure to the

benefit of all putative class members.” Plaintiffs have now embraced that view, and therefore

expressly withdraw their request for certification of Class 2b.4

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5

 At an absolute minimum, the latter of the two cases cited by plaintiffs distinguishes the

earlier and thereby makes clear there would be no impediment to a state choosing to place UPL

funds in a separate interest bearing account and then paying only the actual interest earned on the

funds. See $133,735.30, 139 F.3d at 731. ( “We agree with the government that $277,000’s

“alternative borrowing rate” has no application where seized funds are deposited in an

interest-bearing account. Under these circumstances, the funds “actually” earn interest at the

prevailing government rate and there is no need to treat them as “constructively” earning interest at

the government’s “alternative borrowing rate.”). Although that possibility may not be relevant to

any claims for past interest, and even assuming it unlikely that the Legislature would elect such a

course of action, it serves as an additional reason that plaintiff’s request for entry of a permanent

injunction must be denied.

6

 Of course, there may be trade offs. For example, if the state takes stock into possession

and liquidates it, but the company later does very well, the owner will not reap that benefit.

Conversely, if the company goes bankrupt, the owner may be far better off.

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Focusing only on Class 2a, plaintiffs’ request for certification remains problematic because

of continued uncertainty about the interest rate to be paid. Plaintiffs argue that as a matter of law

under the Ninth Circuit precedent of United States v. $277,000 of United States Currency, 69 F.3d

1491, 1495-96 (9th Cir. 1995) and United States v. $133,735.30 Seized From U.S. Bancorp

Brokerage Account, 139 F.3d 729, 731-32, (9th Cir.1998,) the state must in all instances pay interest

at the rate it would otherwise pay to borrow money. The cases on which plaintiffs rely, however,

involve situations where the federal government seized property under criminal forfeiture statutes. 

Plaintiffs have not shown that the holdings of those cases constitutionally preclude a state from

legislatively authorizing payment of a rate of interest under its UPL that differs from its cost of

borrowing.5

 Without discounting plaintiffs’ allegations that California may have been running its

UPL as a de facto forfeiture program at times in the past, there is no real dispute that to get principal

property back, claimants have never been required to prove it was wrongfully taken, unlike persons

whose property has been seized under criminal forfeiture statutes. A properly structured and run

UPL program, moreover, serves very different purposes than a criminal forfeiture statute. Whatever

benefits may inure to the state from taking unclaimed property into its possession, property owners

may also benefit, because the property may often be safer and easier for owners or heirs to reclaim

than if it remained in the hands of a holder.6

At most, therefore, the cases plaintiffs cite provide a potential benchmark for determining

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 The court expresses no opinion at this time as to how the state’s “cost of borrowing”

should be calculated or whether or not the measure plaintiffs propose is the correct one. In the

event it becomes appropriate to answer that question, the Court will solicit further briefing and

perhaps economic expert opinion.

8

 Moreover, under plaintiffs’ present formulation, the class would remain open-ended even if

the Controller began paying interest, were he to do so at any rate less than that advocated by

plaintiffs.

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what interest rate should be applied as a default rate during any period of time the state was paying

no interest. The “cost of borrowing” does not appear to set a constitutional minimum rate that the

state must apply.7

As noted in a prior order, it may very well be that a state could set a rate of interest so low as

to be effectively the payment of no interest at all. On the present record, there is simply no basis to

determine what those limits might be. As a result, plaintiffs’ motion for class certification remains

premature for at least two related reasons. First, looking back in time, plaintiffs seek to include in

the class both persons who received no interest and those who received inadequate interest. Even if

the Court were prepared to decide that some particular measure of the “cost of borrowing” should

apply during periods that no interest was paid, “inadequate interest” remains too amorphous to serve

as part of the class definition, in the absence of a conclusion as to what a minimum rate of interest

should be, or that California ever paid such a rate (other than when it paid no interest at all).

Second, looking forward in time, it is not yet settled as to when the Controller will begin to

pay interest on claims. Plaintiffs would have the Court remedy that problem by entering a

permanent injunction requiring the payment of interest in the future. Such an injunction, however, is

not appropriate for all of the reasons expressed above as to why plaintiffs have failed to show that

the constitution requires any particular rate of interest as a minimum. Until the Controller begins

paying interest on claims, the class that plaintiffs propose to certify is open-ended, and therefore not

suitable for certification.8

 Accordingly, while plaintiffs’ motion to amend the definition of Class 2 is

granted, their motion to certify Class 2a is denied, again without prejudice to a further motion upon

any future resolution of the interest rate issues. The motion for a permanent injunction is similarly

denied without prejudice to renewal upon any resolution of the interest rate question, after resolution

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9

 In contrast, when the Controller sought a Rule 56(f) continuance to oppose plaintiffs’

motion for partial summary judgment, he expressly sought expedited consideration of his request. 

Although the Court did continue the hearing by two weeks in connection with the motion for

expedited relief, it effectively denied the Controllers’ attempt to avoid filing a substantive opposition

until after obtaining a ruling on the merits of the Rule 56(f) continuance. Thus, there is no

substantive difference in how the Court treated the parties’ respective Rule 56(f) motions. In both

instances, the parties were required to file substantive oppositions before the Court would decide the

Rule 56(f) issue. If anything, plaintiffs received more generous treatment because they were given

additional time to file substantive opposition even after appearing at the hearing. In the Court’s

view, Rule 56(f) only provides a party opposing summary judgment an alternative argument by

which to oppose entry of judgment. The party must offer any substantive opposition (or admit there

is none to offer) and then request a continuance, should the Court find that substantive opposition

wanting.

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of the interlocutory appeal.

C. Controller’s motion for partial summary judgment

1. Procedural background

 The Controller filed his motion for partial summary judgment well in advance of the

minimum period (35 days before the hearing) required under the Civil Local Rules. As a result,

plaintiffs were in position to, and did, file a motion under Rule 56(f) to continue the summary

judgment motion in advance of when their substantive opposition was due, and to set their Rule

56(f) motion for hearing on the same day as the Controller’s motion. In addition to that Rule 56(f)

request, plaintiffs objected that the Controller’s motion sought summary judgment on a substantially

broader range of claims and issues than the Court had specifically directed.

Then, before their substantive opposition was due, plaintiffs made inquiry to the Court as to

the status of their Rule 56(f) motion, apparently expecting it to have been ruled on spontaneously

despite it having been set for hearing at the same time as the motion for summary judgment. 

Plaintiffs were advised that, consistent both with the Court’s general practice and with the notice

date, the Rule 56(f) motion would be considered at the same time that the Court took up the merits

of the summary judgment motion. Plaintiffs were further advised that they should file any

substantive opposition they might have to the summary judgment motion on the ordinary due date.9

Plaintiffs elected largely not to oppose the Controller’s motion for summary judgment on the

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merits. Instead, on the day that the opposition was due, they filed a 3 and one-half page brief that

(1) restated their objections to the fact that the Controller’s motion is broader in scope than the Court

directed, and (2) incorporated by reference their Rule 56 (f) motion. The brief concluded by stating,

“[i]n the alternative, Plaintiffs request the opportunity to submit an opposition to the Motion for

Partial Summary Judgment as this Court may direct.” At the hearing, the Court exercised its

discretion to permit plaintiffs to file a substantive opposition. Briefing on the merits was finally

completed at the end of February, 2008.

2. Relief related to alleged failure to provide constitutional notice

 The order denying class certification provided: “Within 25 days of the date of this order,

defendants shall file a dispositive motion seeking an adjudication of whether plaintiffs may pursue:

(a) non-monetary remedial relief based on the alleged past failure of the Controller to comply with

constitutional due process requirements prior to taking possession of property under color of the

UPL, or (b) monetary relief, whether denominated as “restitution” or otherwise, for the same alleged

wrongs.” 

The Controller’s motion asserts that, apart from a potential right to an injunction requiring

him to conform to constitutional due process in the future, as a matter of law plaintiffs may obtain no

other remedies arising from any past failures by the Controller to comply with the constitution when

taking possession of property under color of the UPL. Plaintiffs’ disagreement with that proposition

is two-fold: First, and perhaps most significantly, plaintiffs insist that they are entitled to recover the

“value”of non-cash property taken into custody under color of the UPL without regard to the actual

sums the Controller obtained when such property was liquidated. Thus, for example, plaintiffs

contend that under the rubric of “restitution,” a person reclaiming stock that “escheated” under the

UPL may obtain the current value of that stock, rather than the dollar amount (plus interest) that the

Controller received when the stock was sold after he took possession of it. Second, plaintiffs appear

to be contending that the state may still be compelled to undertake additional efforts with respect to

notifying persons whose rights were violated in the past.

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10 Plaintiffs in this case and in Taylor have attempted to characterize the effect of the state’s

conduct as resulting in significant losses of increased stock value they would have realized had the

property not been liquidated under color of the UPL. It may very well be that some of these

particular plaintiffs would have done better had the stock not been taken into custody, given what

happened to the value of those shares. The implication, however, that the state somehow

appropriated to itself that increased value, is not supported by the record. Additionally, the

implication that the state should never liquidate stock or other non-cash property taken into custody

under the UPL is not supported by law or logic. 

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Plaintiffs’ contention that they may be entitled to recover something beyond the actual cash

proceeds (plus interest) that the Controller realized when liquidating non-cash property is based on a

misreading of Suever, Taylor I, Taylor II, and other precedents. Taylor I and Suever both

unambiguously held that the Eleventh Amendment is no bar to any claim by plaintiffs for return of

their own property–such claims simply are not claims for “damages” against the state. Nothing in

those opinions, however, supports plaintiffs’ arguments that they are entitled to more than the actual

property the state took into possession (plus interest) or the proceeds of that property (again, plus

interest) where it was non-cash property that was liquidated. Indeed, a passage plaintiffs quote from

Taylor I supports exactly the opposite conclusion: “Eleventh Amendment immunity from suit

against [the state] for damages payable from its treasury has no application to escheated property

and sales proceeds from escheated property.” Taylor I, 402 F.3d at 932 (emphasis added).

Plaintiffs place emphasis on the fact that in finding the Taylor I plaintiffs to have alleged

viable claims, the Ninth Circuit distinguished Papasan v. Allain, 478 U.S. 265 (1986), which held

the Eleventh Amendment to bar recovery from a state where the “corpus of the trust was gone with

the wind.” See Taylor I, 402 F.3d at 932. The Taylor I, court, however, held only that the

allegations of the Taylor complaint were sufficient to show that in these UPL cases, “the corpus still

exists and is available for return.” Id. While that proposition is not subject to material dispute with

respect to cash or the cash proceeds of property taken under color of the UPL, where non-cash

property has been liquidated, anything in excess of those proceeds is “gone with the wind” and not

available for return.10 Taylor I does not suggest otherwise; rather, it is clear in context that when the

Taylor I court stated the “corpus still exists,” it was speaking only of the cash and cash proceeds of

property taken into custody under color of the UPL. 

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11 None of the discovery that plaintiffs contend they need to take has any bearing on this

purely legal issue. Accordingly, their request for a continuance under Ruler 56(f) is denied.

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 Accordingly, the Controller’s motion for partial summary judgment is granted with respect

to any claims by plaintiffs for “restitution” or other monetary recovery in excess of, or in addition to,

return of (1) the principal amount of any cash taken into custody under color of the UPL, (2) the

principal amount of any proceeds derived from non-cash property taken into custody under color of

the UPL, and (3) interest on such cash or cash proceeds.11

As to plaintiffs’ assertion that they may be entitled to some form of remedial measures to

compensate for past failures to give constitutional notice, the Court declines to rule as a matter of

law either that such relief is available or that it is not. At this point, plaintiffs have failed to identify

with sufficient specificity any such relief they may be seeking, but that does not necessarily preclude

them from doing so in the future. The viability of any such requested relief may, as the Controller

argues, turn on whether there is a basis for other prospective injunctive relief. That, in turn, may

depend on developments in the litigation in the Eastern District of California, to which this Court

likely will defer, as discussed further below.

In sum, plaintiffs may not recover anything more than the cash or the cash proceeds of any

property taken into custody under color of the UPL, plus interest thereon. Whether plaintiff may

obtain injunctive relief requiring the Controller to engage in efforts to remediate the effects of his

alleged past failures to comply with constitutional requirements, remains to be decided.

3. The balance of the Controller’s motion

In addition to the matters as to which the Court directed the Controller to seek summary

judgment, his motion seeks (a) a determination that the UPL, as amended by Senate Bill 86, is now

constitutional; (b) a determination that the statute of limitations bars plaintiffs’ claims; (c) judgment

in favor of former controller Steve Westley, (d) judgment in defendant’s favor on all “state

law”claims, and (e) judgment in the Controller’s favor on the taxpayer claims.

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12 Some of the discovery that plaintiffs seek arguably might affect questions related to the

statute of limitations. Because the Court is denying the portion of the Controller’s motion related to

the statute of limitations, however, no continuance under Rule 56(f) is necessary.

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a. Constitutionality of UPL as amended

The Controller requests a ruling that, as a matter of law, the state’s UPL as amended by S.B.

86 meets constitutional muster. As a procedural matter, it is not entirely clear that the Court could

even issue such a ruling–no declaratory relief claim by the Controller is before the Court. Even

assuming, however, that the constitutionality of the amended UPL is adjudicatable in this action

given plaintiffs’ allegations that the state has violated their constitutional rights, the Court agrees

with plaintiffs that concerns of judicial efficiency and comity weigh against deciding the issue at this

juncture. Whether or not the issue has been addressed “on the merits” in the Eastern District, the

adequacy of the amended UPL has been adjudicated by that court and is currently on appeal before

the Ninth Circuit. Any decision by this Court would only create unnecessary procedural

complications. Accordingly, this prong of the Controller’s motion is denied, without prejudice.

b. Statute of limitations12

The Controller contends that claims of all the named plaintiffs are barred by the applicable

statute of limitations because they knew their property had escheated long before this action was

filed. Were plaintiffs otherwise entitled to seek damages in this action, the statute of limitations

might present an additional barrier. The Controller has failed to show, however, that the statute of

limitations serves to preclude plaintiffs from obtaining remedies for what they contend are, in effect,

continuing constitutional violations. Accordingly, this prong of the Controller’s motion is denied.

c. Steve Westley

 The Controller seeks dismissal of Steve Westley on the same grounds that the order on the

motion for judgment on the pleadings dismissed individual defendants who were no longer in office. 

The nature of the claims against any of the individual defendants in this action has been a matter of

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13 Although Lee and Malone both involved federal soveriegn immunity, the principle is

equally applicable to state sovereign immunity. Taylor I, 402 F.3d at 933. It is not entirely clear,

however, how to reconcile the Taylor I court’s discussion of the Lee-Malone rules regarding a

governmental officer’s liablity to suit in an individual capacity with the fact that the Taylor I

plaintiffs had not named the Controller in an individual capacity. See Taylor I, 402 F.3d at 930 n.20. 

No such difficulty appears here where the Controller and other defendants have been named in both

official and personal capacities.

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some uncertainty and dispute from the outset. Nominally, each individual defendant has always

been named in his or her “individual and official” capacity. “Individual” capacity can, however,

refer to two somewhat different concepts. First, a state official may be named in an “individual”

capacity to trigger application of what the Taylor I court referred to as the “Lee-Malone exception

to sovereign immunity.” Taylor I, 402 F.3d at 934 (referring to United States v. Lee, 106 U.S. 196

(1882) and Malone v. Bowdoin, 369 U.S. 643 (1962)). Under that line of cases, “the action of a

federal officer affecting property claimed by a plaintiff can be made the basis of a suit for specific

relief against the officer as an individual only if the officer’s action is not within the officer’s

statutory powers or, if within those powers, only if the powers, or their exercise in the particular

case, are constitutionally void.” Malone, 369 U.S. at 647 (emphasis added).13

 As noted, Lee-Malone creates an exception to sovereign immunity, originally in the federal

context, but now extended to state sovereign immunity as well. By largely overlapping or parallel

reasoning, the so-called “Ex Parte Young doctrine” creates a similar exception to immunity from suit

in federal court that a state official might otherwise enjoy under the Eleventh Amendment. Under

Ex parte Young, a state official who acts unconstitutionally is “stripped of his official or

representative character and is subjected in his person to the consequences of his individual

conduct.” Ex Parte Young, 209 U.S. 123, 160 (1908) (emphasis added). The scope of the Ex Parte

Young exception has since been limited to claims for prospective equitable relief and state funds

“ancillary” to such relief; the Eleventh Amendment bars retroactive compensation to plaintiffs from

state funds. Edelman v. Jordan, 415 U.S. 651, 663-69 (1974) 94 S.Ct. 1347.

Thus, both Lee-Malone and Ex Parte Young, rely on the fact that a governmental official is

sued in his or her individual capacity to create exceptions from immunities that would apply if the

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14 The Taylor opinions shed no light on this issue because no personal capacity allegations

were made in that case at all. See Taylor I, 402 F.3d at 930 n.20.

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official were seen merely as a surrogate for the state itself. The kinds of recovery that can be had,

however, are extremely limited under either doctrine, because ultimately the recovery is coming

from the state itself.

A state official can be sued in his or her “individual” or “personal” capacity in a very

different sense, however, when a plaintiff can assert a claim that would warrant the official paying

damages from his or her own pocket, rather than from the coffers of the state. Thus, for example, a

plaintiff may pursue a claim under 42 U.S.C. § 1983 against a state official seeking to impose

personal liability on that official. To succeed on the merits in such a suit, the plaintiff need show

only that “the official, acting under color of state law, caused the deprivation of a federal 

right.” Hafer v. Melo, 502 U.S. 21, 25 (1991). Such a claim simply does not implicate the Eleventh

Amendment or sovereign immunity at all, because it truly is a claim against the individual, and not

the state. Id. at 30. Furthermore, liability in such cases does not turn on whether the state official

acted within his or her authority or outside it, the only question is whether the conduct was

undertaken under color of state law. Id at 28.

Here, both the very first order granting dismissal of this action with leave to amend, entered

in June of 2003, and the subsequent order issued in November of 2003, dismissing without leave to

amend, considered in some detail whether the complaint could be fairly read as asserting any claims 

against the individual defendants in the sense discussed in Hafer v. Melo. The orders respectively

concluded that neither the original complaint nor the amended complaint state any such claims, for

the reasons stated therein.

Plaintiffs appealed the resulting judgment. The record before this court does not reflect

whether in the course of that appeal plaintiffs challenged the conclusion that the complaint failed to

allege personal liability in the Hafer v. Melo sense. Nothing in the Suever opinion, however, states

or even implies that the conclusion was erroneous.14

Accordingly, in ruling on the motion for judgment on the pleadings, the Court found that

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15 Plaintiffs’ arguments that something could be improper given Westley’s relationship to

eBay and the fact that the Controller’s office allegedly used eBay to liquidate property taken under

color of the UPL is unavailing. Not only are these allegations unpleaded, but even if they had been,

they would suffer from the same defects identified in the original dismissal orders: namely that there

is nothing to tie the purported wrongdoing to any violation of individual plaintiffs’ constitutional

rights. 

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even though there are “individual” claims against present office holders for prospective injunctive

relief (under Ex Parte Young) and for an injunction requiring that plaintiffs’ own property be

returned to them (under Lee-Malone), no claim for damages against individual defendants had been

adequately pleaded, for the reasons set out in the original dismissal orders. As a result, dismissal of

former office holders was found to be appropriate, because they were not persons to whom any of

the available injunctive relief would apply. By that same logic, former Controller Steve Westley

must now be dismissed as well.15

d. State claims

The Controller seeks summary judgment in his favor on all claims sounding in state law, on

grounds that Suever held the Eleventh Amendment “clearly” to bar any relief “premised solely on

the State’s compliance with state law.” Suever, 439 F.3d at 1148. The Controller previously sought

judgment on the pleadings with respect to such claims. The Court observed that any claims based

solely on state law are indeed barred, but noted that allegations regarding the Controller’s

compliance with state law might not be wholly irrelevant, for reasons explained in that order. The

Court therefore “decline[d] to rule that any of the particular numbered “claims for relief” are

necessarily wholly barred.”

Plaintiffs take no issue with the Controller’s assertion that claims based wholly on state law

are barred, nor do they challenge the accuracy of his identification of the specific claims for relief,

paragraphs of the complaint, and portions of the prayer that fall into that category. Instead, plaintiffs

merely argue that this portion of the motion is an unauthorized request for reconsideration of the

ruling on the motion for judgment on the pleadings, and that the Controller has offered no new facts

or law to support reconsideration.

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16 Because the Controller had not mentioned any federal claims, the assumption was either

that Lee was not party to those claims or that the Controller was not seeking his dismissal from those

claims notwithstanding the request to dismiss him entirely. 

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The Court disagrees. The ruling on this aspect of the motion for judgment on the pleadings

was largely procedural–the Controller had not sufficiently identified which portions of the complaint

would be affected by the relief he sought. Now, under a different procedural vehicle that he was

entitled to utilize, he has done so. Accordingly, summary judgment will be granted in the

Controller’s favor with respect to (1) the fifth claim for violation of the UPL (First Am. Compl., ¶¶

110-113); (2) the sixth claim for breach of fiduciary duty (id., ¶¶ 114-120); (3) the seventh claim for

negligence (id., ¶¶ 121-124); (4) the eighth claim for fraud (id., ¶¶ 125-135); (5) claims alleging that

the State allows companies to retain property belonging to the State (id., ¶¶ 92(h), 95(h), Prayer for

Relief ¶ 2(h)); and (6) claims alleging violations of California’s “Blue Sky Laws,” (id., ¶¶ 92(l),

95(l), Prayer for Relief, ¶ 9 (l)). 

e. Taxpayer claims

The Controller seeks to dismiss the claims of plaintiff Tony Lee, who sues only as a

“taxpayer”–i.e., he does not allege that any of his property has been taken under color of the UPL. 

The Controller also seeks dismissal of certain portions of the complaint that other plaintiffs assert

only in their status as “taxpayers”. Again, plaintiffs offer no substantive opposition; they merely

argue that the Court declined to dismiss these claims in the motion for judgment on the pleadings. 

 The motion for judgment on the pleadings sought dismissal for lack of standing of “many”

aspects of the state claims made by all the plaintiffs and also sought dismissal of Lee entirely. The

motion failed to identify with any specificity the “many” state law claims to which the Controller

believed the argument applied. Because the Court ruled that state claims were not viable (although

declining to strike any particular numbered claims or paragraphs), it concluded it need not reach the

taxpayer standing arguments with respect to any of the plaintiffs including Lee.16

In the present motion, the Controller seeks summary judgment as to paragraphs 92(h) and

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95(h) (claims relating to an alleged practice of allowing certain companies to retain property that

allegedly is subject to escheat); paragraphs 92(j) and 95(j) (claims relating to practices for handling

safe deposit boxes); and the associated subparagraphs (j) and (h) of the second paragraph of the

prayer for relief. This portion of the motion is granted. Plaintiffs have failed even to allege, much

less to show, that they have suffered direct injury sufficient to give them standing under Article III to

pursue these claims in federal court. See Cantrell v. City of Long Beach, 241 F.3d 674, 683-84 (9th

Cir. 2001) (“California’s lenient taxpayer standing requirements do not relieve [plaintiffs] of the

obligation to establish a direct injury under the more stringent federal requirements” requiring “a

direct pocketbook injury.” (citation omitted)). 

D. Plaintiffs’ motion to compel

Plaintiffs’ motion to compel further discovery responses presents a number of strongly

competing interests. Plaintiffs have propounded a variety of discovery requests that undisputedly

relate, at least to some degree, to one or more of plaintiffs’ theories of liability. The Controller has

objected to the discovery on a variety of grounds, but a central point of controversy arises from the

parties’ divergent views as to what claims remain viable in this action. In particular, the Controller

has resisted providing any discovery responses going to past practices of his office, based on his

argument that the Eleventh Amendment, the Suever opinion, and the Court’s November 2006 order

on the motion for judgment on the pleadings, all preclude such inquiry.

Plaintiffs are correct that, as a general rule, a party may not resist discovery relating to a

particular claim by arguing that the claim lacks merit. As the Controller points out, however, “ the

value to the States of their Eleventh Amendment immunity . . . is for the most part lost as litigation

proceeds past motion practice.” Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506

U.S. 139, 145 (1993). While the Controller is necessarily embroiled in this litigation past the motion

practice stage because plaintiffs have stated claims outside the Eleventh Amendment, he is still

entitled to the benefit of the Eleventh Amendment with respect to responding to claims within its

ambit.

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17 Plaintiffs may be correct that a party has a right to file a motion to compel when it

believes that meet and confer negotiations are not fruitful. As the Court regularly admonishes

parties, however, the obligation to meet and confer is not terminated by the filing of a motion. If the

briefing reveals areas of potential compromise, or if other continuing events warrant it, parties

should continue to seek to narrow or resolve their disputes even after a motion has been filed.

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The particular discovery requests in dispute in this motion were propounded prior to the

time that several substantive orders issued that gave shape to the legal and factual questions that

remain. Thus, even assuming the requests were all reasonably calculated to lead to the discovery of

admissible evidence when originally served, the question now is whether further responses should be

compelled in light of the issues that remain to be resolved.

It is not immediately apparent how any of the proposed discovery would further resolution of

the remaining issues in this action. That said, plaintiffs have the right to conduct discovery

“reasonably calculated to lead to the discovery of admissible evidence” within the proportionality

and other requirements of Rule 26 of the Federal Rules of Civil Procedure.

In light of the substantive orders that have issued since the discovery requests were

propounded, the parties are hereby ordered to engage in further meet and confer negotiations

regarding the extent to which, if at all, the Controller should provide further discovery responses

during the pendency of such interlocutory appeal as the Ninth Circuit may entertain.17 In conducting

such meet and confer negotiations, the parties should consider the following:

1. The Controller’s objections that terms such as “account” are ambiguous are not

persuasive. To the extent a term arguably is ambiguous, a party should answer fully based on its

expressed understanding of the term, or endeavor through the meet and confer process to reach an

agreed definition of the term.

2. The Controller’s objection to providing detailed discovery, or responses to requests for

admissions, regarding the general practices of his office in the past are, for the most part, well-taken. 

That said, the fact that a particular discovery request may implicate some historical fact should not

serve as a blanket excuse for refusing to respond to the request at all. Additionally, the named

plaintiffs may properly propound discovery inquiring into how their particular property, or alleged

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property, was handled and processed by the Controller.

3. Plaintiffs should bear in mind that requests for admissions are not intended as discovery

devices per se. “The purpose of Rule 36(a) is to expedite trial by establishing certain material facts

as true and thus narrowing the range of issues for trial.” Asea, Inc. v. Southern Pacific Transp. Co.,

669 F.2d 1242, 1245 (9th Cir. 1981). The rule is not intended as a discovery tool but instead

presupposes that the party propounding the requests knows the facts set forth or possesses the

documents about which the party seeks a concession of genuineness. Safeco Ins. Co. of Am. v.

Rawstron, 181 F.R.D. 441, 445 (C.D. Cal. 1998). Particularly in light of the matters that have been

resolved through motion practice, many of the requests for admissions propounded by plaintiffs are

no longer relevant.

These further meet and confer negotiations shall take place face to face, in a meeting to be

scheduled within 20 days of the date of this order. Upon conclusion of the negotiations, plaintiffs

may file a brief not to exceed five pages that lists by number each of the discovery requests or

requests for admission that they contend still require further responses. The brief may describe the

extent to which any such request has been narrowed by agreement, but shall not otherwise contain

any argument. Within five days of the date plaintiffs file any such brief, the Controller may file a

response, also not to exceed five pages, in the event he disagrees as to which requests remain in

dispute. The Controller may identify the requests he believes to be in dispute, but the response shall

not otherwise contain any argument. The Court will then take the matter under submission and issue

a ruling. 

E. The Controller’s motion for a protective order and to disqualify counsel

The Controller contends that plaintiffs have improperly come into possession of, and used,

three documents as to which the Controller or State Attorney General’s office assert a claim of

privilege. Plaintiffs dispute that the documents were privileged in the first instance, but also argue

that any privilege has long since been waived by the fact that these documents have received wide

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public dissemination, through the efforts of persons other than plaintiffs and their counsel.

The Controller responds, in essence, that the actions of a “thief” in obtaining and sharing a

privileged document do not serve to waive the privilege. The Controller may be correct that a

document does not lose its privileged status simply because some unauthorized person has been

privy to its contents and perhaps shared those contents with at least some other persons. Here,

however, plaintiffs have shown that the two older documents in dispute have been widely circulated

in public over a period of years. While it may not have been the intent of state officials to allow that

to happen, their failure to take action that would preserve the confidentiality of those documents

serves to waive any privilege that might otherwise have existed. As to the most recent

document–an email dating from November, 2007, not only has the Controller failed to show the

document was privileged in the first instance, it also appears to have been widely and publicly

circulated, including having been the subject of news reports.

Accordingly, the Controllers’ motion seeking to sanction plaintiffs’ counsel and to prohibit

further use of these documents is denied. As the above analysis reflects, however, none of the

documents is relevant to any of the issues decided in these motions, and the Court has disregarded

them.

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ORDER 

C 03-00156 RS 

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IV. CONCLUSION

The Controller’s motion to certify this Court’s order entered on October 12, 2007 for

interlocutory appeal is granted. That order is hereby amended to include the requisite language

under 

28 U.S.C. section 1292(b), as set out above. The Controller’s motion for partial summary judgment

is granted to the extent set out above. Plaintiffs’ motion to amend the definitions of the putative

Class 2 is granted. The parties are directed to engage in further meet and confer negotiations

regarding their discovery disputes, as described in more detail above. The pending motions are

otherwise denied.

IT IS SO ORDERED.

Dated: April 1, 2008 

RICHARD SEEBORG

United States Magistrate Judge

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