Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_01-cv-02407/USCOURTS-caed-2_01-cv-02407-5/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1983 Civil Rights

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CHRIS LUSBY TAYLOR, NANCY A.

PEPPLE-GONSAVLES, GARY KESSELMAN,

SUSAN SWINTON, DAWN E. STRUCK,

and WILLIAM J. PALMER, as

taxpayers, and on behalf of

themselves and other persons

similarly situated,

 NO. CIV. S-01-2407 WBS GGH

Plaintiffs,

v.

ORDER RE: MOTION TO DISSOLVE

PRELIMINARY INJUNCTION

JOHN CHIANG, in his capacity

as CONTROLLER OF THE STATE OF

CALIFORNIA, and STEVE WESTLY, 

individually,

Defendants.

----oo0oo----

Currently before the court is defendant John Chiang’s

motion to dissolve the court’s preliminary injunction order of

June 1, 2007. Taylor v. Chiang, Case No. 01-2407, 2007 WL

Case 2:01-cv-02407-JAM-GGH Document 133 Filed 10/18/07 Page 1 of 8
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1628050 (E.D. Cal. Jun. 1, 2007). 

I. Factual and Procedural History

Plaintiffs Chris Lusby Taylor, Nancy A. PeppleGonsalves, Gary Kesselman, Susan Swinton, Dawn E. Struck, and

William J. Palmer (“plaintiffs”) filed a complaint on behalf of

themselves and other persons similarly situated on December 31,

2001, challenging the constitutionality of California’s Unclaimed

Property Law, California Code of Civil Procedure sections 1300 et

seq. (“UPL”). On June 26, 2002, Judge Frank C. Damrell granted

defendants’ motion to dismiss based on Eleventh Amendment

immunity. Plaintiffs appealed that order, and the Ninth Circuit

vacated the dismissal and remanded the matter to this court. 

Taylor v. Westly, 402 F.3d 924 (9th Cir. 2005) (hereinafter

referred to as “Taylor I”). 

On June 2, 2005, plaintiffs filed a motion for a

temporary restraining order and preliminary injunction, asking

this court to enjoin enforcement of the UPL. On June 22, 2005,

Judge Damrell recused himself and the matter was reassigned to

the undersigned. (June 22, 2005 Order.) On August 16, 2005,

this court denied plaintiffs’ motion for a preliminary

injunction. (Aug. 16, 2005 Order.) Plaintiffs appealed this

court’s denial to the Ninth Circuit, which, on April 30, 2007,

reversed and remanded with instructions to grant a preliminary

injunction consistent with its order. See Taylor v. Westly, 488

F.3d 1197, 1202 (9th Cir. 2007) (hereinafter referred to as

“Taylor II”).

On June 1, 2007, this court enjoined defendant John

Chiang, and his agents and employees from accepting, taking title

Case 2:01-cv-02407-JAM-GGH Document 133 Filed 10/18/07 Page 2 of 8
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1 This courts June 1, 2007 order allowed the defendants

to petition the court to modify the injunction by motion,

pursuant to Local Rule 78-230.

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to, or possessing any property as well as selling, converting, or

destroying any property pursuant to the UPL until he “promulgated

regulations providing for fair notice to the owner and public,

satisfactory to and approved by this court.”

On August 21, 2007, the California Legislature passed

Senate Bill 86. (Ball Decl. Ex. A (“hereinafter S.B. 86”).) 

Because the bill contains an urgency clause and the Legislature

passed it by a vote of two-thirds, the bill went into effect

immediately when California Governor Arnold Schwarzenegger signed

it on August 24, 2007. See Cal. Const., art. IV, § 8(c)(3). On

September 5, 2007, defendants filed this motion to dissolve the

injunction.1

II. Discussion

A. Legal Standard

“To obtain a preliminary injunction, the moving party

must demonstrate either (1) probable success on the merits and

the possibility of irreparable injury, or (2) that serious

questions are raised and the balance of hardships sharply favors

the moving party. These are not separate tests, but are the ends

of a continuum; the greater the relative hardship to the moving

party, the less probability of success must be shown.” Nat’l

Ctr. for Immigrants Rights, Inc. v. I.N.S., 743 F.2d 1365, 1369

(9th Cir. 1984) (internal citations omitted). 

Once a preliminary injunction is issued, district

courts have “wide discretion” to modify it. System Fed’n No. 91

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Ry. Emp. Dep’t v. Wright, 364 U.S. 642, 648 (1961) (holding that

a district court has “wide discretion” to modify an injunction

upon changed circumstances or new facts); see also Tanner Motor

Livery, Ltd. v. Avis, Inc., 316 F.2d 804, 810 (9th Cir. 1963)

(same). A district court retains the power to modify a

preliminary injunction at any time upon the consideration of new

facts. See A&M Records v. Napster, Inc., v. Napster, Inc., 284

F.3d 1091, 1098 (9th Cir. 2002) (affirming modification of a

preliminary injunction upon the consideration of new facts). 

B. Adequacy of S.B. 86

“An elementary and fundamental requirement of due

process in any proceeding which is to be accorded finality is

notice reasonably calculated, under all the circumstances, to

apprise interested parties of the pendency of the action and

afford them an opportunity to present their objections.” Mullane

v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).

In Taylor II, the Ninth Circuit wrote that “‘due process requires

the government to provide “notice reasonably calculated, under

all the circumstances, to apprise [the] interested part[y] of the

pendency of the action and afford [him] an opportunity to present

[his] objections.”” 488 F.3d at 1201 (quoting Jones v. Flowers,

547 U.S. 220, 226 (2006)) (further quotations omitted). 

Additionally, the Supreme Court has advised lower

courts that the standard for what constitutes reasonable notice

is both flexible and fact specific. Mullane, 339 U.S. at 314-15

(“if with due regard for the practicalities and peculiarities of

the case these conditions are reasonably met, the constitutional

requirements are satisfied”). However, “[t]he means employed

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must be such as one desirous of actually informing the absentee

might reasonably adopt to accomplish it.” Id. at 315. Further,

“[t]he reasonableness and hence the constitutional validity of

any chosen method may be defended on the ground that it is in

itself reasonably certain to inform those affected [citations

omitted] or, where conditions do not reasonably permit such

notice, that the form chosen is not substantially less likely to

bring home notice than other of the feasible and customary

substitutes.” Id.

This court’s order of June 1, 2007 advised defendants

that “[o]nly if the court approves the sufficiency of the new

regulations as consistent with Taylor I and Taylor II will the

restrictions of this preliminary injunction be modified or

withdrawn.” The task for the court now is to determine whether

S.B. 86 is consistent with Taylor I and Taylor II, and whether

its unfettered enforcement would irreparably harm plaintiffs

until such time as the court may address the merits of this

matter. For the reasons discussed below, the court concludes

that S.B. 86, as it is being implemented by the Controller,

satisfies the Constitution, and the court will therefore dissolve

the June 1, 2007 injunction. 

Taylor II found that notice to the property owner must

“be given before an individual’s control of his property is

disturbed.” 488 F.3d at 1201. Further, the Ninth Circuit firmly

rejected the argument that pre-transfer notice by the holder is

constitutionally sufficient. S.B. 86 remedies the problems

identified in Taylor II by providing actual pre-transfer notice. 

S.B. 86 mandates that the Controller send direct mail notice

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2 Once property is transferred to the Controller, owners

have a minimum of an additional 10-1/2 months to claim it before

it is converted to cash and a minimum of 18 months to claim it if

it has no apparent commercial value. S.B. 86, §§ 5, 6 at 12-14

(amendments to Cal. Civ. Proc. Code §§ 1563, 1565). 

3 Counsel for defendants affirmed at oral argument, and

plaintiffs do not contradict, that only about 3% of property

reported by the holders does not have address information of any

sort. 

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either to the address supplied by the Franchise Tax Board if it

differs from the one on the holder’s report, or to the address

given by the holder. S.B. 86, § 2 at 8 (amendments to Cal. Civ.

Proc. Code § 1531). This notice must be sent at least 45 days

(and 60 days before the deadline for transfer) before the holder

can transfer the property to the Controller. Id., §§ 2, 4 at 8,

9-10 (amendments to Cal. Civ. Proc. Code §§ 1531, 1532). 

Morever, the Controller has committed to continue to

maintain a searchable website, which lists unclaimed property by

owner’s name and address, and which has received more than a

billion visits between July 2006 and April 2007. (1st Huarte

Decl. in Supp. of Def.’s Mot. ¶ 3.) At oral argument, counsel

defendants assured the court that the names are published on the

website before any property is transferred to the Controller.2

This form of publication satisfies Mullane as what a reasonable

person who actually is desirous of providing notice would do to

provide notice to those for whom the Controller does not have an

address or for whom mail is returned.3 The searchable internet

site is every bit as good or even better than the newspaper

publication notice California required in the pre-1968 law, which

plaintiffs’ attorney has conceded provided constitutionally

sufficient notice. 

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In Taylor II, the Ninth Circuit noted that California

has not taken “any action to remedy the constitutional problem

with its escheat statute” despite having these precise issues

addressed in Taylor I and Suever v. Connell, 439 F.3d 1142 (9th

Cir. 2006). 488 F.3d 1202. With the enactment of S.B. 86, that

is no longer the case. S.B. 86 and the Controller’s commitment

to provide a searchable website satisfies constitutional due

process.

Plaintiffs’ argument that the Controller should be

ordered to promulgate regulations under California’s

Administrative Procedure Act is not appropriately addressed to

this court. Even if plaintiffs were correct that state law

requires the Controller to promulgate regulations, the Eleventh

Amendment bars this court from ordering state officials to comply

with state law. Pennhurst State Sch. & Hosp. v. Halderman, 465

U.S. 89, 124-25 (1984); Taylor II, 488 F.3d at 1202.

Plaintiffs’ complaints regarding the legislation being

proposed by Senator Machado, specifically S.B. 919, are

premature. The legislature has not yet acted on any proposals. 

The court must wait until legislation has been enacted before

ruling on its constitutionality and considering wither a

preliminary injunction would need to be reimposed. Similarly,

plaintiffs’ allegations that it normally takes years to process a

request to return property is contradicted by evidence supplied

by the Controller’s office. As Robert Huarte declares, the

backlog has been greatly reduced and should be eliminated by the

end of the year. (2d Huarte Decl. in Supp. of Def.’s Mot. ¶ 4.) 

Given the Huarte Declaration, plaintiffs’ reliance on a 2003

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State Auditor’s report is simply not persuasive evidence as to

the current state of the Controller’s office. 

Whenever called upon to enjoin the actions of state

officials, this court must be mindful of the basic principles of

comity and federalism. See Gomez v. Vernon, 225 F.3d 1118, 1128

(9th Cir. 2001) (citing O’Shea v. Littleton, 414 U.S. 488, 499

(1974) (“proper balance in the concurrent operation of federal

and state courts counsels restraint against the issuance of

injunctions against state officers”)). California has taken

action in response to this court’s order. S.B. 86 appears to

provide notice reasonably calculated to inform property owners of

the impending seizure of their property and significantly lessens

the likelihood of irreparable harm to plaintiffs. Moreover,

plaintiffs’ likely success on a challenge to the

constitutionality of S.B. 86 is significantly less than their

challenge to the practices of the Controller’s office prior to

enactment of S.B. 86. Accordingly, the Controller is entitled to

have this court’s injunction dissolved. 

IT IS THEREFORE ORDERED that defendant John Chiang’s

motion to dissolve the court’s June 1, 2007 injunction be, and

the same hereby is, GRANTED;

IT IS FURTHER ORDERED that the court’s order of June 1,

2007 be, and the same hereby is, VACATED.

DATED: October 17, 2007

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