2012 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-27-2012

Treasurer State NJ v. US Dept Treas

Precedential or Non-Precedential: Precedential

Docket No. 10-1963

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 10-1963

______________

TREASURER OF THE STATE OF NEW JERSEY; 

TREASURER OF THE STATE OF NORTH CAROLINA;

DIRECTOR OF THE DEPARTMENT OF REVENUE OF 

THE STATE OF MONTANA; TREASURER OF THE 

STATE OF KENTUCKY; TREASURER OF THE STATE 

OF OKLAHOMA; ATTORNEY GENERAL OF THE 

STATE OF MISSOURI; TREASURER OF THE STATE OF 

PENNSYLVANIA

v.

UNITED STATES DEPARTMENT OF THE TREASURY; 

SECRETARY OF THE UNITED STATES TREASURY 

DEPARTMENT; 

BUREAU OF PUBLIC DEBT, a Division of the United 

States Treasury Department; COMMISSIONER OF THE 

BUREAU OF PUBLIC DEBT,

Treasurer of the State of New Jersey,

Director of the Department of Revenue 

of the State of Montana,

Treasurer of the State of Kentucky,

Treasurer of the State of Oklahoma,
2

Attorney General of the State of 

Missouri,

Treasurer of the State of Pennsylvania,

 Appellants

(Pursuant to Fed. R. App. P. 43(c)(1))

______________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 04-4368)

Honorable Mary L. Cooper, District Judge

______________

Argued April 11, 2012

BEFORE: HARDIMAN, GREENAWAY, JR., and 

GREENBERG, Circuit Judges

(Filed: June 27, 2012)

______________

Carter G. Phillips (argued)

Sidley Austin

1501 K Street, N.W.

Washington, DC 20005

Peter G. Angelos

M. Albert Figinski

Law Offices of Peter G. Angelos
3

100 North Charles Street

One Charles Center, 22nd Floor

Baltimore, MD 21201

Randall K. Berger

Joanne M. Cicala

Roger W. Kirby

Kirby McInerney 

825 Third Avenue

16th Floor

New York, NY 10022

William C. Cagney

Robert J. Luddy

Windels, Marx, Lane & Mittendorf

120 Albany Street Plaza, 6th Floor

New Brunswick, NJ 08901

William H. Murphy, Jr.

Andrew J. Toland

The Murphy Firm

1 South Street, 23rd Floor

Baltimore, MD 21202

Ernest A. Young

203 Strolling Way

Durham, NC 27707

Jeremiah J. Morgan, Sr.

Joel A. Poole

Office of Attorney General of Missouri
4

P.O. Box 899

Jefferson City, MO 65101

Gita F. Rothschild

McCarter & English

100 Mulberry Street

Four Gateway Center, 14th Floor

Newark, NJ 07102-06552

 Attorneys for Appellants

Alisa B. Klein (argued)

Mark B. Stern

United States Department of Justice, Civil Division

950 Pennsylvania Avenue, N.W.

Washington, DC 20530

David E. Dauenheimer

Office of the United States Attorney

970 Broad Street, Room 700

Newark, NJ 07102

 Attorneys for Appellees

______________

OPINION OF THE COURT

______________

GREENBERG, Circuit Judge.

I. INTRODUCTION
5

In this action seven plaintiff States (“the States”) sought 

to recover proceeds of matured but unredeemed United States 

savings bonds from the United States Treasury (“the 

Treasury”).1 In addition to the Treasury, the States also named 

other United States Government entities and officials in their 

official capacities as defendants and we refer to all the 

defendants collectively as the “Government” or “Federal 

Government.” The States asserted that the Treasury has 

possession of approximately $16 billion worth of matured but 

unredeemed savings bonds, of which persons whose last known 

addresses were within the plaintiff States own $1.6 billion. The 

States contended that their respective unclaimed property acts 

obliged the Treasury to account for and deliver the proceeds of 

these bonds to the States for reunification with their owners. 

The Government moved to dismiss the case and the District 

Court granted its motion as it concluded that the Government‟s 

sovereign immunity and intergovernmental immunity barred the 

action and that federal law and regulations preempted the States‟ 

statutory authority to obtain the proceeds of the savings bonds. 

Six of the States appealed. Though we do not agree with the 

District Court with respect to the application of sovereign 

immunity, we do agree with its other conclusions and therefore 

we will affirm.

II. FACTS AND PROCEDURAL HISTORY

A. The United States Savings Bond Program

 

1

Throughout this opinion we refer to the plaintiffs in this action 

as “States” but to the 50 states as a whole as “states.”
6

Pursuant to its constitutional power “to borrow money on 

the credit of the United States,” Free v. Bland, 369 U.S. 663, 

666-67, 82 S.Ct. 1089, 1092 (1962) (citing U.S. Const. art. I, § 

8, cl. 2), Congress delegated authority to the Secretary of the 

Treasury (“the Secretary”), with the approval of the President, to 

issue savings bonds “for expenditures authorized by law.” 31 

U.S.C. § 3105(a).2 The Government sold savings bonds, 

originally called liberty bonds, “[t]o obtain money for the United 

States Government . . . [and] to encourage thrift and savings by 

small investors.” Moore‟s Adm‟r v. Marshall, 196 S.W.2d 369, 

372 (Ky. 1946). A United States savings bond is a contract 

between the United States and the bond‟s owner. Rotman v. 

United States, 31 Fed. Cl. 724, 725 (Fed. Cl. 1994). The 

Secretary may establish the terms and conditions that govern the 

savings bond program, a power that includes the authority to fix 

the bonds‟ investment yield, to promulgate terms and conditions 

providing that bondholders may keep the bonds beyond the date 

of their maturity, and to place conditions on transfer and

redemption of the bonds and their sales prices. 31 U.S.C. § 

3105(b)-(c). Most of the bonds that are the subject matter of 

this case are Series E bonds issued between 1941 and 1980. The 

Government sold the Series E bonds at a discount and paid 

interest on them only at maturity; according to the States, after 

maturity interest stopped accruing on the bonds.3 The last Series 

 

2

This statute previously was codified at 31 U.S.C. § 757c(a). 

See Free, 369 U.S. at 666-67, 82 S.Ct. at 1092. 

3

The plaintiff States‟ representation that interest ceased to 

accrue on Series E bonds after maturity may be somewhat 

misleading but we will accept it in adjudicating this appeal. The 

reason we think that this representation may be misleading is 
7

E bonds matured in 2011. 

Pursuant to his statutory authority, the Secretary has 

promulgated various regulations governing the savings bond 

program that the Supreme Court has held preempt conflicting 

state law. See United States v. Chandler, 410 U.S. 257, 262, 93 

S.Ct. 880, 883 (1973) (citing Free 369 U.S. at 668, 82 S.Ct. at 

1093) (“[A]bsent fraud, the regulations creating a right of 

survivorship in United States Savings Bonds . . . pre-empt[] any 

inconsistent state property law.”). In contrast to many other 

types of securities, “[s]avings bonds are not transferable and are 

 

that 31 U.S.C. § 3105(b)(2)(A) indicates that the Secretary may 

prescribe regulations that provide for savings bonds to continue 

to earn interest during “a period beyond maturity.” Moreover, 

31 C.F.R. § 315.30 provides that “[a]ll Series E bonds and 

savings notes have been extended and continue to earn interest 

until their final maturity dates, unless redeemed earlier.” The 

regulations allow for such an “extended maturity period,” a 

“period after the original maturity date during which the owner 

may retain a bond and continue to earn interest on the maturity 

value” of the bond. 31 C.F.R. § 315.2(c). We see little 

difference between a bond paying interest accrued beyond 

maturity and extending a bond‟s maturity date for a period 

during which the bond earns interest. Indeed, it appears that 

when this action was commenced in 2004 some Series E bonds 

had passed their original maturity dates but were continuing to 

earn interest as their maturity dates had been extended. See 31 

C.F.R. § 316.8. Obviously, if interest runs after the bonds‟ 

original maturity dates, the States‟ case, if affected at all, only 

could be weaker.
8

payable only to the owners named on the bonds, except as 

specifically provided in [the federal] regulations and then only 

in the manner and to the extent so provided.” 31 C.F.R. §§ 

315.15, 353.15. 

There are limited exceptions to the general rule 

precluding the transfer of savings bonds, including cases in 

which a third party attains an interest in a bond through valid 

judicial proceedings. 31 C.F.R. §§ 315.20(b), 353.20(b).4 As 

 

4

31 C.F.R. § 315.39(a) and (b) provide for payment of series A, 

B, C, D, E, F, G, H, J, and K bonds, and 31 C.F.R. § 353.39(a) 

provides for payment of series EE bonds. The regulations 

contain identical language: 

The Department of the Treasury will recognize a 

claim against an owner of a savings bond and 

conflicting claims of ownership of, or interest in, 

a bond between coowners or between the 

registered owner and the beneficiary, if 

established by valid, judicial proceedings, but 

only as specifically provided in this Subpart. 

Section 315.23 [or section 353.23] specifies the 

evidence required to establish the validity of the 

judicial proceedings. 

31 C.F.R. §§ 315.20(b), 353.20(b). 31 C.F.R. § 315.23 requires 

“that certified copies of the final judgment, decree, or court 

order, and of any necessary supplementary proceedings,” be 

submitted to establish the validity of judicial proceedings, and 

also makes provisions for payment to certain bankruptcy trustees 
9

will be seen below, it is highly significant that the regulations do 

not impose any time limits for bond owners to redeem the 

savings bonds, at least with respect to the bonds that are the 

subject matter of this case. Consequently, their owners can 

present them for payment to an authorized agent of the United 

States at any time. See 31 U.S.C. § 3105(b)(2)(A) (authorizing 

the Secretary to promulgate regulations providing that “owners 

of savings bonds may keep the bonds after maturity”). Though 

it might be thought unlikely that an owner would present a longmatured savings bond for redemption, the record shows that the 

Treasury as of 1989 was receiving claims of $7,000 to $10,000 a 

day for payment on savings bonds that had matured many years 

earlier. App. at 169.5 As relevant here, a registered owner of a 

bond is presumed conclusively to be its owner absent errors in 

registration. 31 C.F.R. §§ 315.5, 353.5. 

The redemption process is not complex, as the owner of a 

bond seeking to redeem it need only present the bond to an 

authorized payment agent for redemption, 31 C.F.R. §§ 

315.39(a), 353.39(a), establish his identity, sign the request for 

payment, and provide his address. The agent then may pay the 

bond with a check drawn against funds of the United States. 

 

and receivers. 

5 We note that the States in their complaint assert that “[n]ot 

surprisingly, Treasury has not been approached by owners in 

significant numbers seeking long-matured savings bonds.” We 

cannot reconcile this allegation with the evidence in the record 

to which we have referred.
10

See 31 C.F.R. §§ 315.38, 353.38. Payment agents, ordinarily 

banks, are financial institutions qualified under Treasury 

regulations to pay sums due on savings bonds. See 31 C.F.R. §§ 

315.2(j), 353.2(f). The relevant statutes and regulations do not 

contain provisions for locating owners of matured but 

unredeemed bonds. In 2000, the Treasury, however, created a 

“Treasury Hunt” Internet website, which provides information 

on matured but unredeemed Series E bonds issued after 1974 in 

a database searchable by Social Security Number.6 

B. The States‟ Unclaimed Property Acts

All of the plaintiff States have enacted unclaimed 

property acts, most of which they have based on some version of 

the Uniform Unclaimed Property Act, which is rooted in the 

common-law doctrine of escheat. See Conn. Mut. Life Ins. Co. 

v. Moore, 333 U.S. 541, 547, 68 S.Ct. 682, 686 (1948) (“The 

right of appropriation by the state of abandoned property has 

existed for centuries in the common law.”). The plaintiffappellant States of New Jersey, Kentucky, Montana, Oklahoma, 

Missouri and Pennsylvania claim that the unclaimed bonds are 

property of their residents within the meaning of their respective 

unclaimed property acts. See New Jersey Uniform Unclaimed 

Property Act, N.J. Stat. Ann. § 46:30B-1 et seq. (West 2003); 

Kentucky statutes regarding descent, wills and the 

administration of decedents‟ estates, Ky. Rev. Stat. Ann. § 

 

6

The website is available at Treasury Hunt, 

http://www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.ht

m. 
11

393.010 et seq. (West 2012); Montana Uniform Unclaimed 

Property Act, Mont. Code Ann. § 70-9-801 et seq. (2012); 

Oklahoma Uniform Unclaimed Property Act, Okla. Stat. tit. 60, 

§ 651 et seq. (2012); Missouri Uniform Disposition of 

Unclaimed Property Act, Mo. Ann. Stat. §§ 447.500 et seq.

(West 2012); Pennsylvania statutes regarding disposition of 

abandoned and unclaimed Property, 72 Pa. Stat. Ann. § 1301.9 

et seq. (West 1995). The States‟ unclaimed property acts require 

that, after time periods that differ from State to State, holders of 

unclaimed property turn the property over to the State for 

safekeeping though the original property owner retains the right 

to recover the proceeds of the property. See, e.g., N.J. Stat. 

Ann. § 46:30B-7 (“Except as otherwise provided by this chapter, 

all property . . . that is held . . . and has remained unclaimed by 

the owner for more than three years after it became payable or 

distributable is presumed abandoned.”).

The unclaimed property acts at issue in this case are 

“custody” escheat statutes rather than “title” escheat statutes in 

that under them the State does not take title to abandoned 

property, but, instead, obtains its custody and beneficial use 

pending identification of the property owner.7 Thus “[t]he 

 

7 According to the plaintiff States, “statutes that transfer title

[are] an obsolescent form of escheat no longer in force in any 

state.” Appellants‟ br. at 3. We have some question as to 

whether this statement may be overbroad as it is difficult to 

understand how there can be an escheat of real or tangible 

personal property without a transfer of title, inasmuch as a state 

to dispose of such property ordinarily would need to sell it to a 

purchaser who would want title to the property. We, however, 
12

presumption of abandonment raised by the statute is rebuttable 

at any time.” John V. Orth, Escheat: Is the State the Last Heir?, 

13 Green Bag 2d 73, 82 (2009). Although “[t]he practical 

reason behind the states‟ action is to prevent unclaimed personal 

property being eventually appropriated by the present holder,” 

the state being “better able to provide long-term . . . custody” of 

the property, “it is sometimes admitted that the statutes are also 

a means of raising revenue.” Id. at 78 (citing, e.g., Louisiana 

Health Serv. & Indem. Co. v. McNamara, 561 So. 2d 712, 716 

(La. 1990)) (“Although one purpose of such acts is to protect the 

missing owners, the primary rationale behind this legislation is 

its use as a revenue raising device.”); see, e.g., Clymer v. 

Summit Bancorp., 792 A.2d 396, 400 (N.J. 2002) (noting that 

75% of the funds that New Jersey collects under its Uniform 

Unclaimed Property Act are transferred to the General State 

Fund, and the State “has full use” of the money “until the 

rightful owner comes forward to claim it”). Accordingly, 

 

consider that an inquiry into the accuracy of the States‟ 

representation would be beyond the scope of this opinion and so 

do not make it. We recently described the New Jersey 

Unclaimed Property Act in American Express Travel Related 

Services, Inc. v. Sidamon-Eristoff, 669 F.3d 359 (3d Cir. 2012), 

in which we upheld a New Jersey statute that reduced the period 

after which travelers checks are presumed abandoned from 15 

years to three years. Id. at 364. We indicated that after a 

transfer of abandoned property to the State of New Jersey it 

holds the property for the benefit of its owner in perpetuity. Id.

at 365. Though American Express is an informative case with 

respect to the New Jersey act it does not address issues similar to 

those here. 
13

though the States contend that their intent in bringing this action 

has been benevolent, the objective reality obviously is 

otherwise. The truth is that this case is a dispute between the 

States and the United States as to whether a State or the United 

States will obtain the benefit of having custody of and 

availability for use of the proceeds of the matured but 

unredeemed bonds even if it does not obtain title to the proceeds 

of the bonds or title to the bonds themselves. 

The unclaimed property acts contain specific provisions 

for presuming property to be “abandoned” when the United 

States either holds the property or is obligated to make payment 

for it to its owner. See N.J. Stat. Ann. § 46:30B-41.2 

(presuming property to be abandoned if unclaimed for more than 

one year after it became payable by “the executive, legislative, 

or judicial branch of the United States Government”); Okla. 

Stat. tit. 60, § 657 (property held by a state or other government 

presumed abandoned after being unclaimed for one year); Ky. 

Rev. Stat. Ann. § 393.068(1) (property held by Federal 

Government presumed abandoned if it remains unclaimed for 

more than five years); Mo. Rev. Stat. § 447.532(2) (property 

held by any agency or department of the United States deemed 

abandoned if unclaimed for more than three years); Mont. Code 

Ann. § 70-9-803(1)(k) (property held by a government or 

governmental subdivision unclaimed one year after it becomes 

distributable presumed abandoned); 72 Pa. Stat. Ann. § 1301.9 

(any property held for its owner by any “instrumentality of the 

United States” unclaimed for five years from the date it first 

became demandable or distributable presumed abandoned).

C. The States‟ Efforts to Claim Proceeds of Matured 
14

but Unredeemed Savings Bonds

Over the last several decades, various states have sought 

to recover the proceeds from matured but unredeemed savings 

bonds. On February 27, 1952, the Treasury issued a bulletin 

reprinting a letter dated January 28, 1952, from the Secretary to 

the Comptroller of the State of New York in response to the 

Comptroller‟s inquiry regarding “the prospective right of the 

state of New York . . . to receive payment of certain United 

States securities of which it is not the registered owner.” App. 

at 134. The Secretary explained that the Federal Government 

would pay the proceeds of savings bonds to the State of New 

York if it actually obtained title to the bonds, but would not do 

so where the State merely obtained a right to the custody of the 

proceeds. The Secretary made this distinction because he 

believed that the effect of applying a custody-based escheat 

statute to savings bonds would

either provide the obligor with a discharge, valid 

within and without New York, or fail to provide 

such discharge. If the discharge is provided in the 

case of the ordinary debtor, then the other party to 

the contract has substituted for his right to pursue 

his obligor in any jurisdiction, a right merely to 

prosecute a claim against the State Comptroller of 

New York; if an effective discharge is not 

provided, the obligor is subject to suit outside the 

State of New York and the necessity of making 

double payment — in exchange he has a right to 

claim relief from the Comptroller under . . . [New 

York‟s] Abandoned Property Law.
15

Id. at 135. The Secretary concluded that “[n]either of these 

possible alterations of [the] contract [created by the savings 

bond] is contemplated in the agreement by which the United 

States pledges its faith on its securities,” because “the rights and 

duties of the United States are governed by federal rather than 

local law.” Id. at 135-36. 

To the best of our knowledge the Treasury last articulated 

its position with respect to the application of state escheat laws 

on savings bonds or their proceeds in 2000 on its Internet 

website, “EE/E Savings Bonds FAQs” (frequently asked 

questions). In particular, the Treasury posted an answer to the 

question: “In a state that has a permanent escheatment law, can 

the state claim the money represented by securities that the state 

has in its possession. For example, can a state cash savings 

bonds that it‟s gotten from abandoned safe deposit boxes?” The 

plaintiff States refer to the Treasury‟s answer to this question —

which is consistent with the bulletin that the Treasury issued 

almost one half of a century earlier and that we have quoted —

as the “Escheat Decision.” The Escheat Decision answered that:

The Department of the Treasury will 

recognize claims by States for payment of United 

States securities where the States have succeeded 

to the title and ownership of the securities 

pursuant to valid escheat proceedings. The 

Department, however, does not recognize claims 

for payment by a State acting merely as custodian 

of unclaimed or abandoned securities and not as 

successor in title and ownership of the securities. 
16

In other words, the Treasury recognizes 

escheat statutes that provide that a State has 

succeeded to the legal ownership of securities 

because in such case payment of the securities 

results in full discharge of the Treasury‟s 

obligation and this discharge is valid in all 

jurisdictions. 

But, payment of securities to a State 

claiming only as a custodian results in the 

substitution of one obligor, the Department of the 

Treasury, for another, the State. Not only is there 

serious question whether there is authority for a 

State to effect such a substitution, but also there 

seems to be no basis for believing that payment to 

a State custodian would discharge Treasury of its 

obligation. Even if the discharge were claimed 

effective in the State to which the payment is 

made, it is believed that the Treasury‟s obligation 

and liability would still remain in force in all 

other jurisdictions.8

In the District Court, the parties stipulated that the Escheat 

Decision “is defendants‟ interpretation of federal savings bond 

 

8

The Escheat Decision took this statement nearly verbatim from 

a 1983 letter from the Treasury to the State of Kentucky. See

app. at 139. The Escheat Decision is available at 

http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res

_e_bonds_eefaq.htm.
17

regulations . . . and reflects defendants‟ understanding of 

existing laws” and that “the Department has no intention of 

deviating from the statement.” Id. at 142. The Treasury, 

however, has not adopted the Escheat Decision as a rule in 

accordance with the Administrative Procedure Act (“APA”), 5 

U.S.C. § 551 et seq. 

D. Procedural History

The Treasurer of the State of New Jersey filed this action 

on September 8, 2004, against the Treasury, the Secretary, the 

Bureau of Public Debt,9and the Commissioner of the Bureau of 

Public Debt under the New Jersey Uniform Unclaimed Property 

Act. The Treasurer of the State of North Carolina joined the 

action shortly thereafter.10 The plaintiff States sought an order 

directing the Government to pay the proceeds of matured but 

unredeemed savings bonds to the plaintiff States according to 

the last known addresses of their owners and for an accounting 

of the amounts owed pursuant to their unclaimed property acts. 

It was and remains clear that if the unclaimed property acts are 

applied as written, by their terms they would entitle the States to 

substantially the relief that they seek in this action. 

Nevertheless, on February 5, 2005, the Government moved to 

dismiss or transfer the action to the United States Court of 

Federal Claims as it contended that only that court had subject 

 

9

The Bureau of Public Debt is the division of the Treasury 

responsible for administrating the savings bond program.

10 North Carolina has not joined in this appeal. See app. at 1 

(notice of appeal).
18

matter jurisdiction. In making this motion the Government 

contended that the only applicable waiver of sovereign 

immunity that would permit this action to proceed was within 

the Tucker Act, which grants the Court of Federal Claims 

jurisdiction over “any claim against the United States founded 

either upon the Constitution, or any Act of Congress or any 

regulation of an executive department, or upon any express or 

implied contract with the United States, or for liquidated or 

unliquidated damages in cases not sounding in tort.” 28 U.S.C. 

§ 1491(a)(1). The District Court agreed with the Government 

with respect to the court that should entertain the action as it 

transferred the case to the Court of Federal Claims in July of 

2005 pursuant to 28 U.S.C. § 1631 as it held that the States‟ 

claims were “based on contracts” — the savings bonds. The 

States appealed from the order for transfer to the United States 

Court of Appeals for the Federal Circuit, the court with 

jurisdiction to entertain appeals from the Court of Federal 

Claims as the transferee court, rather than to this Court. See

Carteret Sav. Bank v. Shushan, 919 F.2d 225, 228 (3d Cir. 

1990). 

On June 15, 2006, the Court of Appeals for the Federal 

Circuit held that the Court of Federal Claims lacked jurisdiction 

over this case and the court of appeals accordingly remanded the 

case to the District Court for further proceedings. See

McCormac v. U.S. Dep‟t of Treasury, 185 F. App‟x 954 (Fed. 

Cir. 2006). In briefs filed in the court of appeals, the United 

States acknowledged that it had erred in requesting the transfer 

and conceded that the case was not within the limited 

jurisdiction of the Court of Federal Claims. The court of 

appeals wrote that the Court of Federal Claims did not have 
19

jurisdiction because the States “do not assert a contractual 

relationship . . . that provides a substantive right to money 

damages.” Id. at 955. Accordingly, “although the States [were] 

asserting a claim that involves a contract, they [were] not 

asserting a contract claim for money damages against the 

government.” Id. at 956. Moreover “[t]he States [were] not 

named parties to the bond contract, [and thus there was not] 

privity between the States and the Government.” Id. The court 

of appeals noted that the States, by operation of their unclaimed 

property acts, sought to act only as conservators, not as parties to

any contracts. Id.

After the return of the case to the District Court the 

plaintiff States amended their complaint multiple times to add as 

plaintiffs officials of the States of Montana, Kentucky, 

Oklahoma, Missouri, and Pennsylvania, and to add claims that 

the Escheat Decision violated the Tenth Amendment11 and the 

notice and comment provisions of the APA contained in 5 

U.S.C. § 553.12 In November of 2008, the Government filed a 

 

11 The Tenth Amendment provides that “[t]he powers not 

delegated to the United States by the Constitution, nor 

prohibited by it to the States, are reserved to the States 

respectively, or to the people.”

12 5 U.S.C. § 553 provides in relevant part:
20

motion to dismiss the fourth amended complaint, again 

contending that the District Court did not have jurisdiction but 

this time predicating that contention on an argument that the 

 

(b) General notice of proposed rule making shall 

be published in the Federal Register, unless 

persons subject thereto are named and either 

personally served or otherwise have actual notice 

thereof in accordance with law. . . . 

Except when notice or hearing is required by 

statute, this subsection does not apply—

(A) to interpretative rules, general 

statements of policy, or rules of agency 

organization, procedure, or practice; or 

(B) when the agency for good cause finds 

(and incorporates the finding and a brief statement

of reasons therefor in the rules issued) that 

notice and public procedure thereon are 

impracticable, unnecessary, or contrary to 

the public interest. 

(c) After notice required by this section, the 

agency shall give interested persons an 

opportunity to participate in the rule making 

through submission of written data, views, or 

arguments with or without opportunity for oral 

presentation. . . .
21

United States had not waived sovereign immunity and thus the 

Federal Government could not be made a defendant in this 

action. The Government, however, did not contend that even if 

it did not enjoy sovereign immunity in this case the Court still 

would not have statutory jurisdiction under 28 U.S.C. § 1331 or 

any other statute. In the alternative, the Government sought 

summary judgment on the grounds of intergovernmental 

immunity and federal preemption of the States‟ unclaimed 

property acts. 

After oral argument, the District Court denied the 

Government‟s motion without prejudice, but granted it leave to 

file a motion to dismiss pursuant to Federal Rule of Civil 

Procedure 12(b). In July of 2009, the Government filed the 

ultimately successful motion to dismiss and obtained the order 

that the States challenge on this appeal.13 The Government 

argued that dismissal for lack of jurisdiction was warranted 

under Rule 12(b)(1) because the States had not established that 

the Government had waived sovereign immunity. Alternatively, 

the Government argued that dismissal was appropriate under 

Rule 12(b)(6) because federal law preempted the States‟ 

 

13 The Government addressed its motion to dismiss to the fourth 

amended complaint but after oral argument on the motion the 

States sought leave to amend the complaint to add the Treasurer 

of Pennsylvania as a plaintiff. The Government consented to the 

amendment, thus generating a fifth amended complaint. 

Because the fifth amended complaint was substantially the same 

as the fourth amended complaint, the District Court‟s opinion 

referenced the fourth amended complaint.
22

unclaimed property acts to the extent that the States sought to 

apply those acts in this case. The Government also contended 

that the doctrine of intergovernmental immunity barred the 

States‟ case and the case lacked merit insofar as the States based 

their claims on the Tenth Amendment and violations of the 

APA‟s notice and comment provisions. 

The District Court began its analysis with the 

Government‟s arguments on the merits under Rule 12(b)(6) even

though “Article III [of the Constitution] generally requires a 

federal court to satisfy itself of its jurisdiction over the subject 

matter before it considers the merits of a case.”14 Ruhrgas AG 

v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 1569 

(1999). The District Court first addressed the issue of 

intergovernmental immunity, and concluded that the imposition 

of the States‟ escheat acts impermissibly would regulate the 

Federal Government by imposing potential civil and criminal 

penalties on the Government for failure to comply with the acts‟ 

 

14 In Steel Co. v. Citizens for a Better Environment, 523 U.S. 

83, 118 S.Ct. 1003 (1998), the Supreme Court disapproved of 

the practice that some courts of appeals, including this Court, 

had adopted of assuming “hypothetical jurisdiction” when 

facing difficult jurisdictional questions in situations in which the 

party entitled to prevail on the merits would be the same party 

prevailing if the court did not have jurisdiction. Id. at 93-94, 

118 S.Ct. at 1012. Under the rule of Steel Co., when a court 

lacks jurisdiction its “only function . . . is that of announcing the 

fact and dismissing the cause” as any further discussion would 

amount to an “advisory opinion.” Id. at 94, 101, 118 S.Ct. at 

1012, 1016.
23

record-keeping and reporting requirements, and would interfere 

with Congress‟s constitutional power, U.S. Const. art. IV, § 3, 

cl. 2, to “dispose of and make all needful Rules and Regulations 

respecting the . . . Property belonging to the United States.” 

App. at 28-30. The Court also observed that implementing the 

laws “could result in multiple obligations on the same bond by 

the United States,” id. at 30, because the respective States would 

be substituted as obligors on the bonds, while the Federal 

Government would remain contractually and statutorily 

obligated on the bonds to the original bondholder or his legal 

successors. 

Next, addressing preemption, the District Court held that 

the States‟ proposal for taking custody of the bonds pursuant to 

their escheat laws impermissibly would interfere with the 

contract between the bondholders and the United States, thus 

conflicting “with the narrow regulations governing redemption 

of the bonds.” Id. at 30-31. The Court also rejected the States‟ 

Tenth Amendment reserved power claim that they had the right 

to enforce their unclaimed property acts to gain custody of the 

proceeds of the savings bonds. In this regard, the Court held 

because the States‟ acts had been preempted, Congress had not 

infringed the States‟ reserved powers by exercising powers not 

delegated to the United States. Finally, the Court held that the 

States‟ notice and comment claim failed because the Escheat 

Decision concerns government contracts and thus the Decision 

explicitly was exempt from the requirements of 5 U.S.C. § 
24

553.15 See 5 U.S.C. § 553(a) (stating that “[t]his section applies 

. . . except to the extent there is involved . . . a matter relating to 

agency . . . contracts”). Alternatively, with respect to the States‟ 

notice and comment claim the Court held that the Escheat 

Decision was an “interpretive rule” or “general statement[] of 

policy” not subject to the statute‟s requirements. See 5 U.S.C. § 

553(b)(A) (stating with exceptions not relevant here that the 

APA‟s notice provision does not apply to “interpretive rules, 

general statements of policy, or rules of agency organization, 

procedure, or practice”). 

 

15 On this appeal, the States essentially do not challenge the 

District Court‟s ruling rejecting their 5 U.S.C. § 553 notice and 

comment argument, and therefore they have waived their right 

to contend that the Court erred in making that ruling. See FDIC 

v. Deglau, 207 F.3d 153, 169 (3d Cir. 2000). They indicate, 

however, in their brief that they contingently “do assert a claim 

under the APA concerning Treasury‟s failure to promulgate its 

Escheat Decision through notice and comment rulemaking or to 

publish it in the Federal Register . . . but [do so] simply to 

forestall any assertion by defendants that the Escheat Decision is 

agency action that preempts the States‟ cause of action under 

their escheat statutes.” Appellants‟ br. at 17 n.5. The 

Government, however, does not make that contention as it 

argues that federal constitutional provisions, laws, and duly 

adopted regulations preempt the States‟ unclaimed property acts. 

Obviously, the Escheat Decision has no preemptive effect as it 

merely is the Treasury‟s opinion as to the effect of those primary 

sources of law.
25

When it addressed the sovereign immunity and 

jurisdictional issues, the District Court concluded that the 

Escheat Decision and the Government‟s refusal to turn over the 

unclaimed bonds did not constitute “final agency action” subject 

to judicial review. See 5 U.S.C. § 704 (“Agency action made 

reviewable by statute and final agency action for which there is 

no other adequate remedy in a court are subject to judicial 

review. A preliminary, procedural, or intermediate agency 

action or ruling not directly reviewable is subject to review on 

the review of the final agency action.”).16 On February 5, 2010, 

the Court entered an order dismissing this action. This appeal 

followed.

III. JURISDICTION AND STANDARD OF REVIEW

The question of whether the District Court had 

jurisdiction is at issue in this appeal. Accordingly, we will 

address its jurisdiction in our discussion below. We have 

appellate jurisdiction under 28 U.S.C. § 1291.

Our review of the dismissal in this case involving a facial 

challenge to the District Court‟s jurisdiction is plenary. In re 

 

16 The District Court did not specify whether it based its 

decision to dismiss the case on the merits pursuant to Rule 

12(b)(6) or on its lack of jurisdiction under Rule 12(b)(1). As 

we discuss below, regardless of the District Court‟s intent we 

affirm its dismissal on the basis of Rule 12(b)(6) as we are 

satisfied that it had jurisdiction.
26

Kaiser Grp. Int‟l Inc., 399 F.3d 558, 561 (3d Cir. 2005). Thus, 

in our jurisdictional determination we “accept all [the] wellpleaded allegations in the complaint as true and view them in the 

light most favorable to the [States].” Id. 

We exercise plenary review of the District Court‟s order 

granting the Government‟s motion to dismiss under Rule 

12(b)(6) for failure to state a claim. See Allen ex rel. Martin v. 

LaSalle Bank, N.A., 629 F.3d 364, 367 (3d Cir. 2011). 

Similarly, as in our jurisdictional review, in reviewing the 

dismissal under Rule 12(b)(6), “we accept all factual allegations 

as true [and] construe the complaint in the light most favorable 

to the [States].” Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 

77, 84 (3d Cir. 2011) (quoting Pinker v. Roche Holdings, Ltd., 

292 F.3d 361, 374 n.7 (3d Cir. 2002)). A court may grant a 

motion to dismiss under Rule 12(b)(6) “only if, accepting all 

well-pleaded allegations in the complaint as true and viewing 

them in the light most favorable to the plaintiff, [it] finds that [a] 

plaintiff‟s claims lack facial plausibility.” Id. (citing Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 1964-

65 (2007)).

IV. DISCUSSION

A. Subject Matter Jurisdiction

Without a waiver of sovereign immunity, a court is 

without subject matter jurisdiction over claims against federal 

agencies or officials in their official capacities. United States v. 
27

Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351 (1980) (“The 

United States, as sovereign, is immune from suit save as it 

consents to be sued.”) (alteration and citation omitted). A 

waiver of sovereign immunity must be express and 

unambiguous to confer subject matter jurisdiction on a court. 

United States v. Bein, 214 F.3d 408, 412 (3d Cir. 2000). As the 

Supreme Court said in United States v. United States Fidelity & 

Guaranty Co., 309 U.S. 506, 514, 60 S.Ct. 653, 657 (1940), 

“[c]onsent alone gives jurisdiction to adjudge against a 

sovereign. Absent that consent, the attempted exercise of 

judicial power is void.” Moreover, as the Court also has 

explained “a waiver of sovereign immunity must be strictly 

construed in favor of the sovereign,” Orff v. United States, 545 

U.S. 596, 601-02, 125 S.Ct. 2606, 2610 (2005), and “[t]he terms 

of [the] waiver define the extent of the court‟s jurisdiction.” 

United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224, 

2229 (1986) (citation omitted).

The States initially argue that the proposed application of 

their respective unclaimed property acts to the savings bonds or 

their proceeds does not implicate sovereign immunity because it 

does not create a context in which the Federal Defendants might 

be able to assert their sovereign immunity. The States predicate 

this argument on the circumstance that the United States does 

not assert an ownership interest in the proceeds of the unclaimed 

bonds or in the bonds themselves. We, however, conclude that 

this argument lacks merit. In rejecting the States‟ argument we 

note that we have observed, rather unsurprisingly, that 

“sovereign immunity is implicated” when “a plaintiff [is] suing 

the United States.” Scheafnocker v. Comm‟r, 642 F.3d 428, 433 

n.8 (3d Cir. 2011) (citing Becton Dickinson and Co. v. 
28

Wolckenhauer, 215 F.3d 340, 345 (3d Cir. 2000)); see S. Delta 

Water Agency v. U.S. Dep‟t of Interior, 767 F.2d 531, 536 (9th 

Cir. 1985) (noting that “[f]ederal agencies and instrumentalities, 

as well as federal employees acting in their official capacities 

within their authority are [also] immune from suit” absent a 

congressional waiver of sovereign immunity) (citation omitted).

The States next assert that even if sovereign immunity is 

implicated in this case, the APA provides for its waiver. We 

agree with the States‟ APA argument and thus hold that the 

District Court erred to the extent it relied on sovereign immunity 

to dismiss the case under Rule 12(b)(1). In considering 

sovereign immunity we initially observe that the APA “sets forth 

the procedures by which federal agencies are accountable to the 

public and their actions subject to review by the courts.” 

Franklin v. Massachusetts, 505 U.S. 788, 796, 112 S.Ct. 2767, 

2773 (1992). Thus, the APA in 5 U.S.C. § 702 provides in 

relevant part: 

A person suffering legal wrong because of agency 

action, or adversely affected or aggrieved by 

agency action within the meaning of a relevant 

statute, is entitled to judicial review thereof. An 

action in a court of the United States seeking 

relief other than money damages and stating a 

claim that an agency or an officer or employee 

thereof acted or failed to act in an official capacity

or under color of legal authority shall not be 

dismissed nor relief therein be denied on the 

ground that it is against the United States or that 

the United States is an indispensable party.
29

The second sentence of the above portion of section 702 had its 

origin in the 1976 amendments to the APA by which Congress 

sought to “remove three technical barriers to the consideration 

on the merits of citizens‟ complaints against the Federal 

Government, its agencies, or employees.” H.R. Rep. No. 94-

1656, at 3 (1976), reprinted in 1976 U.S.C.C.A.N. 6121, 6123. 

A key “technical barrier” that Congress removed was “the 

defense of sovereign immunity as a bar to judicial review of 

Federal administrative action otherwise subject to judicial 

review.” 5 U.S.C. § 702, Historical and Statutory Notes. The 

Supreme Court subsequently clarified that “it is undisputed that

the 1976 amendment to § 702 was intended to broaden the 

avenues for judicial review of agency action by eliminating the 

defense of sovereign immunity in cases covered by the 

amendment.” Bowen v. Massachusetts, 487 U.S. 879, 891-92, 

108 S.Ct. 2722, 2731 (1988). Thus, section 702 “provides both 

a waiver of sovereign immunity and a right of judicial review.” 

NVE, Inc. v. Dep‟t of Health and Human Servs., 436 F.3d 182, 

189 (3d Cir. 2006). 

The States now contend that the District Court erred in 

holding that the scope of the waiver of sovereign immunity 

under section 702 is limited to “final agency action.”17 The 

 

17 The States took the position before the District Court that if a 

waiver of sovereign immunity was necessary, the Escheat 

Decision would have to have been “final agency action” for it to 

be reviewable under the APA. That contention is inconsistent 

with their position on this appeal. The States complain that the 

District Court “severely limited discovery to the issues of 

ripeness and whether Treasury‟s policy on escheat constituted 
30

APA in 5 U.S.C. § 704 sets forth limitations on the type of 

agency actions reviewable under the APA, as it provides that 

“[a]gency action made reviewable by statute and final agency 

action for which there is no other adequate remedy in a court are 

subject to judicial review. A preliminary, procedural, or 

intermediate agency action or ruling not directly reviewable is 

subject to review on the review of the final agency action.” See

5 U.S.C. § 551(13) (“„agency action‟ includes the whole or a 

part of an agency rule, order, license, sanction, relief, or the 

equivalent or denial thereof, or failure to act”). The District 

Court concluded that because the Escheat Decision was not 

reviewable by statute and was not a “final agency action,” 

section 702 did not waive sovereign immunity in this case. 

But the District Court‟s conclusion was at odds with 

opinions of several courts of appeals that have clarified that the 

waiver of sovereign immunity in section 702 extends to all nonmonetary claims against federal agencies and their officers, 

regardless of whether or not the cases seek review of “agency 

action” or “final agency action” as set forth in section 704. For 

example, in Trudeau v. Federal Trade Commission, 456 F.3d 

178, 187 (D.C. Cir. 2006), the United States Court of Appeals 

for the District of Columbia Circuit held that section 702‟s 

 

final agency action,” Appellants‟ reply br. at 2, and assert that 

broader discovery would have been useful on the issues of 

“whether escheat of unclaimed bonds would interfere with the 

administration of the federal bond program, or subject Treasury 

to double liability, or confuse bondholders.” Id. at 2-3. They, 

however, do not ask us to reverse because of the Court‟s 

limitation on discovery.
31

waiver of sovereign immunity “is not limited to APA cases” and

applies “regardless of whether the elements of an APA cause of 

action are satisfied.” In Trudeau, the Federal Trade Commission 

(“FTC”) issued what the plaintiff alleged was a false and 

misleading press release about his business activities. The 

plaintiff asserted that the FTC violated his rights under the First 

Amendment and he was entitled to relief under 5 U.S.C. § 706, 

which provides that a reviewing court may set aside agency 

action found to be “in excess of statutory jurisdiction, authority, 

or limitations.” Id. at 188. The district court dismissed the 

complaint for lack of subject matter jurisdiction because the 

press release was not “final agency action” under section 704. 

Id. at 182. The court of appeals in reversing held that even 

though the plaintiff‟s claims failed on the merits that 

circumstance made no difference for jurisdictional purposes 

because regardless of whether the FTC press release constituted 

a “final agency action” the District Court had jurisdiction. In 

reaching its conclusion, the court of appeals cited the Senate 

Report accompanying the 1976 APA amendments, which 

indicated that section 702‟s partial waiver of sovereign 

immunity extended to nonstatutory review18 of federal 

administrative action, and thus included the plaintiff‟s claims 

even if he had not made them under the APA. Id. at 187 (citing 

S. Rep. No. 94-996, at 8 (1976) reprinted in 1976 U.S.C.C.A.N. 

6121, 6129). 

In its opinion the Trudeau court dealt with the first 

 

18 Such lawsuits “are called „nonstatutory‟ because they are not 

brought under the statutes that specially provide for review of 

agency action.” Jaffee, 592 F.2d at 719 n.12.
32

sentence of section 702 which reads, “[a] person suffering legal 

wrong because of agency action . . . is entitled to judicial review 

thereof,” but then emphasized that the statute‟s waiver of 

sovereign immunity was in the second sentence of section 702 

which reads: 

An action in a court of the United States seeking 

relief other than money damages and stating a 

claim that an agency or an officer or employee 

thereof acted or failed to act in an official capacity

or under color of legal authority shall not be 

dismissed nor relief therein be denied on the 

ground that it is against the United States or that 

the United States is an indispensable party. 

Id. at 185. The court of appeals emphasized that while 

the second sentence refers to a claim against an 

“agency,” and thus carries that limitation to the scope of 

the waiver of sovereign immunity, the sentence does not 

use the terms “agency action” or “final agency action.” 

Furthermore, the court of appeals observed that the 

House and Senate Reports accompanying the 1976 

amendments reflected Congress‟s intent to waive 

immunity for “any” and ”all” actions for non-monetary 

relief against an agency. Id. at 187 (citing H.R. Rep. No. 

94-1656, at 3, S. Rep. No. 94-996, at 8, reprinted in 1976 

U.S.C.C.A.N. at 6129). In sum, the court of appeals held 

that section 704‟s “final agency action” requirement only 

limited the viability of claims made under the APA, and 

because section 702 operated as a waiver for all nonmonetary claims, including those claims not made under 
33

the APA, section 704 did not limit section 702‟s waiver 

of sovereign immunity. 

The Court of Appeals for the Ninth Circuit recently 

agreed with Trudeau that section 702‟s waiver of sovereign 

immunity is not limited to actions brought under the APA. In 

Veterans for Common Sense v. Shinseki, 644 F.3d 845 (9th Cir. 

2011), a veterans‟ group claimed that the Department of 

Veterans Affairs‟ dilatory processing of mental health claims 

violated the veterans‟ constitutional right to benefits. Id. at 860-

61. In Veterans for Common Sense the district court held that 

the “final agency action” limitation in section 704 restricted the 

waiver of sovereign immunity in section 702, and inasmuch as 

the delays in processing claims did not constitute “final agency 

action,” section 702 did not waive sovereign immunity. Id. at 

863. The court of appeals reversed, concurring with Trudeau

and holding that the first sentence of section 702 referred to a 

cause of action created by the APA, and not any jurisdictional 

limitation. Id. at 866 (“The first and second sentences of § 702 

play quite different roles.”). Therefore, the court of appeals held 

that section 702 waived sovereign immunity for purposes of the 

plaintiff‟s request for injunctive relief based on the Constitution, 

even if judicial review did not involve “agency action” under 

section 704. 

The Veterans for Common Sense court relied on its 

earlier decision in Presbyterian Church (U.S.A.) v. United 

States, 870 F.2d 518 (9th Cir. 1989), where the plaintiffs alleged 

that there had been First and Fourth Amendment violations 

when federal agencies secretly recorded church services. There, 

the court of appeals noted that while the original 1946 form of 
34

section 702, which contained the first but not second sentence, 

may have limited judicial review to “agency action,” the 1976 

amendments, which added the second sentence, reflected an 

“unqualified waiver of sovereign immunity in actions seeking 

nonmonetary relief against legal wrongs for which governmental 

agencies are accountable,” and “[n]othing in the language of the 

amendment suggests that the waiver of sovereign immunity is 

limited to claims challenging conduct falling in the narrow 

definition of „agency action.‟” Id. at 525. 

Other courts of appeals have taken the same position as 

the Trudeau and Veterans for Common Sense courts. In Delano 

Farms Co. v. California Table Grape Commission, 655 F.3d 

1337, 1344 (Fed. Cir. 2011), the Court of Appeals for the 

Federal Circuit held that grape growers could maintain a patent 

claim against the United States Department of Agriculture for 

declaratory relief because section 702 applied broadly to waive 

sovereign immunity for all claims not seeking money damages. 

The Courts of Appeals for the Seventh and First Circuits have 

viewed the waiver of sovereign immunity in the second sentence 

of section 702 similarly. See Michigan v. U.S. Army Corps of 

Eng‟rs, 667 F.3d 765, 775 (7th Cir. 2011) (“the conditions of § 

704 affect the right of action contained in the first sentence of § 

702, but they do not limit the waiver of immunity in § 702‟s 

second sentence”) (citing Veterans for Common Sense, 644 F.3d 

at 866-68); Blagojevich v. Gates, 519 F.3d 370, 372 (7th Cir. 

2008) (holding that section 702 waives immunity for a lawsuit 

by a state governor alleging that the Department of Defense 

violated a statute requiring the governor‟s approval before 

moving a national guard unit from the state); Puerto Rico v. 

United States, 490 F.3d 50, 57-58 (1st Cir. 2007) (holding that 
35

section 702 encompasses all actions for specific relief against a 

federal agency or its officers). 

Although we acknowledge that section 702 is not a model 

of clarity, our independent review of our precedents and the 

statute‟s legislative history leads us to agree with the position 

taken by the courts of appeals in the opinions to which we have 

referred. In Specter v. Garrett, 995 F.2d 404 (3d Cir. 1993), 

rev‟d on other grounds sub nom. Dalton v. Specter, 511 U.S. 

462, 114 S.Ct. 1719 (1994), we held that an action seeking an 

order enjoining the Secretary of the Navy from closing a naval 

shipyard could proceed under the Defense Base Closure and 

Realignment Act of 1990 despite the defendants‟ invocation of 

sovereign immunity, stating that “the waiver of sovereign 

immunity contained in § 702 is not limited to suits brought 

under the APA.” Id. at 410. Although we did not address

directly whether section 704 operates as a limitation on section 

702‟s waiver of sovereign immunity, we recently clarified that 

the judicial review provisions of the APA such as section 704, 

are not jurisdictional, but rather “provide a limited cause of 

action for parties adversely affected by agency action.” 

Chehazeh v. Attorney Gen. of the United States, 666 F.3d 118, 

125 n.11 (3d Cir. 2012) (quoting Oryszak v. Sullivan, 576 F.3d 

522, 525 (D.C. Cir. 2009)). “Thus, if agency action is . . . not 

final agency action, 5 U.S.C. § 704, a plaintiff who challenges 

such an action cannot state a claim under the APA . . . and the 

action must be dismissed.” Id. (citing Oryszak, 576 F.3d at 525) 

(internal quotation marks omitted). 

The House of Representatives Report accompanying the 

1976 amendments confirms that Congress contemplated that the 
36

amendments would implement a broad waiver of sovereign 

immunity. As stated above, prior to the amendments section 

702 contained the first sentence, which provided that a person 

aggrieved by agency action within the meaning of a relevant 

statute is entitled to judicial review, but it did not contain the 

second sentence. Thus, in 1976 when Congress added the 

second sentence it did so for the specific purpose of waiving 

sovereign immunity. See H.R. Rep. No. 94-1656, at 1, reprinted 

in 1976 U.S.C.C.A.N. at 6121. The House Report, however, 

explained that the second sentence of section 702, providing that 

a federal agency and its officers could be named as defendants 

in non-monetary actions, was subject to limitations. First, the 

amendment only waives sovereign immunity for actions in a 

federal court; second, such actions must seek non-monetary 

relief; and third, it is “applicable only to functions falling within 

the definition of „agency‟ in 5 U.S.C. section 701.” Id. at 11, 

reprinted in 1976 U.S.C.C.A.N. at 6131. 

But the House Report does not state that there is a fourth 

limitation limiting the waiver of sovereign immunity in section 

702 to suits challenging “agency action” as defined in the APA. 

Rather, the Report indicates that “[t]he amendment made to 

section 702 of title 5 would eliminate the defense of sovereign 

immunity in any action in a federal court seeking relief other 

than money damages and stating a claim based on the assertion 

of unlawful official action by an agency or by an officer or 

employee of that agency.” Id. at 3, reprinted in 1976 

U.S.C.C.A.N. at 6123 (emphasis added); see id. at 9, 1976 

U.S.C.C.A.N. at 6129 (“[T]he time now [has] come to eliminate 

the sovereign immunity defense in all equitable actions for 

specific relief against a Federal agency or officer acting in an 
37

official capacity.”) (emphasis added.). Accordingly, section 704 

in limiting review to “final agency action” concerns whether a 

plaintiff has a cause of action under the APA that can survive a 

motion to dismiss under Rule 12(b)(6) but does not provide a 

basis for dismissal on grounds of sovereign immunity.19 Here, 

of course, the States seek equitable relief and not monetary 

damages and accordingly, the Government‟s sovereign 

immunity from this action has been waived.20 

 

19 The Government contends that the waiver of sovereign 

immunity should be limited to actions brought under federal law 

rather than state law as the States have done here to the extent 

that they seek relief under their unclaimed property acts. 

Though in view of the circumstance that most cases against the 

Government are under federal law so that Congress probably 

was focused on that law when it adopted the 1976 amendments 

to the APA, we see no support for the distinction that the 

Government makes between federal and state law in either the 

text or the history of section 702.

20 We emphasize here that although in this action the States seek 

to recover a very large sum of money, this action does not seek 

“money damages” within the meaning of section 702. In 

Bowen, 487 U.S. 879, 108 S.Ct. 2722, the State of 

Massachusetts sued the Secretary of Health and Human Services 

in order to enforce a provision of the Medicaid statute requiring 

that the Federal Government reimburse it for certain Medicaid 

expenditures that it had made. The Court held that section 702 

waived sovereign immunity in that case even though 

Massachusetts sought to make a monetary recovery from the 
38

Although the defense of sovereign immunity raises a 

claim constituting a jurisdictional limitation, even if, as we now

hold here, the defense is unsuccessful, the court in which the 

plaintiff has brought the action cannot entertain the case unless 

it has jurisdiction under Article III of the Constitution and the 

statutes that Congress has adopted providing a federal court with 

jurisdiction over the case. Accordingly, as distinct from its 

arguments that the States‟ lawsuit does not fall within the APA‟s 

waiver of sovereign immunity, the Government now contends 

 

Federal Government, observing that “[o]ur cases have long 

recognized the distinction between an action at law for damages 

— which are intended to provide a victim with monetary

compensation for an injury to his person, property, or reputation 

— and an equitable action for specific relief — which may 

include an order providing for the reinstatement of an employee 

with backpay, or for „the recovery of specific property or 

monies, ejectment from land, or injunction either directing or 

restraining the defendant officer‟s actions.‟ Larson v. Domestic 

& Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457, 

1460 (1949) (emphasis added)).” Id. at 893, 108 S.Ct. at 2732; 

see id. at 895, 108 S.Ct. at 2732 (explaining that “[d]amages are 

given to the plaintiff to substitute for a suffered loss, whereas 

specific remedies are not substitute remedies at all, but attempt 

to give the plaintiff the very thing to which he was entitled.” 

(citation and internal quotation marks omitted)). Accordingly, 

the Court held that “[t]he fact that a judicial remedy may require 

one party to pay money to another is not a sufficient reason to 

characterize the relief as „money damages.‟” Id. at 893, 108 

S.Ct. at 2732.
39

— even though it did not advance this point in the District Court 

— that the District Court lacked an independent basis for federal 

question jurisdiction because the States are making claims under 

state, not federal law. Thus, the Government contends that the 

District Court did not have jurisdiction over the States‟ action 

under 28 U.S.C. § 1331 or, indeed, under any other statute.21 

Although we sometimes have referred to the APA as conferring 

“jurisdiction,” see, e.g., Pinho v. Gonzales, 432 F.3d 193, 200 

(3d Cir. 2005), the Supreme Court has stated that “the APA does 

not afford an implied grant of subject-matter jurisdiction 

permitting federal judicial review of agency action.” Califano v. 

Sanders, 430 U.S. 99, 107, 97 S.Ct. 980, 985 (1977). 

Accordingly, we have recognized that ordinarily “the „federal 

question‟ statute, 28 U.S.C. § 1331, „confer[s] jurisdiction on 

federal courts to review agency action.‟” Chehazeh, 666 F.3d at 

125 n.11 (quoting Califano, 430 U.S. at 105, 97 S.Ct. at 984). 

See Chrysler Corp. v. Brown, 441 U.S. 281, 317 n.47, 99 S.Ct. 

1705, 1725 n.47 (1979) (“Jurisdiction to review agency action is 

found in 28 U.S.C. § 1331.”); Jaffee v. United States, 592 F.2d 

712, 718 (3d Cir. 1979) (“[S]ection 702, when it applies, waives 

sovereign immunity in „nonstatutory‟ review of agency action 

under section 1331.”) (emphasis added). 

We thus must decide whether the States‟ claims arise 

 

21 Of course, inasmuch as we must assure ourselves that the 

District Court had subject matter jurisdiction the Government 

may assert this jurisdictional argument initially on this appeal. 

See Arizonans for Official English v. Arizona, 520 U.S. 43, 73, 

117 S.Ct. 1055, 1071-72 (1997).
40

“under the Constitution, laws, or treaties of the United States,” 

so that the District Court had jurisdiction pursuant to 28 U.S.C. 

§ 1331, or whether the Court had jurisdiction pursuant to 

another statute. See Trudeau, 456 F.3d at 185 (“[B]ecause the 

APA neither confers nor restricts jurisdiction, we must still 

determine whether some other statute provides it.”). See

Alvarado v. Table Mountain Rancheria, 509 F.3d 1008, 1016

(9th Cir. 2007) (“To confer subject matter jurisdiction in an 

action against a sovereign, in addition to a waiver of sovereign 

immunity, there must be statutory authority vesting a district 

court with subject matter jurisdiction.”). In considering the 

federal jurisdiction question we recognize that it might be 

thought that inasmuch as the States are attempting to enforce 

their unclaimed property acts in this action, this case could not 

be within federal jurisdiction under 28 U.S.C. § 1331. 

Even though the States have brought this action with the 

intent ultimately to obtain relief under their laws there is no 

escape from the fact that this case largely involves the 

Government‟s claim that federal statutes and regulations 

preempt the States‟ unclaimed property acts. That circumstance 

compels us to consider the long established well-pleaded 

complaint rule to the end that “federal courts have federal 

question jurisdiction only when a federal claim appears in the 

complaint, and not when a federal preemption defense may 

eventually be raised in litigation.” Levine v. United Healthcare 

Corp., 402 F.3d 156, 162 (3d Cir. 2005) (citation omitted). Yet 

the States not unreasonably cite Grable & Sons Metal Products, 

Inc. v. Darue Engineering and Manufacturing, 545 U.S. 308, 

125 S.Ct. 2363 (2005), as support for their contention that the 

District Court did have jurisdiction. It is true that aspects of 
41

Grable read in isolation seem to support the States‟ jurisdictional 

contention with respect to the preemption issues in this case for 

this case raises and, indeed, is about, in the words of Grable, 

“significant federal issues.” Grable, 545 U.S. at 312, 125 S.Ct. 

at 2367. Moreover, the state law claims being advanced here 

under the States‟ unclaimed property acts, in the words of 

Supreme Court jurisprudence even before Grable, “depend[ ] 

upon the construction or application of [federal law].” Smith v. 

Kansas City Title & Trust Co., 255 U.S. 180, 199, 41 S.Ct. 243, 

245 (1921).22 Furthermore, this case is a direct action against 

the Government and thus differs from the ordinary preemption 

case in which a private defendant relies on federal law as a 

defense to a state cause of action. See, e.g., PLIVA, Inc. v. 

Mensing, 131 S.Ct. 2557, 2577-78 (2011). Indeed, we cannot 

help but wonder whether the States could have cast this case as a 

declaratory judgment action seeking a declaration that a 

judgment obtained in a proceeding under their unclaimed 

property acts would be enforceable against the Federal 

Government with respect to the proceeds of matured but 

unredeemed savings bonds.23 

 

22 The dominance of federal law in this case is highlighted in the 

States‟ brief in which they correctly point out that the “United 

States does not dispute that the States‟ unclaimed property laws 

require unclaimed savings bonds to be turned over to state 

custody pending location of the absent owners. The question on 

the merits is thus whether federal law somehow preempts the 

operation of these escheat laws.” Appellants‟ br. at 22.

23 In this regard, we note that the Supreme Court indicated in 
42

Grable, however, insofar as the States advance it as 

support for their jurisdictional contentions, has its limitations. 

In Grable a federal taxpayer brought an action to quiet title in a 

state court against a purchaser of the property who acquired the 

property by a quitclaim deed from the Government. The 

Government sold the property to the purchaser to satisfy the 

taxpayer‟s tax delinquency. In the quiet title action the taxpayer 

asserted that the purchaser‟s title was invalid because the 

Government did not follow proper procedure in giving required 

notice when seizing the property. The purchaser removed the 

case to a federal court claiming that there was federal question 

jurisdiction even though the plaintiff-taxpayer sought to quiet 

title to its property in a state court, a classic state law procedure, 

and even though there was no suggestion in the case that there 

was diversity of citizenship between the parties. The taxpayer 

moved to remand the case to state court but the district court 

denied the motion and the court of appeals affirmed. The 

Supreme Court granted certiorari and affirmed.

The Supreme Court held that there was federal question 

jurisdiction in Grable principally because of the dominance of 

 

Bowen, 487 U.S. at 893, 108 S.Ct. at 2731, that the 1976 

amendment referring to relief other than money damages “does 

not foreclose judicial review of the actions brought by the State 

challenging the Secretary‟s disallowance decisions.” The Court 

first noted that “insofar as the complaints sought declaratory and 

injunctive relief, they were certainly not actions for money 

damages.” The Court went on to state that “even the monetary 

aspects of the relief that the State sought are not „money 

damages‟ as that term is used in the law.”
43

significant federal issues in that case. But as the Court of 

Appeals for the Ninth Circuit said in California Schock Trauma 

Air Rescue v. State Compensation Insurance Fund, 636 F.3d 

538, 542 (9th Cir. 2011), “the Grable complaint did present a 

federal issue on its face” with respect to the Internal Revenue 

Service not following proper procedures in the seizure of the 

taxpayer‟s property. Therefore, the court of appeals understood 

Grable to uphold the assertion of federal jurisdiction because the 

complaint “satisfie[d] both the well-pleaded complaint rule and

passe[d] the implicates significant federal issues test.” Id.

(internal quotation marks and brackets omitted). We also are 

aware that the Supreme Court itself in Empire Healthcare 

Assurance, Inc. v. McVeigh, 547 U.S. 677, 699, 126 S.Ct. 2121, 

2136 (2006), emphasized the limitations of Grable when it 

indicated that Grable dealt with a “special and small category” 

of cases that qualify for federal question jurisdiction.

In the end, however, we do not find it necessary to decide 

whether the District Court had jurisdiction by reason of the 

presence of the preemption issue in this case. We bypass the 

preemption jurisdictional question because it is clear that the 

Court had jurisdiction in light of the States having advanced a 

significant Tenth Amendment claim in their complaint which 

seeks relief on the basis of the “Treasury‟s Escheat Decision 

[having] violate[d] the Tenth Amendment of the United States 

Constitution.” App. at 109. In considering the effect of this 

claim with respect to federal jurisdiction we start from the 

unquestioned principle that jurisdiction lies under 28 U.S.C. § 

1331 when a cause of action arises under federal law on the 

basis of the plaintiff having made a claim under the Tenth 

Amendment. As the court of appeals indicated in Bolden v. City 
44

of Mobile, 571 F.2d 238, 247 (5th Cir. 1978), rev‟d on other 

grounds, City of Mobile v. Bolden, 446 U.S. 55, 100 S.Ct. 1490 

(1980):

The abuse of local governmental power, when of 

the constitutional magnitude in this case, is a 

power denied the States by the Constitution 

within the meaning of the tenth amendment. The 

power to remedy the unconstitutional wrong is 

one delegated to the United States by the 

Constitution. The Constitution expressly provides 

for federal court jurisdiction in claims arising 

under this Constitution (or) Laws of the United 

States. U.S. Const. art. 3, § 2. Congress has 

given the federal courts original jurisdiction over 

such claims. 28 U.S.C. § 1331. 

Id. (internal quotation marks omitted); see also Hodges v. 

Shalala, 121 F. Supp. 2d 854, 863-64 (D.S.C. 2000) (federal 

question jurisdiction exists under section 1331 in action in 

which state contends that Congress overstepped boundaries of 

the Tenth Amendment and the Spending Clause when it 

statutorily attached certain conditions to states‟ receipt of federal 

funding). 

The Supreme Court at one time regarded the Tenth 

Amendment as little more than a tautology that could not 

support a cause of action: 

The amendment states but a truism that all is 

retained which has not been surrendered. There is 
45

nothing in the history of its adoption to suggest 

that it was more than declaratory of the 

relationship between the national and state 

governments as it had been established by the 

Constitution before the amendment or that its 

purpose was other than to allay fears that the new 

national government might seek to exercise 

powers not granted, and that the states might not 

be able to exercise fully their reserved powers. 

United States v. Darby, 312 U.S. 100, 124, 61 S.Ct. 451, 462 

(1941).

More recently, however, the Court has embraced the view 

that the states may invoke the Tenth Amendment as a basis for 

invalidating federal action. Most notably, in New York v. 

United States, 505 U.S. 144, 112 S.Ct. 2408 (1992), the Court 

invalidated under the Tenth Amendment portions of a federal 

law concerning disposal of radioactive waste. The origin of that 

case may be traced to Congress having reacted to a shortage of 

suitable radioactive waste disposal sites by passing the LowLevel Radioactive Waste Policy Amendments Act of 1985. The 

1985 statute imposed responsibility on the states to dispose of 

waste within their borders, including a requirement that states 

“take title” to waste not disposed of as of 1996 and that these 

states would be liable for damages incurred by their failure to 

take possession of that waste. Id. at 153-54, 112 S.Ct. at 2416. 

The Court held that the “take title” provisions of the law were 

unconstitutional because by forcing states to take ownership of 

the waste the law impermissibly would “commandeer” state 

governments contrary to the Tenth Amendment. The Court 
46

believed that this attempted exercise of federal power exceeded 

Congress‟s powers under Article I of the Constitution. In 

reaching its result the Court stated that “[t]he Federal 

Government may not compel the States to enact or administer a 

federal regulatory program,” id. at 188, 112 S.Ct. at 2435, 

because doing so would limit state government accountability, 

as state governments forced to implement a federal program 

would be held responsible for decisions they did not make. 

The Supreme Court in New York v. United States

rejected the reasoning of Darby and, rather than regarding the 

Tenth Amendment as a mere tautology as it had done in Darby, 

“direct[ed] [courts] to determine . . . whether an incident of state 

sovereignty is protected by a limitation on [congressional] 

power.” Id. at 157, 112 S.Ct. at 2418. As in New York v. 

United States, the States in this case claim that Congress is 

asserting a power that it does not have — a de facto federal 

escheat power — that is an affront to a state sovereign 

prerogative: to take custody to property it deems “unclaimed” or 

“abandoned” within its borders.

Of course, a court makes a different analysis when 

determining if it has jurisdiction over a claim than it makes 

when considering the merits of the claim. As the Supreme 

Court has stated, “[d]ismissal for lack of subject-matter 

jurisdiction because of the inadequacy of the federal claim is 

proper only when the claim is so insubstantial, implausible, 

foreclosed by prior decisions of [the Supreme] Court, or 

otherwise completely devoid of merit as not to involve a federal 

controversy.” Steel Co. v. Citizens for a Better Env‟t, 523 U.S. 

83, 89, 118 S.Ct. 1003, 1010 (1998) (internal quotation marks 
47

and citation omitted). While, as we discuss below, we do not 

find that the States‟ Tenth Amendment claim is meritorious, in 

light of developing Tenth Amendment law the claim surely is 

colorable and not frivolous. Accordingly, the District Court had 

jurisdiction because “[it] is firmly established . . . that the 

absence of a valid (as opposed to arguable) cause of action does 

not implicate subject-matter jurisdiction, i.e., the courts‟ 

statutory or constitutional power to adjudicate the case.” Id.

Inasmuch as the District Court had jurisdiction under 28 

U.S.C. § 1331 over the States‟ Tenth Amendment claim, by 

reason of 28 U.S.C. § 1367 it had jurisdiction over the States‟ 

entire complaint. Section 1367 provides, with inapplicable 

exceptions, if “the district courts have original jurisdiction, 

[they] shall have supplemental jurisdiction over all other claims 

that are so related to claims in the action within such original 

jurisdiction that they form part of the same case or controversy 

under Article III of the United States Constitution.” Here it is 

clear that all of the States‟ claims are related to their claim under 

the Tenth Amendment. In this regard, we point out that in the 

introduction to their complaint the States assert that “Treasury‟s 

refusal to comply with state laws governing unclaimed property 

usurps sovereign power exercised by the states since the 

Declaration of Independence, and reserved to the states under 

the Tenth Amendment of the U.S. Constitution.” App. at 88. 

The Supreme Court in City of Chicago v. International 

College of Surgeons, 522 U.S. 156, 164-65, 118 S.Ct. 523, 529 

(1997), indicated that a district court may exercise supplemental 

jurisdiction if the case before it involves claims “derive[d] from 

a common nucleus of operative fact such that the relationship 
48

between the federal claim and the state claim permits the 

conclusion that the entire action before the court comprises but 

one constitutional claim.” (internal quotation marks and 

brackets omitted). This case fits within that criterion because 

the States in this action have a single goal, i.e., to obtain a 

judgment requiring that the Government remit to them and 

account for the proceeds of matured but unredeemed savings 

bonds.24

 

24 The States also assert that the Mandamus and Venue Act, 28 

U.S.C. § 1361, and 28 U.S.C. § 1346 (containing the Little 

Tucker Act and the Federal Tort Claims Act), provide for 

federal jurisdiction here but we do not decide whether either 

statute would confer jurisdiction in light of our conclusion that 

the District Court had jurisdiction by reason of the States‟ Tenth 

Amendment claim under 28 U.S.C. § 1331 and 28 U.S.C. § 

1367.

 Though we do not predicate our result on this point we note 

that if the District Court could not exercise jurisdiction in this 

case it well may be that there would not be any court in which 

plaintiff States could have brought their claims against the 

Federal Defendants under their unclaimed property acts. After 

all, the New Jersey state courts are well aware that section 702 

“does not waive sovereign immunity in actions in a state court” 

and thus they would not entertain an action seeking an order 

enjoining the Securities and Exchange Commission from 

prosecuting an administrative complaint against the plaintiff in 

the state court action. First Jersey Secs., Inc. v. Sec. Exch. 

Comm‟n, 476 A.2d 861, 867-68 (N.J. Super. Ct. App. Div. 
49

B. State-Law Claims and the Supremacy Clause

Inasmuch as we have determined that sovereign 

immunity does not bar this action and that the District Court had 

constitutional and statutory jurisdiction we finally reach the 

substantive aspects of the case. We start this discussion by 

recognizing that although this case is essentially a dispute over 

the application of federal law, the States‟ claims arise from their 

attempt to enforce their unclaimed property acts against the 

Federal Government. The Government asserts that these claims 

run afoul of the Supremacy Clause of the Constitution in art. VI, 

cl. 2, which provides that the Constitution and laws in pursuance 

of it “shall be the supreme Law of the Land.” State laws may 

violate the Supremacy Clause in two ways. Under the doctrine 

of federal preemption, state laws are invalid if they “conflict 

with an affirmative command of Congress.” North Dakota v 

United States, 495 U.S. 423, 434, 110 S.Ct. 1986, 1994 (1990) 

(citing Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23 

(1824)). And under the doctrine of intergovernmental 

immunity, states may not “regulate the Government directly or 

 

1984). In view of First Jersey Securities we see no reason to 

believe that even without regard for federal court intervention 

through the exercise of removal jurisdiction or Supreme Court 

appellate review, the New Jersey courts would have entertained 

this action if the State of New Jersey had initiated the case in the 

New Jersey Superior Court and named the Federal Defendants 

as defendants. Of course, a result that the States did not have 

any forum in which to bring their claims surely would have been 

inconsistent with the intent of Congress in adopting the 1976 

APA amendments.
50

discriminate against it.” North Dakota, 495 U.S. at 434, 110 

S.Ct. at 1994 (citing McCulloch v. Maryland, 17 U.S. (4 

Wheat.) 316, 425-37, 4 L.Ed. 579 (1819)). 

1. Federal Preemption

Federal preemption doctrine “provid[es] Congress with 

the power to preempt state legislation if it so intends.” Roth v. 

Norfalco LLC, 651 F.3d 367, 374 (3d Cir. 2011) (internal 

quotation marks and citation omitted). There are three types of 

preemption: express preemption and two types of implied 

preemption, field preemption and conflict preemption. Farina v. 

Nokia Inc., 625 F.3d 97, 115 (3d Cir. 2010) (citing Hillsborough 

Cnty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105 

S.Ct. 2371, 2375 (1985)). There is express preemption when a 

federal enactment contains language that is explicit about its 

preemptive effect. See St. Thomas-St. John Hotel & Tourism 

Ass‟n v. Gov‟t of the V.I., 218 F.3d 232, 238 (3d Cir. 2000). 

There is field preemption when Congress has regulated an area 

so pervasively that it has not left room for state regulation. See

United States v. Locke, 529 U.S. 89, 111, 120 S.Ct. 1135, 1149 

(2000). There is conflict preemption when compliance with 

both state and federal law is impossible, “or where state law 

erects an „obstacle to the accomplishment and execution of the 

full purposes and objectives of Congress.‟” Farina, 625 F.3d at 

115 (internal quotation marks omitted). Moreover, “[w]here 

Congress has delegated the authority to regulate a particular 

field to an administrative agency, the agency‟s regulations 

issued pursuant to that authority have no less preemptive effect 

than federal statutes.” Fellner v. Tri-Union Seafoods, LLC, 539 

F.3d 237, 243 (3d Cir. 2008). Although courts define the 
51

categories of preemption separately the categories are not 

“rigidly distinct. Indeed, field pre-emption may be understood 

as a species of conflict pre-emption: A state law that falls within 

a pre-empted field conflicts with Congress‟ intent . . . to 

exclude state regulation.” English v. Gen. Elec. Co., 496 U.S. 

72, 79 n.5, 110 S.Ct. 2270, 2275 n.5 (1990). 

There are two guiding principles of preemption 

jurisprudence. “„First, the purpose of Congress is the ultimate 

touchstone in every pre-emption case.‟” Wyeth v. Levine, 555 

U.S. 555, 565, 129 S.Ct. 1187, 1194 (2009) (quoting Medtronic, 

Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 2259 (1996)). 

Second, we are guided by a “presumption against preemption,” 

Roth, 651 F.3d at 375 (citing Deweese v. Nat‟l R.R. Passenger 

Corp., 590 F.3d 239, 246 (3d Cir. 2009)), because we assume 

“that the historic police powers of the States [are] not to be 

superseded by the Federal Act unless that was the clear and 

manifest purpose of Congress.” Levine, 555 U.S. at 565, 129 

S.Ct. at 1194-95 (quoting Lohr, 518 U.S. at 485, 116 S.Ct. at 

2250) (internal quotation marks omitted). However, the 

presumption against preemption does not apply where Congress 

has adopted the statute claimed to have preemptive effect to 

apply in a field that “the States have [not] traditionally 

occupied.” Buckman Co. v. Plaintiffs‟ Legal Comm., 531 U.S. 

341, 347-48, 121 S.Ct. 1012, 1017 (2001) (quoting Rice v. Santa 

Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152 

(1947)). 

We agree with the District Court that the federal statutes 

and regulations pertaining to United States savings bonds 

preempt the States‟ unclaimed property acts insofar as the States 
52

seek to apply their acts to take custody of the proceeds of the 

matured but unredeemed savings bonds. In reaching this 

conclusion we recognize that there is no federal statute or 

regulation that expressly preempts the application of the States‟ 

unclaimed property acts in the way that the States seek to 

enforce them in this litigation. But it is equally important to 

recognize that “[f]ederal law of course governs the interpretation

of the nature of the rights and obligations created by the 

Government bonds themselves.” Free, 369 U.S. at 669-70, 82 

S.Ct. at 1094 (quoting Bank of Am. Trust & Savs. Ass‟n v. 

Parnell, 352 U.S. 29, 34, 77 S.Ct. 119, 122 (1956)). Thus, in 

Free a surviving husband filed an action against a beneficiary of 

his wife‟s will to determine the parties‟ rights in United States 

savings bonds that the husband and wife purchased together. 

The Supreme Court held that Texas law providing that the 

savings bonds were community property was inconsistent with 

federal regulations that provide that when either co-owner dies, 

“the survivor will be recognized as the sole and absolute owner 

[of the bonds] and thus the federal regulation preempted the 

Texas law.” Id. at 664-65, 82 S.Ct. at 1091 (quoting 31 C.F.R. § 

315.61). While in the case before us the conflict between state 

and federal law is less stark, we similarly hold that the relevant 

federal statutes and regulations preempt the States‟ unclaimed 

property acts.

The States‟ unclaimed property acts conflict with federal 

law regarding United States savings bonds in multiple ways. 

First, in advancing the goal of making the bonds “attractive to 

savers and investors,” see Free, 369 U.S. at 669, 82 S.Ct. at 

1093, Congress has authorized the Secretary to implement 

regulations specifying that “owners of savings bonds may keep 
53

the bonds after maturity.” 31 U.S.C. § 3105(b)(2)(A).25 The 

plaintiff States‟ unclaimed property acts, by contrast, specify 

that matured bonds are abandoned and their proceeds are subject 

to the acts if not redeemed within a time period as short as one 

year after maturity. See, e.g., N.J. Stat. Ann. § 46:30B-41.2. 

Such provisions starkly conflict with savings bonds regulations 

imposing “conditions governing their redemption.” 31 U.S.C. § 

3105(c)(4); see 31 C.F.R. § 315.5(a) (providing that the 

registered owner of the bond is presumed conclusively to be the 

owner); § 315.15 (providing that savings bonds are “payable 

only to the owners named on the bonds, except as specifically 

provided in these regulations and then only in the manner and to 

the extent so provided.”); § 315.20(b) (providing that the 

Department of the Treasury will recognize a claim of ownership 

or interest in a bond only if “established by valid, judicial 

proceedings”); § 315.35(a) (providing that payment may be 

made only to persons entitled to it under the regulations); § 

315.39 (providing that the owner of the bond may present it to 

an authorized paying agent for redemption). 

 The States assert that the “restrictions on „payment‟ in 

these regulations foreclose only redemption of bonds by persons 

who are not owners, not application of historic laws governing 

disposition of property not redeemed by its owner.” Appellants‟ 

br. at 29. In other words, the States argue that because they 

 

25 The Secretary effectively has allowed owners of savings 

bonds to keep them after maturity and to earn interest after 

maturity because the Treasury has extended the bonds‟ original 

maturity dates and interest accrues during the extension period. 

See supra note 3.
54

seek only custody of the bond proceeds, their unclaimed 

property acts will not interfere directly with federal contracts or 

the regulations regarding redemption. However, those 

regulations conflict with the outcome that the States seek here. 

Most critically, application of the States‟ unclaimed property 

acts would interfere with the terms of the contracts between the 

United States and the owners of the bonds because, according to 

the States‟ complaint, they effectively would substitute the 

respective States for the United States as the obligor on affected 

savings bonds. See app. at 99 (asserting that “delivery of an 

Unclaimed Bond to a State . . . will discharge the Treasury from 

its obligation under the bond,” such that the bond owners may 

“claim their property from the state”). As the Government 

points out, the bonds are pledged “on the credit of the United 

States,” U.S. Const. art. I, § 8, cl. 2, and not on the credit of any 

individual state. Both bondholders and the United States, who 

bargained for a federal redemption process that the Federal 

Government set forth in detail in the relevant statutes and 

regulations, instead would have to comply with procedures set 

forth in the various States‟ unclaimed property acts, thus 

“intrud[ing] upon the rights and the duties of the United States.” 

See Free, 369 U.S. at 669, 82 S.Ct. at 1094. The federal 

regulations regarding redemption effectively would be nullified. 

This change in redemption procedures if the States obtain 

custody of the proceeds of the matured but unredeemed bonds 

might not be a small thing from the point of view of an owner of 

a bond seeking to redeem it. As we explained above, 

redemption of a matured savings bond is now an uncomplicated 

process involving little more than a trip to a bank, a venue likely 

to be familiar to the owner of the bond, with the bondholder 
55

dealing with a bank employee with whom he already may be 

acquainted. On the other hand, though it is possible that the 

States would designate the same payment agents as the 

Government now designates if the States obtained custody of the 

proceeds of the bonds, an owner seeking those funds would 

have to navigate whatever procedures the States adopted for the 

owner to receive the funds and those procedures could be more 

complex than those presently in place under federal law. 

Moreover, a bondholder‟s effort to recover the funds in a State‟s 

custody might require the bondowner to deal with what almost 

certainly would be an unfamiliar state bureaucracy. We simply 

do not know.

The Government also has expressed concerns that a 

substitution of the plaintiff States as obligors on the bonds could 

result in the United States being subject to multiple obligations 

on a single savings bond. Thus, the Government fears that 

bondholders still would have a contractual right to payment 

from the United States based on the terms of the bonds even 

though the various state unclaimed property acts would give 

bondholders the right to recover the proceeds of property 

deemed “abandoned” or “unclaimed” from the States. Although 

the States have indicated that they would indemnify the Federal 

Government if it was required to make payments on matured 

bonds to bondholders after the Government delivered the 

proceeds of the bonds to the States pursuant to their unclaimed 

property acts, the possible availability of indemnification does 

not change the fact that application of the States‟ acts in the 

redemption process significantly would alter that process as 
56

contemplated in the relevant federal regulations.26

The States note that the federal statutes and regulations 

implementing the savings bond program do not include 

provisions for the disposition of abandoned property, and thus 

they argue that federal law leaves room for the operation of their 

unclaimed property acts in this field. However, the bond 

proceeds are not “abandoned” or “unclaimed” under federal law 

because the owners of the bonds may redeem them at any time 

after they mature, and thus Congress has not been silent with 

respect to the fate of the proceeds of unclaimed bonds. The 

States‟ efforts to impose the status of “abandoned” or 

“unclaimed” on the Federal Government‟s obligations only 

underscores the conflict between federal and state law, in which 

federal law must prevail. There simply is no escape from the 

fact that the Federal Government does not regard matured but 

unredeemed bonds as abandoned even in situations in which a 

state would do exactly that. Of course, in a preemption analysis 

 

26 We are not predicating our result on a conclusion that 

honoring a custody-based unclaimed property act might subject 

the United States to multiple liabilities on a single bond. We 

decline to speculate on what would happen if a bondholder 

sought to redeem a bond by presenting it to a Government 

payment agent and requesting that he be paid the proceeds if the 

Government already had delivered the proceeds of the bond to a 

State pursuant to its unclaimed property act. That situation is 

not before us and, in any event, even disregarding the possibility 

that the Government might face multiple liabilities on a single 

bond by complying with a State‟s unclaimed property act, the 

States‟ unclaimed property acts are preempted.
57

the distinction between the custody of the proceeds of the bonds 

or physical custody of the bonds themselves is without legal 

significance. The States seek the transfer of $1.6 billion of 

federally-held funds to their treasuries together with a 

substantial realignment of the obligations that the bonds 

evidence and the procedures for redemption that federal laws 

and regulations have established. It is clear to us that the federal 

statutes and regulations are sufficiently pervasive so as not to 

leave room for the enforcement of the unclaimed property acts 

to achieve the result that the States seek. 

2. Intergovernmental Immunity

The Supreme Court‟s decision in McCulloch, 17 U.S. (4 

Wheat.) at 322, established the bedrock principle that “the States 

have no power, by taxation or otherwise, to retard, impede, 

burden, or in any manner control, the operations of the 

constitutional laws enacted by Congress to carry into execution 

the powers vested in the national government.” Thus, that 

famous decision is the source of the doctrine of 

intergovernmental immunity. We agree with the District Court 

that the States‟ desired application of their unclaimed property 

acts would violate the constitutional principles of 

intergovernmental immunity that “states may not directly 

regulate the federal government‟s operations or property.” See

Arizona v. Bowsher, 935 F.2d 332, 334 (D.C. Cir. 1991) (citing 

Hancock v. Train, 426 U.S. 167, 178-80, 96 S.Ct. 2006, 2012-13 

(1976)). 

First, in this regard, the unclaimed property acts would 

interfere with Congress‟s “[p]ower to dispose of and make all 
58

needful Rules Acts and Regulations respecting the . . . Property 

belonging to the United States.” See U.S. Const. art. IV, § 3, cl. 

2. On this point, the States argue that the United States no 

longer has a beneficial interest in the undisbursed proceeds from 

the matured but unredeemed bonds. But we disagree. In 

support of their position, the States cite United States v. Klein, 

303 U.S. 276, 58 S.Ct. 536 (1938), in which the Escheator of the 

Commonwealth of Pennsylvania sought to recover funds that a 

private company owed its bondholders pursuant to a judgment 

entered by a federal district court. Unclaimed funds were paid 

into a court registry and later transferred to the United States 

Treasury under 28 U.S.C. § 852, which at that time provided 

that when money deposited into the registry of a federal court 

was unclaimed for five years, it would be deposited with the 

Treasury, and further provided that “[a]ny person or persons . . . 

entitled to any such money may . . . obtain an order of court 

directing payment of such money to the claimant.” The 

Supreme Court in holding that the State of Pennsylvania could 

acquire title to unclaimed funds through valid escheat 

proceedings observed that the United States held the funds for a 

limited administrative purpose, and did not assert “any right, 

title or interest” in the funds. 303 U.S. at 280, 58 S.Ct. at 538. 

Further, 28 U.S.C. § 852 “contemplate[ed] that changes in 

ownership of the fund may occur, since it provides that after the 

right to the fund has been finally adjudicated and it has been 

covered into the Treasury it shall be paid over to any person 

entitled, upon full proof of his right to receive it.” Id. at 282, 58 

S.Ct. at 539. 

The plaintiff States also rely on In re Moneys Deposited, 

243 F.2d 443 (3d Cir. 1957), where we addressed the status of 
59

private funds that were not claimed in bankruptcy proceedings 

and thus were transferred to the United States Treasury for 

administrative purposes under 28 U.S.C. § 2042, the successor 

legislation to the statute in issue in Klein. Following Klein, this 

Court held that Pennsylvania could obtain title to the funds 

through escheat proceedings because, as in Klein, the United 

States did not have a beneficial interest in the money deposited 

in the federal registry. In this case, in contrast to how it 

obtained the funds in issue in both Klein and Moneys Deposited, 

the United States did not acquire the funds due on matured but 

unredeemed bonds through the exercise of an administrative 

function. Quite to the contrary, the Government acquired the 

funds from its sale of savings bonds for its own use. Thus, 

unlike the claimants in Klein and Moneys Deposited, the States 

here do not seek funds due on privately undertaken obligations, 

as in Klein, or seek funds in which the Government as custodian 

never had a property interest as was true in both Klein and 

Money Deposited. Rather, the States seek to acquire funds that 

have their origin in debt that the United States incurred to 

finance the operations of the Government. 

As did the District Court, we find Bowsher to be 

persuasive on this point. In Bowsher, 23 states sued the 

Comptroller General of the United States and the Secretary 

claiming the right to custody pursuant to their respective 

unclaimed property acts of money held by the Treasury pursuant 

to 31 U.S.C. § 1322, which granted the Treasury custody of 

money that federal agencies owed to persons whose 

whereabouts were unknown. 935 F.2d at 334. Like the plaintiff 

States in this case, the plaintiffs in Bowsher argued that they 

wanted to return the unclaimed property to its true owners, but 
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the court observed that “[w]hen the United States sets aside 

money for the payment of specific debts, it does not thereby lose 

its property interest in that money.” Id. The court further stated: 

The money here is federal money. That various 

persons have claims against the United States in 

amounts exactly matching the funds, and intended 

by Congress to be paid from these funds, does not 

give those individuals a property interest in the 

money. Thus, the states‟ plan would amount to 

direct regulation of federal property. In extracting 

funds from the Treasury, the states would 

effectively subordinate federal property to their 

own laws and appropriate that property, at least 

for a period, for themselves. 

Id. Accordingly, the court held that the states‟ plan to take 

custody of the money violated the doctrine of intergovernmental 

immunity. 

We recognize that the States argue that their unclaimed 

property acts come, in the words of Bowsher, “with a patina of 

ancient history,” see id. at 335, and that there is a presumption 

against preemption of laws of such origin. Nevertheless, we see 

no reason to reach a different result here from that reached in

Bowsher. Although the United States must pay holders of 

matured bonds the sums due on the bonds when the owners 

present them for payment, until it does so the funds remain 

federal property, and the Government may use the proceeds 

from the sale of savings bonds “for expenditures authorized by 

[federal] law,” 31 U.S.C. § 3105(a). 
61

The States argue that instead of following Bowsher we 

should be guided by the Supreme Court‟s analysis in 

Connecticut Mutual Life, 333 U.S. at 547, 68 S.Ct. at 686, 

where the Court held that the State of New York could apply its 

unclaimed property act to life insurance policies that out-of-state 

insurers had issued. In rejecting the insurance company‟s 

argument in Moore that the state law violated the Contract 

Clause, the Court noted that “[t]he state is acting as a 

conservator, not as a party to a contract.” Id. Moreover, the 

Court recognized that New York‟s conservatorship of insurance 

money was possible because “[f]oreign corporations must obtain 

state authority to do business, segregate securities, [and] submit 

to examination and state process.” Id. at 550-51, 68 S.Ct. at 

668. But states‟ extensive regulatory powers over corporations 

operating within their borders, in light of McCulloch, do not and 

could not have a counterpart in their relationships with the 

Federal Government, and consequently Connecticut Mutual Life

is inapposite here. 

For similar reasons, we hold that an order compelling the 

accounting that the plaintiff States request would violate the 

governmental immunity of the United States. As the District 

Court observed, the States‟ unclaimed property acts impose 

“onerous record-keeping and reporting requirements, [and] civil 

and criminal penalties for failure to comply.” App. at 29; see, 

e.g., 72 Pa. Cons. Stat. § 1301.11 (describing reporting 

requirements); § 1301.25 (failure to comply with reporting 

requirements a criminal offense subject to fine and 

imprisonment); N.J. Stat. Ann. § 46:30B-93 (subjecting holders 

of unclaimed property to examination of records by the state 

administrator); Mont. Code Ann. § 70-9-824 (providing for 
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financial penalties against holders of unclaimed property who 

fail to report and deliver property to the state administrator). 

Although the States argue that they only seek relief requiring the 

Federal Government to comply with generally applicable laws, 

several of the States have enacted provisions in their unclaimed 

property acts specifically addressed to property within the 

possession of the Federal Government. See N.J. Stat. Ann. § 

46:30B-41.2 (providing that property where the obligor is a 

branch of the United States government is presumed abandoned 

after one year); Ky. Rev. Stat. Ann. § 393.068 (“[a]ll . . . 

personal property . . . held by the federal government . . . shall 

be presumed abandoned if remained unclaimed for five years); 

Mo. Rev. Stat. § 447.532 (property held by an agency of the 

United States deemed abandoned if unclaimed for three years); 

72 Pa. Cons. Stat. § 1301.9 (property held for its owner by any 

“instrumentality of the United States” unclaimed for five years 

deemed abandoned). 

When Congress was considering legislation in the late 

1980s that would have required the Federal Government to 

transfer unclaimed money obtained from various sources —

including savings bonds — to the states, the General Accounting 

Office estimated that tracking owners of such property would 

cost over $23 million.27 See app. at 185. Although the States 

assert that they will not seek to enforce civil and criminal 

penalties in the event the Federal Government fails to comply 

with their respective acts, even if future State officials adhere to 

this policy, the fact remains that forcing the Federal Government 

 

27 We are not drawing any inference with respect to the issues in 

this case from the fact that Congress did not adopt that bill.
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to account to the plaintiff States for unredeemed savings bonds 

or their proceeds — regardless of how stringently the States 

decide to enforce the reporting requirements contained in their 

respective acts — would result in a direct regulation of the 

Federal Government in contravention of the Supremacy Clause. 

This result is not permissible. 

C. The Tenth Amendment

The Tenth Amendment provides that “[t]he powers not 

delegated to the United States by the Constitution, nor 

prohibited by it to the States, are reserved to the States 

respectively, or to the people.” The States argue that the status 

quo amounts to a federal escheat of the proceeds from the 

unclaimed bonds, a process which they contend violates the 

Tenth Amendment because the Federal Government does not 

possess the escheat power, as it is a traditional prerogative of the 

states. However, the funds at issue here have not been 

escheated to the Government and the Government does not seek 

to acquire them through escheat proceedings. To the contrary 

the Government is holding the funds and will disburse them to 

the bondholders or their successors if they present the bonds for 

redemption. Moreover, our result does not nullify state escheat 

laws for, as provided in the federal regulations and as 

recognized by the Treasury, third parties, including the States, 

may obtain ownership of the bonds — and consequently the 

right to redemption — through “valid[] judicial proceedings,” 31

C.F.R. § 315.20(b), so long as they submit certified copies of the 

judgment or order affecting ownership and other evidence that 

may be necessary to support the validity of the judgment or 

order. See 31 C.F.R. § 315.23. The Government through its 
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issuance of the Escheat Decision admits as much. Here, 

however, the States merely seek custody of, not title to, the 

funds at issue under their unclaimed property acts.28 

In considering the States‟ Tenth Amendment contentions 

it is important to remember that the Government administers the 

savings bond program pursuant to the federal constitutional 

power “[t]o borrow money on the credit of the United States.” 

Free, 369 U.S. at 666-67, 82 S.Ct. at 1092. Pursuant to this 

power, 31 U.S.C. § 3105(b)(2)(A) authorizes the Secretary of 

the Treasury to “prescribe regulations providing that . . . owners 

of savings bonds may keep the bonds after maturity or after a 

period beyond maturity.” “If Congress acts under one of its 

 

28 We hasten to add that while in concluding that the State 

custody-based unclaimed property acts are preempted we are 

distinguishing, as does the Government itself, those acts from 

title-based acts, we do not imply that our result would be 

different if, confronted with a judgment of escheat under a titlebased escheat act, the Government abandoned its long held 

position as reflected in the Escheat Decision and refused to 

recognize the enforceability of the judgment with respect to 

savings bonds or their proceeds. We simply are not faced with 

that possibility and thus we do not address it. We merely are 

ruling on the basis of the legal picture as the Government 

presently sees it. Furthermore, we neither are agreeing nor 

disagreeing with the States with respect to their contention that 

the Federal Government does not have escheat power. We see 

no need to pass on this contention as the Federal Government is 

not seeking to escheat the proceeds of matured but unredeemed 

bonds.
65

enumerated powers . . . there can be no violation of the Tenth 

Amendment.” United States v. Parker, 108 F.3d 28, 31 (3d Cir. 

1997) (quoting United States v. Mussari, 95 F.3d 787, 791 (9th 

Cir. 1996)). Accordingly, the States‟ Tenth Amendment claim 

must fail.

V. CONCLUSION

Though the United States pursuant to 5 U.S.C. § 702 has 

waived its sovereign immunity from suit in this case, we do not 

find any merit in any of the States‟ claims. Therefore, we will 

affirm the District Court‟s February 5, 2010 order dismissing the 

action under Rule 12(b)(6).