### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 18

- 2432
S. D AVID G OLDBERG , Plaintiff

- Appellant
,

v.

M ICHAEL W. F RERICHS , Treasurer of Illinois, Defendant

- Appellee

.

____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 16 C 3792

— Charles P. Kocoras
, Judge

.

____________________
S UBMITTED D ECEMBER 14 , 2018

— D ECIDED J ANUARY 2, 2019

____________________

Before E ASTERBROOK , K ANNE , and R OVNER , Circuit Judges

. E ASTERBROOK , Circuit Judge

. An earlier opinion in thiscase concluded that people whose property is taken into custody by Illinois under the state’s Disposition of Unclaime d Property Act, 765 ILCS 1026/15

- 607 , are entitled to receive the t ime value of their property (that is, interest or other earnings), less reasonable custodial fees. Kolton v. Frerichs
, 869 F.3d 532 (7th Cir. 2017); s ee also Cerajeski v. Zoeller , 735 F.3d 577 (7th Cir. 2013). On remand the district court de-2 No. 18

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clined to certi fy the proposed class, ruling that, despite what our opinion said, owners of property in the state’s custody are entitled to be compensated for the time value of money only if the property was earning interest at the moment the state took it into custody. 2018 U.S. Dist. L EXIS 51062 (N.D. Ill. Mar. 28, 2018) . This meant that the class had internal divisions that ma de certification inappropriate. The court then granted summary judgment to the state on the claim of S. David Goldberg, one of the putative class representatives, whose property had not been earning interest before the
stat e took custody of it . The judge entered a partial final judgment under Fed. R. Civ. P. 54(b), leading to this appeal. For the proposition that the owner receives the property’s t ime value only if the property was earning interest in private hands the district court relied principally on Cwik v. Topinka , 389 Ill. App. 3d 21 (2009), a state court’s decision that precedes both Kolton and Cerajeski and interprets a state statute rathe r than the Takings Clause of the Constitution. The proposition is untenable, as we have already explained:
The Supreme Court has held that the Takings Clause protects the time value of money just as much as it does money itself. Brown v. Legal Foundation of Washington , 538 U.S. 216, 235 (2003); Phillips v. Washington Legal Foundation , 524 U.S. 156, 165

– 72 (1998); Webb’s Fabulous Pharmacies, Inc. v. Beckwith , 449 U.S. 155, 162

– 65 (1980). In Cerajeski v. Zoeller , 735 F.3d 577 (7th Cir. 2013), we applied thes e precedents to an Indiana statute like the Illinois statute in this case. We held that a state may not take custody of property and retain income that the property earns. A state may charge abookkeeping fee, which for small accounts may exceed the proper ty’s time value, but must allow the owner the benefit of the property’s earnings, however large or small they turn out to be. Id. at 578

– 80.No. 18

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Kolton , 869 F.3d at 533. The property’s owner is entitled to “income that the property earns” less custodial fees; what the property earns in the state’s hands does not depend on what it had been earning in the owner’s hands. To see this, consider a simple example. Owner puts a rare coin in a safe deposit box, then neglects to pay the annual rental. Bank turns the coin over to the state under the Disposition of Unclaimed Property Act. The state sells the coin and invests the proceeds . T he coin was not earning interest while in the safe deposit box but was an investment prop erty: O wner hoped that its market price would r ise. If the state kept the coin and returned it to O wner on demand , then the
state would not owe interest; O wn er could sell the coin and obtain any change in value while it was in the state’s custody. But if the state sells the coin and cut s off the possib i lity of appreciation, then O wner is entitled to the earnings on the invested cash as the best substitute. The fact that the coin was not earning interest in the safe deposit box would no t detract from the fact that its price could rise. T he loss of that
t ime value is compen sated by giving O wner the benefit of interim earnings. Goldberg did not have a coin. He had a check

— or, rather, the payor that had made out a check to Goldberg had the instrument because he had not claim ed it, and the payor delivered it to the state when the statute required. A check represents cash, which cannot appreci ate as a coin, stamp , or painting might. But the princi ple is the same: cash has time value even if not invested. Holding cash is sensible for a person who fears that prices of stocks, bonds , and other investments will decline. If the state turns the check into cash and makes an investment on the owner’s behalf (and against the4 No. 18

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wishes of someone who did not want to invest ), then it is vital t o turn any gain over to the owner. The Takings Clause does not set up a situation in which someone who wanted to be “in cash” bears the risk of loss as market conditions change without any prospect of offseming gain. That would make the owner worse off. ( To put this differently, cash has an option value

— the option to invest or refrain from investing

— that i s lost if the state invests without the owner’s consent. That loss has a compensable value.) Brown v. Legal Foundation of Washington holds that a state

n eed not hand over earnings if the amount of the principal isso small that (in the Court’s words) it “cannot earn net interest”

— in other words, when administrative expenses exceed the return on investment. 538 U.S. at 224. The statutory system under review in Brown required lawyers to turn over small client trust funds so that they could be pooled, and when pooled earn net interest. The principal would be returned to counsel when they needed to disburse it to clients; the state kept the interest for other u ses. The Justices concluded that this system did not offend the Takings Clause because, by definition, the money could not have earned a net return in the absence of the pooling and the owner could not have lost anything

. No loss, no need for compensation. Id

. at 235

– 41. Illinois could use Brown on remand to contend that it does not owe interest on small amounts, such as the $100 it held on behalf of Goldberg. Amounts as slight as $100 probably cannot earn net interest. But this has nothing to do with how the owner held or invested the money or other property before it came into the sta te’s hands. It may be hard to administer the line established by Brown . That will be among the district court’s tasks if theNo. 18

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state contends on remand that particular parcels in its custody could not earn net interest in private hands . All we decide today is that it does not mamer under Brown , or any other decision by the Supreme Court or this cour t, whether property that is able to earn net interest was in an interest

- bearing account before its transfer to the state. (This conclusion also may lead the district court to reconsider its ruling on class certification.) The judgment is vacated, and the case is remanded for proceedings consistent with Kolton and this opinion.