Opinion ID: 3065051
Heading Depth: 3
Heading Rank: 1

Heading: Prospective Interest Under the UPL

Text: [1] The Controller challenges the district court’s October 12, 2007 ruling that the State is constitutionally required to pay interest when it returns property to owners under the UPL. Plaintiffs, on the other hand, challenge the district court’s April 1, 2008 denial of their motion for a permanent injunction requiring the State to pay interest on unclaimed property at California’s alternative borrowing rate. Because, as discussed below, intervening Ninth Circuit precedent has held that the State is not constitutionally required to pay any interest under the UPL, we need not reach the issue regarding the appropriate rate of such interest. After the district court’s October 12, 2007 order, and after the filing of the opening briefs in this case, we squarely rejected the proposition that property owners have a compensable Fifth Amendment right to interest earned on unclaimed property that escheats to the State of California. Turnacliff v. Westly, 546 F.3d 1113, 1119-20 (9th Cir. 2008). In Turnacliff, the plaintiff, in his capacity as administrator of an estate, “alleged that the Controller improperly calculated the interest due to the Estate for the time that the State of California held the Estate’s unclaimed property.” Id. at 1115. In the alternative, he also argued that: SUEVER v. CONNELL 11847 if the Controller’s construction of California Code of Civil Procedure § 1540(c) was correct, then the Controller violated the Takings Clause of the Fifth Amendment by failing to pay “just compensation” for taking the Estate’s property. Turnacliff contends that, under the traditional common law rule that “interest follows the principal,” any and all interest that the unclaimed property earned while held by California belongs to the Estate. Turnacliff further maintains that, to the extent that the property did not earn actual interest, the Estate is entitled to constructive interest. Id. at 1118. The Turnacliff panel first held that the Controller had properly calculated interest under California Code of Civil Procedure § 1540(c). Id. Next, the panel rejected the plaintiff ’s Fifth Amendment argument because “[a]ssuming, arguendo, that the Estate had a cognizable property right to interest earned by its escheated property, and that this property was ‘taken’ by California, no further compensation is due to the Estate because when the Estate abandoned its property, it forfeited any right to interest earned by that property.” Id. at 1119 (footnote omitted). In support of this conclusion, the panel reasoned: In Texaco, Inc. v. Short, 454 U.S. 516, 526 [1982], the Court explained that “[f]rom an early time, th[e] Court has recognized that States have the power to permit unused or abandoned interests in property to revert to another after the passage of time.” The Court further explained that owners of abandoned property were not owed compensation: In ruling that private property may be deemed to be abandoned and to lapse upon the failure of its owner to take reasonable 11848 SUEVER v. CONNELL actions imposed by law, this Court has never required the State to compensate the owner for the consequences of his own neglect . . . . It is the owner’s failure to make any use of the property—and not the action of the State—that causes the lapse of the property right[.] Id. at 530. Though Short concerned abandoned mineral inter- ests, the long-running principle articulated in that case applies with equal force to this case involving commercial paper. To the extent that it was even entitled to it, the Estate has received “just compensation,” because California returned the Estate’s abandoned property, with statutorily-determined interest of 1.69%. The Estate has no Fifth Amendment right to “actual” or “constructive” interest earned by its property while held by the State; California need not further compensate the Estate for the consequences of the Estate’s neglect. Turnacliff, 546 F.3d at 1119-20 (emphasis added). [2] Apparently in light of the intervening Turnacliff decision, Plaintiffs concede that “[w]hether the UPL requires the payment of interest on genuinely ‘abandoned’ property under a Constitutional UPL is not before the Court in this appeal, and is irrelevant.” As previously noted, we have declared that the current version of the UPL is facially constitutional. Taylor III, 525 F.3d at 1289. Thus, insofar as the district court’s October 12, 2007 order requires prospective payment of interest, or payment of interest on any claims for unclaimed property that escheated under the current version of the UPL, both parties now appear to agree that Turnacliff requires reversal, as do we. SUEVER v. CONNELL 11849