Opinion ID: 803222
Heading Depth: 2
Heading Rank: 2

Heading: The States‟ Unclaimed Property Acts

Text: 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. 10 393.010 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Thus “[t]he 7 According to the plaintiff States, “statutes that transfer title [are] an obsolescent form of escheat no longer in force in any state.”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, 11 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. 12 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 13 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. 14 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. 15 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. 16 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,9 and 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). 17 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 18 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: 19 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. . . . 20 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. 21 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. 22 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. § 23 553.15 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. 24 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.