Court Opinion

ID: 9899601
Source: CourtListenerOpinion
Date Created: 2023-11-17 01:00:32.904333+00
Date Added: 2024-06-11T09:20:42.007310
License: Public Domain

Case: 22-50828      Document: 00516971286           Page: 1     Date Filed: 11/16/2023

            United States Court of Appeals
                 for the Fifth Circuit
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                  ____________                                   FILED
                                                                         November 16, 2023
                                   No. 22-50828                             Lyle W. Cayce
                                  ____________                                   Clerk

   Philip C. James; John Ballantyne; William Noe,

                                                              Plaintiffs—Appellees,

                                         versus

   Glenn Allen Hegar, Jr., in his individual and official capacities as
   Texas Comptroller of Public Accounts, and his official and custodial capacities as
   Chairman of the Texas Treasury Safekeeping Trust Company and administrator
   of Texas Unclaimed Property Funds; Joani Bishop, in her
   individual and official capacities as Director of Unclaimed Property Reporting
   and Compliance, Texas Comptroller of Public Accounts,

                                           Defendants—Appellants.
                   ______________________________

                   Appeal from the United States District Court
                        for the Western District of Texas
                              USDC No. 5:22-CV-51
                   ______________________________

   Before King, Willett, and Douglas, Circuit Judges.
   King, Circuit Judge:
          Plaintiffs are three Texas residents whose assets escheated to the State
   under Texas’s Unclaimed Property Act. Plaintiffs brought a class action
   lawsuit against the Texas Comptroller and a director in the Comptroller’s
   office, alleging that the State is abusing the Unclaimed Property Act to seize
   purportedly abandoned property without providing proper notice. The
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   district court dismissed most of Plaintiffs’ claims. However, applying the Ex
   parte Young exception to state sovereign immunity, the district court
   permitted Plaintiffs to seek prospective relief, including an injunction
   ordering state officials to comply with the Constitution’s Takings and Due
   Process Clauses. In this interlocutory appeal, Defendants contend that
   Plaintiffs cannot invoke Ex parte Young because they lack standing to seek
   prospective relief and have not alleged an ongoing violation of federal law.
   We agree with Defendants and REVERSE the district court’s denial of
   Eleventh Amendment sovereign immunity, and we REMAND with
   instructions to dismiss Plaintiffs’ remaining claims for prospective relief
   without prejudice.
                                          I.
          This case arises from alleged systemic and ongoing violations of
   Plaintiffs’ constitutional rights by the State of Texas through its
   administration of the Texas Unclaimed Property Act (“UPA”), Tex.
   Prop. Code § 71.001 et seq. The UPA requires holders of presumptively
   abandoned property to report and deliver that property to the State
   Comptroller, along with last-known information about the property owner.
   Id. §§ 74.101, 74.301. “[P]roperty is presumed abandoned if, for longer than
   three years: (1) the location of the owner of the property is unknown to the
   holder of the property; and (2) according to the knowledge and records of the
   holder of the property, a claim to the property has not been asserted or an act
   of ownership of the property has not been exercised.” Id. § 72.101(a).
          The holder of the property is generally required to give notice to the
   owner at least 60 days before the property is delivered to the Comptroller. Id.
   § 74.1011(a). One year after the holder files a statutorily mandated report, the
   Comptroller “may use one or more methods as necessary to provide the most
   efficient and effective notice to each reported owner.” See id. § 74.201.

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          When the Comptroller receives property in the form of unclaimed
   money, the Comptroller deposits the funds—as well as any income derived
   from investment of the unclaimed money—to the credit of the State’s
   general revenue fund, where it is “subject . . . to appropriation by the
   legislature.” Id. §§ 74.601(b), 74.603.
          The Comptroller maintains a website that lists the names and last
   known addresses of owners whose property has been transferred to the
   Comptroller under the UPA. An owner whose property has been transferred
   to the State can file an administrative claim to recover the property with the
   Comptroller’s office. Id. § 74.501; Clark v. Strayhorn, 184 S.W.3d 906, 910–
   11 (Tex. App.—Austin 2006, pet. denied). If the Comptroller determines
   that an owner’s claim is valid, the Comptroller’s office returns any unsold
   property or pays the claimant from the general revenue fund. Tex. Prop.
   Code §§ 74.501, 74.602. This payment does not include any interest that
   the claimant’s funds generated before he or she filed a claim for recovery. Id.
   § 74.304(d); Clark, 184 S.W.3d at 913.
                                         II.
          Plaintiffs-Appellees Philip C. James, William Noe, and John
   Ballantyne (collectively, “Plaintiffs”) are three Texas residents who allege
   that their assets improperly escheated to the State under the UPA. Plaintiff
   James alleges that Charles Schwab & Co. closed his retirement account and
   transferred $305,203.56 from the account to the State as unclaimed property.
   James never received notice from the Comptroller’s office, which denied
   having any record of the retirement funds purportedly transferred to its
   possession. He further claims that $188 of his funds were improperly seized
   by the Comptroller without notice, his knowledge, or consent.
          Plaintiff Noe alleges that an amount of $468.72 was transferred from
   his accounts receivable credit balance with Reed Elsevier to the Comptroller.

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   Noe claims that, other than the posting of his property on the Comptroller’s
   website, he received no notice of this transfer. Plaintiff Ballantyne alleges that
   his accounts with multiple holders, including IBC Bank, Chase Bank, Wells
   Fargo, and E-Trade, all improperly escheated to the State. He claims that the
   Comptroller failed to identify both the property type and the holders of his
   seized property.
          Plaintiffs filed a class action complaint in federal district court on
   January 21, 2022. They named as defendants Glenn Allen Hegar Jr., the
   Texas Comptroller of Public Accounts, and Joani Bishop, the Comptroller’s
   Director of Unclaimed Property Reporting and Compliance (collectively,
   “Defendants”). The complaint alleges that Defendants “misused” the UPA
   “to take private property from people and businesses without meeting the
   basic threshold requirements for escheatment because they ha[d] not
   ‘abandoned’ or ‘lost’ their property and they [were] not ‘unknown.’”
   Defendants allegedly utilized the UPA to convert private property into
   revenue for the State, which they achieved by unlawfully coercing financial
   institutions, businesses, and nonprofits to surrender Plaintiffs’ and class
   members’ property to the Comptroller. The complaint proposed a class
   defined as “[a]ll persons or entities whose property was escheated to the
   State of Texas between 2014 and the present without adequate notice.”
          Based on the foregoing allegations, Plaintiffs asserted claims against
   Defendants in their individual and official capacities under 42 U.S.C. § 1983.
   Specifically, Plaintiffs sought a declaration that Defendants: (1) failed to
   provide notice and satisfy due process requirements under the UPA, the
   Texas Constitution, and the U.S. Constitution; (2) allowed and colluded with
   third parties to retain property that belonged to Texas citizens; (3) seized,
   sold, and destroyed contents of bank safety deposit boxes without adequate
   notice; (4) failed to enforce the requirement that corporations comply with
   the UPA; and (5) acted ultra vires in failing to provide notice and satisfy due

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   process. Plaintiffs additionally sought an accounting, attorneys’ fees, the
   creation of a common fund, and injunctive relief in the form of ordering
   Defendants to: (a) comply with and properly administer the UPA; and (b)
   return Plaintiffs’ property.
          On April 14, 2022, Defendants filed a motion to dismiss pursuant to
   Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. In
   response to the claims against Defendants in their official capacities,
   Defendants invoked state sovereign immunity under the Eleventh
   Amendment. Defendants further claimed that Plaintiffs had failed to identify
   specific actions taken by either of the individual Defendants that would
   subject them to liability.
          In an order dated September 6, 2022, the district court dismissed most
   of Plaintiffs’ claims. Addressing Defendants’ jurisdictional arguments, the
   district court determined that the State had not consented to being sued in
   federal court, and it dismissed Plaintiffs’ requests for declaratory and
   injunctive relief under state law and the Texas Constitution for lack of subject
   matter jurisdiction. The district court also dismissed “Plaintiffs’ claims
   against Defendants in their official and individual capacity to the extent those
   claims seek funds from the general revenue fund.” Turning to Plaintiffs’
   individual-capacity § 1983 claims, the district court found that Plaintiffs
   failed to allege individual causation regarding each Defendant.
          The district court noted that the only way for Plaintiffs’ official-
   capacity claims to overcome sovereign immunity was through the Ex parte
   Young exception, which permits federal courts to enjoin state officials in their
   official capacities from violating federal law. See Hutto v. Finney, 437 U.S.
   678, 690 (1978) (citing Ex parte Young, 209 U.S. 123 (1908)). The district
   court determined that the following two requests for relief could survive
   under Ex parte Young: (1) “prospective injunctive relief in the form of

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   ordering [Defendants] to comply with the Takings and Due Process Clauses
   of the Constitution”; and (2) a “declaration that Defendants violated the
   U.S. Constitution’s requirements for due process of law and against
   takings.” The district court accordingly granted in part and denied in part
   Defendants’ motion to dismiss, solely permitting Plaintiffs to proceed with
   their requests for declaratory and injunctive relief under Ex parte Young.
   Defendants filed a notice of interlocutory appeal seeking review of the denial
   of Eleventh Amendment sovereign immunity. 1
                                              III.
           We first address our jurisdiction to review Defendants’ interlocutory
   appeal. Orders denying Eleventh Amendment sovereign immunity are
   reviewable on interlocutory appeal under the “collateral order doctrine.” See
   P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 141 (1993).
   Defendants on appeal argue that Plaintiffs “have not alleged an ongoing
   violation of federal law,” which is a necessary component of the Ex parte
   Young exception to Eleventh Amendment sovereign immunity. See Green
   Valley Special Util. Dist. v. City of Schertz, 969 F.3d 460, 471 (5th Cir. 2020).
           In arguing that Plaintiffs failed to allege an ongoing violation,
   Defendants repeatedly cite legal standards governing Article III standing for
   prospective relief, specifically the well-established principle that “to meet
   the Article III standing requirement when a plaintiff is seeking injunctive or
   declaratory relief, a plaintiff must allege facts from which it appears there is
   a substantial likelihood that he will suffer injury in the future.” Bauer v.

           _____________________
           1
            On interlocutory appeal, we solely address the district court’s denial of Eleventh
   Amendment sovereign immunity concerning Plaintiffs’ requests for: (1) an injunction
   ordering Defendants to comply with the U.S. Constitution; and (2) a declaratory judgment
   that Defendants violated the U.S. Constitution. We do not address the district court’s
   dismissal of any of Plaintiffs’ claims.

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   Texas, 341 F.3d 352, 358 (5th Cir. 2003). Thus, although the primary issue on
   interlocutory appeal is the district court’s denial of Eleventh Amendment
   sovereign immunity under Ex parte Young, Defendants’ briefing also raises
   the closely related issue of Plaintiffs’ standing to seek prospective relief.
          Standing is a component of subject matter jurisdiction, Ortiz v. Am.
   Airlines, Inc., 5 F.4th 622, 627 (5th Cir. 2021), and where “we have
   interlocutory appellate jurisdiction to review a district court’s denial of
   Eleventh Amendment immunity, we may first determine whether there is
   federal subject matter jurisdiction over the underlying case,” Hosp. House,
   Inc. v. Gilbert, 298 F.3d 424, 429 (5th Cir. 2002). Because “our Article III
   standing analysis and Ex parte Young analysis ‘significant[ly] overlap,’” City
   of Austin v. Paxton, 943 F.3d 993, 1002 (5th Cir. 2019) (quoting Air Evac
   EMS, Inc. v. Tex., Dep’t of Ins., Div. of Workers’ Comp., 851 F.3d 507, 520 (5th
   Cir. 2017)), we have in prior cases considered standing on interlocutory
   appeals of a district court’s denial of Eleventh Amendment sovereign
   immunity, see id. at 1103 n.3; see also, e.g., Walker v. Livingston, 381 F. App’x
   477, 479 (5th Cir. 2010); Williams v. Davis, No. 22-30181, 2023 WL 119452,
   at *4–6 (5th Cir. Jan. 6, 2023).
          Plaintiffs allege that they were subjected to constitutional violations,
   they allege that such violations are ongoing or may reoccur, and they seek
   prospective relief. Whether Plaintiffs have alleged ongoing constitutional
   violations is a central question of both the Article III standing analysis and
   the Ex parte Young analysis in this case. And, as discussed below, the most
   relevant authorities on “ongoing violations” as related to takings claims
   address this issue in the context of Article III standing. Because these
   authorities inform our analysis of “ongoing violations” in the context of Ex
   parte Young, we address standing before turning to an Ex parte Young analysis.

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                                         IV.
          This court may address the jurisdictional requirement of standing for
   the first time on appeal. Pub. Citizen, Inc. v. Bomer, 274 F.3d 212, 217 (5th
   Cir. 2001). “Constitutional standing has three elements: (1) an ‘injury in
   fact’ that is (a) concrete and particularized and (b) actual or imminent; (2) a
   causal connection between the injury and the conduct complained of; and (3)
   the likelihood that a favorable decision will redress the injury.” Croft v.
   Governor of Tex., 562 F.3d 735, 745 (5th Cir. 2009) (quoting Lujan v. Defs. of
   Wildlife, 504 U.S. 555, 560–61 (1992)).
          Although Plaintiffs in this case purport to act on behalf of a class, they
   must still demonstrate that they personally have standing. See Spokeo, Inc. v.
   Robins, 578 U.S. 330, 338 n.6 (2016). Litigants must demonstrate standing
   with respect to each type of relief they seek. TransUnion LLC v. Ramirez, 141
   S. Ct. 2190, 2210 (2021). To request prospective injunctive or declaratory
   relief, a litigant must demonstrate “continuing harm or a real and immediate
   threat of repeated injury in the future.” Soc’y of Separationists, Inc. v.
   Herman, 959 F.2d 1283, 1285 (5th Cir. 1992). The threat of future injury must
   be “certainly impending”; mere allegations of possible future injury will not
   suffice. Clapper v. Amnesty Int’l USA, 568 U.S. 398, 409 (2013) (quoting
   Lujan, 504 U.S. at 565 n.2).
          The Supreme Court’s holding in City of Los Angeles v. Lyons, 461 U.S.
   95 (1983), illustrates the principle that allegations of past harm cannot
   establish standing for a request for prospective relief. In Lyons, the plaintiff
   sought damages, an injunction, and declaratory relief following an incident in
   which police officers seized him and applied a chokehold. Id. at 97–98. The
   Lyons Court held that while the plaintiff had alleged a past harm resulting
   from being subjected to a chokehold, he was unable to seek prospective relief
   absent a showing that he was likely to suffer a future injury from the use of

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   chokeholds by police officers. Id. at 105. The plaintiff’s allegation of past
   harm ultimately did “nothing to establish a real and immediate threat that he
   would again be stopped” and subjected to that method of restraint. Id.
          This court has already applied the Lyons principle to an allegation of
   an unconstitutional taking under Texas’s UPA. In Arnett v. Strayhorn, 515 F.
   Supp. 2d 690, 693 (W.D. Tex. 2006), aff’d sub nom. Arnett v. Combs, 508 F.3d
   1134 (5th Cir. 2007), a plaintiff brought a facial challenge to the UPA,
   claiming that the State’s retaining of revenue generated from unclaimed
   property violates the Takings Clause of the Fifth Amendment. In addition to
   seeking the return of revenue held by the State, the plaintiff also sought a
   declaratory judgment decreeing the UPA unconstitutional and an injunction
   prohibiting the State from retaining any such revenue generated by
   unclaimed property in the future. Id. The district court determined that the
   plaintiff lacked standing to assert a claim for prospective relief because he
   “[did] not, nor [did] the Court reasonably believe he [could], contend he
   [would] be likely to have property subject to the Texas Unclaimed Property
   Law in the future.” Id. at 697–98. In Arnett v. Combs, 508 F.3d 1134, 1134 (5th
   Cir. 2007), this court affirmed Arnett v. Strayhorn for the reasons stated by
   the district court.
          Like the plaintiff in the Arnett line of cases, Plaintiffs here have only
   alleged that they were injured by past takings; they allege no facts indicating
   that another taking of their property is imminent or certainly impending.
   Plaintiffs reference their fear of another unconstitutional taking, requiring
   them to “routinely inspect the contents of their safe deposit boxes, check on
   the presence of funds in their retirement accounts, and search the website
   administered by Defendants to see if they have taken any more of their
   property.” But even if Plaintiffs take actions and incur costs out of fear of a
   future injury, these activities do not suffice to establish standing. See Clapper,
   568 U.S. at 416 (rejecting the theory that plaintiffs can “manufacture

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   standing merely by inflicting harm on themselves based on their fears of
   hypothetical future harm that is not certainly impending”).
          Plaintiffs point to no authority supporting their assertion that an
   unconstitutional taking is an “ongoing violation” for the purpose of seeking
   prospective relief when the government has failed to return a claimant’s
   property. In fact, the Arnett line of cases reaches the opposite conclusion—
   that a prior taking is a past harm insufficient to confer standing for
   prospective relief, even when it is alleged that the government has unlawfully
   retained assets that rightfully belong to the plaintiff. See Arnett, 515 F. Supp.
   2d at 697–98. Here, the district court permitted Plaintiffs to proceed with
   their request for prospective relief to prevent the State from violating the
   Constitution in the future. But if Plaintiffs allege no impending future injury,
   this prospective relief in no way redresses Plaintiffs’ alleged injuries. We
   therefore find that Plaintiffs’ allegations of past unconstitutional takings are
   insufficient to confer standing for prospective relief under the principle
   enounced in Lyons.
                                           V.
          We now turn to Ex parte Young. “In most cases, Eleventh Amendment
   sovereign immunity bars private suits against nonconsenting states in federal
   court.” Paxton, 943 F.3d at 997. Sovereign immunity applies to suits against
   state officials or agencies that are effectively suits against a state. Id. For the
   Ex parte Young exception to Eleventh Amendment sovereign immunity to
   apply, three criteria must be satisfied: (1) A plaintiff must name individual
   state officials as defendants in their official capacities; (2) the plaintiff must
   allege an ongoing violation of federal law; and (3) the relief sought must be
   prospective, rather than retroactive. Green Valley, 969 F.3d at 471.
          Our standing analysis makes clear that Plaintiffs have not
   demonstrated that they “seek prospective relief to redress ongoing

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   conduct.” See Freedom From Religion Found. v. Abbott, 955 F.3d 417, 424 (5th
   Cir. 2020). Just as Plaintiffs’ allegations of past harm are insufficient to
   confer standing to seek prospective relief, these allegations are also
   insufficient to show an ongoing violation of federal law and invoke the Ex
   parte Young exception to Eleventh Amendment sovereign immunity. See
   Spec’s Fam. Partners, Ltd. v. Nettles, 972 F.3d 671, 681 (5th Cir. 2020) (finding
   that an allegation of wrongful past behavior does not establish a claim that
   falls within the Ex parte Young exception).
          We are not persuaded by Plaintiffs’ arguments that they have
   successfully pleaded ongoing constitutional violations to invoke Ex parte
   Young. Plaintiffs point out that their complaint alleges that Defendants
   “continue to violate” the Constitution by providing inadequate notice and
   performing unlawful takings. But the complaint contains insufficient facts to
   support Plaintiffs’ claim that Defendants continue to perform unlawful
   takings with inadequate notice, and factual allegations contained in a
   complaint “must be enough to raise a right to relief above the speculative
   level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiffs’
   nonspecific references to Defendants continuing to engage in unlawful
   conduct are too vague and unsupported by factual allegations to demonstrate
   an ongoing violation under Ex parte Young. See Williams, 2023 WL 119452, at
   *6.
          Plaintiffs also claim that their lawsuit is a facial challenge to the UPA,
   which would permit an inference of ongoing violations because there is no
   evidence in the record to suggest that the State will halt enforcement of the
   UPA. Plaintiffs’ complaint, however, does not allege that the UPA is facially
   unconstitutional. The crux of Plaintiffs’ complaint is that the State of Texas
   has “misused” and is “skirting the requirements of” the UPA. For instance,
   the complaint alleges that “Defendants failed . . . to provide . . .
   Constitutional and statutorily required notices before taking personal

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   property,” and that “our State and Federal Constitutions and the State’s
   UPA laws do not permit the seizure and sale of private property, for public
   use, without adequate notice and Due Process of Law.” (emphases added).
   The      complaint       repeatedly       asserts     that     Defendants’         allegedly
   unconstitutional takings also violate the UPA; absent from the complaint is
   clear indication that Defendants commit unconstitutional takings even when
   they fully comply with the UPA’s statutory process to the letter.
           Plaintiffs’ claim that their lawsuit is a facial challenge to the UPA is
   further undermined by the language of their requests for prospective relief.
   Plaintiffs seek a declaration that Defendants violated the Constitution and
   the UPA; there is no request to declare the UPA facially unconstitutional. 2
   Plaintiffs’ request for injunctive relief specifically asks that the court
   “compel[] Defendants to immediately cease all unlawful conduct . . . and to
   properly administer the UPA.” (emphasis added). Plaintiffs’ contention that
   their lawsuit is a facial challenge to the UPA is contradicted by their
   complaint’s admission that the State’s unlawful conduct will be cured if the
   State “properly administer[s] the UPA.” A plain reading of the complaint
   thus indicates that Plaintiffs are alleging that Defendants’ abuse of their
   powers granted by the UPA—not the UPA itself—is unconstitutional. 3

           _____________________
           2
             In fact, Plaintiffs’ response to Defendants’ motion to dismiss plainly states that
   “Plaintiffs here do not seek a declaration that the UPA is unconstitutional.”
           3
              We note that even if the complaint unequivocally challenged the constitutionality
   of the UPA or sufficiently pleaded that Defendants’ unconstitutional conduct is generally
   ongoing, Plaintiffs’ failure to show that they themselves are likely to suffer a future injury
   would still prevent them from being able to establish standing to seek prospective relief. See
   Spokeo, 578 U.S. at 338 n.6 (noting that plaintiffs purporting to represent a class must show
   that they personally have standing); Arnett, 515 F. Supp. 2d at 697–98 (deciding that the
   plaintiff lacked standing to seek prospective relief because he was unable to show that he
   himself was likely to have property taken under the UPA in the future).

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   Plaintiffs allege insufficient facts to indicate that these alleged abuses are
   ongoing.
                                       *        *         *
           Plaintiffs have failed to allege facts indicating that Texas’s alleged
   abuse of the UPA is ongoing or will continue in the future. As there is no
   ongoing violation of federal law sufficiently pleaded in the complaint,
   Plaintiffs have failed to satisfy the Ex parte Young requirements, and their
   claims for prospective relief are barred by sovereign immunity.
                                               VI.
           Plaintiffs have failed to demonstrate that they have standing to seek
   prospective relief, and they have not met their burden to proceed with their
   constitutional claims under the Ex parte Young exception to Eleventh
   Amendment sovereign immunity. Accordingly, we REVERSE the district
   court’s denial of Eleventh Amendment sovereign immunity, and we
   REMAND with instructions to dismiss Plaintiffs’ remaining claims for
   prospective relief without prejudice. 4

           _____________________
           4
             Because we find that the State is entitled to sovereign immunity on the claims
   before us on interlocutory appeal, we need not and do not address Defendants’ alternative
   argument that Plaintiffs’ takings claims are not ripe. We also need not and do not address
   Defendants’ argument that Plaintiffs’ requests for prospective relief impermissibly seek
   monetary damages. The district court dismissed Plaintiffs’ request for an injunction
   ordering the State to return their assets, and that decision is not before this court on
   interlocutory appeal.

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