Court Opinion

ID: 3031063
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:45:20.783708+00
Date Added: 2024-06-11T11:40:41.513830
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CHRIS LUSBY TAYLOR; NANCY A.              
PEPPLE-GONSALVES,
               Plaintiffs-Appellants,            No. 02-16511
                 v.
                                                  D.C. No.
                                               CV-01-02407-FCD
STEVE WESTLY, in his capacity as
Controller of the State of                        OPINION
California,
                Defendant-Appellee.
                                          
         Appeal from the United States District Court
            for the Eastern District of California
         Frank C. Damrell, District Judge, Presiding

                   Argued and Submitted
         October 10, 2003—San Francisco, California

                      Filed March 29, 2005

     Before: Richard D. Cudahy,* Robert R. Beezer, and
             Andrew J. Kleinfeld, Circuit Judges.

                   Opinion by Judge Kleinfeld

   *The Honorable Richard D. Cudahy, Senior United States Circuit Judge
for the Seventh Circuit, sitting by designation.

                                3735
                         TAYLOR v. WESTLY                        3739
                            COUNSEL

William W. Palmer, Sacramento, California, for the appel-
lants.

Robin B. Johansen, Remcho, Johansen & Purcell, San Lean-
dro, California, for the appellee.

                             OPINION

KLEINFELD, Circuit Judge:

   Persons whose stock was escheated to the state sued to get
it back. The district court held that the Eleventh Amendment
barred their claims. We disagree.

                                Facts.

   The dismissal was for lack of subject matter jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(1).1 No
material disputes of fact have been asserted as to jurisdiction,
and the district court acted on the basis of what the plaintiffs
pleaded, so we proceed on the basis of the allegations of fact
in the complaint.2

   Although this case was filed as a class action, it never
reached the point of class certification vel non. As it comes to
us, it is by two individuals against the state controller. One,
Chris Taylor, a former Intel employee, lives in England and
owns 52,224 shares of Intel stock. The other, Nancy Pepple-
Gonsalves, a former TWA flight attendant, lives in California,
in Riverside County, and owns 7,000 shares of TWA stock.
  1
   See Broudy v. United States, 661 F.2d 125, 128 n.5 (9th Cir. 1981).
  2
   See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th
Cir. 2003).
3740                     TAYLOR v. WESTLY
Or at least they did own the stock, before the state took it
away.

   The state controller took Mr. Taylor’s and Ms. Pepple-
Gonsalves’s stock as “unclaimed property.” But these individ-
uals do, in this lawsuit, claim it. The property was treated as
unclaimed because for three years these two individuals did
not cash dividend checks, respond to proxy notices, or other-
wise communicate to the companies in which they owned stock.3
Intel and TWA provided the State of California with lists of
shareholders who were “lost” or “unknown” by these three
criteria, as required by law, and issued “duplicate shareholder
certificates” to the state. The Controller then sold the stock
and deposited the money received in exchange into the state’s
general fund.

   This case is about escheat. Escheat, at common law in
England, formerly terminated a tenancy so that on the death
of a tenant without heirs, or as a result of a tenant’s felony
that worked a corruption of the blood, the land escheated to
the lord of the fee.4 Title by escheat “was one of the fruits of
and consequences of feudal tenure.”5 “But, as the feudal ten-
ures do not exist in this country, there are no private persons
who succeed to the inheritance by escheat; and the state steps
in the place of the feudal lord, by virtue of its sovereignty, as
the original and ultimate proprietor of all the lands within its
jurisdiction.”6 Escheat of tangible or intangible personal prop-
erty arises from the same conceptual scheme.

  Traditionally, constitutional disputes about escheat are
between financial institutions and state governments.7 The
  3
     See Cal. Civ. Proc. Code § 1516(b).
  4
     Cornelius J. Moynihan, Law of Real Property 21 (1962).
   5
     IV James Kent, Commentaries on American Law 419 (1830).
   6
     Id. at 420.
   7
     See Standard Oil Co. v. New Jersey, 341 U.S. 428 (1951); Conn. Mut.
Life Ins. Co. v. Moore, 333 U.S. 541 (1948).
                          TAYLOR v. WESTLY                         3741
issues have traditionally concerned which of several potential
claimant states can get the money, or whether the financial
institution has a sufficient connection to the state for the state
to be entitled to the money. That is about what one would
expect, in a situation where the true owner of the money is
dead, leaving no descendants who are aware of the asset, and
the question is whether the financial institution gets the
money or one of several competing state governments.
Escheat is, after all, a means of dealing with money where
money and property are unclaimed and the person entitled to
it is dead or gone, gone to a degree that the person cannot be
found and there is no other individual with a good claim.

   The escheat problem, in this case, arises from a new
approach used by some state governments, greatly shortening
the time before which untouched property is treated as though
it had been abandoned, greatly reducing or eliminating notice
to the true owner, and ignoring the true owner’s pleas. For
example, California is taking the flight attendant’s stock in
her airline on the basis, basically, that she cannot be found,
even while she is standing in court shouting, “Here I am! Here
I am! Give me my money!” And the State of California turns
a deaf ear, pretending it cannot hear her.

   She is thought to be dead or gone, despite her obvious live-
liness and presence, because she has not cashed a dividend
check, sent a change of address to TWA, or sent in a proxy,
in five years.8 But, many companies do not pay dividends.
During the relevant three-year period, Intel did not pay any divi-
dends9 so there were no dividend checks to cash. And TWA
only paid a dividend to its preferred stockholders.10 Even
  8
Cal. Civ. Proc. Code § 1516 (1990). In the case of Mr. Taylor, Cal.
Civ. Proc. Code § 1516 (1992) applies and looks only at a three-year time
frame.
   9
     Intel 1998 Annual Report at http://www.intel.com/intel/annual98/
summary.htm (covering ten-year span from 1989 to 1998) (last visited
March 21, 2005).
   10
      Trans World Airlines, Inc. 1991 Annual Report (covering three-year
span from 1989 to 1991).
3742                   TAYLOR v. WESTLY
when dividends are paid, the dividend checks are often very
small and owners of small amounts of stock may forget to
cash them or may find it not worth a trip to the bank. As for
changes of address, many people do not change their
addresses over a three- or five-year period. As for voting their
proxies, a very high proportion of shareholders do not bother,11
because it does not make sense for them to spend an hour or
two studying a proxy statement to vote their few shares, when
they have neither enough stock to make a difference in the
election nor enough knowledge to know what difference they
would want to make.

   Although state law provided for notice to shareholders and
an opportunity to claim their supposedly “unclaimed proper-
ty,” the Controller decided that the forms of notice provided
for by statute were impractical and unfunded. She decided not
to mail notices to shareholders’ last known addresses, and not
to publish, in newspaper ads, the individual names and prop-
erty being taken as unclaimed.

   Neither of these plaintiffs were really hard to find, nor did
they mean to abandon their property. Chris Taylor acquired
his stock in Intel because he worked for Intel for a number of
years. His wife was general counsel for Intel in Europe. Intel
corresponds with him regarding his stock and his pension
fund and knows his address. He still has his original stock cer-
tificates, but the Controller has rendered them worthless by
getting duplicate stock certificates and selling the shares.

   Nancy Pepple-Gonsalves worked as a flight attendant for
twenty years and invested part of her salary in TWA stock.
The company has at all times either known precisely where
she was, as with Mr. Taylor, or had the means to readily
locate her. Neither of these people were lost, and neither
meant to abandon their investments. Because they retained
  11
   Jeffrey M. Laderman, Moneymen May Stop Deep-Sixing Proxies,
Business Week, March 20, 1989, at 142.
                          TAYLOR v. WESTLY                           3743
their original stock certificates, and were never notified of the
Controller’s actions, they had no reason to suspect that their
investments were disappearing into the State of California’s
general fund. The Controller has about $2.7 billion through
such escheats. Around $20 million is held as cash, after the
stock is sold, to cover claims of persons who make timely
claims, and the rest is deposited into the general fund.

   This is, as was mentioned above, a new approach to
escheat. It used to be, until the seventies, that the period of
inaction before the property was deemed “unclaimed” was
sixteen years. Now it has been shortened to three years. Also,
until 1989, the Bureau of Unclaimed Property published the
names of shareholders, whose shares were thought to be
unclaimed, in newspapers in each county that listed an
address for the individual. The Controller also used to main-
tain a staff, in the 1980’s, to find owners and get their prop-
erty back to them.

  Now the Controller just publishes advertisements describ-
ing their general practices, under a headline “Your Money?”
The text of the advertisement, in full, is in the footnote below.12
   12
      “Notice of Unclaimed Property — You May Be Owed Money!
The State Controller’s Office has received unclaimed property belonging
to over 2 million individuals and companies. This includes bank accounts,
stocks, bonds, uncashed checks, and safe deposit box contents. Most
accounts become unclaimed when there is no owner contact with the insti-
tution or account activity for three (3) years. Often the owner forgets the
account exists, moves and does not leave a forwarding address or the for-
warding address expires. This money is waiting to be claimed by its right-
ful owners.
    Call 1-800-992-4647
    STATE CONTROLLER’S OFFICE
    Bureau of Unclaimed Property
    P.O. Box 942850, Sacramento, CA 94250-5873
    Hours: 8:00 a.m. to 5:00 p.m., Monday through Friday.
California Relay (Telephone) Service for the Deaf or Hearing Impaired
from TDD phones: 1-800-735-2929 and ask for 1-800-992-4647.
This ad is in lieu of CCP 1531 and is in accordance with Chapter 303.
Statutes of 1995.”
3744                      TAYLOR v. WESTLY
Though the advertisement says what the criterion for taking
the property is — “no owner contact with the institution or
account activity for three (3) years” — it does not say what
property is being taken or from whom. No names of property
owners are listed. The ad says: “This money is waiting to be
claimed by its rightful owners,” but it does not say how long
the rightful owners have to claim the money before losing it
to the state.

   The encouragement to claim one’s money is not all it might
seem. The Controller, according to the complaint, decided to
publish the ads at times, such as just before holidays, when a
lot of people would be away, because “her limited staff is
unable to handle the large influx of calls generated by adver-
tisements.” It is especially interesting that, in a font smaller
than the main text, the ad does not claim to comply with the
law, but instead admits that it is “in lieu of CCP 1531.” The
reference is to California Code of Civil Procedure section
1531, which required publication of names and also individu-
ally mailed notices to persons with listed addresses.13 Thus the
Controller is admitting right in her ad that she is violating the
law!

   The Controller did not follow California’s statutory direc-
tive regarding how she is supposed to take “unclaimed prop-
erty.” Her intentional violations of the law implicated those
provisions that are reasonably calculated to give actual notice
to the owners. The reason why, according to a document from
the Controller’s office attached to the complaint, is that she
did not have the money to give the notice required by law.
“Funding for both the Locator Unit [that attempted to find
owners and return their property] and the publication of
  13
    This reference is to Cal. Civ. Proc. Code § 1531 as it existed during
the relevant time period between 1990 and 1994. Since 1997, Cal. Civ.
Proc. Code § 1531 has been amended and no longer requires publication
of names, and requires direct mailing only if the escheated account con-
tains a social security number.
                       TAYLOR v. WESTLY                        3745
names in the newspapers was not available after 1989. In
1994, some publication funding was restored, and the Bureau
began placing ‘block ads’ [as quoted above] in newspapers of
wide circulation. In November, 1994, the ‘block ad’ covered
unclaimed property reports from 1990 through 1993.”

   According to the complaint, sometimes the Controller pays
people an amount she deems appropriate for their stock, and
sometimes she pays nothing. Nancy Pepple-Gonsalves, the
TWA flight attendant, got nothing. Chris Taylor apparently is
treated by the Controller as having an “account” of about
$200,000 for 1,058 shares of Intel stock, but that misses the
stock splits and appreciation after she took it. According to
the complaint, had the Controller not taken Mr. Taylor’s stock
and sold it, he would actually have had 52,224 shares worth
$3,864,576.

  The specific allegations in the complaint included the fol-
lowing:

    •   State law allows for property to escheat to the
        state only if its owners are “lost” or “unknown.”
        But in the case of Taylor and Pepple-Gonsalves,
        Intel and TWA, respectively, knew where they
        lived or could easily find them. In fact, Intel and
        Taylor were in regular communication about
        Taylor’s pension and stock.

    •   The state hired agents to threaten companies,
        including out-of-state companies, with fines and
        penalties, and paid its agents a percentage of the
        revenue generated from the seized property.

    •   The state failed to give any reasonable notice to
        those whose property it was about to seize and
        made no real effort to locate owners, as required
        by state law. It did not attempt direct-mail notice.
        Nor did it comply with the express statutory obli-
3746                   TAYLOR v. WESTLY
        gation to give publication notice by publishing
        the names of the property owners. Instead, the
        Controller sometimes published generic adver-
        tisements without listing any names or details
        about the property to be seized. At other times,
        the Controller ignored altogether the need to pro-
        vide publication notice. When the state did place
        generic ads, it purposefully placed them around
        the holidays and at other “times of the year that
        were calculated to minimize the number of mem-
        bers of the public who would see the advertise-
        ments.” The ads themselves said that the state
        was publishing them “in lieu of” what the statutes
        required.

    •   California seized property over which it had no
        jurisdiction, including property belonging to non-
        residents of California and held by non-
        California companies (Taylor, for example, is a
        resident of England, and Intel is a Delaware cor-
        poration).

   Plaintiffs seek a declaratory judgment, “disgorgement and
return of either their stock investment or the return of the rea-
sonable value thereof,” money damages, an injunction com-
manding the Controller to return their stock and to refrain
from engaging in future seizures of this sort without notice,
and other relief. The complaint asserts, inter alia, violations
of the Due Process and Takings Clauses of the United States
Constitution, federal securities laws, and the state Unclaimed
Property Act.

   The district court dismissed all the claims without oral
argument on the ground that, under the Eleventh Amendment,
the district court had no jurisdiction. Plaintiffs appeal. Our
                         TAYLOR v. WESTLY                         3747
review of a 12(b)(1) dismissal for lack of subject matter juris-
diction is de novo.14

                              Analysis.

   [1] Generally, the Eleventh Amendment shields state gov-
ernments from money judgments in federal courts, and from
declaratory judgments against the state governments that
would have the practical effect of requiring the state treasury
to pay money to claimants.15 That is why the district court dis-
missed the money claims. Congress, using its authority to
enforce by legislation the provisions of the subsequently
adopted Fourteenth Amendment, can “abrogate” Eleventh
Amendment state governmental immunity by expressing its
intent to do so with sufficient clarity.16 Generally injunctions
against state officers are not barred by the Eleventh Amend-
ment.17 The presumption, as explained by the Supreme Court
in Ex parte Young, is that no state could or would authorize
a state officer to act contrary to the federal Constitution, so
any such action would be ultra vires, and state sovereignty
therefore cannot be offended by a federal judicial command
to the state officer to conform his conduct to the Constitution
in the future.18 The district court denied relief under this Ex
parte Young branch of Eleventh Amendment doctrine on the
theory that, although prospective in form, the requested
injunction was retrospective as a practical matter, in the
nature of a command to pay plaintiffs money that the state
owed them.

  14
    See Luong v. Circuit City Stores, Inc., 368 F.3d 1109, 1111 n.2 (9th
Cir. 2004).
  15
     See Frew v. Hawkins, 540 U.S. 431, 437 (2004).
  16
     See Quern v. Jordan, 440 U.S. 332, 345 (1979).
  17
     Ex parte Young, 209 U.S. 123 (1908).
  18
     Id.
3748                       TAYLOR v. WESTLY
I.        Return of Seized Property

   Ordinarily, the Eleventh Amendment bars a plaintiff from
using a lawsuit in federal court to get money damages for
wrongful conduct by state officials out of the general fund of
the state government.19 In this case, the plaintiffs sue “Kath-
leen Connell, in her capacity as Controller of the State of Califor-
nia.”20 The plaintiffs’ complaint pleads that Connell acted in
the course of her duties in her elected position, but in viola-
tion of the statutes that govern her performance of those
duties and her constitutional responsibilities. The pleading
states that some money from sales of the stock she has taken
is retained in a fund she controls, and the bulk of the money
is immediately deposited into the general fund of the state
when she takes and sells the stock.

   [2] The California statutes distinguish between “escheat”
and “permanent escheat.”21 Where the property has not “per-
manently” escheated to the state, the state’s Unclaimed Prop-
erty Law sets up a custodial escheat system. The statute
explicitly states that “property received by the state under this
chapter shall not permanently escheat to the state.”22 It pro-
vides that the Controller must “safeguard and conserve”
unclaimed property23 in a trust fund for the interests of all par-
ties having an interest in the property.24
     19
      See Edelman v. Jordan, 415 U.S. 651, 665-67 (1974).
     20
      Pursuant to Rule 43(c)(2) of the Federal Rules of Appellate Procedure,
Steve Westly, the present Controller, has been substituted for her as defen-
dant. We deny Appellants’s request to maintain Kathleen Connell in her
individual capacity, as she was named by the Appellants only in her offi-
cial capacity.
   21
Cal. Civ. Proc. Code §§ 1300(c), (d).
   22
      Id. at § 1501.5. See also Harris v. Westly, 116 Cal. App. 4th 214, 219
(2004); and Fong v. Westly, 117 Cal. App. 4th 841, 844 (2004) (explain-
ing that the Unclaimed Property Law does not operate a true escheat
because the state holds the property as a custodian until the property’s
rightful owner can claim the property).
   23
Cal. Civ. Proc. Code § 1365.
   24
      Id. at § 1313.
                         TAYLOR v. WESTLY                        3749
   [3] The state statutes unambiguously provide that the Con-
troller and even the Treasurer holds property he or she takes
as “unclaimed” in trust. Traditional trust language is used:

       The care and custody of all property delivered to the
       Treasurer or Controller pursuant to this title is
       assumed by the State for the benefit of those entitled
       thereto, and the State is responsible for the payment
       of all claims established thereto pursuant to law, less
       any lawful deductions.25

This is language establishing a custodial trust. Thus, to the
extent that the funds remained in the state’s special account,
they were being held in trust, rather than being in the state
treasury.

   Before California escheated property is “permanently”
escheated, it is like a car that is towed and held in an impound
lot. The car is in the custody of the impounding government,
but it is held for its owner, if one turns up. Even if the Con-
troller has paid money over to the general fund of the state,
she is required by the California statutes to order it “retrans-
ferred” from the general fund back to the “Unclaimed Prop-
erty Fund” “if it is subsequently determined that such money
or . . . property is not, in fact, permanently escheated.”26

   [4] The Controller’s obligation to order transfer from the
Treasurer, if money was deposited in the general fund but is
subsequently found not to be permanently escheated,27 plainly
establishes that the trust continues, even after the Controller
has transferred the money to the general fund. Thus the
money, even if in the general fund, is not held free and clear
by the State of California, but subject to retransfer if the prop-
erty is later found not to be permanently escheated. The Con-
  25
     Id. at § 1361.
  26
     Id. at § 1347.
  27
     Id.
3750                         TAYLOR v. WESTLY
troller may sell escheated securities “whenever, in his
opinion, such action on his part is necessary or will tend to
safeguard and conserve the interests of all parties, including
the State, having any vested or expectant interest in the proper-
ty.”28 This sale provision plainly establishes that even after the
Controller has taken securities into her possession and sold
them, as she did with Mr. Taylor’s and Ms. Pepple-
Gonsalves’s Intel and TWA stock, she must “safeguard and
conserve” the interests of parties with vested rights. That too
implies that she holds the proceeds in trust. She has to deposit
the sale proceeds in her Unclaimed Property Fund “in the
name of which the property sold . . . was held” and the money
“shall be held for the benefit of those entitled to claim” it.29
Unrestricted title does not pass to the state unless and until the
property is “permanently escheated.”30

   [5] The complaint does not establish that a permanent
escheat determination has been made. Nor, if the averments
of the complaint are true, could it have been made. The Cali-
fornia procedure for making such a determination has not yet
been followed. The procedure requires the Controller to file
suit in superior court, and publish repeated notice in newspa-
pers, which notice must include “the name of the owner or
claimant and his last known address.”31 A judgment then
establishes that title has passed to the state by escheat.32 But
even that judgment does not establish “permanent” escheat.
The escheat becomes “permanent” only “[u]pon the expira-
tion of five years after the date of entry of the judgment.”33
  28
     Id.   at   § 1371.
  29
     Id.   at   § 1390.
  30
     Id.   at   § 1300(d).
  31
     Id.   at   § 1410.
  32
     Id.
  33
     Id.   at § 1430.
                         TAYLOR v. WESTLY                  3751
Only then may the Controller order the property transferred to
the general fund.34

   [6] The State of California’s sovereign immunity applies to
the state’s money. Money that the state holds in custody for
the benefit of private individuals is not the state’s money, any
more than towed cars are the state’s cars. Thus, where a per-
manent escheat determination has not yet been made, the
state’s Eleventh Amendment immunity from suit against it for
damages payable from its treasury has no application to
escheated property and sales proceeds from escheated prop-
erty, whether held by the Controller or the Treasurer.

   The case at bar differs from Papasan v. Allain.35 There,
schools sued for money, arguably held in trust for the schools,
that the new state of Mississippi had lost.36 Mississippi had
invested the proceeds from sale of Chickasaw Indian Nation
“lieu lands” in the state’s extensive railroad network that was
destroyed a decade later during the Civil War.37 The lawsuit,
over a century later, was for this alleged breach of fiduciary
duty.38 The distinction between this case and Papasan is that
the suit in Papasan was, in substance, for damages because
the corpus of the trust was gone with the wind.39 Thus,
because of the loss of the corpus, any money recovery was
coming directly from state resources.40 Here, by contrast, the
corpus still exists and is available for return.

   Because the plaintiffs’ money is held in a custodial trust,
this case is in line with the circumstances in United States v.
  34
     Id. at § 1431.
  35
     Papasan v. Allain, 478 U.S. 265 (1986).
  36
     Id. at 274.
  37
     Id. at 271-72.
  38
     Id. at 274.
  39
     Id. at 280-81.
  40
     Id. at 281.
3752                      TAYLOR v. WESTLY
Lee,41 where the claimant sued for a return of his own prop-
erty, which was not property of the government. A descendent
of General Robert E. Lee sued for the return of land (the site
of Arlington National Cemetery) that he claimed was improp-
erly taken from his family by the federal government. The
Supreme Court held that sovereign immunity did not bar the
claim. The Court’s rationale was that this was not a suit in
which the plaintiff sought the government’s property as a
remedy. Rather, it was a suit in which the plaintiff merely
sought possession, which was wrongfully denied him by
agents of the government. This distinction meant that the case
was truly one against the possessor, the government agent,
and not against the sovereign, despite the fact that the agent
purported to possess on behalf of the sovereign.42

   [7] While reading Lee in isolation suggests that suits for
return of property are not barred by sovereign immunity, sub-
sequent case law, in the 120 years since Lee was decided,
tempers its force. The most explicit limiting of Lee came in
Malone v. Bowdoin.43 The facts of Malone were in many
respects like those of Lee. The plaintiffs brought an action of
ejectment against an officer of the Forest Service, seeking to
recover possession of land that the plaintiffs claimed they
owned. The Court recognized that its opinions varied widely
with regard to the scope of Lee’s exception to sovereign immuni-
ty.44 Drawing from an earlier case that sought to reconcile this
“tangle” of precedent, the Court laid down the following
statement of law, which it explicitly described as a limitation
of Lee:

       [T]he action of a federal officer affecting property
       claimed by a plaintiff can be made the basis of a suit
       for specific relief against the officer as an individual
  41
     United States v. Lee, 106 U.S. 196 (1882).
  42
     See id. at 208-09, 210-11.
  43
     Malone v. Bowdoin, 369 U.S. 643 (1962).
  44
     Id. at 646 & 646 nn.6, 7.
                            TAYLOR v. WESTLY                            3753
       only if the officer’s action is “not within the officer’s
       statutory powers or, if within those powers, only if
       the powers, or their exercise in the particular case,
       are constitutionally void.”45

Thus, Malone preserved the force of Lee for suits in which a
plaintiff asserts a claim for return of his property, but it did
so only if the claim falls into one of two categories: (1) it
must be based on the public official having acted beyond his
statutory authority (the “ultra vires exception”46) or (2) the
plaintiff’s theory must be that the action leading to the gov-
ernment’s possession of the property was constitutionally
infirm.47 Later cases by both the Supreme Court and this court
validate these categories.48

   Because we have interpreted plaintiffs’ claims as ones for
return of property, the threshold requirement for putting this
case within the Lee-Malone line of cases applies. Turning to
the specific requirements from Malone, we also conclude that
plaintiffs’ suit satisfies both of the ways in which a claim for
return of one’s property can fall outside the purview of sover-
eign immunity. That is, plaintiffs’ allegations are that the
Controller acted ultra vires by violating clear statutory restric-
tions and that, regardless of her authority, the manner in
  45
      Id. at 647 (quoting Larson v. Domestic & Foreign Commerce Corp.,
337 U.S. 682, 702 (1949)).
   46
      Washington v. Udall, 417 F.2d 1310, 1316 (9th Cir. 1969).
   47
      Malone, 369 U.S. at 647.
   48
      See, e.g., Fla. Dept. of State v. Treasure Salvors, Inc., 458 U.S. 670,
689 (1982) (plurality) (“These cases make clear that the Eleventh Amend-
ment does not bar an action against a state official that is based on a theory
that the officer acted beyond the scope of his statutory authority or, if
within that authority, that such authority is unconstitutional.”); Aminoil
U.S.A., Inc. v. Cal. State Water Res. Control Bd., 674 F.2d 1227, 1233
(9th Cir. 1982) (“Thus, a state court may entertain an action against an
officer . . . if the officer has exceeded his statutory or constitutional
authority.”).
3754                      TAYLOR v. WESTLY
which she acted violated due process, making her actions con-
stitutionally infirm.

   In interpreting the first of Malone’s two ways in which a
claim can avoid the effects of sovereign immunity, we have
said that “[a] simple mistake of fact or law does not necessar-
ily mean that an officer of the government has exceeded the
scope of his authority,” and “[o]fficial action is still action of
the sovereign, even if it is wrong, if it ‘does not conflict with
the terms of the officer’s valid statutory authority.’ ”49 In con-
trast, “action of an officer of the sovereign (be it holding, tak-
ing or otherwise legally affecting the plaintiff’s property), that
is beyond the officer’s statutory authority is not action of the
sovereign; a suit for specific relief against the officer is not
barred by the Eleventh Amendment.”50 As we have put it
when interpreting Malone’s rule, allegations that an officer
violated “a plain legal duty” can take the officer’s actions out-
side the scope of her delegated responsibilities.51 Relevant to
this inquiry is whether the statutory authority includes “words
of discretion” with regard to the challenged action.52

   [8] As outlined above, plaintiffs assert many problems with
the way in which the Controller took their property. If true,
many of these obligations are arguably mistakes or abuses of
discretion, but not violations of the scope of the Controller’s
statutory authority. We need not parse each of plaintiffs’ alle-
gations, however, for some of them unquestionably assert vio-
lations that, if true, would clearly put the Controller’s actions
beyond her statutory authority. For example, plaintiffs assert
that they and their stock were wholly outside the escheat
scheme because they were never actually “lost” as the statute
  49
     Aminoil, 674 F.2d at 1234 (internal editing omitted) (quoting Larson,
337 U.S. at 695).
  50
     Treasure Salvors, 458 U.S. at 696-97 (internal quotation and citation
omitted).
  51
     Udall, 417 F.2d at 1316.
  52
     Id.
                           TAYLOR v. WESTLY                           3755
requires.53 Also, at least with regard to Mr. Taylor, the com-
plaint asserts that he was not a resident of California, and that
his property was therefore outside the jurisdiction of the
escheat statute. At this stage of the proceedings, we are, of
course, in no position to assess the validity of these charges.
And we intimate no opinion on the merits of the allegations.
They are, however, the type of allegations that qualify a claim
for the ultra vires thread of the Lee-Malone exception to sov-
ereign immunity.

   [9] As for the other category of cases Malone addressed,
the plaintiffs’ procedural due process claim qualifies for the
exception to sovereign immunity for that reason as well.
Because this is a constitutional claim for the return of prop-
erty taken and held in custody by the state, Malone’s second
exception removes the due process claim from the effects of
sovereign immunity. For this claim, plaintiffs need not even
show that the Controller exceeded the scope of her statutory
authority. Even if her actions were “within those powers” that
the statute gives her, sovereign immunity is unavailable “if
the powers, or their exercise in the particular case, are consti-
tutionally void.”54 Assuming that the plaintiffs’ allegations are
true, as we must, the Controller failed to give “notice reason-
ably calculated, under all the circumstances, to apprise inter-
  53
      See Cal. Civ. Proc. Code §§ 1510, 1516. The complaint states with
regard to Mr. Taylor that “[t]o this day, Intel continues to correspond with
Chris Lusby Taylor regarding his stock and his pension fund and the com-
pany knows precisely where he lives.” With regard to Ms. Pepple-
Gonsalves, it asserted that “the company at all times knew precisely where
Nancy A. Pepple-Gonsalves lived in the State of California, or could read-
ily have located her using her Social Security Number.” More generally,
the complaint also states that “[t]he Controller takes these actions though
the individual is known to the company and a list of the known owners
of the stock is provided to the Controller that includes, in nearly every
case, the stockowners’ addresses, taxpayer and social security numbers.”
   54
      Malone, 369 U.S. at 647 (internal quotation marks omitted).
3756                     TAYLOR v. WESTLY
ested parties” of the fact that their property was being taken
and sold.55

   [10] Thus, plaintiffs’ claims meet the requirements of the
Lee-Malone exception to sovereign immunity. The plaintiffs
seek return of their own property, rather than to gain owner-
ship of government property. They allege actions that would
fall outside the scope of the Controller’s statutory authority to
such an extent as to be ultra vires. California did not and
could not authorize its officer to take people’s property with-
out notice and in the absence of any connection to the State
of California.

   The state invokes Edelman v. Jordan56 as a bar to plaintiffs’
suit. The argument is that because the state sold the stock it
took from the plaintiffs, any recovery would come in the form
of money from the state, which Edelman prohibits. But
Edelman has no application here. In Edelman, the plaintiffs
unquestionably sought money that belonged to the govern-
ment, but to which the plaintiffs asserted an entitlement. They
did not seek reinstatement of possession of property they
owned. In this case, there is no dispute that the plaintiffs own
the stock that the state took. The statutes plainly establish that
the state only holds the property on behalf of the true owners
and not as its own, because the property has not “permanent-
ly” escheated. As discussed above, the escheat is only custo-
dial and is “subject to the right of claimants to appear and
claim the escheated property.”57 In Lee, there was a dispute as
to who actually owned the property, the government or the
plaintiff. Here, there is not even a dispute. Properly viewed,
the claim is for return of property held in trust for the owners,
not for compensation for property full title to which has
passed to the state. This makes the claim one for return under
  55
     See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950).
  56
     Edelman, 415 U.S. 651.
  57
Cal. Civ. Proc. Code § 1300(c).
                          TAYLOR v. WESTLY                    3757
Lee and Malone, not one for compensation from the state’s
general fund under Edelman.

II.    Prospective Relief

   [11] The state custodial escheat scheme establishes as well
that prospective relief genuinely distinguishable from a dam-
ages award is available. An injunction may order the Control-
ler to exercise his or her power under Cal. Civ. Proc. Code
§ 1347 to order the Treasurer to remit the money back to the
Controller for redeposit in the Controller’s Unclaimed Prop-
erty Fund.

   The district court was correct in concluding that, to the
extent the plaintiffs sought a declaratory judgment that Mr.
Taylor’s and Ms. Pepple-Gonsalves’s shares of stock were
unconstitutionally taken from them, and an injunction that the
state pay them money to compensate them, the claims would
not fall within the Ex parte Young prospective relief exception
to the Eleventh Amendment. While some may describe “this
retroactive award of monetary relief as a form of ‘equitable resti-
tution,’ ”58 such claims are “in practical effect indistinguish-
able in many aspects from an award of damages against the
State.”59

   But not all of the plaintiffs’ claims are retroactive requests
for money. Plaintiffs’ claims for prospective relief include
some that really are entirely prospective. The complaint says
that the Controller “is unable to locate the proceeds” from the
sale of Ms. Pepple-Gonsalves’s TWA stock and lists her
shares “as permanently misplaced and unpayable.” Her claim
for an accounting is genuinely prospective, because the
court’s supervision of a full accounting may determine that
the state still has her shares, has not sold them, and is in a
position to return them. And because the Controller has statu-
  58
      Edelman, 415 U.S. at 668.
  59
      Id.
3758                    TAYLOR v. WESTLY
tory authority to order the Treasurer to refund money not per-
manently escheated, genuinely prospective relief can direct
her to issue such an order.

   More broadly, the complaint alleges that the Controller as
a matter of regular practice purports to take securities and
money from people’s bank accounts by escheat without pro-
viding them with the sort of notice required by state law, or
any sort of notice reasonably calculated to inform them that
the state is taking their property. The Controller’s own adver-
tisement admits that it is not the notice required by state law,
and is instead something “in lieu” of lawful notice. And the
Controller has conceded, according to the complaint, that she
discontinued trying to find owners, or even listing their names
in the published notices of escheat, because she lacked fund-
ing, not because the law does not require individualized
notice. There is no “lack of funding” exception to the Due
Process Clause.

  [12] If these facts turn out to be true, prospective relief may
be available, both for these two plaintiffs to protect whatever
assets they still have and, more broadly, to protect remaining
members of the plaintiff class if class certification is achieved.
Aside from any monetary relief, the district court could
declare the notice practices of the Controller unconstitutional
and enjoin the Controller to conform to the state statute on
notice, or to whatever other standards were determined to be
appropriate. Such relief would fall within the prayer of the
complaint and within the Ex parte Young exception to the
Eleventh Amendment bar.

III.   The Takings Claim

   We need not decide the issue of sovereign immunity in the
context of a takings claim, since we have already decided that
plaintiffs’ property has not been taken at all, but has merely
been held in trust for them by the Controller. The plaintiffs’
suit is not against the state treasury and is merely a suit for the
                       TAYLOR v. WESTLY                     3759
return of their property. Were the money permanently
escheated to the state, and therefore no longer held in trust for
the plaintiffs, we would be presented with the sovereign
immunity question in the context of a takings claim. Since
that has not occurred, we express no opinion on whether the
Eleventh Amendment would bar such a takings claim against
the state.

                          Conclusion.

   [13] Because the plaintiffs seek genuinely prospective
relief, and because the funds they seek are held by the state
as custodian in trust for them rather than as the state’s own
funds, much as a municipality holds a car towed from an
expired parking meter, the complaint should not have been
dismissed under the Eleventh Amendment for lack of jurisdic-
tion. The judgment is vacated and the case is remanded for
proceedings consistent with this opinion.

  VACATED AND REMANDED.