IN THE SUPREME COURT OF OHIO
WILTON S. SOGG, individually and on behalf of a class of all others similarly Case No. 2007-1452 situated, On Appeal from the Franklin Plaintiff-Appellant, County Court of Appeals, Tenth Appellate V. District
DOUG WHITE, Director of the Ohio Court of Appeal Case No. 06AP-883 Department of Commerce,
Defendant-Appellee.
MERIT BRIEF OF APPELLANT WILTON S. SOGG
MARC DANN WILLIAM C. WILKINSON (0033228) Attorney General of Ohio CRAIG A. CALCATERRA (0070177) Thompson Hine LLP WILLIAM A. COLE (0067778) 10 West Broad Street, 7th Floor JOHN T. WILLIAMS (0024449) Columbus, Ohio 43215 Assistant Attorneys General (614) 469-3200, Fax (614) 469-3361 Executive Agencies Section 30 East Broad Street, 26th Floor JOHN R. WYLIE Columbus, Ohio 43215 CHARLES R. WATKINS (614) 466-2980, Fax (614) 728-9470 Futterman Howard Watkins Wylie & Ashley, Chtd. 122 S. Michigan Avenue, Suite 1850 Chicago, Illinois 60603 (312) 427-3600, Fax (312) 427-1850
ARTHUR T. SUSMAN Susman, Heffner & Hurst LLP Two First National Plaza, Suite 600 Chicago, Illinois 60603 (312) 346-3600, Fax (312) 346-2829
Attorneys for Appellant Wilton S. Sogg
CLkR^40r CQUR'I SUPREME CUR7 OF OHIU TABLE OF CONTENTS 1. ISSUES PRESENTED FOR REVIEW ...... 1 II. INTRODUCTION ...... I III. STATEMENT OF THE CASE ...... 3 IV. STATEMENT OF THE FACTS ...... 6 A. The Ohio Unclaimed Funds Chapter ...... 6 B. The Parties and the Plaintifl's Property ...... 8 V. STANDARD OF REVIEW ...... 8 VI. LAW AND ARGUMENT ...... 9 A. R.C. 169.08(D) Is Unconstitutional Because It Authorizes the Forfeiture of Private Property Without Due Process ...... 9 1. R.C. 169.08(D) Is Unconstitutional Because It Orders the Forfeiture of Private Property Without Procedural Due Process ...... 10 2. The Forfeiture Required By R.C. 169.08(D) Also Violates Due Process Because It Is Unrelated to Any Legitimate State Interest ...... 17 3. The Tenth District's Interpretation of the Act Violates This Court's Long-Standing Rule That Legislation Be Construed To Protect Private Property Rights ...... 20 4. Under the Tenth District's Holding, the Act Would Alone Among ahio Legislation Allow the State to Take Private Property Without Compensation or Due Process ...... 21 B. The State Cannot Abrogate an Owner's Property Right to the Interest That Accrues on the Owner's Property Without Violating the Takings Clauses of the United States and Ohio Constitutions ...... 22 1. The State May Not "Transform Private Property Into Public Property" Without Compensation...... 23 2. The Tenth District's Reliance on Texaco v. Short Is Misplaced ...... 29 C. Unclaimed Property Is Not Abandoned Property ...... 32 D. Because Unclaimed Property Remains Private Property, the Interest Earned on That Property Is Also Private Property ...... 37 E. There Is No Statute of Limitations Applicable to Plaintiffs and the Class's Claims for Restitution of the Earnings on Their Private Property ...... 39 VII. CONCLUSION ...... 40 CERTIFICATE OF SERVICE ...... 43 APPENDIX ...... submitted separately TABLE OF CASES AND OTHER AUTHORITIES
Cases American Loan & Trust Co. v. Grand River Co. (W.D. Ky. 1908), 159 F. 775 ...... passim Armstrong v. United States (1960), 364 U.S. 40, 80 S. Ct. 1563 ...... 40 Babbitt v. Youpee (1997), 519 U.S. 234, 117 S. Ct. 727 ...... 28 Bauerbach v. LWR Enterprises, Inc. (Sept. 22, 2006), Washington App. No. OSCA61, 2006 WL 2742028 ...... 32,33 Boulger v. Evans (1978), 54 Ohio St. 2d 371 ...... 21 Brown v. Legal Foundation of Washington (2003), 538 U.S. 216, 123 S. Ct. 1406.. 28, 30, 31, 37 Canel v. Topinka, 212 Ill. 2d 311 (2004) ...... 3,27 City of Akron v. Kalavity (Feb. 2, 2000), Summit App. No. 19678, 2000 WL 141048 ...... 38 City of Hamilton v. Harville (1989), 63 Ohio App. 3d 27 ...... 32 City of Norwood v. Horney (2006), 110 Ohio St. 3d 353 ...... 41 City of Ohio v. Cleveland and Toledo R.R. Co. (1856), 6 Ohio St. 489 ...... 38 City ofPerrysburg v. Toledo Edison Company (2007), 171 Ohio App. 3d 174 ...... 19 Clifton Hills Realty Co. v. City of Cincinnati (1938), 60 Ohio App. 443 ...... 24 Clovis National Bank v. Calloway (N. M. 1961), 69 N.M. 119 ...... 14 Corliss v. Wenner (Idaho Ct. App. 2001), 34 P.3d 1100, rev. denied ...... 35 Cotter v. Doty (1832), 5 Ohio 393 ...... 10 Davis v. Suggs (1983), 10 Ohio App. 3d 50 ...... 32, 34, 35 Doughman v. Long (1987), 42 Ohio App. 3d 17 ...... 32 East Tennessee Iron & Coal Co. v. Wiggin (6th Cir. 1895), 68 F. 446 ...... 33 Edson v. Crangle (1900), 62 Ohio St. 49 ...... 11 Employers Ins. of Wausau v. Titan Intern., Inc. (7th Cir. 2005), 400 F.3d 486 ...... 35 Fong v. Westly (3d Dist. 2004), 117 Cal. App.4th 841, 12 Cal. Rptr. 3d 76 ...... 14 Fuentes v. Shevin (1972), 407 U.S. 67, 92 S. Ct. 1983 ...... 10 Grieb v. Dept. ofLiquor Control (1950), 153 Ohio St. 77 ...... 11, 15, 16 Hamilton v. Brown (1896), 161 U.S. 256, 16 S. Ct. 585 ...... 9, 15 Himely v. Rose (1809), 5 Cranch 313, 1809 WL 1644 ...... 37 Hodel v. Irving (1987), 481 U.S. 704, 107 S. Ct. 2076 ...... 28 In re Panel Town ofDayton, Inc. (Bankr. S. D. Ohio 2006), 338 B. R. 764 ...... 34 In re Tonsic's Estate (1968), 13 Ohio App. 2d 195 ...... 37
ii In re Twenty-One Slot Machines (Ariz.1951), 72 Ariz. 408 ...... 14 Kiser v. Board of Com'rs of Logan County ( 1911), 85 Ohio St. 129 ...... 19, 24, 33 Long v. Noah's Lost Ark, Inc. (2004), 158 Ohio App. 3d 206 ...... 33 Loretto v. Teleprompter Manhattan CATV Corp. ( 1982), 458 U.S. 419, 102 S. Ct. 3164...... 22 Mary Helen Coal Corporation v. Hudson (4th Cir. 2000), 235 F.3d 207 ...... 38 McIntyre v. Bayer (9th Cir. 2003), 339 F. 3d 1097 ...... 26 McKeehan v. U.S. (1971), 438 F.2d 739 ...... 18,20 Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm ( 1995), 73 Ohio St. 3d 107 ...... 9 Ohio Dept. of Liquor Control v. Sons of Italy Lodge 0917 ( 1992), 65 Ohio St. 3d 532 ...... 21 Palazzolo v. Rhode Island (2001), 533 U.S. 606, 121 S. Ct. 2448 ...... 27,28 Pascoag Reservoir & Dam, LLC v. Rhode Island (D.R.I. 2002), 217 F. Supp. 2d 206, aff'd ( 1st Cir. 2003), 337 F.3d 87, cert denied, 540 U.S. 1090 ...... 29, 31 Penn Cent. Transp. Co. v. City ofNew York ( 1978), 438 U.S. 104, 98 S. Ct. 2646 ...... 40 Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 3 S. Ct. 158 ...... 40 Phillips v. Washington Legal Foundation ( 1998), 524 U.S. 156, 118 S. Ct. 1925 ...... passim Potomac Steam-Boat Co. v. Upper Potomac Steam-Boat Co. (1884), 109 U.S. 672, 3 S. Ct. 445 ...... 33 Pruneyard Shopping Center v. Robins ( 1980), 447 U.S. 74, 100 S. Ct. 2035 ...... 22 Rocket Oil and Gas Co. v. Donabar (Ok. Civ. App. 2005), 127 P.3d 625 ...... 30, 31 Rucker v. Alston (May 14, 2004), Montgomery App. No. 19959, 2004-Ohio-2428 ...... 34 Schneider v. California Department of Corrections (9th Cir. 1998), 151 F. 3d 1194...... 25, 28 Sensenbrenner v. Crosby ( 1974), 37 Ohio St. 2d 43 ...... :...... 11, 22 Smyth v. Carter (Ind. Ct. App. 2006), 845 N.E. 2d 219, tranfs. den., 860 N.E. 2d 588, cert. denied (2007), 127 S. Ct. 1155 ...... 29 Sogg v. White (June 21, 2007), Franklin App. No. 06AP-883, 2007-Ohio-3219 ...... 5 State ex rel. Hudson v. Kelly (1936), 55 Ohio App. 314 ...... passim State ex rel. Pizza v. Rezcallah (1998), 84 Ohio St. 3d 116 ...... 18, 20 State Mutual Life Assur. Co. of Worcester, Mass. v. Heine (6th Cir. 1944), 141 F.2d 741...... 32 State v. Chandler (2006), 109 Ohio St. 3d 223 ...... 37 State v. Lilliock ( 1982), 70 Ohio St. 2d 23 ...... passim State v. Otis Elevator Company ( 1953), 12 N.J. 1 ...... 15 State v. Phoenix Savings Bank & Trust Co. (Ariz. 1942), 60 Ariz. 138 ...... 14 State v. Roberts ( 1995), 102 Ohio App. 3d 514 ...... 20
ui State v. Sav. Union Bank & Trust Co. (Cal. 1921), 186 Cal. 294, 199 P. 26 ...... 13, 14 State v. Sec. Sav. Bank (Cal. 1921), 186 Cal. 419, 199 P. 791, aff'd, Sec. Sav. Bank v. State (1923), 263 U.S. 282 ...... 14 Suever v. Connell (N.D. Cal. Nov. 6,2007), NO. C03-00156 RS, 2007 WL 3313954 ...... 27 Suever v. Connell (N.D. Cal. Oct. 12, 2007), No. C03-00156RS, 2007 WL 3010423.... 26, 27, 39 Taylor v. Westly (9th Cir. 2005), 402 F.3d 924 ...... 16 Texaco, Inc. v. Short (1980), 273 Ind. 518 ...... 29 Texaco, Inc. v. Short (1982), 454 U.S. 516, 102 S. Ct. 781 ...... 29, 30, 31 U.S. v. $133, 735.30 Seized from U. S. Bancorp Brokerage Account No. 32130630 (9th Cir. 1998), 139 F.3d 729 ...... 39 U.S. v. $515, 060.42 in U.S. Currency (6th Cir. 1998), 152 F.3d 491 ...... 39 U.S. v. James Daniel Good Real Property (1993), 510 U.S. 43, 114 S. Ct. 492 ...... 10 Washlefske v. Winston (4th Cir. 2000), 234 F. 3d 179 ...... 26 Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), 449 U.S. 155, 101 S. Ct. 446...... passim West American Ins. Co. v. Dutt (1990), 70 Ohio App. 3d 422 ...... 38 Wilner v. Frey (E.D. Va. 2006), 421 F. Supp. 2d 913 ...... 30, 31 Winters v. Mowery (S. D. Ind. 1993), 836 F. Supp. 1419 ...... 38
Statutes 42 U.S.C. § 1983 ...... 4 Califomia C.C.P. § 1273 ...... 13 California C.C.P. § 1500 et seq ...... 14° R.C. 169.01 ...... 1, 6, 36 R.C. 169.01(B) ...... 35 R.C. 169.01(B)(1) ...... 6 R.C. 169.02 ...... 36 R.C. 169.02(D) ...... 6,35 R.C. 169.03 ...... 36 R.C. 169.04(A) ...... 36 R.C. 169.041 ...... 36 R.C. 169.05 ...... 6 R.C. 169.06 ...... 36 R.C. 169.08(B) ...... 39
iv R.C. 169.08(D) ...... passim R.C. 169.08(F) ...... 10 R.C. 2105.06 ...... 21 R.C. 2305.09 ...... 4
Constitutional Provisions Article I, § 19 of the Ohio Constitution ...... 3, 9, 41 Fifth and Fourteenth Amendments to the United States Constitution ...... 3, 9, 41
Other Authorities (2001) : ...... 15 8C Master Ed., Uniform Laws Annotated Black's Law Dictionary (6th ed. 1997) ...... 32 Uniform Unclaimed Property Act (1981), §16 ...... 15
v I. ISSUES PRESENTED FOR REVIEW
1. Whether the owners of unclaimed property held in custodial trust by Defendant pursuant to the Ohio Unclaimed Funds Chapter also own the interest eamed on their private property while it is held in custodial trust by the Defendant;
2. Whether the State can abrogate a pre-existing core property interest through legislation without implicating the State and Federal Takings Clauses;
3. Whether R.C. 169.08 (D) is unconstitutional because it causes the loss of a private property interest to the State without compensation and without due process of law.
II. INTRODUCTION
This case questions the constitutionality of R.C. 169.08(D). That statute requires
Defendant, as the Director of the Ohio Department of Commerce, to keep for the State's use the interest earned on the private property Defendant holds in trust as unclaimed property pursuant to the Ohio Unclaimed Funds Chapter, R.C. 169.01 et seq. (the "Act"). As has been the rule for more than 250 years, the owner of that unclaimed property also owns the interest earned on those funds. See, Phillips v. Washington Legal Foundation (1998), 524 U.S. 156, 165, 118 S. Ct. 1925,
1930.
Judge Richard Frye of the Franklin County Court of Common Pleas held R.C. 169.08 (D) unconstitutional as a violation of the Takings Clauses of the United States and Ohio
Constitutions, and granted summary judgment in favor of Plaintiff-Appellant Wilton Sogg and the certified Class. (Appx. A 19-20.) As Judge Frye correctly concluded, that interest is as much the private property of the owner as is the principal upon which it was earned, and the State
I could no more "re-define" rights in that property than it could rights in the principal without complying with the Ohio and Federal Takings Clauses and due process.I
The Tenth District agreed that unclaimed property always remains private property, and that the State never takes title to it. Nevertheless, that court found that because the Act treats unclaimed property as if it were "abandoned" property, the State can use that private property without compensation and without adjudication by a court of law. In other words, the Tenth
District held, accepting Defendant's argument, by operation of the Act its owner forfeits to the
State his right to the interest earned on his private property when that property becomes unclaimed.
As explained below, the Tenth District was mistaken. The State has no power to negate the property interests of owners of unclaimed property absent compensation, and certainly cannot do so without affording due process. Moreover, it is also clear that the Tenth District erred in concluding that the Act is concemed with "abandoned" property. Should the Tenth
District's holding stand, the State could abrogate the Takings Clauses of the Ohio and Federal
Constitutions with respect to any property simply by statutorily declaring property "abandoned," without regard to whether its owner ever intended to relinquish his or her property interest or not, and without regard to due process protections. In effect, the State would be allowed to "opt out" of the Takings Clauses, rendering them void whenever the State wanted to take title to private property. Moreover, the Tenth District's decision would also allow the State to declare property t It is important to note that Plaintiff and the Class seek only the return of the interest earned on their unclaimed property, not the principal amount taken into custody and held in trust pursuant to the Act. There is no dispute that the latter is, and at all times remains, private property, or that that amount has already been returned. The dispute in this lawsuit has to do with the ownership of the interest earned on that principal. If Plaintiff is correct, that the interest is itself private property, under the long-established rule that "interest follows principal," this Court should reverse the decision of the Court of Appeals and order the return of that interest to its owners.
2 rights forfeited, and take those rights for itself, without following long-established due process requirements of notice, an opportunity to be heard, and a judicial determination of the owner's property rights.
The Tenth District opinion conflicts with the only reported decision of a state supreme court interpreting a state unclaimed property statute, that of Illinois in Canel v. Topinka, 212 Ill.
2d 311 (2004), an opinion ignored by the Tenth District. In contrast to the Tenth District here, the Illinois Supreme Court, quoting Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), 449
U.S. 155, 164, 101 S. Ct. 446, 452, held that:
The transformation of private property into public property on a bare assertion of authority is "the very kind of thing that the Taking Clause of the Fifth Amendment was meant to prevent. That Clause stands as a shield against the arbitrary use of govemmental power."
Canel, 212 IIl. 2d at 332.
R.C. 169.08(D) should be held void and invalid because it is a taking of private property without compensation or due process, in violation of both the Ohio and Federal Constitutions.
Accordingly, this Court should vacate the Tenth District's decision, and reinstate the summary judgment entered by the trial court.
III. STATEMENT OF THE CASE
Plaintiff Wilton Sogg filed his Complaint on August 3, 2004, and his Amended
Complaint on May 24, 2005. (R. 8; R. 65.) The Amended Complaint contains five counts. Count
I seeks equitable restitution of the interest wrongfully withheld pursuant to the unconstitutional
R.C. 169.08(D). Counts III and IV seek a declaration that R.C. 169.08 (D) is unconstitutional and an injunction against its further enforcement, and are brought under the Fifth and Fourteenth
Amendments to the United States Constitution and Article I, § 19 of the Ohio Constitution,
3 respectively. In Count V, Mr. Sogg alleges that by acting in conformity with the unconstitutional statute, Defendant deprived Plaintiff and the Class of their constitutional rights in violation of 42
U.S.C. § 1983.2 In an Opinion dated August 17, 2005, Judge Richard Frye of the Court of
Common Pleas of Franklin County dismissed Count II, which sought, in the alternative, a writ of mandamus, but denied the Defendant's motion to dismiss the remaining counts. (R. 79)'
On February 24, 2006, the trial court ruled that the applicable limitations period is four years, as provided in R.C. 2305.09. (R. 97.) On the same date, the court certified the following class:
All persons or entities who filed, or will file, claims for unclaimed funds with the Defendant (that is, with the Division of Unclaimed Funds of the Ohio Department of Commerce), and who have recovered unclaimed funds but not been paid interest on such funds for any period after July 26, 1991.
(R. 95, at p. 6.)°
In his August 7, 2006 Opinion, Judge Frye granted Mr. Sogg's motion for summary judgment as to liability on each of the remaining counts, and denied Defendant's cross-motion for summary judgment. (R. 117.) Judge Frye wrote:
2 Pursuant to the parties' joint motion, on February 11, 2005 Judge Frye bifurcated the proceedings in this matter, so that issues of liability would be determined separately and before the award of an appropriate remedy. (R. 37.) 3 Mr. Sogg did not appeal the dismissal of Count II. 4 Judge Frye had previously determined that the claims in this case are subject to a four year statute of limitations. He therefore held that All claims in this case made in behalf of members of the Plaintiff class whose unclaimed funds had been completely repaid by August 4, 2000 without being paid any interest for the time after July 26, 1991, and whose legal "injury" thereby manifested itself prior to August 4, 2000, are untimely. Those claims by members of the Plaintiff class are dismissed. (Appx. A 29.)
4 Constitutions exist in America to arrest the devolution of power over certain key features of life. They assure that the will of majorities expressed in laws enacted by the legislative branches of the state and national governments always remain within predetermined boundaries. One important boundary surrounds private property. Ohio's legislature crossed that boundary in 1991 when it amended the first sentence of R.C. 169.08(D) and coupled retention of interest earnings with imposition of the 5% administrative fee against all unclaimed funds returned to their rightful owner.
(Appx. A 19, ¶46.)
The trial court also entered judgment in favor of Mr. Sogg and the Class and against the
Defendant, and certified the case for appeal under Civ. R. 54 (B). (R. 116.) Defendant timely filed a Notice of Appeal on September 1, 2006. (R. 118.)
On June 21, 2007, the Tenth District issued its Opinion reversing Judge Frye's summary judgment. Sogg v. White (June 21, 2007), Franklin App. No. 06AP-883, 2007-Ohio-3219. (Appx.
A 52-60.) The court of appeals found that under the Act, "unclaimed monies are held in perpetuity for the benefit of the owners of the unclaimed property," and that "the state admittedly does not take title to the unclaimed funds." Id., at *5. (Appx. A 55-56.) The court held, however, that because the Act treats unclaimed property as if it were "abandoned," its owner's right to the interest eamed on that property is automatically forfeited to the State. Id., at *8. (Appx. A 58-
59.)
On August 6, 2007, Mr. Sogg filed his Notice of Appeal and petitioned this Court to accept jurisdiction. (Appx. A 61-63.) Over Defendant's opposition, the Court granted Mr. Sogg's petition on November 21, 2007.
5 IV. STATEMENT OF THE FACTS
A. The Ohio Unclaimed Funds Chapter
The Act is concerned with money, rights to money, or other intangible property in the possession of someone other than its owner, e.g., a third party holder such as a bank, an insurance company, or a public utility. That property becomes "unclaimed" when its owner has not, for a statutorily-prescribed period, undertaken one of the actions listed in R.C. 169.01
(Appx. A 1-3), and the third party holder cannot locate the owner.5 For most property the period of dormancy is five years, but it can be as short as one year. R.C. 169.02(D) (Appx. A 4). All property that meets the statutory definition of "unclaimed" is placed in Defendant's custody and control. R.C. 169.05 (Appx. A 14-15). (R. 106, ¶¶5, 11.)
According to Defendant's website, the purpose of the Act is, inter alia, "[t]o protect the property rights of the owner and to reunite the owner with the funds." (R.106,¶9.) In furtherance of that purpose, "[t]he State of Ohio serves as custodian for these funds until they are properly claimed." Id. An owner may claim his property at any time, no matter how long the Defendant
5 R.C. 169.01(B)(1) provides: "Unclaimed funds" means any moneys, rights to moneys, or intangible property, described in section 169.02 of the Revised Code, when, as shown by the records of the holder, the owner has not, within the times provided in section 169.02 of the Revised Code, done any of the following: (a) Increased, decreased, or adjusted the amount of such funds; (b) Assigned, paid premiums, or encumbered such funds; (c) Presented an appropriate record for the crediting of such funds or received payment of such funds by check, draft, or otherwise; (d) Corresponded with the holder conceming such funds; (e) Otherwise indicated an interest in or knowledge of such funds; (f) Transacted business with the holder. (Appx. A 1.)
6 has held the property in custodial trust. (R.106,124.) "No statute of limitations shall bar the allowance of a claim." R.C. 169.08(B) (Appx. A 17). Importantly, as Defendant stipulated before
Judge Frye, and as the Tenth District acknowledged,
Unclaimed moneys are held in trust in perpetuity for the benefit of the owners of the unclaimed property. The funds never become the property of the State of Ohio.
(R.106, ¶111, 24.)
During the period it is held in trust, all unclaimed property is either invested by
Defendant, or "loaned" to various State agencies such as the Ohio Housing Finance Authority, the Savings and Loan Assurance Corporation, and the State's General Fund. (R. 106, ¶¶11, 13-
15.) Regardless of where the funds are deposited, they earn interest. (R. 106, ¶111, 14.) Despite the fact that the principal upon which that interest is earned is private property, R.C. 169.08(D)
(Appx. A 17), requires Defendant to retain the interest when he returns the principal to the owner. (R. 106, ¶17.) Moreover, in addition to retaining the interest, R.C. 169.08(D) (Appx. A
17) requires Defendant also to retain, "as a fee for administering the funds, five percent of the total amount of unclaimed funds payable to the claimant[.]"(R. 106, ¶21.) And, again, regardless of where the money is held or used within the State's coffers, it always remains private property held in trust and is always available for recall by the Defendant for return to its owner when claimed.
The interest earned on unclaimed property is substantial. For example, according to
Defendant, from fiscal year 1991 through fiscal year 2005, interest totaling $73,033,553 was
eamed on just the funds held by Defendant. That sum does not include interest eamed on the
"loaned" funds. (R.106, ¶20.) hi addition, Defendant kept $15,621,282 during the same period as the 5% administrative fee authorized by the 1991 amendment to the Chapter. (R. 106, ¶23). As
7 Judge Frye found, "the evidence supports a finding beyond a reasonable doubt that the Ohio unclaimed funds program makes substantial profit for the State. Indeed, it is a veritable cash cow feeding an array of other public programs." (R. 117, at p. 6.) Defendant did not challenge that finding on appeal, nor did the Tenth District make any contrary finding.
B. The Parties and the Plaintift s Property
Mr. Sogg is the executor of the estate of his late mother, Julia Sogg. (R. 106, ¶1.) On or about November 1, 1989 and September 2, 1998, property belonging to Julia Sogg was delivered into Defendant's custodial trust as unclaimed property. (R.106, ¶26.) Upon receipt, Defendant established an account for each property in Plaintiff's name. (R. 106, ¶6.)
Mr. Sogg submitted a claim to Defendant for the return of the estate's property, and on or about April 1, 2004, Defendant sent Mr. Sogg a check that reflected the combined principal amount of the two properties held by Defendant, plus 6% interest through July 26, 1991, less the
5% administrative fee (on both the principal and the interest) mandated since that date by R.C.
169.08(D). (Appx. A 17.)6 (R.106, ¶28.) Thus, although Mr. Sogg's money eamed interest throughout the time it was held in custodial trust by Defendant, none of that interest earned afler
July 26, 1991 was returned to Mr. Sogg along with the principal. (R.106, ¶28.)
V. STANDARD OF REVIEW
This appeal raises purely legal issues relating to the constitutionality of R.C. 169.08(D)'s requirement that the State retain the interest earned on the private property it holds in custodial
6 As originally enacted, the Act required the payment of interest to persons who reclaimed their property. The Act was amended effective July 26, 1991 to provide that interest was no longer payable. For claims after that date, the Defendant therefore pays interest at 6% up to July 26, 1991, but none for the period that the unclaimed property was held in custody thereafter. (R. 106, ¶17.)
8 trust pursuant to the Ohio Unclaimed Funds Chapter. "Questions of law are reviewed by a court de novo." Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm (1995), 73 Ohio St. 3d 107, 108.
VI. LAW AND ARGUMENT
Unclaimed funds, as even Defendant admits, always remain private property throughout the time they are held in custody by Defendant. So too, then, is the interest earned on those funds. Nevertheless, R.C. 169.08(D) requires Defendant to keep that interest when he retmns the principal on which it was earned. It does not provide a hearing, or require a judicial decree allowing that retention, nor does it provide for the payment ofjust compensation for the taking of that private property. As such, R.C. 169.08(D) is unconstitutional as a violation of the Fifth and
Fourteenth Amendments to the United States Constitutions and Article 1, Section 19 of the Ohio
Constitution. Accordingly, this Court should reverse the Tenth District's decision, and affirm
Judge Frye's decision granting summary judgment in favor of the Plaintiff and the Class and against the Defendant.
A. R.C. 169.08(D) Is Unconstitutional Because It Authorizes the Forfeiture of Private Property Without Due Process.
Both the United States and Ohio Constitutions prohibit the government from asserting sunmiary authority over private property and require that any deprivation of property must comport with due process of law. See, e.g., Hamilton v. Brown (1896), 161 U.S. 256, 275, 16 S.
Ct. 585, 592 (a state may escheat property provided due process rights to notice and a hearing are accorded to interested parties); State v. Lilliock (1982), 70 Ohio St. 2d 23, syllabus at par. 3
("Due process requires that proceedings seeking disposition of property used in an unlawful manner, but not in itself unlawful, must comply with the Rules of Civil Procedure.").
9 In Lilliock, this Court held that due process requires both that the property owner be given adequate notice and an opportunity to be heard in an adversarial hearing, with a judicial decree resulting, and that the forfeiture must be rationally related to a legitimate state purpose.
Lilliock, 70 Ohio St. 2d at 28. The Act fails on both grounds. Thus, even if, as the Tenth District found, unclaimed property could be treated as "abandoned" property, with the resulting forfeiture of the right to the interest eamed, R.C. 169.08(D) would still be unconstitutional because it would cause the forfeiture of private property rights without due process.
1. R.C. 169.08(D) Is Unconstitutional Because It Orders the Forfeiture of Private Property Without Procedural Due Process.
The State may not confiscate property through forfeiture without first providing its owner with procedural due process. "The constitutional right to be heard is a basic aspect of the duty of government to follow a fair process of decision making when it acts to deprive a person of his possessions." Fuentes v. Shevin (1972), 407 U.S. 67, 80, 92 S. Ct. 1983, 1994; see also, U.S. v.
James Daniel Good Real Property (1993), 510 U.S. 43, 62, 114 S. Ct. 492, 505 ("Unless exigent circumstances are present, the Due Process Clause requires the Government to afford notice and a meaningful opportunity to be heard before seizing real property subject to civil forfeiture.").'
More than 175 years ago, this Court held "[n]o man ought to be deprived of his property by forfeiture without having a legal investigation." Cotter v. Doty (1832), 5 Ohio 393, 398. The
Court has reiterated that basic constitutional principle repeatedly and consistently since that decision.
A statute subjecting property which is lawful in its ordinary and proper use to forfeiture ... is valid only if the forfeiture is perfected in a manner consistent with
' The Act does provide a procedure to challenge the Defendant's denial of a claim for the return of the principal. See, R.C. 169.08(F). (Appx. A 18.) There is, however, no procedure to contest the confiscation of the interest that accrues on that principal.
10 the procedural due process requirements guaranteed by both the Ohio and United States constitutions.
Sensenbrenner v. Crosby (1974), 37 Ohio St. 2d 43, 44, citing Grieb v. Dept. of Liquor Control
(1950), 153 Ohio St. 77 and Edson v. Crangle (1900), 62 Ohio St. 49; see also, Lilliock, 70 Ohio
St. 2d 23, syllabus at par. 3. Here, the Act provides no due process. Instead, the right to the interest earned is immediately, automatically and irrevocably forfeited to the State when the property comes into the Defendant's custody, with no possible recourse to the erstwhile owner of that property right.
The failure to provide procedural due process led the United States District Court for the
Westem District of Kentucky to strike down as unconstitutional a Federal unclaimed property statute that operated in a nearly identical manner to the Act at issue here. In American Loan &
Trust Co. v. Grand River Co. (W.D. Ky. 1908), 159 F. 775, unclaimed funds were held in the registry of the United States District Court for the benefit of owners. A Federal statute provided that if an owner did not claim his or her funds within a statutory period, they automatically became the property of the United States. That statute read in relevant part:
[I]t shall be the duty of the judge or judges of said courts ... to cause any moneys deposited as aforesaid, which have remained in the registry of the court unclaimed for ten years or longer, to be deposited in a designated depository of the United States, to the credit of the United States.
Id. at 776-77 (quoting then Sec. 996, Rev. Stat. as amended by the Act Feb. 19, 1897, c. 265, 29
Stat. 578 (U.S. Comp. St. 1901, p. 711)). The United States moved the district court to comply with the statute, arguing that "such moneys become, by force of the statute, the property of the
United States, and it is the duty of the court to cause such moneys to be deposited to the credit of the United States, without any proceeding whatever between them and the person in whose name the money stands, for the purpose of determining his right to the money." Id. at 777 (quoting
11 brief of the United States).
The court rejected that argument.
Here, it is proposed to take certain property for public uses without compensation, or an effort to ascertain whether there is an owner or who he is, and. to thus deprive certain persons of their property without any process of law whatever. ... [T]here must be a proceeding instituted ... in which either actual or constructive notice is given to all persons in interest before a judgment declaring the property to have been forfeited or to have escheated can be entered by a court.
Id. at 778. In part because of this lack of due process, the court refused to order the unclaimed funds turned over to the United States as called for by the statute.
[W]e conclude that the [government's] motion should be overruled, first, because it is made ex parte by one who is not a party to the suit, without any notice to those who have an interest in the fund sought to be taken for public uses, and without giving them, actually or constructively, any opportunity to be heard in opposition thereto; second, because the money sought to be thus escheated to the United States manifestly belongs either (a) to the unknown holders of the 842 mortgage bonds issued by the defendant, or (b) to those bondholders who have presented their bonds, and whose debts for the most part remain unpaid, or (c) to the general creditors if any, or else (d) to the holders of the capital stock of the Grand Rivers Company; third, because to transfer the title to the money from the true owners to the United States without any process of law or any compensation would violate the fifth amendment to the Constitution of the United States.
Id. at 781-82 (emphasis added). Therefore, the court held, "funds thus deposited would by no means become public property, and should not be regarded or treated as such by any officer or person." Id. at 782.
The lack of due process led the Supreme Courts of Califorrria, Arizona, New Mexico, and
New Jersey to strike down unclaimed property statutes as well. Like the Ohio Act, each of these statutes provided that unclaimed property, or an interest in that property, automatically became the state's property upon the expiration of a statutory period without a claim having been made.
Each declared that upon that occurrence, the state became the owner of that property.
12 In State v. Sav. Union Bank & Trust Co. (Cal. 1921), 186 Cal. 294, 199 P. 26, the state argued, like Defendant here, that the former California unclaimed property act, C.C.P. §1273, effected an "instantaneous escheat" of an unclaimed bank account, that is, that title to those funds vested in the state immediately upon the expiration of the time specified in the statute without activity by the depositor.8 Id., 186 Cal. at 298, 199 P. at 28. The California Supreme
Court held that it could not. The court initially found that because "some judicial procedure is necessary to perfect the escheat," the state lacked the power to enact a statute that gave it inunediate, automatic title to unclaimed property.
It is ... clear that the effect of the statute as it is claimed to be by the state would be to divest a person of his title without any proceeding against him for that purpose and would manifestly be a taking of property without due process of law. Under the provisions of the fourteenth amendment of the constitution of the United States, and of section, art. 1, of our Constitution, such taking would not be within the power of the state, and the statute purporting to provide therefore would be void.
Id., 186 Cal. at 300, 199 P. at 28-29.
As a result, the court held, "the provision of section 1273 that bank deposits unclaimed for 20 years ... shall escheat to the state, must not be taken as intending to provide for an immediate escheat, but as providing that the same shall be taken over by the state as an escheat when so adjudged in the action so provided for." Id., 186 Cal. at 300, 199 P. at 29; see also, State v. Sec. Sav. Bank (Cal. 1921), 186 Cal. 419, 424, 199 P. 791, 793, aff'd, Sec. Sav. Bank v. State s California's C.C.P. § 1273 was nearly identical in operation to the Ohio Act. It provided: All amounts of money heretofore or hereafter deposited with any bank to the credit of depositors who have not made a deposit on said account or withdrawn any part thereof or the interest and which shall have remained unclaimed for more than twenty years after the date of such deposit, or withdrawal of any part of the principal or interest, and where neither the depositor of any claimant has filed any notice with such bank showing his or present residence, shall, with the increase and proceeds thereof, escheat to the state.
13 (1923), 263 U.S. 282 ("the state cannot, by a mere statutory declaration, take away the right of the depositor and appropriate to its own use his property therein").9
Similarly, in State v. Phoenix Savings Bank & Trust Co. (Ariz. 1942), 60 Ariz. 138, 143, the Arizona Supreme Court held unconstitutional an Arizona statute by which bank deposits unclaimed for twenty years escheated to the state without a judicial proceeding, or any finding that the property was in fact ownerless. The court held, "[t]hat such a proceeding violates every principle of escheat, as well as the due process provisions of the state and federal constitutions, is too obvious for further discussion."f0
In Clovis National Bank v. Calloway (N. M. 1961), 69 N.M. 119, the New Mexico
Supreme Court reviewed its state's unclaimed property act, which provided that property was to escheat automatically to the state after forty years, without any judicial procedure. That court held:
The provision for escheat after the passage of 40 years ... is nothing more or less than a means of depriving the owners of [their] property because of the passage of time without a claim thereto being asserted. There is no requirement that the true owner shall have died without known heirs, nor is any means provided for judicially making such a determination after notice and opportunity to be heard by interested persons. Omission of such steps as preliminary to the escheating of the property is to our minds absolutely fatal to the validity of the provision.
Id., 69 N.M. at 128.
9 The current version of the California unclaimed property law is at C.C.P. § 1500 et seq. In Fong v. Westly (3d Dist. 2004), 117 Cal. App.4th 841, 855, 12 Cal. Rptr. 3d 76, 85, the California Court of Appeals recognized the rule in Sav. Union Bank and Sec. Sav. Bank, holding that because the state did not take title to unclaimed property, the new version of the California unclaimed property act presented no due process problem. 10 See also, In re Twenty-One Slot Machines (Ariz.1951), 72 Ariz. 408, 414 (citations omitted) ("The vital issue in escheat is the death of the owner of the property and that he left no heirs. The particular time set forth in the [unclaimed property] statute in which the property must have remained unclaimed is fundamentally a rule of evidence raising a presumption of death and not a substantive law affecting the title to property.")
14 The same concern led the New Jersey Supreme Court in State v. Otis Elevator Company
(1953), 12 N.J. 1, 18 to conclude that an early version of the New Jersey unclaimed property statute was unconstitutional.
[I]t is insisted that the State may escheat personal property administratively without judicial action. With this view we find ourselves in complete disagreement. Court action has been uniformly required in escheat proceedings. If the state may appropriate property other than contraband to its absolute use without compensation, a great and unbounded inroad on private property rights will have made its way into the law without any constitutional warrant.
The National Commissioners on Uniform State Laws, the body that promulgated the uniform unclaimed property acts that became the model for modem state unclaimed property acts, including Ohio's, also recognized that due process limitations made it improper for unclaimed property laws to divest owners of their property rights in unclaimed property. Noting that any state procedure to cut off an owner's title must comport with due process, the
Commissioners stated:
Although some state administrators have urged legislation that would terminate an owner's right to the property merely by the passage of time, such enactments may be unconstitutional.
8C Master Ed., Uniform Laws Annotated (2001); Uniform Unclaimed Property Act (1981), §16,
Comment (citing Hamilton v. Brown, 161 U.S. at 275, 16 S. Ct. at 592)).
This Court has consistently held statutes that call for the automatic forfeiture of private property unconstitutional for like reason. For example, in Grieb, in which the Court reviewed a
State statute "which authorize[d] the Department of Liquor Control to summarily seize alcoholic beverages which are found on the premises covered by a revoked or cancelled permit," id. at 82, the Court held that "[i]ntoxicating liquors and alcoholic beverages, which have been legally manufactured and are lawfully possessed, are not a nuisance per se; they are property protected
15 by the laws relating to property generally, and the owner or possessor thereof may not be deprived of the same without judicial inquiry and determination." Id., 153 Ohio St. 77, syllabus at par. 1. The Court went on to hold that the statute, as well as part of another statute,
which provide[d] for the destruction or disposition of lawfully held alcoholic liquors, without compensation to the owner, are unconstitutional and of no effect, for the reason that they permit and sanction the taking and disposal of private property without due process of law, and without compensation in violation of Sections 16 and 19, Article I of the Constitution of Ohio and Section 1 of the Fourteenth Amendment to the Constitution of the United States.
Id. at 82.
Here, just as in American Loan and the decisions of the various state supreme courts cited above, the Ohio unclaimed property statute provides no procedural due process. Instead, under the Act, the right to the earnings is forfeited inunediately, automatically, and irrevocably as soon as the property is reported to the State as unclaimed property. Owners are afforded no opportunity to be heard, nor is there any judicial oversight of that forfeiture; it cannot be contested. This is true even if the property has been mistakenly turned over to the State, as happens on occasion. See, e.g., Taylor v. Westly (9th Cir. 2005), 402 F.3d 924, 926-27.
Thus, even if Defendant is correct that the State could effect the transfer of the interest
eatned on the private property held in trust pursuant to the Act - because its owner forfeited the
right to the interest by leaving the principal dormant for the statutorily-prescribed period - it is
clear that R.C. 169.08(D) still would be unconstitutional because it provides none of the
procedural due process protections necessary for the State to take title to that property. On that
basis alone, this Court should reverse the decision of the Tenth Circuit and reinstate the trial
court's judgment in favor of Mr. Sogg and the Class.
16 2. The Forfeiture Required By R.C. 169.08(D) Also Violates Due Process Because It Is Unrelated to Any Legitimate State Interest.
Of equal constitutional concern is the fact that the forfeiture ordered by R.C. 169.08(D) serves no legitimate state purpose. This Court has held that even when a statute provides procedural due process protections, "[i]n order for a property disposition statute to be constitutional in its application it must be rationally related to a legitimate state concern, such as deterring criminal activity. It cannot be exercised in an arbitrary, discriminatory, capricious or unreasonable manner." Lilliock, 70 Ohio St. 2d at 28.
In Lilliock, the State sought the forfeiture of a van because its owner had used it to transport stolen property. The Court found that the owner's commission of the offense - receiving stolen property - had occurred earlier, when the owner had paid for the property.
Therefore, the Court concluded, the offense had been completed by the time the property was put in the van. Under those facts, this Court found, it could not be said that the van had been used in the commission of the offense, or that the owner had used the van in an unlawful manner The
Court concluded, therefore, that the van could not be forfeited, and that its retention by the government would be an uncompensated taking.
In this case, we find no relation between the loss of right to possession of the vehicle and any legitimate state interest. Moreover, the precedent of authorizing a loss of possession here would subject numerous defendants to arbitrary confiscatory acts. To permit the law enforcement authorities to transfer possession of the van to the county commissioners would be an unconstitutional taking and disposition of private property without due process of law, and without compensation, in violation of Section 16 and 19, Article I of the Constitution of Ohio, and Section I of the Fourteenth Amendment to the Constitution of the United States.
Id., 70 Ohio St. 2d at 28-29.
17 This Court similarly held in State ex rel. Pizza v. Rezcallah (1998), 84 Ohio St. 3d 116:
Private property rights may be limited through the state's exercise of its police power when restrictions are necessary for the public welfare. Just as private property rights are not absolute, however, neither is the state's ability to restrict those rights. Before the police power can be exercised to limit an owner's control of private property, it must appear that the interests of the general public require its exercise and the means of restriction must not be unduly oppressive upon individuals. Froelich v. Cleveland (1919), 99 Ohio St 376, 124 N.E. 212. Further, the free use ofproperty guaranteed by the Ohio Constitution can be invaded by an exercise of the police power only "when the restriction thereof bears a substantial relationship to the public health, morals and safety. "
Id., 84 Ohio St. 3d at 131 (some internal citations and quotations omitted; emphasis added). In
Pizza, the Court found that the statutory restrictions on the plaintiffs property did "not substantially advance the State's interest in preventing and abating illegal activities." The Court concluded, therefore, that the statute was unconstitutional as a denial of due process. Id.; see also, McKeehan v. U.S. (1971), 438 F.2d 739, 744-45 (because there was no "legislative policy that forfeiture under the circumstances of this case will aid in enforcing the criminal laws or make the instrumentalities of crime more difficult or costly to obtain," or "any sound administrative or revenue purpose," the government's "imposition of forfeiture on [the owner] is penal and causes an unconstitutional deprivation of personal property without just compensation.
(citations omitted))."
The Court of Appeals for the Sixth District recently noted the distinction between a taking requiring compensation and a proper exercise of the government's police power:
The distinction between an exercise of eminent domain power that is compensable under the fifth amendment and an exercise of the police power is that in an exercise of the eminent domain power, a property interest is taken from the owner and applied to the public use because the use of such property is beneficial to the public ... [whereas] in the exercise of the police power, the owner's property interest is restricted or infringed upon because his continued use of the property is or would otherwise be injurious to the public welfare.
18 City of Perrysburg v. Toledo Edison Company (2007), 171 Ohio App. 3d 174, 180 (citation omitted).
Thus, state action that restricts or infringes upon private property may not be a taking where the property "endangers public health or safety." Id. at 179. But as this Court held in Kiser v. Board of Com'rs of Logan County (1911), 85 Ohio St. 129, 133-34, 135, the obverse is also true: when state action is directed toward property that does not pose a danger to public health or safety, it may be unconstitutional unless the state pays compensation. In Kiser, a State statute declared that
upon the mere nonuse and failure to repair [a milldam] for more than five years `the same shall be deemed abandoned,' and the commissioners are authorized to proceed, `without bargain or compensation,' to remove the dam and to clean out and improve the water course.
Id., 85 Ohio St. at 134. The Court found that "[t]his is not a prosecution for nuisance, nor a proceeding to abate a nuisance." Id., 85 Ohio St. at 133. The Court held, therefore, "when the
Legislature undertook to authorize the commissioners to seize the property of the plaintiff in error, `without bargain or compensation,' it went entirely beyond the limitations of the
Constitution." Id., 85 Ohio St. at 135. "
Here, unclaimed property is neither inherently unlawful nor a public nuisance in itself,
11 The Court went on in Kiser to note that because the government admitted in its Answer "that the plaintiff is the owner of the milldam and water rights sought by the proceedings and orders mentioned and referred to in his petition to be destroyed," the fact that the statute purported to authorize the destruction of the dam and improvement of the water course due to the owner's "non-use and failure to repair for more than five years," was of no moment. Id. at 134, 135.
If he is still the owner of the dam and water rights, he has not lost them. If the property is of any value whatever, whether a mill or a million, he is entitled to compensation under the Constitution, Therefore, [the statute] is null and void, because it is in conflict with article 1, § 19 of the Constitution. Id. at 135.
19 nor was it being used in an unlawful manner. The forfeiture of the interest called for in R.C.
169.08(D) does nothing to prevent any criminal activity or abate any nuisance,12 and bears no
"substantial relationship to the public health, morals and safety." Pizza, 84 Ohio St. 3d at 131.
Rather, the Act punishes owners of unclaimed property for leaving their property unattended, and the only purpose for ordering the forfeiture of the interest is to raise revenue for the State's use. Therefore, the Act's retention of that interest under R.C. 169.08(D) is not a proper exercise of the State's police power. Because "the imposition of forfeiture ... is penal [it] causes an unconstitutional deprivation of personal property without just compensation." McKeehan, 438 F.
2d at 745 (citation omitted); see also, Lilliock, 70 Ohio St. 2d at 28-29 (if a property disposition statute does not serve a legitimate State purpose, it is an unconstitutional taking without just compensation); Pizza, 84 Ohio St. 3d at 132 (because it bore "no substantial relationship to the public health, morals, or safety," "the mandatory closure-order provisions of R.C. 3767.06(A) is an improper exercise of police power under Section 19, Article I of the Ohio Constitution[.]"
3. The Tenth District's Interpretation of the Act Violates This Court's Long-Standing Rule That Legislation Be Construed To Protect Private Property Rights.
This Court has held repeatedly that forfeiture of private property rights is disfavored in both law and equity, and that statutes that result in the loss of private property interests must be strictly construed against the government agency that seeks to convert private property for its own use. See, e.g., Lilliock, 70 Ohio St. 2d at 25; Pizza, 84 Ohio St. 3d at 131. Indeed, "[t]he law requires that we favor individual property rights when interpreting forfeiture statutes." Pizza, 84
Ohio St. 3d at 131, quoting Ohio Dept. of Liquor Control v. Sons of Italy Lodge 0917 (1992), 65
12 "Mere possession of cash is not unlawfixl." State v. Roberts (1995), 102 Ohio App. 3d 514, 518.
20 Ohio St. 3d 532, 535. As noted, Defendant admitted that the State never takes title to unclaimed property. (R.106, ¶11.) Defendant also admitted that Ohio recognizes the rule that "interest follows principal." (R.106, ¶111, 24.) Those admissions should have led the Tenth District to reject the conclusion that that the Act is an expression of the State's power to deal with abandoned property, when in fact the Act only deals with unclaimed property held in trust by the
State.
4. Under the Tenth District's Holding, the Act Would Alone Among Ohio Legislation Allow the State to Take Private Property Without Compensation or Due Process.
The Tenth District's holding creates an anomaly under Ohio law: unlike any other Ohio statute that results in the loss of a private property interest to the State, the Act does not provide property owners any due process protection. The State's escheat statute, R.C. 2105.06, for example, provides that in order for the State to take title to a decedent's property for which there appears to be no heir or legatee, the State must file a complaint and obtain, after an adversarial hearing, a judgment that the property is ownerless. Until such time, the State has no interest in the property.
The status of the State ... is ... [as] a passive and ultimate recipient of the estate when all classes of heirs have failed. It therefore has, until a determination of the conditions essential to escheat have been judicially determined, no affirmative interest in the estate to assert.
Boulger v. Evans (1978), 54 Ohio St. 2d 371, 375. In Boulger, no such detennination had been made. "The state therefore had no interest in the estate either as an heir or as an established repository of title upon failure of those persons legally entitled to the estate." Id.
Similarly, as noted above in discussing this Court's decision in Lilliock, R.C. 2933.41 required the state to file a civil proceeding, and obtain a judicial decree before the State could
21 take possession private property from its owner. This Court has also held that the forfeiture under
R.C. 3719.47 of a "vehicle, boat, or aircraft" used by its owner when "violating any provision of
[R.C.] 3719.40 to 3719.49, inclusive," must be proceeded by an adversarial judicial procedure.
Sensenbrenner, 37 Ohio St. at 44.
In,contrast to these statutes, the Tenth District's holding here would permit the State to take an interest in private property without notice, an adversarial hearing, or a judicial decree.
This Court has never countenanced such a statute before, and it should not do so here.
Under the Tenth District's ruling, the State could declare any property "abandoned" and forfeited, without recourse to the owner, and for no other reason than that the State wanted the property for revenue purposes, or even for no reason at all. It would, in effect, allow the State to
"opt out" of the Ohio and Federal Takings Clauses, and render those constitutional provisions meaningless. This Court should reject such an expansive reading of the State's power over private property, and hold that R.C. 169.08(D) is unconstitutional and of no effect because it purports to take private property without due process.
B. The State Cannot Abrogate an Owner's Property Right to the Interest That Accrues on the Owner's Property Without Violating the Takings Clauses of the United States and Ohio Constitutions.
States do not have plenary authority over private property interests. Loretto v.
Teleprompter Manhattan CATV Corp. (1982), 458 U.S. 419, 439 102 S. Ct. 3164, 3178 (the govemment does not have unlimited power to redefine property rights.). Rather, there is a
"federal constitutional barrier to the abrogation of common-law rights by Congress or a state government." Pruneyard Shopping Center v. Robins ( 1980), 447 U.S. 74, 93, 100 S. Ct. 2035,
2047 (Marshall, J., concurring). As a result, "a State may not sidestep the Takings Clause by
22 disavowing traditional property interests long recognized under state law." Phillips, 524 U.S. at
167, 118 S. Ct. at 1931. Thus, even if the State had provided due process, the Act would still go well beyond the State's power to deny private property rights.
1. The State May Not "Transform Private Property Into Public Property" Without Compensation.
In Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), 449 U.S. 155, 101 S. Ct. 446, the Supreme Court struck down a Florida statute that allowed a clerk of the court to keep the interest eamed on interpleader funds. The Supreme Court stated:
Neither the Florida legislature by statute, nor the Florida courts by judicial decree, may accomplish the result the county seeks simply by recharacterizing the principal as "public money" because it is held temporarily by the court. The eamings of the fund are incidents of ownership of the fund itself and are property just as the fund itself is property. The state statute has the practical effect of appropriating for the county the value of the use of the fund for the period in which it is held in the registry.
Id., 449 U.S. at 164, 101 S. Ct. at 452. Thus, the Court held, the statute violated the Takings
Clause.
[A] state, by ipse dixit, may not transform private property into public property without compensation. ... This is the very kind of thing that the Taking Clause of the Fifth Amendment was meant to prevent. That Clause stands as a shield against the arbitrary use of governmental power.
Id., 449 U.S. at 164, 101 S. Ct. at 452; see also, Phillips, 524 U.S. at 167, 118 S. Ct. at 1931.
hi State ex rel. Hudson v. Kelly (1936), 55 Ohio App. 314, the Ohio Court of Appeals applied that rule in interpreting a statute that appeared to give unclaimed funds to the county's general fund. There, the court held that it was proper to order the return of the petitioner=s money; to have allowed the government to retain those funds would have violated the Fiftb
Amendment. The funds in that case were owned by the relator=s decedent and initially held by the Sheriff of Auglaize County. Pursuant to statute, after the expiration of a prescribed period
23 without a claim having been made, the Sheriff paid those funds to the county treasurer to be held in trust until claimed by the right owner. Id. at 317. Eventually, after a further period without a claim, the money Arevert[ed] to the general fund@ of the county. Id. at 318. The court noted that although Art. I, ' 19 of the Ohio Constitution made private property Ainviolate,@ such property was nonetheless Asubservient to the public welfare,@ and could be taken for public use provided compensation was paid. Id. at 321. Nevertheless, the court found, even though placed in the county=s general fund, the unclaimed funds at issue had not been taken for public use, and the plaintiff could properly assert a claim for the return of that money, as opposed to compensation for its taking under the Takings Clause.
[I]n light of this constitutional provision [Art. I, ' 19], it is clear that the legislature ... did not have the power and will therefore be presumed not to have had the legislative intent, to take for public use, without compensation, unclaimed moneys privately owned, and the effect of this provision is not to deprive an owner of his property[.] ... [&] [T]he unclaimed moneys ..., notwithstanding they have been transferred to the general fund of the county, remain property of his estate subject to administration by the relator administrator, and are held by the county in the same manner as originally held, as a continuing and subsisting trust subject to the right of his administrator to demand and receive the same, without limitation as to the time when such demand shall be made and such fund received.
Id. at 322.
Other courts in Ohio have adopted the same rule. For example, in Clifton Hills Realty Co. v. City of Cincinnati (1938), 60 Ohio App. 443, 451, the court held that property and property rights "cannot, under our Constitution, be withdrawn by ordinary legislative processes. These rights or privileges are conferred irrevocably," subject only to the extent necessary to promote public health, safety, morals, general welfare, and general prosperity. "As long as the thing itself is not inimical to the public welfare, the legal right to use and exclude cannot be withdrawn or repealed by the exercise of the uncompensating police power." Id. at 452; see also, Kiser, 85
24 Ohio St. at 135 (finding that the State legislature had gone "entirely beyond the limitation of the
Constitution" in authorizing the uncompensated seizure of private property).
The Ninth Circuit has observed that "the Supreme Court's decisions in [Webb's] and
[Phillips] demonstrate [that] constitutionally protected property rights can - and often do - exist despite statutes ... that appear to deny their existence." Schneider v. California Department of
Corrections (9th Cir. 1998), 151 F. 3d 1194, 1199. That is because "there is ... a`core' notion of constitutionally protected property into which state regulation simply may not intrude without prompting Takings Clause scrutiny." Id. at 1200. The court held in Schneider:
The States' power vis-a-vis property ... operates as a one-way ratchet of sorts: States may, under certain circumstances, confer "new property" status on interests located outside the core of constitutionally protected property, but they may not encroach upon traditional "old property" interests found within the core. ... Were the rule otherwise, States could unilaterally dictate the content of - indeed, altogether opt out of - both the Takings Clause and the Due Process Clause simply by statutorily recharacterizing traditional property-law concepts.
Schneider, 151 F.3d at 1200-01; see also, American Loan, supra, 159 F. at 778 (Congress cannot by mere legislative enactment cause the forfeiture of unclaimed private property held by the courts).
The concept at issue here - that "interest follows principal" - is part of that core of constitutionally protected property interests. The Supreme Court found in Phillips that:
The rule that "interest follows principal" has been established under English common law since at least the mid-1700's. Beckford v. Tobin, I Ves. Sen. 308, 310, 27 Eng. Rep. 1049, 1051 (Ch. 1749 ("[I]nterest shall follow the principal, as the shadow the body"). Not surprisingly, this rule has become fumly embedded in the common law of the various states.
524 U.S. at 165, 118 S. Ct. at 1930.
In Schneider, the plaintiffs, state prisoners, argued that the interest earned on their money while it was kept in a pooled prison account was their private property, and the diversion of that
25 interest to fund prison programs was a taking without compensation in violation of the Fifth
Amendment. The court agreed. Citing the same English common law precedents as in Phillips, the court in Schneider held:
We need not attempt to mark out with any precision the contours of property's "core" meaning. It is sufficient, we think, to say that the core is defined by reference to traditional "background principles" of property law. The "interest follows principal" rule's common law pedigree, and near universal endorsement by American courts ... leave us little doubt that interest income of the sort at issue here is sufficiently fundamental that States may not appropriate it without implicating the Takings Clause.
151 F. 3d at 1201 (citations omitted); see also, Washlefske v. Winston (4th Cir. 2000), 234 F. 3d
179, 183 ("Even though fundamental principles of State property law may define property rights, the Takings Clause nonetheless limits a State's authority to redefine preexisting property rights."); McIntyre v. Bayer (9th Cir. 2003), 339 F. 3d 1097, 1100 (same).13
Other courts have recognized this basic property right in the context of unclaimed property laws. For example, in Suever v. Connell (N.D. Cal. Oct. 12, 2007), No. CO3-00156RS,
2007 WL 3010423 (Appx. A 64-70), the court held:
Even assuming a state constitutionally could, with proper due process notice, withhold interest under the common law doctrine of "true" escheat, while holding the principal only in a custodial system, that is not what Califomia did here. Rather, while purporting to take property only as a custodian, the state appropriated to itself the use and value of that property. It is as if California claimed to be holding a tree in custody for its owner but insisted on pruning back and keeping branches that grew in the interim. Because the princip[al] itself at all times remained the property of private individuals and not the state, so too did the interest.
13 The Fourth Circuit in Washlefske held that prisoners had no common law claim to the interest on their accounts, and so the state did not violate the Takings Clause when it refused to give that interest to the prisoners. As noted, however, the court recognized that when a person does have a common law right to the earnings, the state cannot take it without compensation. Id., 234 F. 3d at 184-85.
26 Id. at *7, citing Canel, 212 III. 2d 311. Denying the state's motion for reconsideration in the same case, the Suever court held:
Having unequivocally declared that it is holding the property on behalf of its true owner, the state cannot thereafter constitutionally refuse to return interest that is, under long established common law principles, part of that property, at least without a clearly delineated statutory scheme that, with adequate due process protections, justifies permanent escheat of the interest.
Suever v. Connell (N.D. Cal. Nov. 6, 2007), NO. C03-00156 RS, 2007 WL 3313954, at *1
(emphasis in original) (Appx. A 71-72).
In Canel, relying on Webb's and Phillips, the Illinois Supreme Court held that the state could not simply by legislative enactment declare itself the owner of private property. As a result, the court held, Illinois' retention of the accruals on property held under the Illinois unclaimed property act was a taking of private property for which the state owed compensation.
Id., 212 III. 2d at 333.
In this case, the Court of Appeals held that Mr. Sogg and the Class had no right to the interest earned on their property because the Act deemed them to have "abandoned" their property. But the Court's holding begs the question of whether the State could constitutionally deny a property interest merely by statutory enactment. As shown by the cases discussed above, the State was not at liberty to "re-define" Mr. Sogg's and the Class's property interests so as to nullify the principle that "interest follows principal" with respect to unclaimed property. In fact, that holding is the very thing condemned by the Supreme Court in Webb's and Phillips.
The fact that the Act's amendment requiring the Defendant to retain earnings was to be applied only prospectively does not save it. The Supreme Court rejected that very argument in
Palazzolo v. Rhode Island (2001), 533 U.S. 606, 121 S. Ct. 2448. There, the state argued that because it had created a property right, it could by legislation alter that right prospectively so that
27 subsequent owners could not claim the protection of the Fifth Amendment. Rejecting that argument, the Supreme Court held that the state's argument would in effect allow the state "to put an expiration date on the Takings Clause. This ought not to be the rule." Id., 533 U.S. at 627,
121 S. Ct. at 2463. Such a rule, the Court found, would "work a critical alteration to the nature of property," stripping the owner of his property rights. "The State may not by this means secure a windfall for itself." Id., 533 U.S. at 627, 121 S. Ct. at 2463.
The Supreme Court has repeatedly found other statutes unconstitutional when they attempt to prospectively deny core property rights as well. See, e.g., Webb's (striking down a
Florida statute that denied owners of interpleader funds the interest that had accrued on those funds while held by the clerk of the court); Hodel v. Irving (1987), 481 U.S. 704, 107 S. Ct. 2076
(holding unconstitutional under the Fifth Amendment a statute that sought to limit the right to leave property to one's decedents); and Babbitt v. Youpee (1997), 519 U.S. 234, 117 S. Ct. 727
(same); see also, Brown v. Legal Foundation of Washington (2003), 538 U.S. 216, 123 S. Ct.
1406 (holding that the denial of the interest earned on a client's funds held in an IOLTA account was a taking under the Fifth and Fourteenth Amendments).
Judge Frye properly followed that rule in holding unconstitutional the requirement in
R.C. 169.08(D) that the State retain the interest that is earned on unclaimed funds. To hold otherwise, as Judge Frye properly recognized, would allow the State to "unilaterally dictate the content of - indeed, altogether opt out of - both the Takings Clause and the Due Process Clause simply by statutorily recharacterizing traditional property-law concepts." (R. 117, ¶20 (quoting
Schneider, 151 F.3d at 1200-01)). That is exactly what the Tenth District's decision would allow.
This Court should follow its own myriad precedents, as well as those of other states, and reverse the holding of the Tenth District.
28 2. The Tenth District's Reliance on Texaco v. Short Is Misplaced.
In concluding that the State could simply declare private property "abandoned" and so automatically become the State's property, the Tenth District relied primarily on Texaco, Inc. v.
Short (1982), 454 U.S. 516, 102 S. Ct. 781. But Texaco is irrelevant to the issues here, and provides no support for that proposition.14
The Supreme Court held in Texaco only that states have the power to regulate unused property interests as between private parties, allowing such interests to revert to another. Id., 454
U.S. at 529, 102 S. Ct. at 792. The Supreme Court did not, as the Tenth District mistakenly found, hold that states have the power to cause such property to devolve to the states themselves without compensation. That distinction was recognized by the Indiana Supreme Court itself in holding that the Takings Clause was irrelevant to the facts in Texaco. In its opinion in the same case, that court held:
We agree with appellant that extinguishment of mineral interests under this statutory scheme does not involve an exercise by the State of its power of eminent domain. The State through [the Mineral Lapse Act] is not actually taking the mineral interest for its own use and benefit. Consequently, Art. I, § 21 [the Indiana Takings Clause] does not provide an applicable standard of review of this statute.
Texaco, Inc. v. Short (1980), 273 Ind. 518, 526-27 (emphasis added).
Other courts also have found Texaco irrelevant for the same reason. See, e.g., Pascoag
Reservoir & Dam, LLC v. Rhode Island (D.R.I. 2002), 217 F. Supp. 2d 206, 225-226, aff'd (Ist
Cir. 2003), 337 F.3d 87, cert denied, 540 U.S. 1090 (holding that because "the State assume[d] title, without compensation ... Texaco v. Short does not, as a matter of law, bar plaintiff's takings
14 The Tenth District also cited Smyth v. Carter (Ind. Ct. App. 2006), 845 N.E. 2d 219, tranfs. den., 860 N.E. 2d 588, cert. denied (2007), 127 S. Ct. 1155, and several other cases from other states, for this proposition. Those cases also relied primarily on Texaco. For the reasons discussed herein, therefore, those cases were also wrongly decided.
29 claim;" "[t] he government is not like another private individual, and the Constitution through the
Takings Clause recognizes that distinction;" "[u]nlike a private individual, the State must abide by the U. S. Constitution in its actions."); Rocket Oil and Gas Co. v. Donabar (Ok. Civ. App.
2005), 127 P.3d 625, 637 (the fact that property is not taken for a public use "eliminate[s] any need to address ... [a] taking [clause] argument); Wilner v. Frey (E.D. Va. 2006), 421 F. Supp.
2d 913, 929 n. 20 (recognizing that Texaco did not involve a transfer of property to the state, and so did not implicate the Takings Clause).
Texaco is further distinguishable by the fact that the regulation there was premised on the state's police power. Conversely, as shown above, in this case there is no possible police power justification for the confiscation of the interest earned on unclaimed property. Indeed, unlike the mineral deposits at issue in Texaco, which were not being developed, there is no basis to conclude that the funds taken into custody under the Act were not being used by their third party holders. The banks, insurance companies, utilities, and other holders undoubtedly were investing those funds themselves. The only difference after the State took custody was that it was the State, not private holders, that invested the funds. Thus, unlike the undeveloped mineral interests in
Texaco, here private property is not sitting unutilized.
Texaco is irrelevant for another reason as well: unlike the Act here, the Indiana statute in
Texaco allowed the aggrieved property owner the opportunity to contest the forfeiture and obtain the return of his mineral interest. Here, the loss of the right to the interest is irrevocable, even if the principal should not have been turned over to the State in the first place. There is simply no provision to contest the loss of that right.
Finally, the irrelevance of Texaco is also apparent when reviewed in light of the Supreme
Court's decisions in Webb's, Phillips, and Brown. In each of those cases, the Supreme Court held
30 that the interest that accrued on private property held in custody by the government is itself private property, and its retention is a taking. The Supreme Court decided Texaco only two years after its decision in Webb's. Nevertheless, there is no mention of Webb's holding in Texaco.
Neither is Texaco discussed in the Supreme Court's later Phillips or Brown decisions. It is safe to assume that if the Stipreme Court had intended Texaco to stand for the proposition that a state could simply claim title to property by legislative ipse dixit, and appropriate the earnings from such property as the Tenth District's opinion would hold, the Supreme Court would have overruled or at least distinguished Webb's, and certainly would have discussed Texaco in its later
Phillips and Brown decisions. The fact the Supreme Court did not do so speaks volumes. Simply put, the Supreme Court itself must have recognized that the facts in Texaco had nothing whatever to do with the Takings Clause and the question of whether a state statute that authorizes the state to retain interest on property held in custody by the state is unconstitutional as a taking of private property without just compensation.
Thus, the Tenth District's reliance on Texaco was misplaced. That case does not support the State's right to alter pre-existing core property rights in such a manner as to take for the
State's use the interest earned on unclaimed property without payment of compensation and without due process. Just as in Pascoag, Rocket Oil, and Wilner, the State of Ohio, despite having no previous interest in the principal or the interest earned thereon, and no legitimate reason to exercise of its police power, impresses unclaimed property into government service, using it to earn interest which it retains without payment of compensation for its taking. For the reasons discussed, nothing in Texaco bars Mr. Sogg's takings claim here.
31 C. Unclaimed Property Is Not Abandoned Property.
As recognized by Judge Frye, unclaimed property is not "abandoned" property, nor did the legislature intend the Act to deal with "abandoned" property.
Black's Law Dictionary (6th ed. 1997) at 2 defines "abandon" as:
To desert, surrender, forsake, or cede. To relinquish or give up with intent of never again resuming one's right or interest. To give up or cease to use. To give up absolutely; to forsake entirely; to renounce utterly; to relinquish all connection with or concern in; to desert. It includes the intention and also the external act by which it is carried into effect.
Under Ohio law, abandoned property "is property over which an owner has relinquished all right, title, claim, and possession with the intention of not reclaiming it or resuming its ownership, possession, or enjoyment." Doughman v. Long (1987), 42 Ohio App. 3d 17, 21
(emphasis added; citations omitted). An owner "abandons" his property only when he has intentionally disclaimed any further ownership with the intention of not reclaiming it, thereby rendering it ownerless. City of Hamilton v. Harville ( 1989), 63 Ohio App. 3d 27, 30; Bauerbach v. LWR Enterprises, Inc. (Sept. 22, 2006), Washington App. No. 05CA61, 2006 WL 2742028,
*5. Abandonment is the:
absolute unequivocal relinquishment of a right or status without regard to self or any other person. It is a virtual throwing away without regard as to who may take over or carry on. It is a total discarding of what existed or went before; and evidence thereof must be direct, affirmative or reasonably beget the exclusive inference of throwing away.
Davis v. Suggs (1983), 10 Ohio App. 3d 50, 52 (quotation and internal citation omitted). "[F]or an abandonment to occur, one must show: ( 1) intent to abandon, and (2) acts or omissions implementing such intent." City of Hamilton, 63 Ohio App. 3d at 31; see also, State Mutual Life
Assur. Co. of Worcester, Mass. v. Heine (6th Cir. 1944), 141 F.2d 741, 744 (abandonment means
32 a total desertion by the owner because he no longer desires to possess it and "willingly abandons it to whoever wishes to possess it.")_
The Tenth District held that Mr. Sogg and the Class abandoned their unclaimed property by not engaging in one of the actions specified in the Act. But as this Court has long held, contrary to the Tenth District's holding, "mere non-use is not ... sufficient to establish the fact of abandonment." Kiser, 85 Ohio St. at 131; see also, Long v. Noah's Lost Ark, Inc. (2004), 158
Ohio App. 3d 206, 216 (same); Bauerbach, 2007 WL 2742028 at *5 (same); Potomac Steam-
Boat Co. v. Upper Potomac Steam-Boat Co. (1884), 109 U.S. 672, 684, 3 S. Ct. 445, 452 ("A man cannot lose the title to his lands ... by leaving them in their natural state without improvement, or forfeit them by non-user."); East Tennessee Iron & Coal Co. v. Wiggin (6th Cir.
1895), 68 F. 446, 449-50 (there can be no abandonment of legal title merely by failing to assert it).
Other courts have held that funds held by the government, unused and unclaimed by their owner, are not abandoned, but rather remain private property. In Hudson v. Kelly, supra, for example, the court, interpreting an Ohio statute that operated in a manner similar to the Act, held that funds in the custody of the Sheriff of Auglaize County and unclaimed for a statutory period remained private property even after delivered to the county treasury and subsequently to the county's general fund. Id., 55 Ohio App, at 322. Similarly, in American Loan, supra, in which, as noted, the court held a Federal statute unconstitutional because it required funds held by the registry of the Federal district court and unclaimed for ten years to be deposited "in a designated depository of the United States," the court held that unclaimed funds, even if "forgotten by those entitled to the money," were not abandoned. Thus, even after deposit in the Federal treasury,
33 those funds "would by no means become public property, and should not be recorded or treated as such by any officer of person." Id., 159 F. at 782.
Ohio courts have also held that an owner did not abandon his property simply be leaving it unattended in the possession of another person. In Davis, for example, the court rejected an argument that the buyer of a truck had abandoned it by failing to pick it up from the seller for more than two years. The court there found "the only evidence relating to abandonment is the appellee's silence for two years." Id., 10 Ohio App. 3d at 52. To the same effect is Rucker v.
Alston (May 14, 2004), Montgomery App. No. 19959, 2004-Ohio-2428. There, the plaintiff had left his car with a mechanic for nearly a year. The mechanic argued that the owner's failure to retrieve the car or pay for storage for that period evidenced the owner's abandonment. The court held otherwise, stating that the possessor
did not present evidence that [the owner] had discarded or thrown away all right to her car. At most, he claimed that he did not hear from [the owner] `all summer' and that she did not pay any storage.
Id., at ¶15; see also, In re Panel Town of Dayton, Inc. (Bankr. S. D. Ohio 2006), 338 B. R. 764,
775 (debtor's delay in attempting to retrieve property was not enough to show an intent to abandon it).
The concept of "abandonment" makes even less sense when one considers that some unclaimed property comes into Defendant's custody because its owner may never even have been aware of its existence, e.g., when a distant, unknown relative has died leaving that person as the only surviving heir. It can hardly be said in such a case, in which the heir may not even have known the decedent, that the heir has expressed a clear intention to abandon the property.
Moreover, even lost, mislaid, or forgotten property is not considered "abandoned." Rather, the owner of such property has only "involuntarily and unintentionally parted with [the property]
34 through neglect, carelessness, or inadvertence," or forgetfulness. Corliss v. Wenner (Idaho Ct.
App. 2001), 34 P.3d 1100, 1104, rev. denied. "The law is not finders keepers, unless the property has been abandoned, which is to say deliberately relinquished, not merely lost or misplaced."
Employers Ins. of Wausau v. Titan Intern., Inc. (7th Cir. 2005), 400 F.3d 486, 491.
Moreover, there is nothing in the language or operation of the Act to suggest it is concerned with "abandoned" property. The Act is called the Unclaimed Funds Chapter, not the
Abandoned Funds Chapter, belying any such intention to deal with "abandoned" or ownerless property. Under the Act, property becomes "unclaimed" when it is in the possession of a third party and its owner has not undertaken one of the actions set forth in the Act during the statutorily-prescribed period (in some cases the period is only one year - a period even shorter than in Davis), either through neglect, forgetfulness, or simply because, as in the case of an unknown heir, the owner does not even know that he owns the property. See, R.C. 169.01(B)
(Appx. A 1-3); R.C. 169.02(D) (Appx. A 4). Even error by the holder can lead to property being deposited with the Defendant as unclaimed. The Act does not require evidence that the owner intended to disclaim ownership, or of an act or omission that evidences that intent. Moreover, under the Act the owner's right to the principal is never lost. Rather, that property is held in perpetuity for the owner's benefit, and can be reclaimed at any time, no matter how long the
State has held it in custodial trust.
The contention that an owner has abandoned his unclaimed property is even more attenuated when one considers the State's argument, apparently accepted by the Tenth District, that the State declared only a certain property interest - the right to the interest earned on one's property - to have been abandoned. Certainly there is no evidence in the record of any intent to
35 abandon that single property interest while not abandoning the principal, and, as discussed, the very concept of abandonment refutes that notion.
As is clear then, the fact that property may become "unclaimed" under the Act does not mean its owner has "abandoned" it. Defendant's admission that, as the Tenth District also acknowledged, the owner never relinquishes title to that property even when the State takes it into custody confirms that fact. (R.106, ¶111, 24.) As further acknowledgment, the State makes substantial efforts to contact owners in order to inform them that the State holds their property and to induce them to ask that it be returned. E.g., R.C. 169.06 (Appx. A 16). The fact that Mr.
Sogg and the Class submitted claims asking Defendant to return their property shows just the opposite of an intent to permanently and intentionally relinquish ownership.
Further, there is nothing in the language used in the Act to support the Tenth District's conclusion that the Act is intended to treat "unclaimed" property as if it was "abandoned." In fact, as Judge Frye found, the language shows just the opposite: "The notion of an escheat based upon `an abandomnent' of private property runs contrary to the language of the Unclaimed
Funds Act, as well as division operations under the Act for nearly forty years." (R. 117, ¶30.)
Notably, neither R.C. 169.01 (Appx. A 1-3) or 169.02 (Appx. A 4-7) use the words
"abandoned" or "escheat." Nor do those sections require a finding that the owner intended to abandon her property, or an act or omission evidencing that intent. Thus, as Judge Frye found, those sections simply cannot be read as incorporating the concepts of "abandonment" or
"escheat" in the definition of unclaimed property.
Conversely, as Judge Frye also pointed out, the Act does use those terms when detailing how the property subject to unclaimed property programs in states other than Ohio is treated.
See, R.C. 169.03, 169.04(A), and 169.041 (Appx. A 8-11, A 12, and A 13, respectively).
36 Such wording plainly shows that the drafters recognized a distinction between "unclaimed," "abandoned," and "escheated" funds. The absence of the words "abandoned" and "escheated" elsewhere in the Act cannot be attributed to mere inadvertence. Therefore, the statutory language actually written does not support the defendant's argument that this is merely a disguised form of "abandoned" property.
(R. I 17, at 1130.)
That reading of the Act fully comports with standard rules of statutory construction. See, e.g., In re Tonsic's Estate (1968), 13 Ohio App. 2d 195, 197 (when enacting legislation, "[t]he legislature is presumed to be cognizant of all prior sections of the Code."); State v. Chandler
(2006), 109 Ohio St. 3d 223, 235 (when interpreting a statute, a court must look to the language of the statute, giving effect to the words used and not deleting or inserting any words). The Act, and Defendant's admissions, reaffirm Mr. Sogg's and the Class's ownership of their unclaimed property, making it clear that unclaimed property is not abandoned property.
D. Because Unclaimed Property Remains Private Property, the Interest Earned on That Property Is Also Private Property.
The United States Supreme Court recognized the rule that "interest follows principal" at least as early as 1809 in Himely v. Rose (1809), 5 Cranch 313, 319, 1809 WL 1644, *5 ("In equity, interest goes with the principal, as the fruit with the [t]ree.") The Supreme Court has reaffirmed that principle consistently over the nearly two centuries that followed. See, e.g.,
Webb's, 449 U.S. at 164, 101 S. Ct. at 452 ("The earnings of a fund are incidents of ownership of the fund itself and are property just as the fund itself is property."); Phillips, 524 U.S. at 165, 118
S. Ct. at 1930 ("interest follows principal" has been part of the common law for more than 250 years); Brown, 538 U.S. 216, 123 S. Ct. 1406. Consistent with Federal law, the State of Ohio itself has long recognized that the owner of property also owns any amounts that accrue on that property. See, e.g., City of Ohio v. Cleveland and Toledo R.R. Co. (1856), 6 Ohio St. 489, 494-
37 95; City of Akron v. Kalavity (Feb. 2, 2000), Sununit App. No. 19678, 2000 WL 141048, *2-3
West American Ins. Co. v. Dutt (1990), 70 Ohio App. 3d 422, 424.
That rule applies even when, as here, the government mandates that private property be held in a government account. See, Phillips, 524 U.S. at 172, 118 S. Ct. at 1934 ("We hold that the interest income generated by funds held in IOLTA accounts is the `private property' of the owner of the principal."); Mary Helen Coal Corporation v. Hudson (4th Cir. 2000), 235 F.3d
207, 210 (after the Supreme Court held that government's assessment of premiums for employees' retirement benefits from coal companies violated the Fifth Amendment, the Court of
Appeals for the Fourth Circuit held that interest eamed on those premiums while in the government's custody was private property; "[s]ince the principal belonged to Mary Helen, so too did the interest earned"); Winters v. Mowery (S. D. Ind. 1993), 836 F. Supp. 1419, 1425
(Indiana statute required child support payments be delivered to the clerk of the court for distribution to the custodial parent; following Webb's, the court held that because "the Clerk
[held] the plaintiffs money as a trustee, for [plaintiff's] ultimate benefit," it necessarily followed
"that the interest earned from principal belongs to the principal['s] owner.")
Because Mr. Sogg and the Class owned their unclaimed property while it was held in trust by Defendant pursuant to the Act, the interest eamed on their property is also their private property. Therefore, as Judge Frye correctly ruled, the Act's prohibition against the return of that private property represents a taking without compensation in violation of both the Federal and
Ohio Constitutions.
38 E. There Is No Statute of Limitations Applicable to Plaintiff s and the Class's Claims for Restitution of the Earnings on Their Private Property.
Because the Tenth District reversed the trial court's summary judgment, it did not address
Mr. Sogg's argument that the trial court erred in holding that a four year statute of limitations should apply to the claims in this case. As explained below, there should be no limitations period for those claims.
R.C. 169.08(B) (Appx. A 17) provides that "[n]o statute of limitations shall bar the allowance of a claim." That "Anti-Limitations" provision allows an owner of property held by the State pursuant to the Act to claim that property at any time, no matter how long it has been held.
As explained above, because the State never takes title to unclaimed property, any interest earned on that property is also the owner's private property and subject to the owner's claim. That interest is as much part of the res held by Defendant as the principal upon which it was earned. See, U.S. v. $133,735.30 Seized from U. S. Bancorp Brokerage Account No.
32130630 (9th Cir. 1998), 139 F.3d 729, 732; U.S. v. $515,060.42 in U.S. Currency (6th Cir.
1998), 152 F.3d 491, 506; Suever, 2007 WL 3313515954, at *1.
Defendant returned to Mr. Sogg and the Class only the original principal turned over to
Defendant as unclaimed property, reduced by the statutory five-percent administrative fee.
Accordingly, Defendant still retains some of Mr. Sogg's and the Class's unclaimed property: the interest. Because "[n]o statute of limitations shall bar the allowance of a claim," no statute of limitations should bar full restitution of the remaining property still held in trust by Defendant.
Even without the Anti-Limitations Provision, as discussed above, the holding in Hudson v. Kelly, supra, also dictates that no statute of limitations should apply to Mr. Sogg's claim for
39 equitable restitution of his and the Class's property still held by Defendant. As in Hudson,
Defendant holds that property in trust. Therefore, also as in that case, Defendant holds that property "subject to the right of [Mr. Sogg and the Class] to demand and receive the same, without limitation as to the time when such demand shall be made and such fund received." Id.,
55 Ohio App. at 322 (emphasis added).
VII. CONCLUSION
The Takings Clauses of the Federal and Ohio Constitutions are designed to protect private property interests such as those at issue here from just the sort of encroachments represented by R.C. 169.08(D). As the Supreme Court found in Penn Cent. Transp. Co. v. City of
New York (1978), 438 U.S. 104, 123-24, 98 S. Ct. 2646, 2659, quoting Armstrong v. United
States (1960), 364 U.S. 40, 49, 80 S. Ct. 1563, 1569:
[T]his Court has recognized that the Fifth Amendment's guarantee . . . [is] designed to bar Govenunent from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole[.]
Justice Holmes warned in Pennsylvania Coal Co. v. Mahon (1922), 260 U.S. 393, 415, 3
S. Ct. 158, 160:
The protection of private property in the Fifth Amendment presupposes that it is wanted for public use, but provides that it shall not be taken for such use without compensation. . . . When this seemingly absolute protection is found to be qualified by the police power, the natural tendency of human nature is to extend the qualification more and more until at last private property disappears. But that cannot be accomplished in this way under the Constitution of the United States.
This Court recently found:
Ohio has always considered the right of property to be a fundamental right. ... There can be no doubt that the bundle of venerable rights associated with property is strongly protected in the Ohio Constitution and must be trod upon lightly, no matter how great the weight of other forces.
40 City of Norwood v. Horney (2006), 110 Ohio St. 3d 353, 356 (citations omitted).
Defendant's retention of the interest earned on Mr. Sogg's and the Class's money pursuant to R.C. 169.08(D) trods too heavily. It does not "merely adjust[] the benefits and burdens of economic life to promote the common good," but instead "the exaction is a forced contribution to general governmental revenue," unrelated to the cost of administering the unclaimed funds program. Webb's, 449 U.S. at 163, 101 S. Ct. at 452 (citations omitted).
As such, it is an unconstitutional taking of private property without the compensation required by Article 1, ' 19 of the Ohio Constitution, and the Fifth and Fourteenth Amendments to the United States Constitution, and without due process of law. The Tenth District erred in reversing the trial court's entry of sumrnary judgment in favor of the Mr. Sogg and the Class.
This Court should reverse that decision, and reinstate the trial court's judgment.
Respectfujty,submitted,
WILLIAM C. WILKINSON (0033228) CRAIG A. CALCATERRA (0070177) Thompson Hine LLP 10 West Broad Street, 7th Floor Columbus, Ohio 43215 (614) 469-3200 Fax (614) 469-3361
JOHN R. WYLIE CHARLES R. WATKINS Futterman Howard Watkins Wylie & Ashley, Chtd. 122 S. Michigan Avenue, Suite 1850 Chicago, Illinois 60603 (312) 427-3600 Fax (312) 427-1850
41 ARTHUR T. SUSMAN Susman Heffner & Hurst LLP Two First National Plaza, Suite 600 Chicago, Illinois 60603 (312) 346-3466 Fax (312) 346-2829
Attorneys for Wilton S. Sogg
Date: February 5, 2008
GIKATB1Unclaiined Praperty\OHISup Ct\Merit BrieEdoc
42 CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing MERIT BRIEF OF APPELLANT WIL ON S. SOGG was served upon the following via hand delivery, on this S^iay of , 2008:
Marc Dann, Attorney General of Ohio William J. Cole, AAG John T. Williams, AAG Executive Agencies Section 30 East Broad Street 26"' Floor Columbus, OH 43215
Craig A. Calcaterra
43 IN THE SUPREME COURT OF OHIO
WILTON S. SOGG, individually and on behalf of a class of all others similarly Case No. 2007-1452 situated, On Appeal from the Franklin Plaintiff-Appellant, County Court of Appeals, Tenth Appellate V. District
DOUG WHITE, Director of the Ohio Court of Appeal Case No. 06AP-883 Department of Commerce,
Defendant-Appellee.
APPENDIX TO MERIT BRIEF OF APPELLANT WILTON S. SOGG
MARC DANN WILLIAM C. WILKINSON (0033228) Attorney General of Ohio CRAIG A. CALCATERRA (0070177) Thompson Hine LLP WILLIAM A. COLE (0067778) 10 West Broad Street, 7th Floor JOHN T. WILLIAMS (0024449) Columbus, Ohio 43215 Assistant Attorneys General (614) 469-3200, Fax (614) 469-3361 Executive Agencies Section 30 East Broad Street, 26th Floor JOHN R. WYLIE Columbus, Ohio 43215 CHARLES R. WATKINS (614) 466-2980, Fax (614) 728-9470 Futterman Howard Watkins Wylie & Ashley, Chtd. 122 S. Michigan Avenue, Suite 1850 Chicago, Illinois 60603 (312) 427-3600, Fax (312) 427-1850
ARTHUR T. SUSMAN Susman, Heffner & Hurst LLP Two First National Plaza, Suite 600 Chicago, Illinois 60603 (312) 346-3600, Fax (312) 346-2829
Attorneys for Appellant Wilton S. Sogg TABLE OF CONTENTS Page
R.C. § 169.01 ...... A1
R.C. § 169.02 ...... A4.....
R.C. § 169.03 ...... A8
R.C. § 169.04 ...... A12
R.C. § 169.041 ...... A13
R.C. § 169.05 ...... A14
R.C. § 169.06 ...... A 16
R.C. § 169.08 ...... A 17
R.C. § 2105.06 ...... A19
R.C. § 2305.09 ...... A21
Decision on the Applicable Statute of Limitations (Franklin County Court of Common Pleas, Aug. 7, 2006) ...... A22
Opinion (Franklin County Court of Common Pleas, Aug. 7, 2006) ...... A30
Judgment, and Civ. R. 54(B) Certification (Franklin County Court of Common Pleas, Aug, 7, 2006) ...... A50
Sogg v. YVhite (June 21, 2007), Franklin App. No. 06-AP883, 2007-Ohio-3219 ...... A52
Notice of Appeal (Aug. 6, 2007) ...... A61
Suever v. Conuell (N.D. Cal. Oct. 12, 2007), No. C03-00156RS 2007 WL 3010423 ...... A64
Suever v. Connell (N.D. Cal. Nov. 6, 2007), No, C03-00156RS, 2007 WL 3313954 ...... A71 Page I R.C. § 169.01 c Baldwin's Ohio Revised Code Annotated Currentness Title 1. State Govemment ' g Chapter 169. Unclaimed Funds (Refs & Annos)
.+ 169.01 Definitions
As used in this chapter, unless the context otherwise requires:
(A) "Financial organization" means any bank, trust company, savings bank, safe deposit company, mutual sav- ings bank without mutual stock, savings and loan association, credit union, or investment company.
(B)(1) "Unclaimed funds" means any moneys, rights to moneys, or intangible property, described in section 169.02 of the Revised Code, when, as shown by the records of the holder, the orvner has not, within the times provided in section 169.02 of the Revised Code, done any of the following:
(a) Increased, decreased, or adjusted the amount of such funds;
(b) Assigned, paid premiums, or encumbered such funds;
(c) Presented an appropriate record for the crediting of such funds or received payment of such funds by check, draft, or othenvise;
(d) Corresponded with the holder concerning such funds;
(e) Otherwise indicated an interest in or knowledge of such funds;
(f) Transacted business with the holder.
(2) "Unclaimed funds" does not include any of the following:
(a) Money received or collected under section 9.39 of the Revised Code;
(b) Any payment or credit due to a business association from a business association representing sums payable to suppliers, or payment for services rendered, in the course of business, including, but not limited to, checks or memoranda, overpayments, unidentified remiltances, nonrefunded overcharges, discounts, refunds, and rebates;
(c) Any payment or credit received by a business association from a business association for tangible goods sold, or services performed, in the course of business, including, but not limited to, checks or memoranda, over- payments, unidentified remittances, nonrefunded overcharges, discounts, refunds, and rebates;
(d) Any credit due a retail customer that is represented by a gift certificate, gift card, merchandise credit, or mer- chandise credit card, redeemable only for merchandise.
For purposes of divisions (B)(2)(b) and (c) of this section, "business association" means any corporation, joint venture, business trust, limited liability company, partnership, association, or other business entity composed of one or more individuals, whether or not the entity is for profit.
(C) "Owner" means any person, or the person's legal representative, entided to receive or having a legal or equit-
0 2008Thomson/West.NoClaimtoOrig.USGov. Works. A000000007- Page 2 R.C. § 169.01
able interest in or claim against moneys, rights to moneys, or other intangible property, subject to this chapter.
(D)(1) "Holder" means any person that has possession, custody, or control of moneys, rights to moneys, or other intangible property, or that is indebted to another, if any of the following applies:
(a) Such person resides in this state;
(b) Such person is formed under the latvs of this state;
(c) Such person is formed under the laws of the United States and has an office or principal place of business in this state;
(d) The records of such person indicate that the last known address of the owner of such moneys, rights to moneys, or other intangible property is in this state;
(e) The records of such person do not indicate the last known address of the owner of the moneys, rights to moneys, or other intangible property and the entity originating or issuing the moneys, rights to moneys, or other intangible property is this state or any political subdivision of this state, or is incorporated, organized, created, or otherwise located in this state. Division (D)(1)(e) of this section applies to all moneys, rights to moneys, or other intangible property that is in the possession, custody, or control of such person on or after July 22, 1994, wheth- er the moneys, rights to moneys, or other intangible property becomes unclaimed funds prior to or on or after that date.
(2) "Holder" does not mean any hospital granted tax-exempt status under section 50 l(c)(3) of the Internal Rev- enue Code or any hospital owned or operated by the state or by any political subdivision. Any entity in order to .be exempt from the definition of "holder" pursuant to this division shall make a reasonable, good-faith effort to contact the owner of the unclaimed funds.
(E) "Person" includes a natural person; corporation, whether for profit or not for profit; copartnership; unincor- porated associatioit or organization; public authority; estate; trust; two or more persons having a joint or com- mon interest; eleemosynary organization; fratetttal or cooperative association; other legal or community entity; the United States government, including any district, territory, possession, officer, agency, department, author- ity, instrumentality, board, bureau, or court; or any state or political subdivision thereof, including any officer, agency, board, bureau, commission, division, department, authority, court, or instrumentality.
(F) "Mortgage funds" means the mortgage insurance fund created by section 122.561 of the Revised Code, and the housing guarantee fund created by division (D) of section 128.11 of the Revised Code.
(G) "Lawful claims" means any vested right a holder of unclaimed funds has against the owner of such un- claimed funds.
(H) "Public utility" means any entity defined as such by division (A) of section 745.01 or by section 4905.02 of the Revised Code.
(i) "Deposit" means to place money in the custody of a financial organization for the purpose of establishing an income-bearing account by purchase or otherwise.
(J) "Income-bearing account" means a time or savings account, whether or not evidenced by a certificate of de- posit, or an investment account through which investments are made solely in obligations of the United States or
C) 2008 Thomson/VJest. No Claim to Orig. US Gov. Works. A OQ OOOOO02 Page 3 R.C. § 169.01
its agencies or instrumentalities or guaranteed as to principal and interest by the United States or its agencies or instrumentalities, debt securities rated as investment grade by at least two nationally recognized rating services, debt securities which the director of commerce has determined to have been issued for the safety and welfare of the residents of this state, and equity interests in mutual funds that invest solely in some or all of the above-lis- ted securities and involve no general liability, without regard to whether income eatned on such accounts, secur- ities, or interests is paid periodically or at the end of a term.
(K) "Director of commerce" may be read as the "division of unclaimed funds" or the "superintendent of un- claimed funds."
(2006 S 223, eff. 3-23-07; 2001 H 94, eff. 9-5-01; 2000 H 640, eff. 9-14-00; 1994 H 399, eff. 7-22-94; 1987 S 149, eff. 7-14-87; 1985 H 201; 1984 S 223; 1974 H 870; 1972 S 215; 132 v S 411)
0 2008Thomson/West.NoClaimtoOrig.USGov. Works. A 000000003 Page 1 R.C. § 169.02
Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government FM Chapter 169. Unclaimed Funds (Refs & Annos)
.+ 169.02 Unclaimed funds defined
Subject to division (B) of section 169.01 of the Revised Code, the following constitute unclaimed funds:
(A) Except as provided in division (R) of this section, any demand, savings, or matured time deposit account, or matured certificate of deposit, together with any interest or dividend on it, less any lawful claims, that is held or owed by a holder which is a financial organization, unclaimed for a period of five years;
(B) Any funds paid toward the purchase of withdrawable shares or other interest in a financial organization, and any interest or dividends on them, less any lawful claims, that is held or owed by a holder which is a financial organization, unclaimed for a period of five years;
(C) Except as provided in division (A) of sectiott 3903.45 of the Revised Code, moneys held or owed by a hold- er, including a fraternal association, providing life insurance, including annuity or endowment coverage, un- claimed for three years after becoming payable as established from the records of such holder under any life or endowment insurance policy or annuity contract that has matured or terminated. An insurance policy, the pro- ceeds of which are payable on the death of the insured, not matured by proof of death of the insured is deemed matured and the proceeds payable if such policy was in force when the insured attained the limiting age under the mortality table on which the reserve is based.
Moneys otherwise payable according to the records of such holder are deemed payable although the policy or contract has not been surrendered as required.
(D) Any deposit made to secure payment or any sum paid in advance for utility services of a public utility and any amount refundable from rates or charges collected by a public utility for utility services held or owed by a holder, less any lawful claims, that has remained unclaimed for one year after the termination of the services for which the deposit or advance payment was made or one year from the date the refund was payable, whichever is earlier,
(E) Except as provided in division (R) of this section, any certificates, securities as defined in section 1707.01 of the Revised Code, nonwithdrawable shares, other instruments evidencing ownership, or rights to them or funds paid toward the purchase of them, or any dividend, capital credit, profit, distribution, interest, or payment on principal or other sum, held or owed by a holder, including fttnds deposited with a fiscal agent or fiduciary for payment of them, and instruments representing an ownership interest, unclaimed for five years. Any underlying share or other intangible instrument representing an ownership interest in a business association, in which the is- suer has recorded on its books the issuance of the share but has been unable to deliver the certificate to the shareholder, constitutes unclaimed funds if such underlying share is unclaimed for five years. In addition, an un- derlying share constitutes unclaimed funds if a dividend, distribution, or other sum payable as a result of the un- derlying share has remained unclaimed by the owner for five years.
This division shall not prejudice the rights of fiscal agents or fiduciaries for payment to return the items de- scribed in this division to their principals, according to the terms of-an agency or fiduciary agreement, but such a
0 2008 Thomson/West. No Claim to Orig. US Gov. Works. AOO Q OO(7 O04 Page 2 R.C. § 169.02
return shall constitute the principal as the holder of the items and shall not interrupt the period for computing the time for which the items have remained unclaimed.
In the case of any such funds accruing and held or owed by a corporation under division (E) of section 1701.24 of the Revised Code, such corporation shall comply with this chapter, subject to the limitation contained in sec- tion 1701.34 of the Revised Code. The period of time for which such funds have gone unclaimed specified in section 1701.34 of the Revised Code shall be computed, with respect to dividends or distributions, commencing as of the dates when such dividends or distributions would have been payable to the shareholder had such share- holder surrendered the certificates for cancellation and exchange by the date specified in the order relating to them.
Capital credits of a cooperative which after January 1, 1972, have been allocated to members and which by agreement are expressly required to be paid if claimed after death of the owner are deemed payable, for the pur- pose of this chapter, fifteen years after either the termination of service by the cooperative to the owner or upon the nonactivity as provided in division (B) of section 169.01 of ihe Revised Code, whichever occurs later, provided that this provision does not apply if the payment is not mandatory.
(F) Any sum payable on certified checks or other written instruments certified or issued and representing funds held or owed by a holder, less any lawful claims, that are unclaimed for five years from the date payable or from the date of issuance if payable on demand; except that the unclaimed period for money orders that are not third party bank checks is seven years, and the unclaimed period for traveler's checks is fifteen years, from the date payable or from the date of issuance if payable on demand.
As used in this division, "written instruments" include, but are not limited to, certified checks, cashier's checks, bills of exchange, letters of credit, drafts, money orders, and traveler's checks.
If there is no address of record for the owner or other person entitled to the funds, such address is presumed to be the address where the instrument was certified or issued.
(G) Except as provided in division (R) of this section, all moneys, rights to moneys, or other intangible property, arising out of the business of engaging in the purchase or sale of securities, or othenvise dealing in intangibles, less any lawful claims, that are held or owed by a holder and are unclaimed for five years from the date of trans- action.
(H) Except as provided in division (A) of section 3903.45 of the Revised Code, all moneys, rights to moneys, and other intangible property distributable in the course of dissolution or liquidation of a holder that are un- claimed for one year after the date set by the holder for distribution;
(1) All moneys, rights to moneys, or other intangible property removed from a safe-deposit box or other safe- keeping repository located in this state or removed from a safe-deposit box or other safekeeping repository of a holder, on which the lease or rental period has expired, or any amount arising from the sale of such property, less any lawful claims, that are unclaimed for three years from the date on which the lease or rental period ex- pired;
(J) Subject to division (M)(2) of this section, all moneys, rights to moneys, or other intangible property, and any income or increment on them, held or owed by a holder which is a fiduciary for the benefit of another, or a fidu- ciary or custodian of a qualified retirement plan or individual retirement arrangement under section 401 or 408 of the Intemal Revenue Code, unclaimed for three years after the final date for distribution;
(D 2008Thomson/West.NoClaimtoOrig.USGov. Works, A 000000005w' Page 3 R.C. § 169.02
(K)All moneys, rights to moneys, or other intangible property held or owed in this state or held for or owed to an owner whose last known address is within this state, by the United States government or any state, as those terms are described in division (E) of section 169.01 of the Revised Code, unclaimed by the owner for three years, excluding any property in the control of any court in a proceeding in which a final adjudication has not been made;
(L) Amounts payable pursuant to the terms of any policy of insurance, other than life insurance, or any refund available under such a policy, held or owed by any holder, unclaimed for three years from the date payable or distributable;
(M)(1) Subject to division (M)(2) of this section, any funds constituting rents or lease payments due, any deposit made to secure payment of rents or leases, or any sum paid in advance for rents, leases, possible damage to property, unused services, performance requirements, or any other purpose, held or owed by a holder unclaimed for one year;
(2) Any escrow funds, security deposits, or other moneys that are received by a licensed broker in a fiduciary ca- pacity and that, pursuant to division (A)(26) of section 4735.18 of the Revised Codo, are required to be depos- ited into and maintained in a special or ttvst, noninterest-bearing bank account separate and distinct from any personal or other account of the licensed broker, held or owed by the licensed broker unclaimed for two years.
(N) Any sum greater than fifty dollars payable as wages, any sum payable as salaries or commissions, any sum payable for services rendered, funds owed or held as royalties, oil and mineral proceeds, funds held for or owed to suppliers, and moneys owed under pension and profit-sharing plans, held or owed by any holder unclaimed for one year from date payable or distributable, and all other credits held or owed, or to be refunded to a retail customer, by any holder unclaimed for three years from date payable or distributable;
(0) Amounts held in respect of or represented by lay-aways sold after January 1, 1972, less any lawful claims, when such lay-aways are unclaimed for three years after the sale of them;
(P) All moneys, rights to moneys, and other intangible property not otherwise constituted as unclaimed funds by this section, including any income or increment on them, less any lawful claims, which are held or owed by any holder, other than a holder which holds a permit issued pursuant to Chapter 3769. of the Revised Code, and which have remained unclaimed for three years after becoming payable or distributable;
(Q) All moneys that arise out of a sale held pursuant to section 5322.03 of the Revised Code, that are held by a holder for delivery on demand to the appropriate person pursuant to division (I) of that section, and that are un- claimed for two years after the date of the sale.
(R)(1) Any funds that are subject to an agreement between the holder and owner providing for automatic rein- vestment and that constitute dividends, distributions, or other sums held or owed by a holder in connection with a security as defined in section 1707.01 of the Revised Code, an ownership interest in an investment company registered under the "Investment Company Act of 1940," 54 Stat. 789, 15 U.S.C. 30a-I, as amended, or a certi- 6cate of deposit, unclaimed for a period of five years.
(2) The five-year period under division (R)(1) of this section commences from the date a second shareholder no- tification or communication mailing to the owner of the funds is returned to the holder as undeliverable by the United States postal service or other carrier. The notification or communication mailing by the holder shall be no less frequent than quarterly.
0 2008 Thomson/West. No Claim to Orig. US Gov. Works. A 00000 0D 0G- Page 4 R.C. § 169.02
All moneys in a personal allowance account, as defined by rules adopted by the director ofjob and family ser- vices, up to and including the maximum resource limitation, of a medicaid patient who has died after receiving care in a long-term care facility, and for whom there is no identifiable heir or sponsor, are not subject to this chapter.
(2002 S 93, eff. 8-29-02; 2000 H 640, cff. 9-14-00; 2000 S 245, off, 6-30-00; 1999 11 471, eff. 7-1-00; 1999 H 283, eff. 9-29-99; 1997 H 215, eff. 6-30-97; 1994 H 399, eff. 7-22-94; 1991 H 64, eff. 6-18-91; 1988 H 708; 1987 H 470, S 149; 1985 H 82; 1984 S 223, H 250; 1982 H 830; 1980 H 410; 1972 S 215; 1969 H I; 132 v S 508, S 411)
0 2008Thomson/West,NoCiaimtoOrig.USGov.Works. A O0O0OOO07 Page i R.C. § 169.03 c Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government 'c® Chapter 169. Unclaimed Funds (Refs & Annos)
.y 169.03 Reporting unclaimed funds; notice to owner; audits
(A)( l) Every holder of unclaimed funds and, when requested, every person that could be the holder of unclaimed funds, under this chapter shall report to the director of commerce with respect to the unclaimed funds as provided in this section. The report shall be verified.
(2) With respect to items of unclaimed funds each having a value of fifty dollars or more, the report required un- der division (A)(1) of this section shall include the following:
(a) The full name, if known, and last known address, if any, of each person appearing from the.records of the holder to be the owner of unclaimed funds under this chapter;
(b) In the case of unclaimed funds reported by holders providing life insurance coverage, the full name of the in- sured or annuitant and beneficiary, if any, and their last known addresses according to the holder's records;
(c) The nature and identifying number, if any, or description of the funds and the amount appearing from the re- cords to be due;
(d) The date when the funds became payable, demandable, or returnable and the date of the last transaction with the owner with respect to the funds;
(e) Subject to division (1) of this section, the social security number of the owner of the unclaimed funds, if it is available;
(t) If the item of unclaimed funds has a value of one thousand dollars or more and the holder has verified that the last known address as shown by the records of the holder is not accurate as provided in division (D) of this section, a statement that efforts were undertaken by the holder to verify that the address is not accurate. Any verifying dooumentation shall be maintained by the holder for five years from the date of the report and shall be available upon request to the director or the director's designee.
(g) Other informatiori that the director prescribes as necessary for the administration of this chapter.
(3) With respect to items of unclaimed funds each having a value of less than fifty dollars, the report required under division (A)(1) of this section shall include the following:
(a) Each category of items of unclaimed funds as described in section 169. 02 of the Revised Code;
(b) The number of items of unclaimed funds within each category;
(c) The aggregated value of the items of unclaimed funds within each category.
(B) If the holder of unclaimed funds is a successor to other organizations that previously held the funds for the owner, or if the holder has changed its name while holding the funds, it shall file with the report all prior known
0 2008 Thomson/West. No Claim to Orig. US Gov. Works. A OOO0OO008- Page 2 R.C. § 169.03
names and addresses and date and state of incorporation or formation of each holder of the funds.
(C) The report shall be filed before the first day of November of each year as of the preceding thirtieth day of June, but the report of holders providing life insurance coverage shall be filed before the first day of May of each year as of the preceding thirty-first day of December. The director may postpone, for good cause shown, the reporting date upon written request by any holder required to file a report.
(D) The holder of unclaimed funds under this chapter shall send notice to each owner of each item of unclaimed funds having a value of fifty dollars or more at the last known address of the owner as shown by the records of the holder before filing the annual report. In case of holders providing life insurance coverage, this notice shall also be mailed to each beneficiary at the last known address of the beneficiary as shown by the records of the holder, except that the notice to beneficiaries shall not be mailed if that address is the same as that of the insured and the surname of the beneficiary is the same as that of the insured. The holder shall not report an item of un- claimed funds earlier than the thirtieth day after the mailing of notice required by this division.
The notice required by this division shall set forth the nature and identifying number, if any, or description of the funds and the amount appearing on the records of the holder to be due the owner or benefidiary, and shall in- form the owner or beneficiary that the funds will, thirty days after the mailing of the notice, be reported as un- claimed funds under this chapter. A self-addressed, stamped envelope shall be included with the notice, with in- structions that the owner or beneficiary may use the envelope to inform the holder of the owner's or beneficiary's continued interest in the funds, and, if so infotmed before the date for making the report to the director, the hold- er shall not report the funds to the director. The notice shall be mailed by first class mail if the item of unclaimed funds has a value of fifty dollars or more but less than one thousand dollars and by certified mail, return receipt requested, if the item of unclaimed funds has a value of one thousand dollars or more, unless the holder has veri- fied that the last known address of the owner or beneficiary as shown by the records of the holder is not accur- ate. For purposes of this section, a holder has verified that the last known address of the owner ar beneficiary is not accurate by documenting at least two of the following:
(1) The owner or beneficiary failed to respond to a first class mail notice sent to the last known address of the owner or beneficiary.
(2) A first class mail notice sent by the holder to the last known address of the owner or beneficiary was re- mrned as undeliverable.
(3) An electronic or manual search of available public records failed to confirm that the last known address of the owner or beneficiary is accurate. The holder shall maintain documentation of its search efforts. If a search of public records or databases identifies a more recent address for the owner or beneficiary than the address in the holder's records, the holder shall send notice to the owner or beneficiary at that more recent address in accord- ance with this section.
A holder that sends a notice by certifred mail, return receipt requested, may charge the item of unclaimed funds up to twenty dollars for providing that notice.
If there is no address of record for the owner or beneficiary, the holder is relieved of any responsibility of send- ing notice, attempting to notify, or notifying the owner or beneficiary. The mailing of notice pursuant to this sec- tion shall discharge the holder from any further responsibility to give notice.
(E) Verification of the report and of the mailing of notice, where required, shall be executed by an officer of the reporting holder.
O 2008 Thomson/West. No Claim to Orig. US Gov. Works. A 00Q000009 R.C. § 169.03
(F)(1) The director may, at reasonable times and upon reasonable notice, examine or cause to be examined, by auditors of supervisory departments or divisions of the state, the records of any holder to determine compliance with this chapter.
(2) Holders shall retain records, designated by the director as applioable to unclaimed funds, for five years bey- ond the relevant time period provided in section 169.02 of the Rcvised Code, or until completion of an audit conducted pursuant to division (F) of this section, whichever occurs first. An audit conducted pursuant to divi- sion (F) of this section shall not require a holder to make records available for a period of time exceeding the re- cords retention period set forth in division (F) of this section, except for records pertaining to instruments evid- encing ownership, or rights to them or funds paid toward the purchase of them, or any dividend, capital credit, profit, distribution, interest, or payment on principal or other sum, held or owed by a holder, including funds de- posited with a fiscal agent or fiduciary for payment of them, or pertaining to debt of a publicly traded corpora- tion. Any holder that is audited pursuant to division (F) of this section shall only be required to make available those records that are relevant to an unclaimed funds audit of that holder as prescribed by the director.
(3) The director may enter into contracts, pursuant to procedures prescribed by the director, with persons for the sole purpose of examining the records of holders, determining compliance with this chapter, and collecting, tak- ing possession of, and remitting to the department's division of unclaimed funds, in a timely manner, the amounts found and defined as unclaimed. The director shall not enter into such a contract with a person unless the person does all of the following:
(a) Agrees to maintain the confidentiality of the records examined, as required under division (F)(4) of this sec- tion;
(b) Agrees to conduct the audit in accordance with rules adopted under section 169.09 of the Revised Code;
(c) Obtains a corporate surety bond issued by a bonding company or insurance company authorized to do busi- ness in this state. The bond shall be in favor of the director and in the penal sum determined by the director. The bond shall be for the benefit of any holder of unclaimed funds that is audited by the principal and is injured by the principal's failure to comply with division (F)(3)(a) or (b) of this section.
(4) Records audited pursuant to division (F) of this section are confidential, and shall not be disclosed except as required by section 169.06 of the Revised Code or as the director considers necessary in the proper administra- tion of this chapter.
(5) If a person with whom the director has entered into a contract pursuant to division (F)(3) of this section in- tends to conduct, in conjunction with an unclaimed funds audit under this section, an unclaimed funds audit for the purpose of administering another state's unclaimed or abandoned property laws, the person, prior to com- mencing the audit, shall provide written notice to the director of the person's intent to conduct such an audit, along with documentation evidencing the person's express authorization from the other state to conduct the audit on behalf of that state.
(6) Prior to the commencement of an audit conducted pursuant to division (F) of this section, the director shall notify the holder of unclaimed funds of the director's intent to audit the holder's records. If the audit will be con- ducted in conjunction with an audit for one or more other states, the director shall provide the holder with the name or names of those states.
(7) Any holder of unclaimed funds may appeal the fmdings of an audit conducted pursuant to division (F) of this section to the director. Pursuant to the authority granted by section '169:09 of the Revised Code, the director
® 2008 Thomson/West. No Claim to Orig. US Gov. Works. A0000O0010 Page 4 R.C. § 169.03
shall adopt rules establishing procedures for considering such an appeal.
(G) All holders shall make sufficient investigation of their records to ensure that the funds reported to the direct- or are unclaimed as set forth in division (B) of section 169.01 and section 169.02 of the Revised Code.
(H) The expiration of any period of limitations on or after March 1, 1968, within which a person entitled to any moneys, rights to moneys, or intangible property could have commenced an action or proceeding to obtain these items shall not prevent these items from becoming unclaimed funds or relieve the holder of them of any duty to report and give notice as provided in this section and deliver them in the manner provided in section 169.05 of the Revised Code, provided that the holder may comply with this section and section 169.05 of the Revised Code with respect to any moneys, rights to moneys, or intangible property as to which the applicable statute of limitations has run prior to March 1, 1968, and in that event the holder shall be entitled to the protective provi- sions of section 169.07 of the Revised Code.
(1) No social security number contained in a report made pursuant to this section shall be used by the department of commerce for any purpose other than to enable the division of unclaimed funds to carry out the purposes of this chapter and for child support purposes in response to a request made by the office of child'support in the de- partment of}ob and family services made pursuant to section 3123.83 of the Revised Code.
(2003 H 108, eff. 10-21-03; 2000 S 180, eff. 3-22-01; 1999 H 471, eff. 7-1-00; 1999 H 283, eff. 9-29-99; 1997 H 371, eff. 2-25-98; 1997 H 352, eff. 1-1-98; 1997 H 215, eff. 9-29-97; 1992 S 269, efl: 3-24-93; 1991 H 64: 1984 S 223; 1972 S 215; 132 v S 508, S 411)
C 2008 Thomson/West. No Claim to Orig. US Gov. Works. AOQ OO OOp11 Page I R.C. § 169.04 c Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government % Chapter 169. Unclaimed Funds (Refs & Annos)
.+ 169.04 Funds of nonresident; custody by director of commerce when residence unknown
(A) If funds otherwise subject to Chapter 169. of the Revised Code are held for or owed or distributable to an owner whose last known address is in another state by a holder who is subject to the jurisdiction of that state, the funds will not be unclaimed funds in this state and subject to Chapter 169. of the Revised Code if they may be claimed as unclaimed, abandoned, or escheated funds under the laws of such other state.
(B) If funds otherwise subject to Chapter 169. of the Revised Code are held for or distributable to an owner as to whom the records of the holder show no address, the director of commerce shall take custody of such funds, but such funds shall be subject to the claim of the proper escheat or custodial officer of another state upon proof to the director of commerce that the last known address of the owner of such funds is in such other state, provided, the director of commerce shall not mm over any funds to an escheat or custodial officer of another state unless such other state agrees to hold this state and the former holder of such funds harmless from any and all liabilities for any claim which then exists or which thereafter may arise or be made in respect to such funds. The director of commerce may enter into such agreements as he determines necessary to obtain funds held by escheat or cus- todial officers of other states which should properly be held by him under this chapter.
(132vS411,eff. 12-11-67)
0 2008 Thomson/West, No Claim to Orig. US Gov. Works. AOOD OOOQ12- Page 1 R.C. § 169.041
C Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government Kp Chapter 169. Unclaimed Funds (Refs & Annos)
..r 169.041 Recovery of funds claimed by and in control of other states
Nothing in section 169.04 or 169.05 of the Revised Code or in any other provision of this chapter shall be con- strued to diminish the authority of this state to recover one hundred per cent of funds that are or are presumed to be subject to the jurisdiction of this state under this chapter and that have been claimed as unclaimed, aban- doned, or escheated funds under the laws of another state and are in the possession, custody, or control of that state. If the funds covered by this chapter have been claimed as unclaimed, abandoned, or escheated funds under the laws of another state and are in the possession, custody, or control of that stute, no additional period of pos- session, custody, or control beyond the period established in the other state shall be imposed or in any manner required in this state for the funds subject to this chapter to be or presumed to be unclaimed fuuds under this chapter.
This section applies to all fltnds that are or are presumed to be subject to the jurisdiction of this state under this chapter and that have been claimed as unclaimed, abandoned, or escheated funds under the laws of another state and are in the possession, custody, or control of that state, whether, prior to or on or after the effective date of this section, the funds are or are presumed to be unclaimed, abandoned, or escheated under this chapter or the laws of that state.
(1994 H 399, cff. 7-22-94)
3 No Claim to Orig. US Gov. Works. A 0 2008 Thomson/d est. OO0 O0 QO13- WesEl.aw Page I R.C. § 169.05
P Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government Fp Chapter 169. Unclaimed Funds (Refs & Annos)
y169.05 Transfer of funds to state; unclaimed funds trust fund; conditions; director of commerce to serve as agent
(A) Every holder required to file a report under section 169.03 of the Revised Code shall, at the time of filing, pay to the director of commerca ten per cent of the aggregate amount of unclaimed funds as shown on the report, except for aggregate amounts of fifty dollars or less in which case one hundred per cent shall be paid. The funds may be deposited by the director in the state treasury to the credit of the unclaimed funds tmst fund, which is hereby created, or placed with a financial organization. Any interest eamed on money in the trust fund shall be credited to the trust fund. The remainder of the aggregate amount of unclaimed funds as shown on the report, plus eamings accrued to date of piyment to the director, shall, at the option of the director, be cetained by the holder or paid to the director for deposit as agent for the mortgage funds with a financial organization as defined in sectioti 169.01 of the Revised Code, with the funds to be in income-bearing accounts to the credit of the mort- gage funds, or the holder may enter into an agreement with the director specifying the obligations of the United States in which funds are to be invested, and agree to pay the interest on the obligations to the state. Holders re- taining any funds not in obligations of the United States shall enter into an agreement with the director specify- ing the classification of income-bearing account in which the funds will be held and pay the state interest on the funds at a rate equal to the prevailing market rate for similar funds. Moneys that the holder is required to pay to the director rather than to retain may be deposited with the treasurer of state, or placed with a financial organiza- tion.
Securities and other intangible property transferred to the director shall, within a reasonable time, be converted to cash and the proceeds deposited as provided for other funds.
One-half of the funds evidenced by agreements, in income-bearing accounts, or on deposit with the treasurer of state shall be allocated on the records of the director to the mortgage insurance fund created by section 122.561 of the Revised Code. Out of the remaining half, after allocation of sufficient moneys to the minority business bonding fund to meet the provisions of division (B) of this section, the remainder shall be allocated on the re- cords of the director to the housing development fund created by division (A) of section 175.11 of the Revised Code.
(B) The director shall serve as agent for the director of development and as agent for the Ohio housing finance agency in making deposits and withdrawals and maintaining records pertaining to the minority business bonding fund created by section 122.88 of the Revised Code, the mortgage insurance fund, and the housing development fund created by section 175.11 of the Revised Code. Funds from the mortgage insurance fund are available to the director of development when those funds are to be disbursed to prevent or cure, or upon the occurrence of, a default of a mortgage insured pursuant to section 122.451 of the Revised Code. Funds from the housing develop- ment fund are available upon request to the Ohio housing finance agency, in an amount not to exceed the funds allocated on the records of the director, for the purposes of section 175.05 of the Revised Code. Funds from the minority business bonding fund are available to the director of development upon request to pay obligations on bonds the director writes pursuant to section 122.88 of the Revised Code; except that, unless the general as- sembly authorizes additional amounts, the total maximum amount of moneys that may be allocated to the minor-
® 2008 Thomson/West. No Claim to Orig. US Gov. Works. A 0 00000014 Page 2 R.C. § 169.05
ity business bonding fund under this division is ten million dollars.
When funds are to be disbursed, the appropriate agency shall call upon the director to transfer the necessary funds to it. The director shall first withdraw the funds paid by the holders and deposited with the treasurer of state or in a financial institution as agent for the funds. Whenever these funds are inadequate to meet the request, the director shall provide for a withdrawal of funds, within a reasonable time and in the amount necessary to meet the request, from financial institutions in which the funds were retained or placed by a holder and from other holders who have retained funds, in an equitable manner as the director prescribes. In the event that the amount to be withdrawn from any one holder is less than five hundred dollars, the amount to be withdrawn is at the director's discretion. The director shall then transfer to the agency the amount of funds requested.
Funds deposited in the unclaimed funds trust fund are subject to call by the director when necessary to pay claims the director allows under section 169.08 of the Revised Code, in accordance with the director's rules, to defray the necessary costs of making publications this chapter requires and to pay other operating and adminis- trative expenses the department of commerce incurs in the administration and enforcement of this chapter.
The unclaimed funds trust fund stYall be assessed a proportionate share of the administrativc costs of the depart- ment of commerce in accordance with procedures the director of commerce prescribes and the director of budget and management approves. The assessment shall be paid from the unclaimed funds trust fund to the division of administration fund.
(C) Earnings on the accounts in financial organizations to the credit of the mortgage funds shall, at the option of the financial organization, be credited to the accounts at t{mes and at rates as eamings are paid on other accounts of the same classification held in the financial organization or paid to the director. The director shall be notified annually, and at other times as the director may request, of the amount of the eamings credited to the accounts. Interest on unclaimed funds a holder retains shall be paid to the director or credited as specified in the agreement under which the organization retains the funds. Interest payable to the director under an agreement to invest un- claimed funds and obligations of the United States shall be paid annually by the holder to the director. Any earn- ings or interest the director receives under this division shall be deposited in and credited to the mortgage funds.
(2004 H 431, efl: 7-1-05; 1997 H 215, eff. 9-29-97; 1994 H 501, eff. 11-1-94; 1992 S 269, eff. 3-24-9.1 ; 1986 H 428; 1985 H 201; 1984 H 37, S 223; 1983 H 291, S 227; 1981 H 694; 1980 H 584; 1977 S 221; 1974 H 870; 1972 S 215; 1970 S 386; 132 v S 411, S 508)
0 2008 Thomson/West. No Claim to 0rig. US Gov. Works. A0 0 ODa Q 015 ^ Page I R.C. § 169.06 c Baldwin's Ohio Revised Code Annotated Currentness Title I. State Government '0p Chapter 169. Unclaimed Funds (Refs & Annos)
.r 169.06 Publication of notice
(A) Before the first day of November of each year immediately following the calendar year in which the filing of reports is required by section 169.03 of the Revised Code, the director of commerce shall cause notice to be published once in an English language newspaper of general circulation in the county in this state in which is located the last known address of any person to be named in the notice required by this section. If no address is listed, the notice shall be published in the county in which the holder of the unclaimed funds has its principal place of business within this state; or if the holder has no principal place of business within this state, publica- tion shall be made as the director determines most effective. If the address is outside this state, notice shall be published in a newspaper of general circulation in the county or parish of any state in the United States in which such last known address is located. If the last known address is in a foreign country, publication shall be made as the director determines most effective.
If the name of the owner is not available, the director may publish notice by class, identifying number, or as the director determines most effective.
(B) The published notice shall be entitled "Notice of Names of Persons Appearing to be Owners of Unclaimed Funds," and shall contain:
(I) The names in alphabetical order and last known addresses, if any, of each person appearing from the records of the holder to be the owner of unclaimed funds of a value of fifty dollars or more and entitled to notice as spe- cified in division (A) of this section;
(2) A statement that information concerning the amount of the funds and any necessary information conceming the presentment of a claim therefor may be obtained by any persons possessing a property interest in the un- claimed funds by addressing an inquiry to the director.
(C) With respect to items of unclaimed funds each having a value of ten dollars or more, the director shall have available in his office during business hours an alphabetical list of owners and where a holder is a person providing life insurance coverage, beneficiaries, and their last known addresses, if any, whose funds are being held by the state pursuant to this chapter.
(D) The director may give any additional notice he deems necessary to inform the owner of the whereabouts of his funds.
(1991 H 64, eff. 6-18-91; 1984 S 223; 1972 S 215; 1970 S 563; 132 v S 508, S 411)
m2008Thomson/West.NoClaimtoOrig.USGov. Works. A OOOOOOO16 Westlaw Page 1 R.C. § 169.08
F> Baldwin's Ohio Revised Code Annotated Currentness Tit e I. State Govemment ^ Chapter 169, Unclaimed Funds (Refs & Annos)
.+ 169.08 Procedure for claiming refund; public hearing
(A) Any person claiming a property interest in unclaimed funds delivered or reported to the state under Chapter 169. of the Revised Code, including the office of child support in the department of job and family services, pur- suant to section 311-3.88 of the Revised Code, may file a claim thereto on the form prescribed by the director of commerce.
(B) The director shall consider matters relevant to any claim filed under division (A) of this section and shall hold a formal hearing if requested or considered necessary and receive evidence concerning such claim. A find- ing and decision in writing on each claim filed shall be prepared, stating the substance of any evidence received or heard and the reasons for allowance or disallowance of the claim. The evidence and decision shall be a public record. No statute of limitations shall bar the allowance of a claim.
(C) For the purpose of conducting any hearing, the director may require the attendance of such witnesses and the production of such books, records, and papers as the director desires, and the director may take the depositions of witnesses residing within or without this state in the same manner as is prescribed by law for the taking of de- positions in civil actions in the court of common pleas, and for that purpose the director may issue a subpoena for any witness or a subpoena duces tecum to compel the production of any books, records, or papers, directed to the sheriff of the county where such witness resides or is found, which shall be served and returned. The fees and mileage of the sheriff and witnesses shall be the same as that allowed in the court of common pleas in crim- inal cases. Fees and mileage shall be paid from the unclaimed funds trust fund.
(D) Interest is not payable to claimants of unclaimed funds held by the state, Claims shall be paid from the trust fund. If the amount available in the trust fund is not sufficient to pay pending claims, or other amounts disburs- able from the trust fund, the treasurer of state shall certify such fact to the director, who shall then withdraw such amount of funds from the mortgage accounts as the director determines necessary to reestablish the trust fund to a level required to pay anticipated claims but not more than ten per cent of the net unclaimed funds re- ported to date.
The director shall retain in the trust fund, as a fee for administering the funds, five per cent of the total amount of unclaimed funds payable to the claimant and may withdraw the fands paid to the director by the bolders and deposited by the director with the treasurer of state or in a financial institution as agent for such funds. Whenev- er these funds are inadequate to meet the requirements for the trust fund, the director shall provide for a with- drawal of funds, within a reasonable time, in such amount as is necessary to meet the requirements, from finan- cial institutions in which such funds were retained or placed by a holder and from other holders who have re- tained funds, in an equitable manner as prescribed by the director. In the event that the amount to be withdrawn from any one such holder is less than five hundred dollars, the amount to be withdrawn shall be at the discretion of the director. Such funds may be reimbursed in the amounts withdrawn when the trust fund has a surplus over the amount required to pay anticipated claims. Whenever the trust fund has a surplus over the amount required to pay anticipated claims, the director may transfer such surplus to the mortgage accounts.
0 2008 Thomson/West. No Claim to Orig. US Gov. Works. A Q OOO0 O017 Page 2 R.C. § 169.08
(E) If a claim which is allowed under this section relates to funds which have been retained by the reporting holder, and if the funds, on deposit with the treasurer of state pursuant to this chapter, are insufficient to pay claims, the director may notify such holder in writing of the payment of the claim and such holder shall immedi- ately reimburse the state in the amount of such claim. The reimbursement shall be credited to the unclaimed funds trust fund.
(F) Any person, including the office of child support; adversely affected by a decision of the director may appeal such decision in the manner provided in Chapter 119. of the Revised Code.
In the event the claimant prevails, the claimant shall be reimbursed for reasonable attorney's fees and costs.
(G) Notwithstanding anything to the contrary in this chapter, any holder who has paid moneys to or entered into an agreement with the director pursuant to section 169.05 of the Revised Code on certified checks, cashiers' checks, bills of exchange, letters of credit, drafts, money orders, or travelers' checks, may make payment to any person entitled thereto, including the office of child support, and upon surrender of the document, except in the case of travelers' checks, and proof of such payment, the director shall reimburse the holder for such payment without interest.
(2000 S 180. eff. 3-22-0 1; 1999 H 471, eff. 7-1-00; 1997 H 352, eff. 1-1-98; 1997 H 215, eff. 9-29-97: 1991 H 298, cff. 7-26-91; 1985 H 201; 1981 H 694; 1977 S 221; 1972 S 215; 1970 S 386; 132 v S 411)
0 2008Thomson/West.NoClaimtoOrig.USGov.Works. A000000018 Page 1 R.C. § 2105.06
C Baldwin's Ohio Revised Code Annotated Currentness Title XXI. Courts--Probate-Juvenile Kp Chapter 2105. Descent and Distribution (Refs & Annos) 'ya7 Descent and Distribution; Rights of Surviving Spouse
_^2105.06 Statute of descent and distribution
When a person dies intestate having title or right to any personal property, or to any real estate or inheritance, in this state, the personal property shall be distributed, and the real estate or inheritance shall descend and pass in parcenary, except as otherwise provided by law, in the following course:
(A) If there is no surviving spouse, to the children of the intestate or their lineal descendants, per stirpes;
(B) If there is a spouse and one or more children of the decedent or their lineal descendants surviving, and all of the decedent's children who survive or have lineal descendants surviving also are children of the surviving spouse, then the whole to the surviving spouse;
(C) If there is a spouse and one child of the decedent or the child's lineal descendants surviving and the surviv- ing spouse is not the natural or adoptive parent of the decedent's child, the first twenty thousand dollars plus one-half of the balance of the intestate estate to the spouse and the remainder to the child or the child's lineal descendants, per stirpes;
(D) if there is a spouse and more than one child or their lineal descendants surviving, the first sixty thousand dollars if the spouse is the natural or adoptive parent of one, but not all, of the children, or the first twenty thou- sand dollars if the spouse is the natural or adoptive parent of none of the children, plus one-third of the balance of the intestate estate to the spouse and the remainder to the children equally, or to the lineal descendants of any deceased child, per stirpes; .
(E) If there are no children or their lineal descendants, then the whole to the surviving spouse;
(F) If there is no spouse and no children or their lineal descendants, to the parents of the intestate equally, or to the surviving parent;
(G) If there is no spouse, no children or their lineal descendants, and no parent surviving, to the brothers and sis- ters, whether of the whole or of the half blood of the intestate, or their lineal descendants, per stirpes;
(H) If there are no brothers or sisters or their lineal descendants, one-half to the patemal grandparents of the in- testate equally, or to the survivor of them, and one-half to the maternal grandparents of the intestate equally, or to the survivor of them;
(I) If there is no paternal grandparent or no matemal grandparent, one-half to the lineal descendants of the de- ceased grandparents, per stirpes; if there are no such lineal descendants, then to the surviving grandparents or their lineal descendants, per stirpes; if there are no surviving grandparents or their lineal descendants, then to the next of kin of the intestate, provided there shall be no representation among such next of kin;
(J) If there are no next of kin, to stepchildren or their lineal descendants, per stirpes;
0 2008 Thomson/West. No Claim to Orig. US Gov. Works, AODOOOQQ.) 9- Page 2 R.C. § 2105.06
(K) If there are no stepchildren or their lineal descendants, escheat to the state.
(2000 S 152. eff, 3-22-01; 1986 S 248, eff. 12-17-86; 1976 S 466; 1975 S 145; 128 v 155; 1953 H 1; GC 10503-4)
0 2008 Thomson/West. No Claim to Orig. US Gov. Works. A000000020- Page I R.C. § 2305.09
P Baldwin's Ohio Revised Code Annotated CuITentness Title XXIII. Courts--Common Pleas % Chapter 2305. Jurisdiction; Limitation of Actions (Refs & Annos) Rm Limitations--Torts
y2305.09 Four years; certain torts
An action for any of the following causes shall be brought within four years after the cause thereof accrued:
(A) For trespassing upon real property;
(B) For the recovery of personal property, or for taking or detaining it;
(C) For relief on the ground of fraud;
(D) For an injury to the rights of the plaintiff not arising on contract nor enumerated in sections 1304.35, 2305.10 to 2305.12, and 2305.14 of the Revised Code;
(E) For relief on the grounds of a physical or regulatory taking of real property.
If the action is for trespassing under ground or injury to mines, or for the wrongful taking of personal property, the causes thereof shalt not accrue until the wrongdoer is discovered; nor, if it is for fraud, until the fraud is dis- covered.
(2004 H 161, cfE 5-31-04; 1994 S 147, eff. 8-19-94; 129 v 13, eff. 7- 1-62; 1953 }I 1; GC 11224)
0 2008 ThomsonlWest. No Claim to Orig. US Gov. Works. A000000021 IN THE COURT OF COMMON PLEAS FRANIG.IN COUNTY, OHIO
WILTON S. SOGG, . Executor of the Estate of Julia Sogg individually, and on behalf of a class of others similarly situated, Plaintiff,
V. Case No. 04-CVGo8-8o28 Judge Frye
DOUG WI-I1'I'E, Director, Ohio Department of Commerce, Defendant.
DECISION ON THE APPLICABLE STATUTES OF LIMTI'ATION
1. .7ritroduction This case concerns the unclaimed funds program operated by the Division of Unclaimed Funds of the Ohio Department of Commerce. The relevant factual background is not disputed insofar as the statute of limitations question which is before the Court. Plaintiff filed this lawsuit on August 4, 2004 as Executor of his mother's estate seeking to recover the $4o proceeds of an old insurance claim, plus stock dividends of. $293. late' in January 2004, before filing suit, Plaintiff sought recovery of the principal amount of his two claims, plus interest. Following submission of further documentation, the state retctrned the principal ainount of Plaintiffs claims plus interest that had accrued prior to July 26, i9gi, but with those amounts reduced by a 5% statutory processing fee. However, the state paid no interest for any time after July 26, i991 on either the insurance claim or the stock dividends. These background facts about the Plaintiff are confirmed in paragraph 3 of the Stipulation filed September 30, 2005. Since it was amended effective July 26, zggi, the relevant governing statute has continuously provided that "[i]nterest is not payable to claimants of
A000000022 unclaimed funds held by the state." R C: §169.o8(D). Relying primarily upon several i^ecent decisions of the United States Supreme Court and the time- Izonored rule that "interest follows the principal," Plaintiff seeks to invalidate this Ohio statute as an unconstitutional taking of interest earned on funds belonging to members of the public, but held for them by the state. More specifically, Count I seeks equitable restitution of interest wrongfully withheld by the state. See, Santos v. Ohio Bur, of Workers' Compensation, ioi Ohio St.3d 74, 2oo4-Ohio-28, syllabus. Count III seeks a prospective declaratory judgment that actual or constructive earnings on unclaimed funds in Ohio are private property, and that they have been taken for public use without payment of compensation as required by the Constitution of Ohio. Count IV makes the same prospective claim under the United States Constitutiou. Finally, Count V seeks a purely prospective remedy under the civil rights statute, 42 U.S.C. gi983, based upon an unconstitutional "taking" of properly contrary to the Fifth and Fourteenth Amendments to the United States Constitution, plus an award of attorney fees under the federal Civil Rights Attorney Fees Act, 42 U.S.C. §1988.
2. The Applicable Statutes of Limitation The parties vigorously disagree about which statute of limitations is applicable to this case. That question becomes relevant to determining how far back financial restitution might be available as a remedy if the Plaintiff class prevails in this lawsuit. As pointed out in the Court's class certification order, the Court has concluded that the determination of the applicable statute of limitations is a determination of a legal question going to the iinerits of this case, and is separate and apart from how the Rule 23 class is properly defined . procedurally. Because there is no genuine dispute of material fact and the pariies have thoroughly briefed their positions on various statutes of limitation, the Cou'rt issues this decision to guide further proceedings in this case. Although derived from one common nucleus of fact, and involving essentially only one legal question, the Amended Complaint asserts claims under state law and federal law. That, in turn, triggers challenging statute of limitations issues. Of course "the fact that a statute of limitations may bar the claims of
1) A000000023^ some, but not all, class merubers does not compel a finding that individual issues predominate over common ones." OHA: The Assoc. for Hospitals and Health Systems v. Department of Human Services (ioth Dist.), 2oo6-Ohio-67, 20o6 Ohio App. LEKIS 42, at 129. A. The Four vear statute in 2-4ori.os(B) Anplies to Some Claims Based upon the recent decision in Pedro Koe-Krompecher v. City of Columbus (ioth Dist.), 2oo5-Ohio-6504, 2005 Ohio App. LEIOS 5835, this Court concludes that the applicable statute of limitations for Plaintiffs state law "taldng" without just compensation claim, including the restitution portion of it (pleaded in Count i) is P.C. 23o5.o9(B). That statute applies a four-year time limitation to various types of actions including those seeldng "the recovery of personal property, or for taking or detaining it." Indeed, in holding that the taldng of money is a taldng of "personal property" ta which this particular statute applies, the Franklin County Court of Appeals cited Philtips v. Washington Legal Foundation (1998), 524 U.S. 156 as "recognizing that interest income generated in'interest on Lawyers Trust Account(s)' constitutes private property." Id. at ¶ii. Although the so-called "discovery rule" may delay the start of the statute of. limitations under RC. 2305.09, that same Koe-Krompecher decision held that "discovery" turns on knowledge of factd rather than on a court's future determination that a particular law or ordinance is unconstitutional. The relevant point of injury here is when the state refused to refnnd interest on the principal to individual owners of unclaimed fands. In the words of the recent Koe-Krompecher decision, the "injuries took place when they paid... despite ... not having been aware of specific legal theories to challenge ... constitutionality at the time that they paid." Id., at ¶ ig. This analysis in KoeKrompecher is consistent with a number of federal and state decisions reviewed by Judge French in her opinion, and governs this case as well. See also, Children's Hospital v. Dept. of Public Welfare (1982), 69 Ohio. St.2d 523, 433 N.E.2d 187, and Vfstamar, Inc. V. Fagundb-Fagundo (C.A. 12005), 43o F.3d 66, 2005 U.S. App. I.FMS 26274 (in a§r983 taldngs case, when did the plaintiff know or have reason to know of the injury). This "injury" requirement bas a fmancially significant application to this
3 A000000024 case. As Plaintiff pointed out in his memorandum filed November 28, 2oo5, the premise of the Ohio system for unclaimed funds is that such funds always belong to the owner who forgot them or otherwise did not claim them. Title never passes to the state. The "injury" in legal terms does not arise until someone remembers their lost funds, or otherwise discovers their eidstence through the efforts of the Division of Unclaimed Funds. Yet, while funds remain unclaimed those funds have arguably accumulated interest. Indeed, unclaimed funds held for periods prior to July 26, i99x resulted in actual payments of interest to successful claimants even if the principal was not claimed until decades later. Stipulation filed Sept. 30, 2005, at 14. That right to recover interest up to July 1.991 remains viable until the owner makes a claim for his or her funds; but, -no interest is paid after the effective date of that x99x statutory amendment. Stipulation 13. The injury to the owner of the funds, in other words, manifests itself only after a claim is successfuIly made to recover unclaimed funds, because only then does Defendant pay some, but perhaps not all, of the interest that bad been constructively earned on those funds. The four-year period under the applicable statute of limitations is not expandable using any sort of theory that the consiitutional invalidity of the Ohio Unclaimed Funds statute was not apparent, or simply had not yet been adjudicated. Therefore, any restitution for unpaid interest which is arguably due the owners of unclaimed funds can flow only to those wbo either claimed their money within the four years prior to August 4, 2004, or did so since this suit was filed. The time period for which interest must be paid to owners of unclaimed funds under the restitution theory, if the Plaintiff class prevails on the merits of theii constitational claims, can run only as far back as those who made claims and recovered the principal amount of their unclaimed funds within the four year period before suit, that is, on or after August 4, 2ooo. Their injury - the lack of interest payments computed on principal which they were due - manifested itself when their principal funds were returned. That event started the four-year period in which each claimant was required to bring suit under the applicable statute of limitations. Because no legal challenge was brought earlier during the x99o's, practically speaking the state will be entitled to retain the interest earned
4
A000000025 between July 1991 and August 2ooo, and which was not paid to people who recovered the principal amount of unclaimed funds more than four years before this case began. (The filing of a class action lawsuit tolls the statute of limitations for everyone in the class, of course, so the class members who were arguably due interest within four years prior to the time Mr. Sogg suied get the benefit of his effort.) B. The Statute of I imitations for the § i48n Claim The state argues at some length that the two-year statute of limitations, applicable to "product liability," "bodily injury" and "injuring personal property° claims, is also applicable to Plaintiff s 42 U.S.C. §1983 civil rights claim. That, the state argues, applies to every civil rights clairn arising in Ohio. The two-year statute of limitations is found in RC. §2305.io(A). As noted earlier, Count Five makes a §1983 civil= tights claim: It is coupled with a claim seeldng-recovery of prevailing party legal fees under the Civil Rights Attorney Fees Act, 42 U.S.C. §1988. For the reasons set forth below, the Court rejects the state's argument and holds that the four-year Ohio statute of limitations is also applicable to Count Five. (This application of a common four-year statute of limitations time period for all claims eliminates any need to construct a separate "sub-class" of Plaintiffs in certifying this case under Civ. R. 23(B)(2).) In enacting §1983, the Congress during Reconstruction created a private right of action for violations of federally protected civil rights. The statute provides a remedy, but contains no statute of limitations. As a result, under a companion provision in 42 U.S.C. §ig88 the courts must "borrow" a state law limitations provision to determine when a§i983 claim is timely. After years of confusion and unpredictability, as each separate state jurisdiction tri.ed to work out wbich statute of limitations ought to be applied to the many variations or categories of federal civil rights cases, the Uriited States Supreme Court addressed the issue. It held that, uniforinly, only one statute of limitations should apply in all §1983 cases in each state. Because §1983 often addressed personal injury claims, the statute of limitations for personal injury claims was to be selected. In states like Ohio having multiple statutes of liiinitations for different categories of personal injury actions, bowever, the "general or residual" personal
5
A000000026' injury statute of limitations was supposed to apply. Owens v. Okure (1989), 488 U.S. 235, 250- Selection of the applicable statute of limitations in Ohio is complicated. There is no specific "personal injury" statute. Instead, as noted above, for decades Ohio has had a number of statutes of limitation including one which only applies to "bodily injury" claims. Nevertheless, in the wake of Owens v. Okure the United States Court of Appeals for the Sixth Circuit concluded that the two- year bodily injury statute of limitations in R.C. §2305.xo applies in §1983 cases. E.g., Banks v. City of Whitehall (CA. 6 2003), 344 F.3d 550, 553, and Kuhnle Brothers, Inc. v. County of Geauga (C.A. 6 19g7), 103 F.3d 516, 519, both citing Browning v. Pendleton (C.A. 6 1989), 869 F.2d 989 (en banc). Both Banks and Kuhnle Brothers included a taldngs claini, as did at least one other Sixth Circuit decision in which tfietwo-year statute was applied where a plaintiff asserted "that defendants' intentional or reckless acts had deprived [plaintiffs] of their asserted property interest without due process." Hughlett v. Romer-Sensky (C.A. 6 2oo4), 98 Fed. Appx. 36o, 367, 2004 U.S. App. LEXIS 4402 (not for publication). Qf course, the fact that the same statute of limitations is applied in "bodily injury" civil rights claims and in property "taldngs° cases is consistent with the Supreme Court's goal that only one statute ought to apply uniformly in all §x983 cases. However, the Court of Appeals for Franldin County has considered the same question repeatedly. It has thoughtfully departed from the Sixtb. Circuit and several other Obio appellate courts in concluding that the four-year limitation in R.C. §23o5'.09 is the most relevant statute of fimitations for a§i983 lawsuit. At least three decisions perform the analysis caIled for by the Supreme Court in Owens v. Okure, and all reject the argument that the two-year rather than the four-year statute ought to apply and be considered "Ohio's 'general' or 'residual' statute of limitations for personal injury actions." Fowler v. Coleman (ioll, Dist.), zg99 Ohio App. LEXIS 648o, Franldin App. No. 99AP-3x9; Prohazka v. Ohio St. Univ. Bd. of Trustees (ioth Dist.), z9g9 Ohio App. LEX1S 6475, Franldin App. No. 99AP-2, and Weethee v. Boso (ioth Dist. 1989), 64 Ohio APP.3d 532, 582 N.E.2d 19. Other Ohio state court decisions apply the two-year statute of limitations and follow Browning v. Pendleton, supra. E.g., State ex reI.
6
Aoooaoao27- Eckstein u. Midwesfi Pride .lV, Inc. (12th Dist.1998), -128 Ohio App.3d 1, 13-14. While obviously bound by stare decisis to follow the holdings of the Franldin County Court of Appeals, on the merits this Court would also note its agreement with the reasoning in the decisions applying the four-year statute of limitations in R.C. §2305•09• Judge Bryant accurately observed in Prokazka, supra at *22, that although the question of how one should characterize §1983 claims for statute of limitations purposes, and whether Ohio's general or residual statute of limitations should be applied to §1983 claims are both questions of federal law, "the question of which Ohio statute of liinitations constitutes the stafie's general or residual statute of limitations is [purely] a question of state law." Accordingly, notwithstanding the deference due the Court of Appeals for the Sixth Circuit in matters of federal law, much less deference is due Browning v. Pendleton on this-state law question. Moreover, as Judge Bryant also pointed out, the four-year provision in RC. § 230$.o9 was not even argued by the parties to Browreing as a possible choice. Prohazica, supra at *21, citing LRL Properties v. Portage Metro Housing Auth. (CA. 6 1995), 55 F.3d 1097,1105, fn. 2. In 2004 the General Assemble amended §23o5.o9, and added the first paragraph of subsection (E), explicitly providing that a four-year limitatioh on actions applies "[f]or relief on the grounds of a physical or regulatory taking of real property." Ivlost frequently any "taldngs" claim involves real property, rather than the "taldng or detaining" of personal property as argued in this case and which is explicitly addressed under subsection (B) of that same statute. Thus, one who seeks relief under §1983 now has even more reason to conclude that state law includes a four-year provision, whether the civil rights claim is for a "taking" or some other type of injury. (Fortunately, it matters not at all wbich specific subsection of §2305.09 applies in §i983 cases, since for all of them the same four-year period is mandated_) Finally, insofar as the Supreme Court sought in Owens v. Okure and related decisions to ensure that the borrowed statute of limitations selected in each state would afford a reasonable time for suit to every federal claimant, 488 U.S., 249, fn. 12, the four-year provision is more sensibly used than the two-year one.
7
A000000028^ Cbncededly, the issue of whether Plaintiffs §1983 claim in Count Five goes back two years or four years may be largely academic. On the merits there appears to be little or no difference between federal taldngs law and Ohio taldngs law. See McNarnara v. City ofRittman, 107 Ohio St.3d 243, 2005-Ohio-6433, at 1¶24-28 (which applies definitions of "property" protected against a taking interchangeably under the federal Taking Clause and Section i9, Article z. of the Ohio Constitution) and State ex ret. Pizza v. Rezcallah (1998), 84 Ohio St.3d ii6, syllabus paragraph two. Only a declaratory judgment and no damages are sought in Count Five, under §1983. This suggests that the federal civil rights claim is appended largely to assure an additional theoretical basis exists for seeldng recovery of legal fees if the Plaintiffs prevail. The fees-shift provision in §1988 could provide an alternative basis for recovering fees to those available under state law.l This observation is not intended to suggest, of course, that a larger amount of fees is likely to be available under §1988 than under state law, but Plaintiffs understandably hedge their bet should they prevail at all.
4. Conclusion All persons or entities who filed claims with the Defendant, and on or after Augast 4, 2ooo recovered unclaimed funds thfough the Division of Unclaimed Funds of the Ohio Department of Commerce but were not paid interest on such funds for any time period after July 26, i99i, have viable claims under the two applicable statutes of limitation. All claims in this case made in behalf of inembers of the Plaintiff class whose unclaimed funds had been com.pletely repaid by August 4, 2000 without being paid any interest for the time after July 26, ig91, and whose legal "injury" thereby manifested itself prior to August 4, 2ooo, are untimely. Those claims by members of the Plaintiff class are DISMISSED.
t A right to recover attorney fees probably also exists under Count One if Plaintiff is successfuL A recovery of restitution for a class could trigger the "comotnon fand" exception to the American rule (that otherwise precludes recovery of legal fees by a prevailing party.) That doctrine is recognized in Ohio. State ex ret. Davis v. Public Employees Retirement Board (101° Dist), 2005-Ohio-6612, 2005 Ohio App. I.FXIS 5945, fii. 2, citing Smith v. Kroeger (1941), 138 Ohio St 508, 514-15, 37N.B.2d 45. Justice Harlan's landmark decision in Mills v.Electric Auto-Lite Co. (1970), 396 U.S. 375, 395-97, is one of many federal decisions recognizing the common fund doctrine.
8
A00000002V .IN. THEFRANK.N COURT OF COUNW,oMO -tOIYMON T'IX-IS ' C23I 6B I9
VtTII.TON S. SOGG, Exeeeator of the ]F.state of Jnlia Som ) inalsvielreally, anA on behalf of a class Of j others simil^a31Y situated., Plaintifls ). . v ) Case No. 04CVG08-8028
^ h A
.I20UG WHffE, ID'irector, ) •^ r 4, Ohio Degartznent of Commerce, ) Defendant. ) o r .,. rn ^ r' " T1 o ^ ^_- J < i . • ^1 a^
®PINION C= C„ _.,4 Cn
Frye, J. Intro duc[iout I {i} This case was certified as a class action undet Civ: R. 23(B)(2),'in order to dete"i-mine whether a portion of Ohio's Lrnclaimed Fun^ended in ' unconstitutional because it results in a taking of private properiy- iggi as a significant, alteration to the state's program for handling unclaimed 'funds that began in the i96o's, the statute in 4uestion denies private owners of funds any interest on their money while it is held by the state even though, while in state custody, such funds always remain private plroperty- Beyond retaining the interest earnings,.the state also collects a five percent administrative fee upon funr's returned to private owners. Iinterest earned on the tens of millions of
_ .._.,, ' .;'• , _'„•:.„ -_ :.,;;; .. ^ .: , . •.,:: _ • - • ... i'Y ^la ...•A.:^ ^t-' A000000030_ dollars retuined to private owrmrs each vearl is taken by the state to undervwrite •3•'r.,^s loans to first-time home-buyers, and for other public m:rposes: ^cfr explained hereinafter, this eourt• concludes that, the federal and state Constitutions both require the state to pay interest on •unclaimed funds held by the defendar,t, and thatthe first sentence of It.C. i69.o8(D) as amended in i99x is unconstitutional. Tiee FL-cduai Recar& {2} Wilton Sogg :s•the executor of his mother's estate. Julia Sogg passed, away leaving unclaimed funds comprised of an instirance p4licy claim payment of $.4o.62, reported to defendant in 1989 by Blue Cross & Blue Shield, plus dividends of $292.86 reporked'in 1948 by the Bank of New York. Amended - Complaint 91 2o:et seq,; Amended Answer 1120 et seq., Early in 2004 Mr. Sogg made a claim for those funds. A few months later the state issued a check for $320.72.' Plaintiff was-paid inter.est on his mothers Blue Cross & Blue Shield' monev calculated until July 26, i99i when the applicable statute was'amended to. eliminate payment of interest. After that date he receiyed none. In addition, a 5% fee was deducted from the amount returned to cover defendant's administrative costs. Mr. Sogg brought suit in August 2004. {3} p4r..Sogg was• certified under Civ. R. 23(B)(2) as a class representative for. all tho'se who recovered unclaimed funds since August 4, 20oo, and who were not paid interest on their funds after July i99i. Class Certification Order filed February 24,.2oo6. In a separate decision the court determined that a four-year statute oflimitations is applicable under Ohio law and under 42 U.S.C. §1983 to th e "takings" claims made in this case. Thus, claims by those whose unelaimed funds had been repaid prior to August 4, 2000 (although without interest
In stam fscal year 2005 ihc Division rcccived 5 175 million in new unclaimed funds, and refunded $54 million to 41.000 owners. The balance remaining to be rctumed to ownars of the prope[ty was rougbiy 5825 million. S'tip Two °j22, and F.xhibit "F." Although not yet formally pan of die record becausc thoy became availablc only after all the brieling, on July 27, 20q6 defendant aturounced publicly that 5210 million was rcponcd as new moncy to the Ohio Division of Unclairncd Funds during statc 6scal year 2G06. 564.4 tnillion was paid out on ovcr 43,000 elaim.s. "Canmercc Ncws Release' found at wuw.com.srate.oh.usroress+digplay.nsa91 W 86¢ (last visited 815r'06.) 2 73r_ pa -xita filed Stipaiadons of Fact on Sapt. 30, 2f105 and March 2, 2006. For simplicity thcv are refcrcnccd as Stipulations One aud Two. The StipularDtu quarcly focus this case upon what the parties agree "is a purely legal issue:' Sdp. Ooe at 12. The profcasionalism of counsel throughout this case, particularly in streamlining the factual rccor3, reflocts the bcst naditions of the bar.
2
AanaDOn.aL..: attributable to the period after juiy 26, iggi) were tirne-h^^ IV iaw injury manifested itself moxe. than four yeais before this snit began: Decision on the Applicable Statutes of i.imitation, filed February 24, 2006. {4} Doug White is.Director-.of Commerce. He supervises the Division of Unclaimed FuncL within the Oliio Department of Cotnmerce. It operates an elaborate program to gather funds, keep track of them, and advertise publicly to alert owners that their property is in state custody. According to the recent News Release referenced at footnote one, outreach'efforts include ldosks at the Ohio State Fair that connect directly to the Division's "Online Treasure Hunt" webr-ite. Using those cothputer terminals the public can determine if their name; ^e associated with any of the 3.2 million open accounts still waiting to be claimed. {5} Ohio Revised Code Chapter 169 sets forth the procedure under which *unclaimed funds are' collected and distributed by the Division of Unclaimed Funds Ohio first adopted the Unclaimed Funds Act in 1967. Stip. 'h.vo.114. From fiscal year i968 through fiscal year .200$ the state controlled almost $1.3' billion as unclaimed property, Over the entire period the program successfully returned 35% of the property to its owners. Stip.lao 922. {6} For the first several decades this program paid interest to owners upon the return of their money. Horvever, a July x99i amendment to R.C. 169.o8(D) elirriinated payment of all interest. The statute now explicitly provides that. "[i]nterest is not payable to claimants of unclaimed'funds held by the state." R.C. 16g.o8(D). Beyond that, and of legal significance as discussed below, since 1991 defendant has -been statutorily authorized to, and actually doPs, collect a five percent (5%) administrative charge measured against funds returned to successful claimants. {g} The'purpose of the Ohio unclaimed funds act is three fold: t) to protect the property right of the owner and reunite the owiler with their funds; 2) to provide a centralized contact-for potential unclaimed funds owners; and 3) to relieve holders of unclaimed funds from further legal liability. Stip. Two ¶9. {8} Under Ohio law unclaimed money, rights to maney, or intangible property are classified as "unclaimed" when the owner has not generated activity for a prescribed period.-generally five years-depending upon the type of property-, and when the non-owner "holder' c+f such property cannot locate the owner. Stip. Two 15; citing R.C. T69.o2: All fuxids that woR laa &quto^ definition :nf "-nclaimed" are placed under the Divisiozi s control. Stip Tivo 15, citing R.C. 169.o6. °Holders" of unclaitned funds may; in the Division's di§csetion, remit io% and -retain 9o% of the unclaimed ituwds: Stip. Two 110. In instances such as these, R.C. 169.o5 requires the hol.der to iiivest the retained amount into an approved FDIC insured "incotne-bearing" account or a U.S. treasury account. Id. . The liolder is then required to deliver over all earnings realized on such invested fitnds to th.e Divi'sion. - :{g} Marketable- securities and other intangible, non-monetary ptoperty- del.ivered into defeudant's custody are sold and converted into cash in accordance with 'R.C. 169.o5(A). Stip. Two T7. Further, while the Act does not specifically address tangible items the Division of Unclaimed Funds also accepts custody of : property left behind in sax"e -deposit boxes, such as stamp and coin collections. Stip. Two 18. The Diirision.inventories the items and establishes accounts for the owners. Tangible•items are kept intact until such time as the Division elects to liquidate them at auction. The last such auction was held in 1g98. Once liquidated, the Division treats the proceeds like all other unclaimed funds. Id. {io} The Di'vision holds unclairried funds in trust for the owner in perpetuity. Stip. Two 91ii. Funds and other property never escheat, or otherwise become property of the State of Ohio. Id. Concepts of "abandonment" or "escheat" are not a part of the Ohio statutory schviue. - {ri} Funds held by the Division are not permitted to sit idle. Many of the funds are actually invested by the state (or by another holder) to accrue interest or other.earnings that is eventually paid to the state.' Stip. Two 11 io, 12. Interest bearing accounts contain the principal funds that are held by the defendant including the io% funds not retained by holders outside state government and the'interest paid in to the state that is earned on the 9o% of funds that the state - may elect to leave in private hands. Beyond those income-beartng accounts, a substantial amount of unclaimed funds is transferred to finance state programs such as the Ohio Housing Finance Authority ("OHFA"). It obtained $570 million doUars from the pool of unclaimed funds between state fiscal years i99i and
A0000000W 2oo5. Those funds were then loaried out to the pu^iE *.p support housing deuelopment in the state. ' Money sd utilized remain's. subject to recall to repay claims of owners. Stip. Two'¶¶x2-16. I-lowever, even i.f the OHFArerimits the principal back to.the Aivision it never remits any interest reesivel from bome loans that the Authority has made using the unclaimed funds: Stip.'Ivo 113. {i2} Defendant aecounts for operation of the I)ivision using three major expense categories: operating expenses, administratlve and computer support, .and holder aiailing and other expenszs. Operating expenses include payroll, external auditors, advertising, and equipment. Stip. Two ¶i8. Between fiscal years 1992 and 2005, the Division showed expenses of $74.5 million, exclusive of amounts .transferred to the Ohio's General Revenue Fund, Transfers to the General Revenue Fund. of the state are accounted 'for, within the Division, as monetary losses. Stip. Two ¶i9. Between fiscal years i992 and 20o5, as the offset to expenses, unclaimed property held by the Division earned $73 million. •This figure is; however, exclusive of earnings constructively realized on the hundreds of millions of dollars transferred to the OHFA and to other state programs as well. Stip.'Pwo ¶20. . Using its own peculiar form of bookkeeping, the Division assef-ts that it operated at a net loss of $1,466,789 since fiscal 1992, SHp. ¶¶i9-2o. {.i3} Tnsofar as earnings on unclaimed funds are concerned, the Divisibn's aecounting is materially inconsistent with Generally Accepted Accounting Principles or. any other sensilile accounting standards. The system used artificially ignores eai-nings realized from funds transferred to the OHFA simply because, somewhere along the way, someone in authority decided that 'the OHFA need- not account for or pay-over the interest it earns on home loans made using unclaimed funds. As of June 30, 2005, the OHFA had returned $316 million to rhe Division. Stip. Two 113. Interest earnings should be imputed to that $316 million, and the court observes that for many of those years the statutory interest rate in Ohio was xo%. Beyond the OHFA; unclaimed funds have also been transferred to the • Savings and Loan Assurance Corporation, the Ohio Job Development Fund, and the state General Fund. Unlike the Oli:'A, however, unclaimed funds transfeh-ed to such other destinations never are retutned to
5 I defendant and, not - surprisingly, no interest earni ^ tted or credited to the Dii^ision. ' 5tip. Tvo J3q, kli,-thermno^,4dflnal unclaiined. funds are held •by ttie state Treasurer a.t interest to be used to pay approved claims and operating expenses. - Since June 2005,.no sudh in•terest from the Treasurer's account is either-remitted or credited to the Division. Stip. T1wo 115. 04} Between July 1, 2ooo and June 30, 2005 just the unefaimed funds retai!ied w'ithin the Division earned $29,074,394. - Stip Two 120. Above and beyond that, the $9,002,403 was realized as proceeds qf the ",% Claim Processing Fee." Id., and Ez. "E" to Stipulation Two. Expenses' claimed by- dei'endant for fiscal years 2oo4 and-2oo5 are aberrational.3 Leaving those years aside, total operating expenses.averaged approximafely s$.6 million. Interest on just the unclaimed funds retained within the Division plus the g% fee generated $7:6 million per year: - {i5} Notwithstanding difficulties attributable to state accounting practices that systematically underreport earnings attributable to unclaimed funds (thereby obscuring the frue cost of the Ohio Housing Finance Authority and other public pregrams using such funds interest-free) the Division of Unclaimed Funds does not operate even close to a financial loss. If GAAP accounting were employed accurate figures would be readily available. Yet, for the purpose of this Opiniort the evidence supports a finding beyond a reasonable doubt that tF unclaimed funds program makes substantial profit for the state. Indeed, veritable cash cow feeding an array of other public programs.
} £xpences claimed for 2004 and 2005 skyrocketed becausc of cxuaordinary costs attributed to oubidc anditors. They were paid on a contingent fee basis to invcstigatc potential holdas of unclaimed funds outside Ohio, leading to recovery of additiond unclaimed funds due the state. Stip. Two 119, footnote 5. It distorts the conc•ept -of "operating expcnses" for the Division to !ump'these unuaual contingency fees into thc mix as ordinary expensea wit.bout ofiaening them with the resultant "income" rcccived. "ihe amount of newly discovored'unc!aimed Cunds plua the imercst eamings on thero gcneratcd by ou^^idc auditors is no doubt far niore than the contingency fees paid - the very definition af a contingency fcc assures that! Without including extraortlinary eontingcnt fees in operating costs the expensc to operato the Division appcers ralatively stable, adjusted for inflation, going all the way back to 1992, For this reason the court attaches no significance to the nearly tlxu fold increase in "expenscs" claimed for 2004 and 2005. . . P'rfas^ite P^+n^st^ iae rracetaia^.erl ^are^^ {i6} In. a takings ease under either the state or feder^ `Con^sh^^an the • first question is whet5er private property.is implicated.•. In this case it is undisputed that unclaimed funds held by Ohio always remains the property of the private owner. Stip. Two, 11ii and 24. {iry} That being true, the issue becomes whether interest earned on those funds while in the cantrol of state government is also the property of the private owner. The basic rule that "interest foItows principal" offers at least a partial answer to this question. That rule is of long standing but retains current vitality. The Supreme Court of the United States recently recognized that the rule that "'interest follows principal' has been established under English common laN,i since at leagt the tnid,r700's." Phillips v. Washington Legal Foundation (1998), 5?4 U.S. 156; i65. Furthermore, "this rule has become embedded in the common law of the •various States." Id. and fn. 5. Ohio is among them. Defendant concedes "Ohio generally recognizes the common law doctrine of 'interest follows principal."' Defendant's Memorandum filed March 2o, 2oo6, at p. 2. Ohio has long recognized this rule. E.g. City of Ohio v. Cleveland and Toledo R.R. Co, (t856), 6 Ohio St. 489, 494-95. The tenet that interest follows principal remains in.place today. Thompson v. Indusirial Comm. of Ohio (1982), i Ohio St.3d 244, 249; City of Akron v. Kalavity (Feb. 2, 2ooo), Summit App. No 19678, 2000 Ohio App. LEXIS 286 (in eminent domain case, interest earned while 8.inds deposited less customary clerk's fees belonged to the landowners.) More generally, the rule that interest should be paid on principal sums due is recognized in Ohio statutes. E.g. R.C. 1343.03 (assessing pre- and post-judgment interest on legal claims). {i8} As a corollary to "interest fdllows principal" it is said, generally speaking, that interest generated from private funds belongs to the owner of the principal even when the money is held in an account mandated by the government. Phillips, supra, at 172; Kalavity, supra. The question then becomes wbether the Unclaimed Funds Act in Ohio mandates a different rule of property law.
7 {i9} The.1991 amendment to R.C. i69.o8(D) prov-ided " fi[9ftq* is not payable to claimaiats of 'unclaimed funds held by the state.° Plainiy, this statute is limited in scope. Jt -did not purport to repeal the common law recognition that "interest follows principal." Of course, the Ohio Supreme Court has recognized that the General Assembly may sometunes abrogate common law principles through.legislation. Thompson, supra, i Ohio St.3d.at 249, citing Bshe[by v. Cincinn¢ti Bd, of Edn. (1902), 66 Ohio St. 7474. But, as Defendant concedes,. Thompson "does not mean that the General Assembly may• legislate away existing• property rights." Defendants Mem. Contra at p. io. The Constitution places limits on how a state may, tinker with established rights of private property. {20} 'The Takings Clause protects private property; it does not create it. * M * Even though fundamental principles of State property law may define pioperty rights, the: Takings Clause nevertheless limits a State.'s authority to redefine preexisting property rights. Thus, 'a State, by ipse dixit, may not transform private property into public property without compensation' *** nor can it 'sidestep the Takings Clause by disavo%ving traditiotial propeity interests long recognized under state law."' Washlefske v. Winston (C.A.4, 2000). 234 F.30 179, 183-84. "The States' power vis-a-vis property thus operate.s as a one- way ratchet of sorts: States may, under certain circumstances; confer "new property" status on interests located outside the core of constitutionally protected property, but they may not encroach upon traditional "old property" „terests found within the core. See Richard H. Fallon, Jr., Some Confusions About Due Process, Judicial Review, and Constitutional Remedies, 93 Colum. L. Rev. 309, 3'29 (1993). Were the rule otherwise, St2tes could unilaterally dictate the content of - indeed, altogether opt cut of - both the Takings Clause and the Due Process Clause simply by statutorily recharacterizing traditional property-law concepts." Schneider v. Cal. Dept. of Corrections (C.A.9, 1998), 151 F.3d 1194, 1200-02 (emphasis in original); subsequent opinion at 345 F.3d 716 (2003). McIntyre U. Bayer (C.A.9, 2003), 339 F.3d 1097 followed Schneider, and. observed that "constitutionally protected property rights can--and often do-exist aespite
8
,A0:0AI10003] ^;;, statutes that appear to deny their exdstence."• Id. at 1100, fn.$. (emptiasis- in. oiriginal) {2t; Consistent with the logic of these deci.sions the court cannot readily accept the state's argument that tue. General Assembly retained broad authority in i991 to.redefine interest on unclaimed funds as something otber than private property. In considering this question it is noteworthy that the 199x amendment to R.C. 169.08 altered both a' long-time rule of common law and completely reversed the prior version of the same statute that had - znandated payment of interest on unclaimed funds held by the state. R.C. 169.o8(D) provided in 1967 that an owner.of funds whose claim was allowed by the Director would receive interest "computed at the rate earned by such funds during the period tlie, director of commerce-held the funds or at the rate agreed to by the holder and the owner, whichever is higher." Thereafter, a provision setting interest at the fixed rate of six percent was added to R.C. 169.o8(D). That provision continued through several statutory amendments. B.g., Sub. H.B. No. 2o1; 141 Ohio Laws 2006 (1985). Finally, in the ig91 biennial state budget bill, (Am Sub. H.B. No. 298, 144 Ohio I.aws 4038,) the right to any interest was abruptly eliminated. Not only was the "interest is not payable" language added, which is the primary focus of this suit, bnt also a five percent""fee for administering the funds" was introduced for the first time to be asse.s^rd against any funds repaid to an owner. Uncodified Sections 151 and 194 0€ that zg9i budget bill make it abundantly clear that those enactments occurred during a period of great revenue uncertainty for the State of Ohio, although standing alone this historical fact is of no more constitutional importance than the presumed social benefit derived from subsidizing housing loans. {22} For these reasons, the court b4lds that the common law rule of property law that ",nterest follows principal" was nbt subject to legislative repeal in 19g1 as it pertains to the Unclaimed Funds stattites. Accordingly, because private property is implicated the court turns to the federal and state takings claims made on behalf of the plaintiff class.
AQ:000000 3 : .. __ . • L.SV {a3} Counts Nand V of'the Amended Compiaint set ontib6e'ra'1'"faIdngs claims. Count V specifically relies upon 42 U.S.C. §1983, the federal'civil rights statute providing.a remedy for constitutional violations occurring under color of state law. The Takings Clause of the Fifth Ainendment has been-applicable to the states, through the Fourteenth Amendment, since Chica.g'o, B.' & Q.R. Co. v: Chic¢go (1896), i66 U.S. 226. .Keio v. City of New London, Conn. (2005), 545 U.S. 125 S.Ct. 2655, 2658,162 LEd.2d 439, th• 1- {24} `'The Takings Clause of the Fifth Amendment provides that private property shall not `be taken for public use, without just compensation.' U.S. Const. Amend. V. This restraint on the power of the government-to take private property*** is "designed to bar [tlie government] from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a, whole.' Penn Centra! Transp. Co:'v City of New York (1978), 438 U.S. 104,- 1-23 (1978)." Prater v. City of Burnside (C.A.6, 2002), 289 F.gd 417, 424• {25} The United States Supreme Court has consistently recognized that the act of separating interest from the principal that earned it, when done by a state or ' political subdivision, may 'constitute a taking of property for constitutional ptirposes."Brown v. Legal Foundation of 4Vashington (2003), $38 U.S. 216, 235;. Phi(tips, supra, at 168; Webb's Fabulous Pharmacies, Inc. v. Beckwith (ig8o), 449 U.S. ]55, 164-65. Moreover, Brown clarified that the straightforward application of per se legal rules is the appropriate method of analysis in a case like •this one in which interest is taken by the government. Brown, supra, at 233-235. This case is not one in which the alternative legal analysis in takings cases, requiring "complex factual assessments of the purposes and economic effects -of government actions" such as is used to evaluate the constitutionality of zoning or other goWernment regulatory action, is appropriate. Id. at 234; see atso, Schneider, supra, 345 F.3d at 720. {26} Defendant concedes that interest generally follows principal, but postulates several reasons why that common law rule is inapplicable to funds held in trust by the Division of Unclaimed Funds. First, it is argued that the
10
i^ •.'+.. . ..,::,`,=^ . ...^ ^^^.i^jiia'`•[i"^'''r^^.,`^.'<;ii^iY:x"''^'i::^^^^:i:y^^^A"f'r^^:^tSk;',i'At"^^.h`aA4h'^ . ^ :: ., ..^;^;. ^SiEi44a'+4^sqi^a-:f.<.7'tS^f:.^i:; . ^a3;..Sr.^'LY.!;i.,^{,"a^'.:ci:='i"'.,`••.`...^.t^',^la^u.i "t.4:..:...... 4^!..:.,,.:. ,.,.....^....,^:...:,...:?^:: ^o-s:. . _ plaintiffs have w riglit to interest on the unclaimed funds because the General Assetnbl jabmgatedtlie common law rule that irtteeest fo.• %s it. pertsins to unclaimed funds whett it amended RC_ i69.o8(Dj on July 26, i94 :. That argument has been rajected above. Secoitd, the Director argues that since unelaimed funds, a, essentially "abandoned" the 'owners of such funds no longer enjoy any right to their funds much less to-intere$t accrued thereo Third, Defendant claims that plaintiffs are not entitled to'compensation because they suffered no pecuniaryloss, in that without the Unclaimed Funds program all interest would be lost on these funds. Fourth, the state contends that it is no; liable because the amount the .Division of Unclaimed Funds retains from th^ interest*o: unclaimed funds does not meet the Division's administrative costs. That argument fails based'upon. the factual record, as already discussed. The. remaining arguments will be separately examiried.
Unclaimed F%,ssM irz Ohio is not "Abaredoned" {27} Defendant argues that common. law prin--iples of 'escheat or aLandonment apply and supply ample legal authorityto seize unclaimed fund's in their entirety. Hence, it- is said, that same sovereigzn poiaer necessarily includes the lesser power -to retain just the interest generated by unclaimed funds. Defendant siuggests that the legislature's defii.._ion of unclaimed funds is tantamount to a definition of abaridoned prbperty subject to escheat. From this, he reasons, all the nld comrrion law legal 'rules applicabfe to owners who truly abandon property are determinatave here. Defendant's Memorandum filed March 2o, 2oo6, at pp. 5-7. . {28}.. It is well established at•comtnon law that sovereign states have the pi,tiver to take custody of or.-ssutne title toabandoned personal property as bona vacantia, through a piocess commonly called escheat, Uetaware v. New York (1993), 507 U.S. 490;497; see also, Smyth v. Carter (Ind. App. 4'h Dist., 2oo6), 845 N.E.2d.2ig, 22z' (addressing a taldngs claim under Indiana's unclaimed funds program). When considering -a state's power of escheat, one must look to the law that creates.t.he property right and binds others to honor it. 1)eiaware v. New-York, supra, at 5oi. _
A n p0 n 0On4fl.^Is:' 4'^•^^d` {a9} The Ur3claimed Funds statutes.rather•1'fian the general common law of abantionoaetat or escheat.mpst be consulted• to -determine if defendant may asseit abandonment, with respect to unclaiated funds. The OlA9^t^h^ coinprehensively regulate defendant's operation of the program that it cannot be ,thought the legislature left such an important':riatter, outside the Code. Thus,. iotwithstandu►g defendant's attempt to straddle theproverbial line by stating in U2 of his Amended Answer that the Ohio Unclaimed Funds law'"is not strictly an escheat statute," one must turn to the statutes to determine if "escheat" or any related doctrine geriuinely is applicable. • {30} The notion.of an "escheat" based upon an "abandonmertt" of, private property runs contrary to the language of the Unclaimed Funds Act, as well as Division operations under the Act for nearly forty years. The Unclaimed Funds Act does not define unclaimed funds as `abandoned" property at all. R.C. i69,oi(B) and 169.02 define the term "unclaimed.funds." Neither refers to funds for which Ohio asserts jurisdiction as "abandoned" property. On the•other hand, in referencing unclaimed funds programs operated in other states the Ohio law specifically recbgnizes the concepts'of escheat and abandonment. Funds will not be eonsidered unclaimed funds under• Ohio law "if they may be claimed as unclaimed, abandoned, or escheated funds under the laws of siich qther state." .R.C: 169.04(A). S(ich wording plainly shows that the drafters. recognized a distinction- between "dnclaimed," "abandoned" and "escheated" funds. The absence of the words "abandoned" and "escheatt-l" elsewhere.in the Act cannot be attributed to mere inadvertence. Therefore, the statutory language actually written does not support defendant's argument that this is merely a disguised form of "abandoned" property progrann. {3i} Viewing the Unclaimed. Funds statutes as, in substance, addressed to funds subjected to a form of "forfeiture" to the government would also be contrary to the stated purposes of the Act: i) to protect the property right of the owner and reunite the owner with the funds; 2) tb provide a centralized location of contact for potential unclaimed.funds owners; and 3) to relieve holders of unclaimed funds turned over to the state from further legal liability for the property. Stip. 'Ilho 19. Defendant's argument that funds administet•ed by the
12 ,
4 7.ii^,^,_..,_,.+ .A000000041 defendant are, not truly private p! •r-arty also contradicts public statements by defendant in ogerating this program. Ses, Stipulation 61LIDOere is it said that unclaimed futxds have been forfeited or no longer are private property, much less is it suggested that title to a part of the funds has become vested in state goveinntent_ Nothing, even by implication; 'would lead a reasonable qbserver to the conclusion that unclaimed funds ever escheat to Ohio. Stip. 1111 and 24, and Exhibit "C" (the "Frequenttv Asked Otiestinns" and answers posted on the defendant's official website) prove•beyon,: : reasonable doubt that this is not a forfeiture program, qr one grounded in the cuncept of escheat. {32} Pragrimatic reasons also support the •conclusion that the General Assembly did. not enact a forfeiture. statute. Passage of legislation that would work a.forfeiture of millions of dollars each year; and under whith ill; elderly, carel^ss or forgetful Ohio citizens would simply lose their property to the state forever would be of broad public concern. There is no evidence befcire the court sugesting any such apprei:ension arose from the Zggi amendment to the iiriclaimed funds statute. It is fa. nore sensibic :U-o read the entire body of related unclaimed funds statutes as they were writcen and ronsistently at'uninistered since Ohio's pi•ogram began in the i96o's: funds rein:. irivate property forever whiie in state hands. Property is never treated as abandoned or forfeited. R.C. 16g,o8(D) cannot be understood to passively cause :'.,at re;,cli. {33} Defendant -reoes ui )n the Indiana appellate decision announced eariier'this year in Srnyth v. Curter, supra. That court held that although the corc^mon law maxim "interest follows principal" is recognized in Indiana, it did "not apply where an oti+•ner's actions cause the loss of rights of ownership." Id. at z?l. Under Indiaria's, version of-the unclaimed funds law such property is "t,__yc:med abandoned." •ld, at 222, •quoting portions of the Indiana Code. This; in turn, indicated to that Court that "an owner's failure to exercise his or her right of possession results in a presumption that the property has been abandoned" so that the state has plenary power over it including the right to retain interest earnings. Id. at 223. The Ohib act operates differently. Nothing in Ohio law "presumes" abandonment of title: Accordingly, Smyth v. Carter is no- relevant to the taldngs claims addressed to R.C. 169.08(D).
13
• A000000042 "'^- t34} Ceztai.Wy one could argue thn t Ohio might ""Ipedo&ently. Perliaps, lilte Inc: iana, Ohio could-ptcvide thaf no. owner cnu}d recover their property onca it iell into state hands. Yet, to acknowledge that leg^slative authorit;; may exst -to create a system of property rights in which unclaimed fuuds are treated as abandoned, with title to escbeat to the state, does not mean that the different system actually creai.ed in Ohio xorics the same way, t'.e 199i amendment,to R.C. 169.o8(D) notwathstandfng For present pui;loses this.court must concentiate on what was adopted by the General Assembly. •- "[J)ust compensation is not o be measured by what would ha; happened jn a hypothetik =_ world." 3rown v. Legal Foundation of Washington, supra, 538 U.S., at 24 7 (Scalia, J., Rehriquist, C.J., Kennedy, and Thomas, JJ, dissenting.)
(35) 'Defendant next argues that, but,for the Unclaimed Funds Act, interest- could never accrue on - unclair,ied funds so that although a taking of property mf'y occur there is no compensation due. The IJnited States Supreme Court grappled with the appropriate constitutional anal?'sis'to apply when government takes property, generates intarest earnings with it, but tir:n retains such earnings in Brouin and Phillips, supra. Both decisions were dec) .-d by 5-4 votes. Both addressed Interest on Lawyers Trust Accoa.nt (IOLTA; systems adopted acr•iss the nation. The factual premise for IOLTA is simple yet essential to ;-n understanding of the ultimate outcome in these two recent deeisions. All.. latiryers in' private practice bave,' from tinie to time, client fiirlds in their pbssession. ' Under longstaiiding practice, :lawyers are expected to mairetain olients' inoney separ.ate from their own. Beyond this, statutory mandates in R.(:. i. 4705 and in Rules for the bar, includipg Obio C-^)v. Bar. R. N, §i(F), ri-quire use of IOLTA accounts. Suc!i accounts. pool insubstantial sums of client money until the funds aie disbursed, or hold larger amounts of money for insu'astantial periods of time. Iii either event, the premise is that absent pooling with similar funds belonging to clients of other lawyers there would be no interest earnings that could ever be meaningful, and which would exoeed the expense of oper,ing
:G':4': F:n4:n •l • /^ _'.1i i. ^Ci'r separate bank ttvst acmuats (with mLated record keepirg) for each spem5c dient havirig even a-small aanount of: =AOn^y. interast' QI^`A funds is ^^ ^^ then siphoned off. In Ohio such earnings direcdy support the Ohio.Lega1 Assistanc)e Foundation: It, in turn, financiaily supports the Legal Aid Society of Columbus and com.parabie organizations serving low-incpme residents aerass the state. Given-such facts, the Supreme Court of the Unite, itates concluded in 2oo3 in Brown v. Legal Foundation of Washington, supra, nat while a"taking" of property (the interest) otxurs with IOLTA accounts, there is no net loss to the property owner. This is because, by definition, fun(is in IOLTA accounts would never have earned-'any interest withoiut the poolir,u irrz gement mandated by these programs. A"talaing". requires not only that property be devoted to "public use"4 but also that "just -compensation" be due the owner. Under tlie facts in Brown there simply was no pecuniary loss to the owner triggering any right to • just compensation. The Supreme Court reaffirmed Justice nes' observation' that "the question is what has the owuer lost, not what has e taker gained." Brown, at 236, quotirig Boston Chamber of Commerce u. Boston (z9io), 217 U.S. i89, 195• {g6} Absent a pecuniary loss there is-no violation of the Takipgs Clause. Brour:, 538 U.S. at 235_ However, that holding from Brown does not assisz defendant. Here, unlike the facts before the Supreine Court in the IOLTA litigation, thw record shows that unclaimctii funds managed by defendant are not trifling in amount. The averat;e amount of. money returned to successful claimants since fiscal"1902 (ivhen the statute eliminated payr - it of interest) has been $x,oio. Stip. Two 123. Furthermore, Ohio's Act •affotds pai .cularized b" t ntion to unclaimed acCount i. arth $5o dollars or more, an'amount of money thui despite it?flation remaips meaningful to the legislature and which is )abl.e of generating some interest if held for any duration. See, RC.'169.o3(A)t_, and (D). As was true N.ith the property of Julia Fogg, furthermore, unclaimed funds appear to -^^ain under the DMsion's con'• )l •for substantial periods of time. Since fis .4992, over $n billion dollars in uhclaimed funds have beein
'' No one 9u "public asd' eiemenl of this unclauncd fun8s case that c3earty is equivalrnt to th public use of SOLTA fund intetsrtrecognized in Broxm. 538 i?.^. at 232.
lc A000000044; reportesi to or:riepasited v,dtb the Division, but 4ver p^osi only $381 ^ million (or 36%) have been paid oii't.: Stip. Two ^23. Viewed more broadly, beyond a reasonable doubt the unclaimed f: -ids proE m generates miIlions of dollars In net interest each year that is simply Exr,ropriated by the state. Restitution is therefore due tht, ;lass of property-c;•vners represented by Mr. Sogg based upon the value of interest earned on each individual aoaount retained by the Divisic.n. See Brpwn, supra, at 239, fn: io. {37} Brown, supra, and Leider v. United . Fes (C.A. Fed, 2002), 3oi F.3d i29o are argued for t`- proposition >hat Ohio has no duty to either hold uiiclaimed funds for ow _.ers or to create an arrangemer.t utider which funds ue interest. Brown has already been discussc-L! at leLt h. The facts in I,eider re that a credito'r was owed' a distributive.share of a bankruptcy setthment. When the banltruptcy court vas un::ble to locate him, it deposited the money in the united St;: -es Treasury as unclaimed funds,. They earned no interest. When Leider finaily received his pay-out he sued for interest relyinp qn the Takings Clause of the Fifth A.mendnient, and the "interest follo,a pr,..cipal" rule. ln reject9ng, that claim th • Federral -Gtircuit recogniz:!d that, since Leider's funds never were invested -by the - Government, nv interest could follow the principal. Leider,.3oi F•3d, at 1296. The Laider court also relied upon an earlier de-ision in United Stutes.Shoe'Co. u. United States (C:A. Fed, 2002), 296 F.3d 1378, 1384 holdii,g "that 'for the ace: :ed interest to rise to the level of private property, the principal must be held in t. identified priv •te account'." Leider at 1297: fn. 6, quotipg Uinited States Shoe at, i384• {38} N contrast; Ohio explicitly provides that unclaimed funds v 16 AOOOOO004S: ; nnile tJuw#esOW;her'e (and ::, we4bb's Fabsalous PD+arniawy, supm) and is not reievanrt- in decic]ing tnis tase. . ,• ^^^wf'R^^^^. {39} Defendant's azguments also ovarlook the ccanstitutioual significance of the 5% administrative fee which defendant cell^cts. RC. 168.og(D) provides; it, par',, that "[t]he director shall retain 4°{ as a fee for administering the funds, five per cent of the total amount of undaime,dfunds payable to'the claimant" Between fiscal yeats 1992 and 2oo5 this fee yielded $15,621,288. Stip. Two 121. {40} . Webb's Fabulotis PhQrmacies, - dnc. u: Beekwith, supra, was a unanimous decision of the Supreme Court announced in ig8o. It addressed .money interpleaded into a court pending t.he outcome of a lawsuit. - Florida took an administrative fee and also kept the interest earned on the funds. Recognizing there was a property -right in the interest earnings, and the principle that interest follows the principal, the Supreme Qourt held that•"where there is a separate and distinct state'statuYe authorizing a' fee'for serviceg rendered' based upon the amour•.t Qf principal - deposited; where the deposited 'fund itsel! concededly is private; and• where the d•eposit in the [government'sr.ontrol] is required by-, state statute" ttie retention'of intetest earned over and above the fee has "a taking violative of the -Fifth and Fourteenth Amendments." Webb's, at 164-65. The - Court in Webb's F'abulous Pharmacies ezpressea no view on the constitutionality of a statute under which retent.ion •if interest eai-ned would be the only return to the govE rnmeni but, as• noten already, this case is exactiy like Webb s iri that both - a 5% administratiEQ fee and retention of interest earnings occurs. {qt} Cotasistent ivith Webb's, it is unconstittulonal for tt-.• defendant to retain iateirest on unclaimed funds. ti4$en the Undaimed •Funus Act alreari- provides, a- specific, 596 administrative fee for the senrices gNen to owners of unciairned funds. While it'ebb's lefi open a decision on whether interest could be retained in the absence, of an adritinistratrve fee, or if the government program -wras operating at a loss, those queskions are not pertinent here. The claimed poverty of the,llit;sion reflects,nothing Tnore than creatii-e- bookkeeping. '1'he Generally Assexablr's decision to use the Dit•isiori's coffets like a piggybantc runs .17 -T: ^ :N ....: A000U0,004'G' afoul of Webb's, s'apra:. -°the exaction is a forced contribution to general govemmental reventtes, and:it is not reasonabiy relat^^w 9Fusing [the I3ivision of Unclaimed Funds]. Indeed, 'the Fifth Amendment's guarantee was designed to ~'ar Government from forcing eeme people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Id. at 163. . {42} Accordingly, the court finds and declares that the nonpayment of interest on unclaimed funds and the further enforcement of the first sentence of R.C. i69.o8, as amended in July i99i, violate the Fiftb Amendment of the United States Constitution.. The plaintiff class is entitled to a remedy under §1983• ToAdraas Aaaalgair under the Ohio Constitution {43} Counts I and III of the Arriended Complaint seek relief premised upon a violation of the "takings" clause in the ohio. Constitution._ Section i9, Article i of the Ohio Constitution -provides that "[p]rivate. property shall ever be •held inviolate, but subserviesat to the public welfare." In approaching one recent takings case under this Ohio provision, Chief Justice Moyer began 'by reaffirming the premise that the law_does not favor forfeiture." State ex rel. Pizza v. Rezcallah h998), 84 Ohio St.gd ii61 131. R.C. i69.o8(D) demands, in a very- real sezise, a forfeiture of interest earnings to the state. {qq} As. the Pizza -decision recognized, the taking:= ^lause of the Ohio Constitution_provides an independent basis for deciding such a case, although the legal analysis used tracks closely: that given a takings cla'im under the United States Constitution $ See also, City of Normood v: Horney,._ Ohio St.3d 20o6-O.hio-3799. 143: °ohio has always considered the right of property to be a fitndamental right. (citatidns omitted] There can be no doubt that the bundle of venerable rig •^s associated with property is strongly protected in the Ohio Constitution anu must be trod upon lightly, no' matter bow great the weight of other forces." ld. at 138. The Siictb Circuit recently observed that decisions Equal protectiou and Due 'Pracess are other 'No and federal constitutional provisions viewed as "nearly identical" in their applit.,(tion. 3or:^ ' U. Thevenir (i994), 69 Ohio St.3d 415, 424; Warren v. City ofAthens, Ohio (6th Cit. 2005), 411 1_3d 07,704, n. 6. ta - A000000047- V.j^^ Ilf:l-?if granting relief fi'om takings have become almost routine in the state courts of 6 Ohio in the last decade. Coles v. Granuiile (C.A.6, 2006)M1^^^@5p,1963 64. This too speaks to the viability of Article i, Section 19 of the state Constitution. {45} The.analysis-of the fachxal. record under the FitthAmendment applie•s with full force under tiie Ohio Constitution. Pla.intiff and the class he represents are entitled'to restituiion. E.g., Santos v. Ohin Bur. of Workers' Compensation, 101 Ohio St.3d 74, 2oo4-Ohio-28, syllabus. CONCLUSION {46}.Constitutions exist iu America to arrest'the devolution of power over - certain key features of life. They assure that the' wa7l of majorities expressed in laws enacted by the legislative branches of the state and national governments always remain within predeteimined boundaries. One important boundary surrounds private property. Ohio's legislature crossed that boundary in i.9qi 'wben it amended 'the first sentence of R.C. i69.o8(D), and coupled retentiori of interest earnings with imposition of the 6% administrative fee against all unclaimed funds returned to•their rightful owner. {47} Pursuant to Civ. R. .57, the court grants a declaratory judgment consistent with this Opinion, Furthermore the court holds that, under Oi=io law, the first sL-ntence of R.C. 169.o8(D) shall be deemed severed from the balance of the statute. See, City of Normood, supra, at ¶9i26-127. {48} To enforce the.declaratory relief granted to the plaintiff class, the court grants the additional,relief of an injunction barring defendant and all those acting in concert with him from further enforceinent of the first sentence of R.C. i69.o8(D)• . {49} Recognizing that.this Opinion resolves substantial claims by the plaintiff class, but, may give rise to questions of fiscal management for the defendant's operations and other programs operated by stAte gov,ernment using unclaimed funds, the court grants a stay of the effectiveness of this declaratory judgment and injunctive relief pending appeal, pursuant to Civ. R. 6z(C) and (E). The stay is conditioned upon defendant and all those under his control within the i9 A000000048`:,:. Division of Llnclaimed Funds continuing- to maintain. careful records of all persons who are or bewme succe ssful claimants during the petidency of appeals, and renmaining in compliance witli Class Action. Ma &i 64 *i filed Februa•ry 24; 20o6, to assure that if the Judgment is ultimately affirmed all class members entitleti to relief can readily be located, and provided all relief to whieh :l,ey are entitled. {5o} In the .ludgment being entered simultaneously with t.his Opinion the court certifies this case foi' immediate-appeal, consistent with prioT discussions with the parties; finding pursuant to Civ. R 54(B) that there is no just reason for delay in entering the declaratory judgment. and injunction becatise they determine the liability issues in this case. The court further finds that immediate interlocutory review of the Judgrnent is in the interests of all pa.rties and of the public. If these portions of the case are affirmed, the parties have stipulated that restitution or •other equitable relief wili be appropriate. Stip.: One, 'I 5. Determining the amount of restitution dtie individual class members, a method of contacting them and distributing interest owed, consideration of an award of a xeasonable attorneys fee to plaintiffs' counsel either on a common fund basis or pursuant to the -Civil Rights Attorney Fees Act, 42 U.S.C. §i988, are steps apprnpriately postponed until the core issues of legal liability discussed above are finally determined on appeal. IT IS SO ORDERED. 20 A00000004E: C231 IRT'THE ^COaT W ®F 6O11M®P? &'>RAriKLJIN CO$JN'I'Y, OI: _U WILTON S. SOGG, Exeeutoir of the Estate of Julia Sogg individually, and on Iaehalf of a class of others siraaiLasly situated, Plaintiffs '.fl s -o^a V. Case No. 04CV4-0 SoaB C" (Judge Frye) IEtDUC'r WHITE, ]Rirector, Ohio Department of Commerce, Defendant. JUDGMENT, AND C{V. R. 54(B) CERTIFICATION For the reasons stated in the court's opiriions in this case, Judgment is hereby entered in fin, or of plaintiff and the class he represents and against defendant for the following relief: A. Pursuant to Civ. R. 57, the court grants a declaratory judgment and holds,that, under the Ohio Coristittition and under the Constitution of the United States, the first sentence of R.C. 16g.o8(D) is unconstitutional in denying interest to private owners of unclaimed funds held for them by the defendant. Accordingly, that sentence shall be deemed severed from the balance of the statute. B. To enforce the declaratory judgment granted to the plaintiff and ohe class he represents, the court grants the ad'ditianal relief of a *mantlio injunction barring defendant and all those acting in concert with im ?} 0 further enforcement of the firstsentence of R.C. 169.o8(D). All owners?of fv^nds c^ who fall :vithin the plaintiff class shall be paid interest on their fundstr I A0_QO0O.().Q.5Qn.;, to August q, 2000 (plus any interest that accrued •prior to July2+f^i, igql). The court will convene furtl^er bearing^ to address the prqt^dureftgbb k^ed to calculate and distzibute sucb restitution consistent with law. C. Count II of the Amended Complaint is dismissed. D. Recognizing that this Judgment resolves substantial claims by the plaintiff class, _but 'may give rise to questions of fiscal management for the defendant's operations and other programs ope'rdted by state goverpment using unclaimed funds, the court grants a stay of the effedtiveness of th.is declaratory judgment and injunctive relief pending appeal, pursuant to Civ. R. 62(C) and (E). This stay. is conditioned upon defendant and all th6se under his conttol within the Division of.Unclaimed Funds continuing to maintain careful records of all persons who are or become successful claimants during the'pendeney of all appeals-from this Judgment, and remaining in compliance with Clasg Action Management Order V-i filed February 24, 2cio6, to assure that if this Judgment is . ultimately affirmed. all class members entitled to relief can readily be located and- provided all "relief to which they are entitled. E. The court certifies this Judgment for immediate appeal, finding• pursuant to Civ. R. 54(B) that there is no just reason for delay in entering Judgment bn these claims because they determine the liability issues in this case, and further finding that:iinmediate interlocutory review of this Judgment is in the interests of all parties and of the public. F. The court reserves' all remedial issues not specifically addressed, including restitution, attorney fees and' costs. IT IS SO ORDERED. Westlaw. Slip Copy Page t Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) P After appellee amended the complaint, appellant Sogg v. Ohio Dept. of Commerce sought dismissal. The trial court denied appellant's Ohio App. 10 Dist.,2007. motion to dismiss except as to appellee's claim for mandamus. The trial court certified the class, and in CHECK OHIO SUPRESv1E COURT RULES FOR a separate decision, limited class membership to a REPORTING OF OPINIONS AND WEIGHT OF four-year period. After the submission of stipulated LEGAL AUTHORITY. facts, both parties moved for judgment as a matter of law. The trial court found that the provision of Court of Appeals of Ohio,Tenth District, Franklin Ohio's Unclaimed Funds Act authorizing appellant County. to retain the interest eamed on unclaimed funds was Wilton S. SOGG, Executor of the Estate of Julia unconstitutional. The trial court also granted ap- Sogg, Individually, et al., Plaintiffs-Appellees/ pellee a permanent injunction, but stayed its de- Cross-Appellants, cision and allowed the parties to immediately ap- V. peal. Director, OHIO DEPARTMENT OF COMMERCE, Defendant-Appellant/ Cross-Appellee. {q 3) On appeal, appellant raises the following No. 06AP-883. three assignments of error: FIRST ASSIGNMENT OF ERROR: Decided June 21, 2007. THE TRIAL COURT ERRED IN GRANTING APPEAL from the Franklin County Court of Com- SUMMARY JUDGMENT TO SOGG AND THE mon Pleas. CLASS, AND IN DENYING SUMMARY JUDG- Iv1ENT TO THE STATE, ON THE ISSUE OF LI- Thompson, Hine, LLP, William C. Wilkinson, and ABILITY BECAUSE THE STATE MAY LAW- Craig A. Calcaterra; Futterman, Howard, Watkins FULLY RETAIN THE INTEREST EARNED ON & Wylie, and John R. Wylie; Susman, Heffner & UNCLAIMED FUNDS. Hurst, LLP, Arthur T. Susman, and Matthew T. SECOND ASSIGNMENT OF ERROR: Hurst, for appellee Wilton S. Sogg. THE TRIAL COURT ERRED BY FAILING Marc Dann, Attomey General, William J. Cole, and TO DISMISS SOGG'S AND THE CLASS' DE- John T. Williams, for appellant. MANDS FOR EQUITABLE AND EX- McGRATH, J. TRAORDINARY RELIEF, BECAUSE THE EX- *1 (11} Defendant-appellant, the Ohio Depart- CLUSIVE REMEDY FOR AN UNCONSTITU- ment of Commerce ("appellant"), appeals the judg- TIONAL TAKING IS COMPENSATION. ment of the Franklin County Court of Common THIRD ASSIGNMENT OF ERROR: Pleas denying its motion for summary judgment THE TRIAL COURT ERRED IN HOLDING and granting summary judgment in favor of THE STATUTE OF LIMITATIONS ON THE plaintiff-appellee Wilton S. Sogg ("appellee"). CLASS IS FOUR YEARS, BECAUSE THE AP- PLICABLE LIMITATION PERIOD IS TWO (12) At issue in this litigation is Ohio's Un- YEARS UNDER R.C. 2305.10. claimed Funds Act codified in R.C. 169.01 et seq. On August 3, 2004, appellee filed a class-action (Q 4} Appellee raises the following assignment complaint in the Franklin County Court of Common of error in his cross-appeal: Pleas seeking a declaration that appellant's reten- THERE IS NO STATUTE OF LIMITATIONS tion of interest eamed on unclaimed funds pursuant APPLICABLE TO PLAINTIFF'S AND THE to R.C. I69.08(D) violates the Takings Clause of CLASS' CLAIMS FOR RESTITUTION OF THE both the United States and Ohio Constitutions. EARNINGS ON THEIR PRIVATE PROPERTY. © 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A 000000052- Slip Copy Page 2 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: S1ip Copy) ALTERNATIVELY, THE TRIAL COURT COR- unclaimed funds to report unclaimed funds to the RECTLY HELD THAT THE LIMITATIONS Division. Id. Pursuant to R.C. 169.05, all funds that PERIOD SHOULD BE FOUR YEARS AS meet the stamtory definition of unclaimed are PROVIDED IN R.C. 2305.09. placed under the control of the Division. Id. Secur- ities and other intangible, non-monetary property {15} We review the trial court's grant of sum- that are delivered into the Division's custody and mary jAdgment de novo.Caventrn Ttep. v. Ec%er control are to be "within a reasonable time conver- (1995), 101 Ohio App.3d 38, 654 N.E.2d 1327. ted to cash," and the proceeds of the sale are to be Summary judgment is proper only when the party deposited with other unclaimed funds. R.C. moving for summary judgment demonstrates: (l) 169.05(A). no genuine issue of material fact exists; (2) the moving party is entitled to judgment as a matter of (17) If a holder reports that it possesses un- law; and (3) reasonable minds could come to but claimed funds greater than S50, the holder may (a) one conclusion, and that conclusion is adverse to remit the entire amount to the Division, or (b) at the the party against whom the motion for summary Division's discretion, remit 10 percent and retain 90 judgment is made, when the evidence is construed percent. (Stipulation.) If the holder retains 90 per- in a light most favorabte to the nonmoving party. cent, R.C. 169.05 requires the holder to deposit the Civ.R. 56(C); State e.t reJ. GradJ+ v. Slate En p. Re- retained amount in an income-bearing FDIC in- lations Bd. (1997), 78 Oltio St.3d 181, 677 N.E.2d sured or U.S. Treasury Account as approved by the 343. Division. Id. All earnings on those invested funds are to be delivered to the Division. Id. If the holder *2 (16) For purposes of their respective mo- reports less than $50, the entire amount must be re- tions for summary judgment, appellee and appellant mitted to the Division. Id. In any event, unclaimed filed with the trial court a stipulated statement of monies are held in perpetuity for the benefit of the material facts. The following factual recitation is owners of the unclaimed property, and never be- taken from that stipulation. Ohio's Unclaimed come the property of the state. Id. The Division de- Funds Act ("UFA") was enacted in 1967. posits all principal amounts delivered as unclaimed (Stipulation.) The UFA is currently supervised and property into a depository account at a financial in- administered by the Ohio Department of Com- stitution. Id From there, the funds are placed in in- merce's Division of Unclaimed Funds come-bearing accounts which invest primarily in ("Division").1d. The purpose of the UFA is low-risk short term U.S. Treasury instruments, and threefold: (1) to protect the property rights of the are used for logistical cash management purposes to owner and to reunite the owner with the funds; (2) fund the Division's needs. Id. Additionally, some to provide a centralized location of contact for po- unclaimed property is transferred, at the discretion tential owners of unclaimed funds; and (3) to of the state legislature, to other state programs, provide the holders relief from liability. Id. Pursu- primarily the Ohio Housing Finance Authority ant to R.C. 169.01, money, rights to money, or in- ("OHFA").Id One of the activities in which OHFA tangible property becomes unclaimed when the engages is to lend its funds at interest to OHFA's owner has not generated activity for a statutorily Housing Development Fund ("HDF"), to support prescribed period, and the holder of the property housing development in the state.Id. When the cannot locate the owner. Id. In most cases, the hold- loans are repaid, OHFA remits the principal er of the property is a bank, investment broker, in- amounts back to the Division, but does not remit surance company, or utility, and generally the stat- the interest paid on the loans. Id. In addition to the utorily prescribed time period is five years. Id. OHFA, the Division has also transferred unclaimed However, the time frame for property to be con- property to other state agencies and programs, in- sidered unclaimed may vary depending on the type cluding the Savings and Loan Assurance Corpora- of fund at issue. Id. R.C. 169.03 requires a holder of tion, the Ohio Job Development Fund, and the (D 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A ^ ^ ^ ^ ^ ^ 053l Slip Copy Page 3 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) State's General Fund.ld. Regardless of where funds court's decision was that since the funds at issue are transferred, all unclaimed funds are subject to "always remain the property of the private owner," call by the Division when necessary to pay claims under the "interest follows principal" rule, which by owners. Id. the trial court held was not subject to legislative ab- rogation, the interest earned on those funds is also *3 (¶ 8) When initially enacted, the UFA private property. Sogg ta li'iiite, 139 Oltio Misc.2d provided that an owner of funds whose claim was 58, 860 N.E.2d 163. 2006-Ohic-4223, at 1 16-26. allowed by the Division would receive interest Finding a pecuniary loss resulting from the interest "computed at the rate eatned by such funds during retention, the trial court held the nonpayment of in- the period the director of commerce held the funds terest on unclaimed funds was in violation of the or at the rate agrced to by the holder and the owner, Fifth Amendment of the United States Constitution, whichever is greater."Id. The UFA was later and that appellee was entitled to relief. amended so a property owner was given 6 percent interest along with the principal. Id. Effective July {¶ 11 } On appeal, appellant first directs us to 26, 1991, R.C. 169.08(D) was amended to provide the basic premise that legislation is presumed con- that "ji]nterest is not payable to claimants of un- stitutional unless it is shown beyond a reasonable claimed funds held by the state."!d Also effective doubt to violate a constitutional provision. Sla1e ex July 26, 1991, was the amendment directing the Di- rel Dickman v. Defenbacher (1955), 164 Ohio St. vision to retain "as a fee for administering the 143, paragraph one of the syllabus. Appellant next funds, five percent of the total amount of unclaimed contends that states have the power to permit un- funds payable to the claimant[.]"R.C. 169.08. The used or abandoned interests in property to revert to UFA also provides in R.C. 169.08 that any person another after the passage of time. Pursuant to this claiming a property interest in unclaimed funds de- power, it is appellant's position that it may constitu- livered or reported to the state under Chapter 169 of tionally retain the interest eartted on the unclaimed the Revised Code may file a claim, and there is no funds by taking custody of unclaimed property statute of limitations to bar the allowance of a without taking title to the unclaimed property. Ac- claim. Id. cording to appellant, it is not required to take an "all-or-nothing" approach to dispose of unused or (19) The specific factual circumstances giving abandoned properry. In support of its position, ap- rise to this litigation are as follows. Appellee is the pellant relies on Snrwh v. Carter (Ind.App.2006), executor of his mother's estate. Appellee's mother 845 N.E 2d 219,transfer denied, 2006 Ind. LEXIS passed away leaving unclaimed funds consisting of 755, 2006 WL 932314.Appellant further argues that the following: $40.52, reported to appellee in 1989 because the state is permitted to abrogate common by Blue Cross & Blue Shield, and $292.86 in di- law principles through legislation, it did so in this vidends reported in 1998 by the Bank of New York. instance and abrogated the "interest follows prin- In 2004, appellee made a claim for those funds, and cipal" doctrine when it amended the UFA in 1991. was issued a check for $320.72, representing the Additionally, appellant contends that appellee has principal amounts, interest eamed on the $40.52 un- not suffered a pecuniary loss, and therefore has no til July 26, 1991, minus the five percent fee for ad- right to compensation. Lastly, appellant contends ministmtive costs. Asserting that the UFA is uncon- the decisions in iFebb's Faba(ous Pharmacies, Inc. stitutional, appellee filed this class action suit in v. BCCkwiib (1980), 449 U.S. 155, 101 S.Ct. 446, 66 2004. As previously indicated, the trial court agreed L,Ed.2d 358, and Canel v. Topinka (2004), 212 with appellee, and severed the first sentence of R.C. 111.2d 311, 288 11l.Dec. 623. 818 N.E.2d 311, upon 169.08(D), which provided that the state shall not which the trial court relied, are inapposite to the pay interest. matter at hand, and therefore, the trial court's reli- ance on these cases was misplaced. {1 10) The underlying rationale for the trial © 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A 000 0000$4 Slip Copy Page 4 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) *4 {¶ 12} To the contrary, appellee contends pensation, even for the limited duration of the de- the trial court correctly held that R.C. 169.08(D) is posit in court. This is the very kind of thing that the unconstitutional, because unclaimed property is not Taking Clause of the Fifth Amendment was meant abandoned property, but rather always remains to prevent. That Clause stands as a shield against private property, and pursuant to the "interest fol- the arbitrary use of governmental power. lows principal" rule, the interest earned on private property also constitutes private property. Arguing Id. at 164. that the state is not permitted to nullify the "interest (115) The court went on to state: follows principal" doctrine, appellee takes the posi- We hold that under the narrow circumstances tion that the state's retention of interest earned on of this case-where there is a separate and distinct unclaimed funds contravenes the Fifth Amendment state statute authorizing a clerk's fee "for services protection of private property interests. rendered" based upon the amount of principal de- (¶ 13)"[W)e are mindful that all legislation is posited; where the deposited fund itself concededly presumed constitutional and will not be struck is private; and where the deposit in the court's re- down absent proof of its invalidity beyond a reas- gistry is required by state statute in order for the de- onable doubt."Dqwon Snpplv & Too] Co. v. d•lonr- positor to avail itself of statutory protection from gomery Crv. Bd oj Revision, I I1 Ohio St.3d 367. claims of creditors and others-Seminole County's 856 N.E fd 926. 2006-Ohio-5852, ¶ 20, citing Sra1e taking unto itself, under § 28.33 and 1973 Fla. v. Havdere, 96 Oltio S0d 211, 773 N.E.2d 502, Laws, ch. 73-282, the interest earned on the inter- 2002-Ohio-4169, ¶ 7, citing Defenbachet•, para- pleader fund while it was in the registry of the court graph one of the syllabus. With that premise in was a taking violative of the Fifth and Fourteenth mind, we begin our analysis with a discussion of Amendments. We express no view as to the consti- Webb's and its relevance here. In Webb's, Eckerd's tutionality of a statute that prescribes a county's re- of College Park, Inc. ("Eckerd") entered into an tention of interest eamed, where the interest would agreement to purchase the assets of Webb's. Be- be the only return to the county for services it cause Wobb's debts were greater than the purchase renders. price, to protect itself as permitted by Florida law, *51d. at 164-165. Eckerd filed a complaint of interpleader in a Florida Circuit Court. Pursuant to Florida law, the Circuit (¶ 16) Because the state admittedly does not Court ordered the amount tendered to be paid to the take title to the unclaimed funds, the trial court court's clerk. The court's clerk was required to de- found the funds to be analogous to the private prop- posit the money in an interest bearing account. All erty at issue in Webb's.Wbile we appreciate Webb's accrued interest was deemed to be income of the holding, we find the trial court's reliance on it to be clerk's office. The Supreme Court of Florida ruled misplaced. Our reading of Webb's reveals that not that the statute was constitutional and did not in- only did Webb's explicitly confine its ruling to the volve an unconstitutional taking because (1) the de- facts before it, but also, it in fact did not concem posited funds were considered public money from the type of property at issue before this court. As the date of deposit until the funds left the account; will be further explained, in our view, analysis (2) the statute took only what it created; and (3) the premised on Webb's glosses over two key distin- interest earned on the deposited funds was not guishing facts: (1) the property at issue here is un- private property. claimed; and (2) the statute at issue in Webb's re- quired the depositor to deposit funds in a court re- (114) In reversing the Supreme Court of Flor- gistry in order for the depositor to avail itself of ida, the United States Supreme Court stated: certain statutory protections. ***[a] State, by ipse dixit, may not transform private property into public property without com- The remainder of the trial court's analysis with © 2008 Thomson/West. No Claim to arig. U.S. Govt. Works. A000000055 " Slip Copy Page 5 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) respect to the constitutionality of the state's reten- period of 20 years automatically lapsed and rever- tion of the interest eamed on unclaimed funds while ted to the current surface owner of the property, un- in the custody of the state stems from Phillips v. less the mineral owner filed a statement of claim in hl'as•hiugton Legal Foundation (1998), 524 U.S. the county recorder's office. The court stated, 156, 118 S.Ct. 1925, 141 L.Ed.>d 174, and Brown "[fJrom an early time, this Court has recognized v. Legal Foturdation uJ' Fpcislvingron (2003), 538 that States have the power to permit unused or U.S. 216, 123 S.Ct. 1406, 155 L.Ed.2d 376, which abandoned interests in property to revert to another concerned interest on lawyers trust account after the passage of time:'(Emphasis added.) Icl. at ("IOLTA") systems. Together, Brorvn and Phfllips 526.In addressing the plaintiffs claims, the Court hold that interest earned on funds in IOLTA ac- stated: counts is private property; however, there is no *6 Two of appellants' arguments may be governmental taking by the state's retention of said answered quickly. Appellants contend that the Min- interest because the owner suffers no pecuniary eral Lapse Act takes private property without just loss. The trial court, relying on Phillips and Brotivn, compensation in violation of the Fourteenth concluded there is not only a governmental taking Amendment; they also argue that the statute consti- by the state's retention of interest earned on un- tutes an impermissible impairment of contracts in claimed funds, but there is also a pecuniary loss be- violation of the Contract Clause. The authorities cause the amount of unclaimed funds is signific- already discussed mandate rejection of each of antly greater than the "trifling" amount involved in these arguments. most IOLTA accounts. In our view, reliance on In ruling that private property may be deemed Brown and Phillips suffers from the same flaw that to be abandoned and to lapse upon the failure of its exists with reliance on Webb's, and that this matter owner to take reasonable actions imposed by law, is readily distinguishable from the same. In Phillips this Court has never required the State to com- and Brotvn, the court's discussion centered around pensate the owner for the consequences of his own an individual owner's actual loss, or the interfer- neglect. We have concluded that the State may treat ence with an owner's investment-backed expecta- a mineral interest that has not been used for 20 tions, a notion that is present with respect to prop- years and for which no statement of claim has been erty that unquestionably belongs to the owner. At filed as abandoned; it follows that, after abandon- this time, we are presented with a scenario caused ment, the former owner retains no interest for not by government action, but by owner neglect. As which he may claim compensation. It is the owner's will be explored further, though the UFA provides failure to make any use of the property-and not the that title to unclaimed funds remains with the own- action of the State-that causes the lapse of the prop- er, there is unquestionably a property lapse that oc- erty right; there is no "taking" that requires com- curs because of the owner's failure to act with re- pensation. The requirement that an owner of a prop- spect to said property within a statutorily prescribed erty interest that has not been used for 20 years period of time. Therefore, under our analysis, be- must come forward and file a current statement of cause there is no govemmental taking that requires claim is not itself a "taking." compensation, this matter does not fall within the at 530. confines of Brown or Phillips, and it matters not Id, whether there is a pecuniary loss to the owner. {¶ 19) Thus, there is an important distinction Webb's and {¶ 18) In Texaco, lnc. v. Short (1982), 454 between property like that at issue in U.S. 516, 102 S.Ct. 781, 70 L.fid.2d 738, decided property like that in Texaco that is unused for a two years after Webb's, and making no mention of statutorily prescribed period of time-a difference the same, the United States Supreme Court had oc- that is critical in our analysis, casion to review an Indiana statute that provided {I 201Most, if not all, of the 50 states have en- that a severed mineral interest that is not used for a ® 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A000000056- Slip Copy Page 6 Slip Copy, 2007 W L 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) acted legislation to manage unclaimed property. To stated, "it is Smolow's abandonment of his prop- date, only a few of these statutes have been chal- erty, not the action of the Treasurer, which caused lenged, and even fewer have presented an issue his pecuniary loss. There was no taking that re- similar to the one before us, i.e., the constitutional- quires compensation:'!d. at 775.The court held, "* ity of the sovereign's retention of interest eamed on * * where an owner's interest in property is trans- unclaimed funds while the funds are in the sover- ferred to another pursuant to the Unclaimed Prop- eign's custody. One such statute is found in Smolon• erty Law, and due to the original owner's abandon- v. Hajer (2005), 867 A.2d 767. In that case, Smo- ment, the delivery of the property to the Treasurer low sought the payment of interest on property re- does not constitute a taking."Id. Because the Un- covered pursuant to Pennsylvania's Disposition of claimed Property Law did not provide for the pay- Unclaimed and Abandoned Property Act ment of interest, the court found no violation of the ("Unclaimed Property Law"), and declaratory and Unclaimed Property Law. injunctive relief on the grounds that the Unclaimed Property Law violates the Just Compensation and *7 (123) Even more similar to the matter be- Due Process Clauses of the United States Constitu- fore us is Sinytit, supra, which eoneemed Indiana's tion. Unclaimed Property Act ("IUPA"). Like Ohio's, the IUPA was designed to serve the dual purposes of (¶ 21) Pursuant to the Unclaimed Property reuniting owners with the value of unclaimed prop- Law, the state took possession of 300 shares of erty and giving the state, rather than the holder, the Smolow's stock in 2002. In early 2003, the shares benefit of the use of the unclaimed property were sold and the state earned interest on the pro- pending reclamation by the owner. Id at 222, citing ceeds. Thereafter, Smolow sought return of his Fong v. Iiestly (2004), 117 Ca1.App.4th 841, 12 property. The state remmed the amount received Cal.Rptr.3d 76, review denied 2004 Cal. LEXIS from the sale of the stock and did not include in- 5805, 2004 WL 440928.In Sniyth, pursuant to the terest. Smolow then filed a class action complaint IUPA, the state took custody of Smyth's stock and seeking, among other things, a determination that dividends in 2001. The state sold the stock in 2002. Pennsylvania's Unclaimed Property Law was un- In 2003, Smyth made a claim for the stock and any constitutional. accruements. The state paid Smyth the amount of the sale proceeds and dividends eamed before the {I 22) Under the Unclaimed Property Law, state took custody, and the state retained the in- "property that is presumed abandoned is subject to terest that had accrued after the liquidation of the the custody and control of the Commonwealth"Id, stock. In early 2004, Smyth filed suit seeking a de- at 768, fn. 2. Property is presumed abandoned if it claration that the IUPA was unconstitutional and is "unclaimed by the apparent owner for a specified that the state took his private property without just period of time."Id. Pennsylvania's Unclaimed Prop- compensation. Under the IUPA, "the State takes erty Law also provided that the state would be re- cnstody of unclaimed property if it is presumed sponsible to an owner "only for the amount actually abandoned."(Emphasis added.) Id. at 222.Property received" by it upon the sale of any property. is presumed abandoned under the IUPA "if the Id.Smolow argued that "to the extent the Unclaimed owner has not shown any interest in the property Property Law does not require the payment of in- for a statutorily prescribed period of time."Id. Like terest, the statute is unconstitutional since it does Sogg, Smyth's contention of the IUPA's unoonstitu- not provide just compensation for the taking and tionality was premised on the belief that the state's use of private property for public purposes."Id at possession is "purely" custodial because the IUPA 769.The court in Smolow held that the Common- provides that title remains with the owner, and the wealth was exercising its right to take "custody and common law maxim "interest follows principal." control" of abandoned property, as opposed to tak- Id at 223. ing absolute title. Relying on Texaco, the court 0 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. AOOO0 O0 O5 7^ Slip Copy Page 7 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) (124) The court in Sinyrh noted that the for- of the unclaimed property. The state then holds the feiture of interest and dividends pursuant to the property, or cash equivalent, in perpetual custody IUPA resulted from the owner's failure to assert his for the absent owner. "Pending a claim by a miss- or her property rights. Despite acknowledging the ing owner, the [sJtate receives the use of the prop- "interest follows principal" doctrine, the court, re- erty as well as any income that it may lying on Texaco, explained that the maxim does not provide."Thus, state custody protects the property apply where an owner's actions, and not that of the of the missing owner while awaiting possible re- state, cause the loss of rights of ownership. clamation, and reflects "a policy that unclaimed property should benefit the general public rather (1251 Recently, a Louisiana appellate court is- than holders of the property." sued a decision concerning Louisiana's Unclaimed *8 Id. Property Law ("LUPL"), in HooFs v. Kennedy (May 4, 2007), La.App. I Cir. No.2006 CA 0541. (1 26) Like Indiana's, Louisiana's UPL con- In this class action suit, the plaintiffs challenged the tained a provision finding that property is presumed constitutionality of the LUPL. Though paying in- abandoned if it is unclaimed by the owner for a terest to reclaimim lproperty owners of certain statutority prescribed period of time. Relying on types of property, the court described Louisi- Tesraco, Smylh, Smolotiv, fia+ig, and Louisiana ana's stamtory scheme as follows: Health Service and Lrdemnity Co. v. Tarver, (La.App.1994), 635 So.2d 1090, the court con- FNI.La.Rev.Stat.Ann. 9:163 provides that cluded that Louisiana's statutory scheme did not a successful reclaiming owner is "entitled constitute an actionable "taking," and therefore, to receive from the [state] any gain real- there was no basis to claim a constitutionally man- ized or accruing on the property at or be- dated payment of just compensation. Id. fore liquidation or conversion of the prop- erty into money. If the property was in- {¶ 27} The trial court summarily dismissed terest bearing to the owner on the date of Srnyih because under the IUPA unclaimed property surrender by the holder, the [state] shall is presumed abandoned. FN2 Since "nothing in Ohio pay interest at a rate of five percent a year law `presumes' abandonment of title," the trial court or any lesser rate the property eamed while found Smyth bears no relevance to the claims asser- in the possession of the holder. Interest be- ted here. (Aug. 7, 2006 Decision at 13.) Thus, the gins to accrue when the property is de- question becomes, does the lack of the presumption livered to the [state] and ceases on the of abandonment in the Ohio UFA render unconsti- earlier of the expiration of ten years after tutional the portion of the Act that retains interest delivery or the date on which payment is earned on unclaimed funds while such funds are in made to the owner." the custody of state? We find that it does not. Louisiana chose a custodial scheme for hand- FN2. The trial court cited only to Smyth, as ling certain types of abandoned property, rather Hooks was decided after the trial court than one in which the title to the abandoned prop- rendered its decision. erty reverts to the sovereign. Under Louisiana law, after a specified passage of time, holders of prop- {¶ 28] We acknowledge that Ohio's UFA does erty abandoned by missing owners must report the not contain a presumption of abandonment as do possession of the abandoned property and relin- the statutes at issue in Indiana, Louisiana, and quish custody to the state. Upon transfer from the Pennsylvania. However, for purposes of the UFA, holder, the state "assumes custody and responsibil- and by virtue of its action, unclaimed property is ity for the safekeeping of the property."As notice to essentially abandoned property. The operation of possible owners, the state is required to publish lists the Louisiana's UPL and Indiana's UPA, is similar, p 2008 Thomson/W est. No Claim to Orig. U.S. Govt. Works. A Q 000000 5$- Slip Copy Page 8 S1ip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) if not identical to Ohio's. The same or similar cri- unclaimed property pending reclamation by the teria are used in the IUPA and the LUPL to pre- owner. See e.g., Texas eblunicipa! League ltuergov- sume abandonment as the criteria used in Ohio to ernniental Ri.sk Pool v. Texas ll'orker.s' Compeiso- constitute unclaimed property. The three statutes tion Co+nmisaian, 74 S.W.3d 377, 382 (Tx.2002). have notice requirements to property owners, as Such acts serve a public purpose by raising revenue well as reporting requirements to required state to benefit all citizens of the state. See Comnron- agencies. Both the IUPA and Ohio UFA have the wealth v. Vega, 174 F.3d 870, 872 (7th Cir .1999), stated purposes of reuniting owners with the value cert. denied,528 U.S. 873, 120 S.Ct. 176, 145 of unclaimed property and giving the state, rather L.Ed.2d 149 (1999); Louisinna Health Service and than the holder, the benefit of the use of the un- Guleninify Co. v. Tar•ver. 635 So.2d 1090, 1092 claimed property pending reclamation by the own- (La. 1994). er. Finally, and perhaps most notably, is that :mder tlie lUPA, the LUPL, and Ohio's UFA, the states do Id, at 222. not actnally take title to the property.Thus, even in (131) In finding the IUPA constitutional, the Indiana and Louisiana where property is presumed court stated: abandoned (under virtually identical criteria to While it is true that the Act is not a true escheat Ohio's to be considered unclaimed), the state never act, it is also true that it is not purely custodial in takes title to the property, only custody, until the namre. The chief incidents of ownership of prop- owner reclaims the property. erty are the rights of possession, of use and enjoy- (1 29) Appellee argues that unclaimed prop- ment, and of disposition. Rl:oades v. State. 224 Ind. erty in Ohio cannot be considered abandoned prop- 569. 70 N.E.2d 27, 29 (1946); Indiana 6Naste Svs- qjState erty because by definition abandonment requires tems of Indiana, Ltrc. v. IncfianaDeparttnent 633 N.E.2d 359, 367 (lnd.Tax 1994). Un- that an owner intentionally disclaim ownership with Revenae, der the Act, hotvever, an owner's failure to exercise the interrtion of not reclaiming it. However, as pre- viously discussed, unclaimed property legislation, his or her right of possession results in a presump- by its very operation, considers property abandoned tion that the property has been abandoned. Once the without an element of intent, but instead by the property has been presumed abandoned and has owner's failure to make use of the property-which is been remitted to the State by the holder, the State then may, contrary to the owner's right of disposi- how Ohio's UFA operates. tion, sell the property. A state's exercise of this in- (1301 In assessing the nature of the property at cident may have significant consequences. See issue under the IUPA, the court in Smyth made the Fong, 12 Cal.Rptr.3d at 79-80 (sale of stock for $ following observations: 7,000 per share by the State that was allegedly *9 Unclaimed property laws, such as Indiana's worth approximately $ 70,000 per share). The for- Act, do not operate as a true escheat because the feiture of interest and dividends pursuant to the Act States take possession of, but not title to, property also results from the owner's failure to assert his or received from the holder. The passing of possession her property rights and is a further indication that of property from the holder to the State under un- the Act is not purely custodial. Thus, Smyth's reli- claimed property acts is generally referred to as a ance on the custodial nature of the Act is mis- "custodial escheat." See e.g., Fong v. firestly, 117 placed. Cal.App.dth 841, 12 Cal.Rptr.3d 76, 77 ( 2004), rev. sa• denied. The Act conditions the retention of full prop- Unclaimed property acts are designed to serve erty rights upon the owner's exercise of such rights. the dual purposes of reuniting owners with the Failure to exercise those rights results in a pre- value of unclaimed property and giving the state, sumption of abandonment and a custodial escheat rather than the holder, the benefit of the use of the that deprives the owner of some of the incidents of ® 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A0000 00 059- Slip Copy Page 9 Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), 2007 -Ohio- 3219 (Cite as: Slip Copy) ownership. Because it is the owner's failure to act, come the presumption that the challenged legisla- and not the State's exercise of its sovereign power, tion is constitutional. that causes the deprivation, there is no "taking" that requires compensation. {¶ 35} Accordingly, appellant's first assign- ment of error is sustained. Because we have sus- [132) In Hooks, the Louisiana court reasoned tained appellant's first assignment of error, appel- that the triggering event in an unclaimed property lant's remaining assignments of error, and ap- case is not the state's overt act of taking private pellee's cross-assignment of error are rendered property from an owner, but is the owner's act of moot. abandonment over a period of several years. Id Consequently, the court held the state's exercise of (1 36) For the foregoing reasons, appellant's its statutorily imposed custody, and the legislature's first assignment of error is sustained, appellant's decision to award owners only the interest provided second and third assignments of error and ap- for by statute, did not equate to a"taking." Id. pellee's cross-assignment of error are overruled as moot, and the judgment of the Franklin County *10 (1 33) We are presented with property, Court of Common Pleas is reversed. This matter is that though title admittedly remains with the owner, hereby remanded to that court for further proceed- custody has passed to the state, and is not the sort ings consistent with law and this opinion. of private property as is at issue in 6['ebb's, Browu, Phillips, and their progeny, that is subject to an Judgment reversed; cause rearanded. overt taking by the government. Rather, this litiga- KLATT & FRENCH, JJ., concur. tion presents property that is akin to that in Texaco, Ohio App. 10 Dist.,2007. Smyth, Smolow, and Hooks.As established by Sogg v. Ohio Dept. of Commerce Texaco and its successors, the judiciary had never Slip Copy, 2007 WL 1821306 (Ohio App. 10 Dist.), required the state to compensate an owner for the 2007 -Ohio- 3219 consequences of his own neglect. States invariably have the power to permit unused or abandoned END OF DOCUMENT property to revert to another after the passage of time. Id. The property lapse here is not triggered by overt state action, but instead is triggered by the owner's failure to make any use of the property for a statutorily prescribed period of time. (1 34) We find that for purposes of Ohio's UFA, unclaimed property is the equivalent of aban- doned property. Because of the unique nature of the property, the state's retention of the interest eartted on unclaimed funds while those funds are in the custody and control of the state, due to the owner's failure to take any action with respect to the prop- erty for the statutorily prescribed period of time, does not constitute a taking that requires compensa- tion. It is the owner's conduct, and not that of the state that causes the lapse of the property right. Therefore, appellee has not established that the challenged legislation is unconstitutional beyond a reasonable doubt, and thereby has failed to over- 0 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A 0000 000 W IN THE SUPREME COURT OF OIiIO WILTON S. SOGG, individually and on behalf of a class of all others similarly situated, Plaintiff-Appellant, On Appeal from the Franklin V. County Court of Appeals, Tenth Appellate District DOUG WHITE, Director of the Ohio Department of Commerce, Court of Appeals No. 06AP-883 Defendant-Appellee. NOTICE OF APPEAL OF APPELLANT WILTON S. SOGG WILLIAM C. WILKINSON (0033228) MARC DANN CRAIG A. CALCATERRA (0070177) Attorney General of Ohio Thompson Hine LLP 10 West Broad Street, 7th Floor WILLIAM A. COLE (0067778) Columbus, Ohio 43215 JOHN T. WILLIAMS (0024449) (614) 469-3200, Fax (614) 469-3361 Assistant Attorneys General Executive Agencies Section Of Counsel: 30 East Broad Street, 26th Floor Columbus, Ohio 43215 JOHN R. WYLIE (614) 466-2980, Fax (614) 728-9470 Futterman Howard Watkins Wylie & Ashley, Chtd. Attomeys for Appellee Doug White, 122 S. Michigan Avenue, Suite 1850 Director of the Ohio Department of Chicago, Illinois 60603 Commerce (312) 427-3600, Fax (312) 427-1850 ARTHUR T. SUSMAN Susman Heffner & Hurst LLP Two First National Plaza, Suite 600 Chicago, Illinois 60603 (312) 346-3466, Fax (312) 346-2829 Attorneys for Appellant Wilton S. Sogg A000000061^ NOTICE OF APPEAL OF APPELLANT WILTON S. SOGG Appellant Wilton S. Sogg hereby gives notice of appeal to the Supreme Court of Ohio from the judgment of the Franklin County Court of Appeals, Tenth Appellate District, in Wilton S. Sogg, individually and on behalf of a class of all others similarly situated, v. Doug White, Director of the Ohio Department of Commerce, No. 06AP-883, dated June 21, 2007. This case raises substantial constitutional questions and is one of great public or general interest. Respectfully submitted, WILLIAM C. WILKINSON ( 0033228) CRA1G A. CALCATERRA (0070177) Thompson Hine LLP 10 West Broad Street, 7th Floor Columbus, Ohio 43215 (614) 469-3200, Fax (614) 469-3361 Of Counsel: JOHN R. WYLIE Futterman Howard Watkins Wylie & Ashley, Chtd. 122 S. Michigan Avenue, Suite 1850 Chicago, Illinois 60603 (312) 427-3600, Fax (312) 427-1850 ARTHUR T. SUSMAN Susman Heffner & Hurst LLP Two First National Plaza, Suite 600 Chicago, lllinois 60603 (312) 346-3466, Fax (312) 346-2829 Attorneys for Appellant Wilton S. Sogg 2 A00000006r;. PROOF OF SERVICE The undersigned hereby certifies that a true copy of the foregoing Notice of Appeal of Appellant Wilton S. Sogg was served by ordinary U. S. Mail, postage prepaid, on the 6th day of August, 2007, upon Marc Dann, Attorney General of the State of Ohio, and WilHam J. Cole and John T. Williams, Assistant Attorneys General, Executive Agencies Section, 30 East Broad Street, 26th Floor, Columbus, Ohio 43215, attorneys for Appellee Doug White, Director of the Ohio Department of Commerce. 3 A000000063: Westlaw. Slip Copy Page I Slip Copy, 2007 WL 3010423 (N.D.CaI.) (Cite as: Slip Copy) N of the UPL. Suever v. Connell N.D.Ca1.,2007. Plaintiffs here, however, recognize that none of Only the Westlaw citation is currently available. those prior rulings are "on the merits." By their United States District Court, N.D. Califon»a, present motion, therefore, plaintiffs seek a final de- San Jose Division. termination on certain aspects of their claims. For Agnes SUEVER, et al., Plaintiffs, the reasons explained below, the motion will be V. denied in part, and granted in part. Kathleen CONNELL, et al., Defendants. No. C 03-00156 RS. II. STANDARDS Oct. 12, 2007. Summary judgment is proper "if the pleadings and admissions on file, together with the affidavits, William Waytte Palmer, Law Offices of William if any, show that there is no genuine issue as to any W. Palmer, Sacramento, CA, for-Plaintiffs. material fact and that the moving party is entitled to Robin Bradle Joliansen, Margaret R. Prinzing, judgment as a matter of law."Fed.R.Civ.P. 56(c). James C. Harrison, Thomas Andrew Willis, Re- The purpose of summary judgment "is to isolate mcho Johansen & Purcell LLP, San Leandro, CA, and dispose of factually unsupported claims or de- for Defendants. fenses:'Celotez v. Catretl, 477 U.S. 317, 323-324, ORDER GRANTING IN PART AND DENYING 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). IN PART PLAINTIFFS' MOTION FOR PAR- The moving party "always bears the initial re- TIAL SUMMARY JUDGMENT sponsibility of informing the district court of the RICHARD SEEBORG, United States Magistrate basis for its motion, and identifying those portions Judge. of 'the pleadings and admissions on file, together with the affidavits, if any' which it believes demon- 1. INTRODUCTION strate the absence of a genuine issue of material fact"Id. at 323.If it meets this burden, the moving *1 In this action and in a similar action pending party is then entitled to judgment as a matter of law in the Eastem District of California, plaintiffs have when the non-moving party fails to make a suffi- obtained multiple rulings from the Ninth Circuit cient showing on an essential element of his case Court of Appeals which, taken together, suggest with respect to which he bears the burden of proof that (I) if plaintiffs prove the facts they have al- at trial. !d at 322-23. leged, they will have established that Califorttia's Unclaimed Property Law ("UPL") is constitution- The non-moving party "must set forth specific ally deficient, and (2) plaintiffs have already shown facts showing that there is a genuine issue for a likelihood of success on the merits. See Svever v. trial,"Fed.R.Civ.P. 56(e). The non-moving party Connetl. 439 F.3d 1142 (9th Cir.2006); Tcmlor v. cannot defeat the moving party's properly supported {festlev, 402 F.3d 924, 933 (9th Cir.2005)(Tm^lor ! motion for summary judgment simply by alleging ); Tavlor v. 17'estlev, 488 F.3d 1197 (9th Cir.2007) some factual dispute between the parties. To pre- ("Taylor 11" ). Additionally, in response to the clude the entry of summary judgment, the non- mandate of Taylor 11, the Eastem District of Cali- moving party must bring forth material facts, i.e., fornia has entered a preliminary injunction that ef- "facts that might affect the outcome of the suit un- fectively precludes California from taking posses- der the goveming law .... Factual disputes that are sion of any property under the purported authority irrelevant or unnecessary will not be counted.":In- ® 2008 Thomson/West. No Claim to Odg. U.S. Govt. Works. A 000000 06 4' Slip Copy Page 2 Slip Copy, 2007 WL 3010423 (N.D.CaI.) (Cite as: Slip Copy) desai v. Liberty Lobby, b1c., 477 U.S. 242, the complaint was pleaded, however, the 2006 or- 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). der expressly declined to find that "any of the par- The opposing party "must do more than simply ticular numbered 'claims for relief are necessarily show that there is some metaphysical doubt as to wholly barred."November 13, 2006 Order at the material facts:'rLlatsushita Elec. lndes. Co. v. 5:28-6:1.FNIIt may be true that, consistent with the Zeaitli Radio, 475 U.S. 574, 588, 106 S.Ct. 1348, Eleventh Amendment, the Ninth Circuit's ruling in 89 L.Ed.?d 538 (1986). this case, and the ruling on the motion for judgment on the pleadings, plaintiffs are not entitled to all of *2 The court must draw all reasonable infer- the declaratory relief sought in the complaint, but ences in favor of the non-moving party, including that does not mean that declaratory relief is wholly questions of credibility and of the weight to be ac- unavailable to them. For example, a finding and de- corded particular evidence. blasson v. New Yorker claration that the Controller is engaging in uncon- Magazine, lac., 501 U.S. 496, 111 S.Ct. 2419, stitutional conduct could serve as a predicate for 2434-35, 115 L.Ed.2d 447 ( 1991) (citing Anderson. prospective injunctive relief. Similarly, in the con- 477 U.S. at 255);Mcttsn.rhita Elec, bzdns. Co, v. text of adjudicating questions of whether the Con- 475 588, Zetirli Radio, U.S. 574, 106 S,Ct, 1348, troller is holding property belonging to plaintiffs, it 38 (1986); 89 L.Ed.2d 5 T.W. Elec. Service v. Pa- may well be appropriate to inquire into the propri- cific Elec•. Contractor.r, $09 F.2d 626, 630 (9th ety of past conduct and to enter a declaration per- Cir.1987). It is the court's responsibility "to detertn- taining to such conduct. Thus, it is not correct to ine whether the `specific facts' set forth by the non- say that declaratory relief is no longer available to moving party, coupled with undisputed background plaintiffs by virtue of any prior ruling. or contextual facts, are such that a rational or reas- onable jury might return a verdict in its favor based FN I. Although that remark was made in on that evidenco."T.I4'. Elec. Servic•e. 809 F.2d at the particular context of declining to de- 631. "[S]ummary judgment will not lie if the dis- termine which, if any, of the numbered pute about a material fact is 'genuine,' that is, if the claims for relief were based solely an state evidence is such that a reasonable jury could return law, nothing else in the order purported to a verdict for the nonmoving party."Anderson. 477 dismiss specific numbered claims for re- U.S. at 248. However, "[wjhere the record taken as lief. a whole could not lead a rational trier of fact to find for Ihe non-moving party, there is no 'genuine issue B. Notice Provisions and Practices Under tbe UPL for trial.' "tVlatsushita, 475 U.S. at 587. The first prong of plaintiffs' motion seeks a de- claration on the merits that California's existing III. DISCUSSION UPL and the Controller's practices thereunder do not comport with due process because owners of property are not provided constitutionally adequate A. Availability ofDeclaratory Relief notice prior to the time the Controller takes posses- As an initial matter, the parties dispute the ex- sion of the property under color of the UPL. Rely- tent to which plaintiffs can pursue claims for de- ing largely on the swom declaration of Robert claratory relief. The Controller argues that this Huarte, then-Chief of the Division of Collections Court's ruling in 2006 on defendants' motion for for the Controller rNI `, and on the Ninth Circuit's judgment on the pleadings had the effect of dis- decisions in Suever, Taylor 1, and Taylor 11, missing all claims for relief except "claims for re- plaintiffs contend these issues can be decided in mrn of property and other prospective relief' and their favor as a matter of law, and that they should that therefore plaintiffs' claims for declaratory relief be granted a permanent injunction. have already been dismissed. Because of the way ® 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A 00 0000065 Slip Copy Page 3 Slip Copy, 2007 WL 3010423 (N.D.Cal.) (Cite as: Slip Copy) FN2. The declaration was filed in 2006 in such arguments are properly addressed a state cour) action also challenging the only to the Ninth Circuit or the Supreme UPL and the Controller's practices. Court, not to this Court. *3 Much of the Controller's argument in oppos- That said, it does not follow that plaintiffs are ition to this prong of the motion is devoted to at- entitled to the relief they seek in this prong of their tempting to show that Suever, Taylor 1, and Taylor motion. Taylor I made clear that the Eleventh 11 are not controlling. As the Court observed in its Amendment bars declaratory relief claims that ef- order denying plaintiffs' application for a temporary fectively are "retroactive requests for money" and restraining order, the controller is technically cor- that are "in practical effect indistinguishable in rect that those decisions were based either on alleg- many aspects from an award of damages against the ations or on a preliminary evidentiary record and State:'Tavlor• 1. 402 F.3d at 935 (quoting Edel nan therefore do not necessarily dictate what the out- v. Jordan, 415 U.S. 651, 668, 94 S.Ct. 1347, 39 come will be on the merits. See August 27, 2007 L.Ed.2d 662 (1974)); see also Suever. 439 F.3d at Order at 2:21-25. The Controller does point to a 1148. Putting aside for a moment plaintiffs' claims few factual matters he contends the Ninth Circuit for return of property that they contend belongs to considered that, in his view, are not supported by them, this Court's jurisdiction othenvise lies only to the present record or are completely false. Never- enjoin fiuure unconstitutional conduct. See Taylor theless, the Controller appears not fully to appreci- /, 402 F.3d at 935 ("If these facts turn out to be true ate that the core holdings of the Ninth Circuit opin- .,. the district court could declare the notice prac- ions rest largely on facts which he has not disputed tioes of the Controller unconstitutional and enjoin with respect to the structure and operation of the the Controller to conform to .., whatever ... stand- UPL prior to the injunction issued out of the East- ards were determined to be appropriate.") At this em District of Califomia. As one particular ex- juncture, even assuming that the facts previously ample, Taylor 11 plainly stated that constitutional considered by the Ninth Circuit in any of its pertin- due process is not satisfied either by notice ent rulings "tumed out to be true" before the East- (regardless of its form) given after the state has em District entered its injunction, those facts are "disturb[ed) a person's ownership of his property," undisputedly not reflective of the current state of or by notice given by third parties rather than by the affairs. state itself. 488 F.3d at 1201. The Controller does not contend that, under his practices prior to the in- As matters now stand, the Controller is en- junction, the state itself gave notice to owners prior joined from taking possession of any prop erty un- to taking possession of property under color of the der the purported authority of the UPL.rN4Addi- UPL. Thus, while none of the prior decisions have tionally, the Controller by virtue of the Eastetn Dis- been "on the merits" per se, the Controller's efforts trict order will not be permitted to take possession to dismiss them as simplfy^3applicable to summary of property under the UPL until and unless he judgment is misdirected. demonstrates to the satisfaction of that court that he is complying, and will continue to comply, with all FN3. The Controller also spends a substan- constitutional requirements. tial portion of its brief arguing that Taylor 11 (and to a lesser extent Taylor I and FN4. After this motion was under submis- Suever ) were wrongly decided. In particu- sion, the Controller filed supplemental lar, the Controller argues the Ninth Circuit briefing asserting, among other things, that misunderstood and misapplied the holding California Senate Bill 86 has now been of Jones v. Flowers, 547 U.S. 220, 126 passed and signed into law and that its S.Ct. 1708, 164 L.Ed.2d 415 (2006). As amendments to the UPL moot at least some noted in the Court's August 27, 2007 order, of the issues presented in the motion. The fl 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A000000066 sltp Copy Page 4 Slip Copy, 2007 WL 3010423 (N.D.Cal.) (Cite as: Slip Copy) Controller's filing contravenes Local Civil al would, standing alone, serve no legitimate pur- Rule 7-3(d), and no part of this Order is pose. Accordingly, this portion of plaintiffs' motion based on the facts or argumeats presented will be denied. therein. Nevertheless, as pointed out in plaintiffs' objections to the Coatroller's C. Scope of the UPL supplemental filing, the Controller's under- lying argument that he was seeking legis- Although plaintiffs' moving papers are not en- lative amendments to the UPL was already tirely clear as to the relief they seek, they include part of the record. There is no dispute that substantial argument that the Controller has taken the Controiler now has a pending motion possession of property "outside the scope" of the to dissolve the preliminary injunction in UPL. The Controllcr's opposition assumes that the Eastem District based on the passage plaintiffs are seeking a declaration to that effect and of SB 86, but neither the pendency of that opposes the request. Plaintiffs' opening brief cites motion nor its potential success or failure passages from Suever and Taylor ! in support of affects the analysis of this motion for sum- their argument that property outside the scope of mary judgment. the UPL has in fact been taken by the Controller (opening Brief at 19:22-20:5; 22:3-10); but as *4 Plaintiffs point to the positions taken by the noted, those decisions were based on the requisite Controller in opposition to this motion as being at pleading assnmption that the allegations of the least some indication that the Controller should not complaints were true. Plaintiffs have also argued be trusted to comply with his constitutional obliga- there is evidence that the procedures under which tions in the absence of a permanent injunction. the Controller has taken possession of purportedly Plaintiffs have not shown, however, that there is "unclaimed" property have been insufficient to en- any reasonable basis to believe that either: (1) the sure that all such property truly meets the criteria of Eastem District's injunction will be lifted without the UPL. adequate assurances that the Controller intends to, and will, abide by the Constitution; or (2) after any Plaintiffs point to circumstances under which a dissolution of the temporary injunction in the East- trier of fact might very well ultimately conclude the ern District, the Controller would likely revert to Controller was not entitled to take possession of unconstitutional practices. property, because either the holder or the Control- ler, or both, could have determined where the prop- Plaintiffs may be correct that ordinarily the ex- erty owner could be contacted. Additionally, it is istence of a preliminary injunction is no bar to entry logical to assume that to the extent inadequate no- of a permanent injunction. Certainly, to the extent tice was given to property owners, the likelihood the Eastern District of California concludes that it increased that property would be taken where the should make any aspect of its injunction permanent owners were not truly "lost" within the meaning of it will be entitled to do so. It would be inappropri- the UPL. ate for this Court to enter a permanent injunction at this point, however, because there is no ongoing *5 The mere possibility that a holder or the unlawful conduct, nor a likelihood of future unlaw- Controller could have found a current address for a ful conduct, to be enjoined. For similar reasons, it property owner through different or additional ef- is neither necessary nor appropriate to enter a de- forts, however, does not in and of itself mean that claration that the controller's past practices were property necessarily was taken "outside the scope" unconstitutional. While, as explained above, declar- of the UPL. To the extent plaintiffs are requesting a atory relief might be appropriate as a predicate to declaration to that effect, they have failed to meet an injunction, a declaration that the Controller's their burden to show as a matter of undisputed fact past practices regarding notice were unconstitution- that seizures of property outside the scope of the ® 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A000 000Q 67 Slip Copy Page ^, Slip Copy, 2007 WL 3010423 (N.D.Cal.) (Cite as: Slip Copy) UPL have occurred. takes possessfon of property under color of the UPL, ownership of such propeFtty 6at all times re- mains with the original owner. N Under long es- Tl, Interest tablished common law principles, "interest shall Plaintiffs seek a declaration that the provisions follow the principal, as the shadow the body."Beck- of the UPL in effect at the time they filed their mo- jord v. Tobin, 1 Ves. 308, 310, 27 Eng. Rep. 1049, tion were unconstitutional to the extent those provi- 1051 (Ch. 1749) (as quoted in Leider v. United sions did not provide for the payment of interest on States, 301 F.3d 1290, 1296 (Fed.Cir.2002). Thus, monies remmed to their owners. Although the UPL plaintiffs contend, interest on property taken by the has apparently now been amended to restore Controller under color of the UPL (or on the pro- claimants' entitlement to interest, the issue is ceeds from liquidation of such property) is just as neither moot nor subject to the concertr that there is much the property of the original owners as the {Vehbs Fabutou.s Pliurtnacies. no likelihood of future improper conduct to enjoin. principal. See also 449 U.S. 155, 162, 101 S.Ct. 446. The Controller does not suggest the amendments to !nc•. v. Becklvidi, the UPL will result in payments of interest to per- 66 L.Ed.2d 358 (1980) ("The usual and general rule sons who tivere denied interest under prior versions is that any interest on an interpleaded and deposited of the statute. Plaintiffs' contention is that such in- fund follows the principal and is to be allocated to terest was their property and remains their property. those who are ultimately to be the owners of that Suever made clear that, "[t]he Eleventh Amend- principal.). ment does not bar the class's claims insofar as the FN6. Even where the property is not cash, claims request the return of the class's or a cash equivalent, and the Controller property."Suever. 439 F.3d at 1146-47. Thus, the subsequently liquidates the property, there potential entitlement of plaintiffs who previously is no real dispute that the proceeds from were denied interest to recover such interest re- the liquidation remain the property of the mains an adjudicatable issue.FN5 original owner. FN5. At oral argument, the Controller sug- Plaintiffs characterize the failure to pay interest named plaintiffs gested that none of the as a"takings," without "just compensation" as re- were denied interest when their claims quired by the Takings Clause of the Constitution. were paid, an argument not made in the As noted, plaintiffs' basic theory is that the interest opposition brief. As noted above, however, itself is tlreir pr•operty, just as is the principal. The some plaintiffs' claims were denied, and Ninth Circuit has already held that plaintiffs are en- they are litigating the validity of those titled to pursue claims for return of their own prop- denials in this action. Additionally, it ap- erty independently of the Takings Clause. Ta,vior 1, pears that at least one plaintiff was not 402 F.3d at 936.("[w]e need not decide the issue of paid any interest at all. Although plaintiffs sovereign immunity in the context of a takings have the burden of establishing they are claim, since we have already decided that plaintiffs' entitled to relief as a matter of law and un- property has not been taken at all, but has merely disputed fact, the issue of whether any been held in trust for them by the Controller."). plaintiff still has a claim for interest is only a potential affirmative defense, and the *6 The difference between principal and in- Controller has not met his burden to show terest, however, is that the UPL has never purported that the Court may not properly consider to authorize the Controller to take permanent own- whether interest is constitutionally man- ership of principal, but for a period of time, the dated. UPL did expressly provide that "[n]o interest shall be payable on any claim ...:' Cal.Code Civ, P Plaintiffs' theory is simple: when the Controller 0 2008Thomson/West.NoClaimtoOrig.U.S.Govt.Works. A000000068 Slip Copy rage o Slip Copy, 2007 WL 3010423 (N.D.Cal.) (Cite as: Slip Copy) 1540(c). The question, therefore, is whether Cali- the Ninth Circuit's pronouncements regarding the fomia could constitutionally detetmine that interest UPL. Under the UPL, property can permanently es- on property would permanently "escheat" FN7 to cheat to the state under certain circumstances not the state, even where the principal did not. implicated by the facts of this case. In Taylor 1, however, the court observed that, "[t]he Controller's FN7. Historically in the common law, obligation to order transfer from the Treasurer, if "escheat" applied to real property and the money was deposited in the geneml fund but is sub- analogous doctrine of bona vacantia ap- sequently found not to be permanently escheated, plied to personal property. See Anderson plainly establishes that the trust continues, even Nat. Bank v. Lncket1321 U.S. 233, 240, 64 after the Controller has transferred the money to the S.Ct. 599, 88 L.Ed. 692 (1944). For con- general fund. Thus the money, even if in the gener- venience, the term "escheat" will be used al fund, is not held free and clear by the State of exclusively hereinafter. California, but subject to retransfer if the property is later found not to be permanently In support of his argument that the state was eseheated."Taylor I. sopra. 402 F.3d at 9i1. The entitled to withhold interest, the Controller cites court also stated, "The State of Califomia's sover- various non-binding decisions from other states that eign immunity applies to the state's money. Money have involved similar challenges to those states' un- that the state holds in custody for the benefit of claimed property laws or procedures. In particular, private individuals is not the state's money"td. at the Controller relies on Sogg v. Ohio Dept, ojConi- 932. nrerce, 2007 WL 1821306 (Ohio App.2007), in which an Ohio state court found that Ohio lawfully *7 Although the Ninth Circuit's decisions in amended its unclaimed property statute to preclude Suever, Taylor 1, and Taylor 11 are not conclusive to the payment of interest on claims for the return of the extent the proven facts may differ from those property, because "unclaimed property is the equi- considered in those opinions, this Court is bound by valent of abandoned property" and "the state's re- the explication of the law set out therein. Califor- tention of the interest earned on unclaimed funds nia's UPL does not purport to authorize the state to while those funds are in the custody and control of take title to property except under circumstances the state, due to owner's failure to take any action not present here. Even assuming a state constitu- with respect to the property for the statutorily pre- tionally could, with proper due process notice, scribed period of time, does not constitute a taking withhold interest under the common law doctrine of that requires compensation."2007 WL 1821306 at * "true" escheat, while holding the principal only in a 10. The Sogg court recognized that where a state custodial system, that is not what California did enacts a 'cnslodial system for unclaimed property, here. Rather, while purporting to take property only rather than a "true escheat" system, title to the as a custodian, the state appropriated to itself the property never passes to the state. Id. The court also use and value of that property. It is as if California recognized that under long-established principles of claimed to be holding a tree in custody for its own- law, "interest follows principal" and therefore the er but insisted on pruning back and keeping all owners of the property ordinarily would be entitled branches that grew in the interim. Because the prin- to interest when they reclaimed their property. Id. at ciple itself at all times remained the property of * 3. Nonetheless, the Sogg court concluded that private individuals and not the state, so too did the Ohio could, in effect, choose to treat interest as interest. See also, Canel v. Topinka. 212 I11.2d 311, pennanently escheated to the state, even though the 288 Ill.Dec. 623, 818 N.E.2d 311 (III.Sup.2004) balance of its unclaimed property law established (finding takings clause violation where Illinois un- only a custodial system. claimed property law did not provide for the return of dividends eamed on stock taken into state cus- That conclusion is simply not viable here given tody).-For-similar reasons, none of the other cases 0 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A OOO OaC06 9- zinp copy rage i Slip Copy, 2007 WL 3010423 (N.D.Cal.) (Cite as: Slip Copy) cited by the Controller are persuasive authority Recognizing that "where the relief is premised here. solely on the State's compliance with state law," the relief is "clearly barred by the Eleventh Amend- Furthermore, contrary to the Controller's argu- ment,"Svever, 439 F.3d at 1148, plaintiffs attempt ment, it does not matter that property taken under to argue that the Controller's alleged failure to com- color of the UPL (or proceeds therefrom) may not ply with the Govemment Code and the APA has have been deposited in interest-bearing resulted in a violation of their jedera7 due process accounts.FN8Even if, as it appears has been the rights. At least at this juncture, however, plaintiffs case, the state simply spent the money, it had the have not shown how that is so. Plaintiffs appear to use of those funds, which economically is equival- be arguing that certain of the named plaintiffs have ent to eaming interest. Accordingly, plaintiffs' mo- been aggrieved because the Controller has told tion is granted to the extent they seek a declaration them that he does not haw any record of holding that the Controller is obligated to return interest to their property, but they believe their property was persons who reclaim property taken into state cus- in fact taken into the Controller's custody under tody under the color of the UPL. color of the UPL. FN8. The order on defendants' motion for *8 Why plaintiffs believe the lack of regula- judgment on the pleadings suggested that tions promulgated under the APA gives rise to a resolution of the interest issue possibly federal due process violation in such circunustances would turn on whether the property was in- is unclear. Plaintiffs do not deny that they were able terest-bearing before or after it was taken to make a claim for their property. Plaintiffs do not into custody by the state, or both. As this dispute that the Controller denied that claim. order reflects, the Court has now con- Plaintiffs have filed this action, seeking to prove, cluded that to be irrelevant. among other things, that the Controller does have possession of property belonging to them, The Con- E. Clairn Procediu•es troller has not argued that plaintiffs failed to ex- Plaintiffs' moving papers assert they seek relief haust administrative remedies. They will either on two basic issues, but in subsequent filings and at prove to the satisfaction of a trier of fact that the the hearing they clarified that three separate matters Controller took possession of their property or they were being raised. In addition to seeking rulings on will not. Thus, plaintiffs were able to make a claim, notice and on interest as discussed above, plaintiffs and are able to seek redress in court for the denial request the Court to order the Controller to begin of that claim. Even assuming the Controller is viol- the process of promulgating regulations that will ating state law by not promulgating different or ad- govem how persons ma present and "perfect" a ditional regulations goveming how claims are to be claim under the UPL.FN^Plaintiffs contend that the made and processed, no federal constitutional viola- Controller has failed to comply with his obligations tion is apparent on these facts. under the California Govemment Code and its Ad- ministrative Procedures Act ("APA") to adopt such IV. CONCLUSION regulations. Plaintiffs' motion for partial summary judg- FN9. At the hearing, plaintiffs acknow- ment is granted to the extent set forth above and is ledged that this request for relief was not otherwise denied. consistent with their characterization of their motion as seeking only legal determ- IT IS SO ORDERED. inations of liability, with remedies to be addressed later. N.D.Cal.,2007. Suever v. Connell (92008Thomson/West.NoClaimtoOtig.U.S.Govt.Works. A000000070 Slip Copy Page 1 Slip Copy, 2007 WL 3313954 (N.D.CaI.) (Cite as: Slip Copy) H (3) A manifest failure by the Court to consider Suever V. Connell material facts or dispositive legal arguments which N.D.Cal.,2007. were presented to the Court before such inter- Only the Westlaw citation is currently available. locutory order. United States District Court, N.D. California, San Jose Division. Here, defendants contend that reconsideration Agnes SUEVER, et al., Plaintiffs, is warranted for any or all of the four following V. reasons: (1) the Court mistakenly believed that Kathleen CONNELL, et al., Defendants. California has now amended the UPL to provide for No. C 03-00156 RS. interest to be paid on claims made; (2) a recent fed- eral district court decision, issued before this Nov. 6,2007. Court's decision, but not recognized as significant by defendants until later, reaches a result contrary William Wayne Palnter, Law Offices of William to the conclusion of this Court, (3) this Court erred W. Palmer, Sacramento, CA, forPlaintiffs. in concluding that any of the named plaintiffs in Robin Bradle Johansen, blargaret R. Prinzing, this action have standing to challenge defendants' James C. Harrison, Thomas Andrew Willis, Re- alleged non-payment of interest, because all of the meho, Johansen & Purcell LLP, San Leandro, CA, named plaintiffs received interest and; (4) the Con- for Defendants. troller cannot determine what rate of interest he must pay under the Court's order, given the lack of ORDER DENYING MOTION FOR LEAVE TO statutory authority to pay any interest at all. SEEK RECONSIDERATION Defendants are correct that the Court's October RICHARD SEEBORG, United States Magistrate 12th Order stated that "the UPL has apparently now Judge. been amended to restore claimants' entitlement to *1 Defendants seek leave to file a motion for interest," but that statement was made only in the reconsideration of this Court's determination on Oc- context of rejecting any potential argument that the tober 12, 2007, that the State of California is consti- interest question was moot. See October 12th Order tutionally obligated to pay interest when remrning at 7:21-23. Even though the UPL has not yet been money to claimants under the state's Unclaimed amended to provide for interest payments, that has Property Law ("UPL"). Civil Local Rule 7-9 echoes no bearing on the analysis of whether interest may case law as to when reconsideration is appropriate. be constitutionally withheld. It provides that a party may seek reconsideration if the party "specifically shows": Defendants' contention that reconsideration is (1) That at the time of the motion for leave, a warranted in light of Simon v. li'iessman, 2007 WL material difference in fact or law exists from that 2461707 (E.D.Pa. Aug.27, 2007), is both too late which was presented to the Court before entry of and unavailing on the merits. Sinion is at most cu- the interlocutory order for which reconsideration is mulative to the state cases on which defendants re- sought. The party also must show that in the exer- lied, albeit a sister federal decision. It is not bind- cise of reasonable diligence the party applying for ing. For the same reasons that the Court declined to reconsideration did not know such fact or law at the follow Sogg v. Oltio Dept. of'Connnerce, 2007 WL time of the interlocutory order; or 1821306 (Ohio App.2007), it cannot follow (2) The emergence of new material facts or a Simon.The issue presented in this case is not wheth- change of law occurring after the time of such or- er, hypothetically, a state could choose to treat in- der; or terest as permanently escheated while holding prin- © 2008 Thomson/West. No Claim to Orig. U.S. Govt. Works. A 00000007 1 anp t-opy Page Z Slip Copy, 2007 WL 3313954 (N.D.Cal.) (Cite as: Slip Copy) cipal in a custodial capacity only. The Ninth Circuit should have been permitted further discov- has expressly held that California's UPL establishes ery directed at showing the named only a custodial system-that it is nar true escheat. plaintiffs' claims to be barred by the statute See, e.g., Tavlor v. li'estlev. 402 F.3d 924, 931 (9th of limitations. That is not a basis for recon- Cit:2005) ("the money, even if in the general fund, sideration. is not held free and clear by the State of Califomia, but subject to retransfer if the property is later Finally, the Controller's argument that he can- found not to be permanently escheated.") Having not deterrt»ne what rate of interest to pay is not a unequivocally declared that it is holding the prop- basis for reconsideration of the merits of the Octo- erty on behalf of its true owner, the state cannot ber 12th Order. As the Court observed in its order thereafter constitutionally refuse to return interest on plaintiffs' motion for class certification: that is, under long established common law prin- Although the Court likely could adjudicate the ciples, part of that property, at least without a question of whether a particular rate of interest was clearly delineated statutory scheme that, with ad- constitutionally adequate, there is no apparent basis equate due process protections, justifies permanent on which to conclude any specific rate of interest is escheat of the interest. - constitutionally required. Certainly, the motion presented to the Court that resulted in the October *2 Defendants' contentions that no named 12, 2007 Order sought no such determination. plaintiff was denied interest or that the Court im- properly shifted the burden to them to establish a The Controller may be entitled to file a motion lack of standing is not borne out by the record. seeking a determination from the Court that a par- First, defendants acknowledge that plaintiff Agnes ticular rate of interest is constitutionally adequate, Suever (now deceased) was not paid interest when but that would not involve "reconsideration" of the she reclaimed her property. Defendants argue that October 12th Order. Accordingly, defendants' mo- Suever woald have received interest, had she made tion for leave to seek reconsideration is DENIED, her claim to the Controller, rather than to the ac- without prejudice to any motion defendants may count holder. Defendants have not, however, sug- bring with respect to the rate of interest that should gested that if Suever's representatives make a claim be paid. By separate order to be issued in due for interest now that the Controller will pay it, course, the Court will advise the parties as to any further proceedings regarding plaintiffs' requests to Furthermore, named plaintiff Richard Valdes is certify a class with respect to recovering interest on alleging that the Controller has failed even to ac- previously-paid claims. knowledge that it is holding his property, much less return principal or interest. Defendants argue that IT IS SO ORDERED. Valdes's claim lacks merit, citing his deposition N.D.Cal.,2007. testimony to the effect that it is "possible" his Suever v. Connell memory is innacurate. Whether or not Valdes is Slip Copy, 2007 WL 3313954 (N.D.Cal.) likely to prevail, however, is a separate question from standing. There appeats to be no dispute that END OF DOCUMENT were Valdes to prove the Controller does hold his property, the Controller would willingly return the principal but would not pay interest absent a Court order or amendment of the UPL. That is sufficient to establish standing in support of the Court's Octo- ber 12th Order. FNI. Defendants also complain that they ©2008Thomson/West.NoClaimtoOrig.U.S.Govt. Works. a000000072