Summary
The Ninth Circuit affirmed in part and reversed in part the dismissal of a constitutional challenge to Arizona’s Unclaimed Property Act. The court held that the plaintiffs had Article III standing and that sovereign immunity did not bar their claims, but that their takings claim failed because the state held the property in trust. The court held that the plaintiffs plausibly alleged a procedural due process violation based on inadequate notice and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether plaintiffs sufficiently alleged Article III standing to challenge Arizona's custody of their unclaimed property.
- Whether sovereign immunity barred plaintiffs' claims for prospective relief and return of property held by Arizona officials.
- Whether Arizona's custody of unclaimed property constituted a taking for which just compensation was required.
- Whether plaintiffs plausibly alleged a protected property interest, a deprivation by state action, and inadequate process under the Fourteenth Amendment.
- Whether plaintiffs' facial challenge to the Unclaimed Property Act's notice provisions plausibly stated a constitutional claim.
Holdings
- Plaintiffs had Article III standing because they plausibly alleged a concrete invasion of a legally protected property interest: Arizona possessed their checks without their consent, and the alleged deprivation was redressable by return of the property or other relief.
- Sovereign immunity did not bar plaintiffs' claims for prospective injunctive relief or return of property allegedly held through unconstitutional or ultra vires acts.
- Plaintiffs' takings claim failed as a matter of law because Arizona's custody of unclaimed property held in trust for the owners did not constitute a taking.
- Plaintiffs plausibly alleged a procedural due-process claim because they alleged a protected property interest in their unclaimed property, a deprivation of that interest when Arizona assumed custody, and inadequate notice before the transfer.
- Plaintiffs' facial challenge to the Act's notice provisions survived dismissal because they plausibly alleged that the provisions fail to meet the minimum constitutional standard in all cases.
Key quotations
“where unclaimed property is “held in trust” by the state, the property “has not been taken at all.”” (14)
“Again, the Supreme Court has held that even “a temporary, nonfinal deprivation of property is nonetheless a ‘deprivation’ in the terms of the Fourteenth Amendment.”” (16-17)
“Put succinctly, “Mathews governs the question of whether and when due process requirements, including notice, [are] required, but Mullane governs [the] adequacy of notice.”” (20)
Factual background
Plaintiffs alleged that Arizona's Department of Revenue possessed checks owed to them by businesses including healthcare providers, financial institutions, and car dealers. Under Arizona's Unclaimed Property Act, property presumed abandoned is transferred to the Department, which must maintain a website listing the property but is not required to provide actual notice to apparent owners that the State possesses it. Plaintiffs alleged that Arizona's custody of their property occurred without adequate notice and violated the Takings Clause and the Due Process Clause.
Procedural history
Garza and Terrell sued Arizona officials in their official capacities, alleging that Arizona's custody of their unclaimed funds violated the Takings Clause and the Fourteenth Amendment's Due Process Clause. The District of Arizona dismissed the action, concluding that sovereign immunity barred retrospective relief and that plaintiffs failed to state a viable claim for prospective relief. The Ninth Circuit affirmed the dismissal of the takings claim, reversed the dismissal of the due-process claim and claims seeking return of the property, and remanded.
Remand instructions
Proceed with plaintiffs' viable due-process claim and claims seeking return of their property; the takings claim remains dismissed. Defendants shall bear the costs on appeal.