On February 29, 2016, the U.S. Supreme Court denied the writ of certiorari to review the judgment of the U.S. Court of Appeals for the Ninth Circuit in Taylor v. Yee, 780 F.3d 928 (9th Cir. 2015). The case involves a 13-year litigation over California’s Unclaimed Property Law (UPL), which authorizes the state to escheat and liquidate unclaimed property, including unclaimed securities. Although the Court denied the writ of certiorari, Justice Samuel Alito’s concurrence denying certiorari signals the Court’s growing concerns over the constitutionality of current state escheat laws.
On August 5, 2015, Chris Lusby Taylor and others filed a petition for a writ of certiorari asking the Court to reverse the Ninth Circuit’s decision, which rejected the petitioners’ claim that the UPL violated the Due Process Clause of the Fourteenth Amendment by failing to provide constitutionally adequate notice to owners of unclaimed securities to be escheated, and by failing to take adequate steps to locate and notify property owners before liquidating their property. In particular, the petitioners argued that the UPL violates due process because it does not provide adequate individualized notification that property may be escheated by utilizing records and databases readily available to the state trying to locate the owner, but rather relies on written notices to addresses that the state knows are no longer valid and generic newspaper publications. In addition, in light of Horne v. Department of Agriculture, 135 S. Ct 2419, 2428 (June 22, 2015), the petitioners asked the Court to vacate and remand the Ninth Circuit’s decision on the separate basis that the Ninth Circuit applied the incorrect legal standard by failing to review California’s unclaimed property scheme under the Takings Clause of the Fifth Amendment. In particular, the petitioners alleged that California’s practice of liquidating the securities after seizing them, and paying only the proceeds of the liquidation rather than their current value, is an unconstitutional taking without just compensation.
Amicus Curiae Briefs in Support of Petitioners
On September 8, 2015, the Unclaimed Property Professionals Organization (UPPO), Shareholder Services Association (SSA) and Securities Transfer Association (STA) moved to file amicus curiae briefs in support of the petitioners.
In its amicus brief, UPPO argued that the issues raised in the petition are not limited to California’s UPL, but are implicated by the unclaimed property laws of many states because those state laws contain notice and compensation provisions similar to or less adequate than those adopted by California. In particular, UPPO argued that if the Court did not clarify what constitutes constitutionally adequate notice before a state may seize and liquidate an owner’s property under the state’s unclaimed property laws, as well as what constitutes just compensation to owners as a result of such liquidation, the effects of the Ninth Circuit’s decision would be felt across the nation as well as outside the country (since states escheat property owned by foreign persons) and result in significant loss to property owners—particularly securities.
Similarly, in their amicus brief, the SSA and STA urged the Court to grant the petition and to provide clear, unambiguous standards regarding the state’s escheatment and liquidation of securities. The SSA and STA argued that if the Ninth Circuit’s decision is allowed to stand, California and other states that rely on unclaimed property as a revenue source will continue to prioritize revenue over reuniting owners with their property.
Alito’s Concurrence Denying Petitioners’ Writ of Certiorari
The Court ultimately denied the petitioners’ petition for writ of certiorari, with Justice Alito writing a concurring opinion. In his concurrence, Justice Alito reiterated that the Due Process Clause requires states to give adequate notice before seizing private property. That is, when a state is required to give notice, it must do so through processes “reasonably calculated” to reach the interested party—here, the property owner. Noting that seizure of private property is “no small thing,” Justice Alito stated that whether the means and methods employed by a state to notify owners of a pending escheat meets the constitutional floors is an important question.
Justice Alito pointed out that the trend for states to shorten escheat periods with minimal notification procedures raises important due process concerns. Significantly, Justice Alito suggested that publication-only notice provisions (Delaware’s Escheats Law has such a provision), may not satisfy due process. Justice Alito noted that advances in technology make it easier and easier to identify and locate property owners and suggested that states may need to take advantage of such technology to meet their constitutional obligation to provide adequate notice before liquidating private property.
Despite these constitutional concerns, Justice Alito explained the petitioners’ writ of certiorari was denied because “[t]he convoluted history of [the] case makes it a poor vehicle for reviewing the important questions it presents.” Notably, however, Justice Alito signaled the Court may review these constitutional concerns of state escheat law in the near future, writing “the constitutionality of current state escheat laws is a question that may merit review in a future case.”
Several other cases that involve the improper escheatment and liquidation of securities, and resulted in significant losses to the owners, are currently pending in lower courts. Hopefully the judges in those cases will take notice of Justice Alito’s concurrence as they consider these very important issues.
This advisory is published by Alston & Bird LLP’s Unclaimed Property practice area to provide a summary of significant developments to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions.