This advisory was first published by Tax Notes State on March 9, 2026.
Federal courts are increasingly divided over whether a state’s custody of unclaimed property could constitute a taking, and if so, what remedies are constitutionally available. The Takings Clause of the U.S. Constitution provides that private property may not “be taken for public use, without just compensation.” A number of state constitutions include similar clauses.
Over the last year, a meaningful circuit split has begun to emerge on this question. The Ninth, Tenth, and Eleventh circuits all agree that property owners need not first file an administrative claim before bringing a federal Takings Clause challenge against a state to recover property that has been reported to the state’s unclaimed property office. But beyond that limited point of agreement, the courts sharply diverge on two questions:
- Could a state’s escheat and custody of unclaimed property amount to a taking at all?
- If so, what relief can a claimant pursue in light of sovereign immunity?
As these cases demonstrate, the answers now depend on geography.
Peters
In Peters v. Cohen, the Ninth Circuit established its restrictive view of federal takings claims in the unclaimed property context. A German citizen challenged California’s escheat and liquidation of his shares of stock, seeking declaratory and injunctive relief, as well as compensation reflecting the difference between the sale price of the stock and its current market value.
The court disposed of the case on multiple grounds:
- Standing. Because Jan Peters had already received the proceeds of his stock and had no additional U.S.-based assets, the court found no ongoing injury. His fear of future escheat was too speculative.
- Sovereign immunity. Peters’s requests for the return of his property—in other words, the “difference between the current market value of his escheated stock and the price at which it was sold”—were barred under the Eleventh Amendment.
- No taking at all. Most significantly, the court reiterated that when property is transferred to the state under California’s unclaimed property law, it is not taken in the constitutional sense. Instead, the property (or its proceeds) is held in trust. As the court stated, plaintiffs are “not entitled to more than the actual property that the State took into its possession or the proceeds of that property,” because “such claims for additional compensation, whether described as ‘restitution’ or otherwise, are indistinguishable in effect from claims for money damages against the State and, as such, are barred by the Eleventh Amendment” (emphasis in original).
The U.S. Supreme Court denied Peters’s petition for writ of certiorari.
The Ninth Circuit maintains a categorical position: A state’s custody of property under an unclaimed property regime does not give rise to a compensable taking.
Knellinger
Shortly after the Peters decision was handed down, the Tenth Circuit took a different approach. In Knellinger v. Young, property owners challenged Colorado’s unclaimed property scheme under 42 U.S.C. Section 1983, alleging a Takings Clause violation. The District of Colorado dismissed the plaintiffs’ complaint for lack of standing, reasoning that the plaintiffs had not filed an administrative claim to establish ownership.
However, the Tenth Circuit reversed on the following grounds:
- No administrative exhaustion required. A plaintiff need not file an administrative claim before bringing a Takings Clause action.
- Plausible taking alleged. The court held that the plaintiffs plausibly stated a claim, particularly in alleging that Colorado commingled unclaimed property funds with the general fund.
Importantly, however, the court stopped short of resolving the core doctrinal clash with the Ninth Circuit. In a footnote, it acknowledged—but did not decide—whether a state may avoid a Takings Clause claim by characterizing itself as merely holding property “in trust” while exercising control. The court explained:
Plaintiffs allege that Defendants took their property even earlier, when Colorado seized and took custody of the abandoned property. This presents the question of whether a state may avoid a Takings Clause claim by defining ownership such that a citizen remains the de jure “owner,” even if the state takes de facto ownership. … At this stage, we need not reach that question; we need only decide whether Plaintiffs had a cognizable Takings Clause claim by the time they filed suit.
The Tenth Circuit also did not address sovereign immunity under the Eleventh Amendment. As a result, while the court opened the door to takings claims, it left the scope of available remedies unresolved.
On February 13, the District of Colorado revisited the issues following remand by the Tenth Circuit. It dismissed the plaintiffs’ Takings Clause claim under the Eleventh Amendment, holding that the plaintiffs’ request for monetary damages constitutes the “functional equivalent of impermissible retrospective relief.” Notably, the court denied Colorado’s motion to dismiss the due process claim, holding that the Eleventh Amendment does not bar the plaintiffs’ claim that Colorado “could not authorize its officer[s] to take people’s property without notice and in the absence of any connection to the State.”
Maron
The Eleventh Circuit went further. In Maron v. Chief Financial Officer of Florida, the claimants argued that Florida’s unclaimed property regime violated the Takings Clause by failing to compensate them for earnings on escheated funds. The claimants sought declaratory and injunctive relief to ensure payment of just compensation when they later filed claims.
The Northern District of Florida dismissed, holding that sovereign immunity barred the claim and that returning principal without interest was constitutionally sufficient. The Eleventh Circuit reversed the district court’s dismissal for the following reasons:
- Standing and ripeness. Plaintiffs need not first file and be denied a claim to suffer injury. The alleged constitutional violation occurs when property is held without just compensation.
- Sovereign immunity. The court held that the claim was not barred because the plaintiffs sought prospective declaratory and injunctive relief requiring payment of just compensation. It further reasoned that a Takings Clause violation is ongoing until compensation is paid.
In contrast to the Ninth Circuit, the Eleventh Circuit recognized the possibility of a compensable taking arising from the state’s retention of earnings—and allowed a pathway to “just compensation.”
Garza
A few months after the Peters decision, the Ninth Circuit reinforced its position in Garza v. Woods. The plaintiffs challenged Arizona’s Unclaimed Property Act, alleging takings and due process violations based on allegedly insufficient notice by the state unclaimed property office. The district court dismissed on sovereign immunity grounds. In its decision, the Ninth Circuit:
- Agreed that no administrative claim is required to establish standing.
- Held that sovereign immunity does not bar injunctive relief seeking return of property still in the state’s possession.
- Reaffirmed that custodial holding of unclaimed property does not give rise to a Takings Clause violation.
Notably, the court rejected the Tenth Circuit’s reasoning in Knellinger: “We acknowledge the recent Tenth Circuit decision reaching the opposite conclusion. … But we are bound by [prior case law] absent intervening higher authority that irreconcilably conflicts with our circuit precedent.”
The Ninth Circuit doubled down: No taking occurs when the state merely holds unclaimed property for the owner’s benefit.
A Geographic Divide on Constitutional Limits
Taken together, these cases illustrate a deepening divide over the constitutional character of states’ custody of unclaimed property and whether custody (including the sale of noncash property such as stock) could constitute a Takings Clause violation.
- Administrative exhaustion. All three circuits agree it is not required.
- Existence of a taking.
- The Ninth Circuit says no taking occurs when the state holds property in custody for the owner.
- The Tenth Circuit permits these takings claims to proceed and leaves open the broader doctrinal question.
- The Eleventh Circuit appears receptive to takings claims, particularly when earnings or interest are not returned.
- Sovereign immunity and remedies.
- The Ninth Circuit bars claims seeking compensation beyond the property or its proceeds.
- The Tenth Circuit has yet to squarely decide the scope of available remedies.
- The Eleventh Circuit allows prospective relief aimed at securing just compensation.
The Third Circuit will soon weigh in on these issues in Schramm v. Mayrack, potentially widening or narrowing the divide. As in the previous cases, the Schramm plaintiffs brought a putative class action in which they argued that Delaware misapplied its unclaimed property law to seize securities in violation of their rights under the Due Process Clause and Takings Clause. The District of Delaware granted summary judgment in favor of Delaware, holding that the plaintiffs lacked standing to assert these claims and that the claims were also time barred.
Meanwhile, the Supreme Court has declined to intervene. Whether a state’s escheatment outcome potentially constitutes a constitutional taking now depends on where the claim is filed. Unless and until the Supreme Court resolves the split, inconsistent outcomes will likely persist.
If you have any questions, or would like additional information, please contact one of the attorneys on our Unclaimed Property team.
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