American Express Travel Related Services Co. v. Kentucky

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 13a0279p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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AMERICAN EXPRESS TRAVEL RELATED

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SERVICES COMPANY, INC., A New York

Corporation, -

Plaintiff-Appellant, -

No. 12-6249

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>

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v.

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COMMONWEALTH OF KENTUCKY, Kentucky

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Defendant, -

Department of the Treasury,

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TODD HOLLENBACH, Treasurer, in his official -

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capacity, -

Defendant-Appellee. N

Appeal from the United States District Court

for the Eastern District of Kentucky at Frankfort.

No. 3:08-cv-00058—Danny C. Reeves, District Judge.

Argued: July 23, 2013

Decided and Filed: September 17, 2013

Before: SILER and COLE, Circuit Judges; DOWD, District Judge.*

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COUNSEL

ARGUED: Walter L. Sales, STOLL KEENON OGDEN PLLC, Louisville, Kentucky,

for Appellant. Brian T. Judy, OFFICE OF THE KENTUCKY ATTORNEY GENERAL,

Frankfort, Kentucky, for Appellee. ON BRIEF: Walter L. Sales, Timothy J. Eifler, K.

Timothy Kline, STOLL KEENON OGDEN PLLC, Louisville, Kentucky, Paul C.

Harnice, Sarah Jackson Bishop, STOLL KEENON OGDEN PLLC, Frankfort, Kentucky,

for Appellant. Brian T. Judy, Angela C. Evans, OFFICE OF THE KENTUCKY

ATTORNEY GENERAL, Frankfort, Kentucky, for Appellee.

*

The Honorable David D. Dowd, Jr., United States District Judge for the Northern District of

Ohio, sitting by designation.

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No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 2

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OPINION

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SILER, Circuit Judge. Plaintiff American Express Travel Related Services Co.,

Inc. (“AmEx”) appeals the grant of summary judgment in favor of defendant Todd

Hollenbach, Treasurer of the Commonwealth of Kentucky, in this action challenging the

retroactivity and constitutionality of an amendment to Kentucky Revised Statute (KRS)

§ 393.060(2), which shortened the presumptive abandonment period for traveler’s

checks (“TCs”) from fifteen to seven years (the “Amendment”). For the reasons that

follow, we AFFIRM the district court, and REMAND for entry of judgment in

accordance with this decision.

I.

AmEx is the world’s largest issuer of TCs, which are preprinted checks in fixed

dollar amounts that are sold in every state of the United States and worldwide. The

business relies on the universal recognition and acceptance of TCs, which never expire.

AmEx and third-party vendors sell TCs at face value, and AmEx profits by investing the

funds until the TC is redeemed. Although most TCs are cashed within a year, AmEx

uses the remaining uncashed TCs for long-term, high-yield investments. Until recently,

every state’s abandoned property laws imposed a presumption of abandonment on

uncashed TCs at fifteen years after issuance. This presumption requires the issuer to

transfer possession of the funds to the state.

The Kentucky General Assembly amended KRS § 393.060(2) in 2008 to change

Kentucky’s abandonment period from fifteen to seven years.1 AmEx subsequently filed

suit against Hollenbach, claiming that the Amendment violates the Due Process Clause,

1

The General Assembly had previously attempted to amend § 393.060(2) in the same manner in

2006, but a state court voided that bill for failing to comply with the Kentucky Constitution’s procedures

for amending a statute. Am. Express Travel Related Servs. Co., Inc. v. Kentucky, No. 06-CI-1151 (Franklin

Cir. Ct. Jan. 31, 2007).

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 3

the Contract Clause, and the Takings Clause of the United States Constitution. Initially,

the district court granted summary judgment for AmEx, finding that the Amendment

violated the Due Process Clause because the legislative purpose of raising revenue did

not satisfy rational basis review. Am. Express Travel Related Servs. Co. v. Hollenbach,

630 F. Supp. 2d 757, 760-64 (E.D. Ky. 2009). On appeal, we held that the Amendment,

applied prospectively, did not violate the Due Process Clause and remanded the case to

the district court to consider AmEx’s remaining claims. Am. Express Travel Related

Servs. Co., Inc. v. Kentucky, 641 F.3d 685, 694-95 (6th Cir. 2011).

On remand, after AmEx amended its complaint to add a dormant Commerce

Clause argument, the parties filed cross-motions for summary judgment. In its motion

for summary judgment, AmEx additionally argued that the legislation did not apply

retroactively so as to affect TCs that were issued and outstanding prior to the effective

date of the Amendment. The district court denied AmEx’s motion and granted

Hollenbach’s motion. Am. Express Travel Related Servs. Co., Inc. v. Hollenbach, No.

3:08-58-DCR, 2012 WL 4023709, at *1 (E.D. Ky. Sept. 12, 2012). AmEx now appeals.

II.

AmEx raises multiple issues on appeal. In addition to disputing whether the

Amendment has prospective or retroactive applicability under Kentucky law, it argues

that the provision violates the Commerce Clause. We do not reach AmEx’s other

constitutional arguments, which are based on retroactive application, because we find,

for the reasons stated below, that the Amendment is substantive and applies only

prospectively. Finally, Hollenbach raises the issue of collateral estoppel based on

litigation AmEx brought in New Jersey in 2010, after that state changed its presumptive

abandonment period from fifteen to three years.

We review de novo a district court’s grant of summary judgment based on

whether a state statute violates the U.S. Constitution. Cherry Hill Vineyards, LLC v.

Lilly, 553 F.3d 423, 431 (6th Cir. 2008).

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 4

III.

As a threshold matter, we first review the claim of issue preclusion Hollenbach

raised against AmEx. He argues that collateral estoppel prohibits AmEx from raising

the same claims it unsuccessfully litigated against New Jersey in American Express

Travel Related Services, Inc. v. Sidamon-Eristoff, 669 F.3d 359 (3d Cir. 2012). After

New Jersey passed a statute changing the presumptive abandonment period from fifteen

to three years, AmEx sought a preliminary injunction against the New Jersey Treasurer.

It argued that the amendment violated the Due Process Clause, the Contract Clause, the

Takings Clause, and the Commerce Clause of the federal Constitution. Id. at 366. The

Third Circuit held that AmEx could not show a likelihood of success on the merits of its

claims and affirmed the district court’s order denying preliminary injunctive relief. Id.

at 374.

Denials of preliminary relief are generally not given preclusive effect. Abbott

Labs. v. Andrx Pharms., Inc., 473 F.3d 1196, 1205-06 (Fed. Cir. 2007). This is so

because “the prior proceeding must have resulted in a final judgment on the merits” in

order to be accorded preclusive effect. Pfeil v. State St. Bank & Trust Co., 671 F.3d 585,

601 (6th Cir. 2012) (quoting Kosinski v. Comm’r, 541 F.3d 671, 675 (6th Cir. 2008)).

Because the Third Circuit’s holding was specifically based on the “likelihood of success

on the merits,” and because a different state’s law played an integral part in most of

AmEx’s claims, which makes the precise issues raised here different, Sidamon-Eristoff

cannot be given preclusive effect. See Sidamon-Eristoff, 669 F.3d at 366-68.

IV.

AmEx argues that the amendment to KRS § 393.060(2) can only apply

prospectively. The basis for AmEx’s position is that the Amendment did not include an

express declaration of retroactivity as required by KRS § 446.080(3), and the provision

is substantive, rather than remedial. Conversely, Hollenbach argues the Amendment is

remedial in nature and, therefore, should be interpreted as applying retroactively.

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 5

Kentucky law governing statutory construction states that “[n]o statute shall be

construed to be retroactive, unless expressly so declared.” KRS § 446.080(3). The

Kentucky Supreme Court has noted that this rule should be “strictly construed.”

Hamilton v. Desparado Fuels, Inc., 868 S.W.2d 95, 97 (Ky. 1993). Moreover, the

Kentucky Supreme Court has held that although substantive legislation is presumed to

be prospective, remedial legislation does not fall within the general rule against

retroactive application. Commonwealth Dep’t of Agric. v. Vinson, 30 S.W.3d 162, 168

(Ky. 2000); Peabody Coal Co. v. Gossett, 819 S.W.2d 33, 36 (Ky. 1991). Kentucky

courts have defined remedial legislation as providing “no more than the expansion of an

existing remedy without affecting the substantive basis, prerequisites, or circumstances

giving rise to the remedy.” Ky. Ins. Guar. Ass’n v. Jeffers ex rel. Jeffers, 13 S.W.3d 606,

609 (Ky. 2000). On the other hand, substantive legislation “change[s] and redefine[s]

the out-of-court rights, obligations and duties of persons in their transactions with

others.” Vinson, 30 S.W.3d at 168.

The Amendment does not expressly declare that the change was meant to be

applied retroactively. Indeed, House Bill 704, which contained the Amendment, did not

list an effective date and does not discuss retroactivity for § 12, the applicable section.

2008 Ky. Acts 132 § 12. By contrast, House Bill 704 does note that §§ 8-11 are

retroactive to all outstanding claims and that § 7 has an effective date of August 1, 2008.

Id. at §§ 15-16. This suggests that the legislature knew how to express retroactivity and

effective dates, but chose not to when amending KRS § 393.060(2). Moreover, when

the General Assembly repealed and reenacted the Amendment in 2009,2 it declined the

opportunity to make the provision fully retroactive, instead declaring its intention that

the provision be applied retroactively only to April 24, 2008, the original effective date

of the 2008 Amendment. 2009 Ky. Acts 86 § 17. If the legislature had meant for the

2

The General Assembly repealed and reenacted the 2008 Amendment in 2009, due to questions

concerning its validity. Specifically, the Kentucky legislature failed to present the 2008 Amendment to

the governor by midnight on the last day it was authorized to be in session. A Kentucky state court held

in early 2009 that presentment must occur before the end of the legislative session. See Williams v.

Grayson, No. 08-Cl-856 (Franklin Cir. Ct. Jan. 21, 2009). To remedy this potential problem, the General

Assembly repealed and reenacted the identical “seven-year” change to § 393.060(2) in 2009. See 2009

Ky. Acts 86 §§ 11, 17.

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 6

provision to be fully retroactive to all outstanding TCs, it could have simply stated so,

as it did in § 15 of the same bill regarding outstanding tax refund claims. 2009 Ky. Acts

86 § 15.

Because the General Assembly did not expressly declare the Amendment to be

retroactive, the provision may only apply to TCs issued before the enactment date if it

is remedial rather than substantive under Kentucky law. According to the standard in

Jeffers, the Amendment is not remedial because it is not limited to improving an existing

remedy. Instead, it affects the prerequisites and circumstances giving rise to the remedy.

See Jeffers, 13 S.W.3d at 609-10. Specifically, it alters the amount of time required for

the presumptive abandonment of TCs, from fifteen to seven years. Moreover, like the

amendment in Vinson, the Amendment here has clearly “change[d] and redefine[d]”

AmEx’s “obligations and duties” in its TC transactions. Vinson, 30 S.W.3d at 168.

Because the Amendment must be considered substantive, it is to be applied only

prospectively from April 24, 2008.

The district court assumed that the Amendment was retroactive and then held it

was not unconstitutional. However, because we have decided the retroactive issue, we

need not address the constitutional issues related to that assumption, that is, whether the

Amendment is a violation of substantive due process, the Contract Clause, or the

Takings Clause. Thus, deciding the state law question first obviates the need to analyze

the remaining constitutional issues, except for the dormant Commerce Clause discussed

below.

V.

We now turn to AmEx’s sole remaining argument–the company’s contention that

the Amendment, even as applied prospectively, violates the dormant Commerce Clause.

A challenge to a statute under the dormant Commerce Clause involves a two-part

inquiry. First, we must “determine whether ‘a state statute directly regulates or

discriminates against interstate commerce, or [whether] its effect is to favor in-state

economic interests over out-of-state interests.’” Int’l Dairy Foods Ass’n v. Boggs,

622 F.3d 628, 644 (6th Cir. 2010) (quoting Brown-Forman Distillers Corp. v. N.Y. State

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 7

Liquor Auth., 476 U.S. 573, 579 (1986)). If a statute does either of these, it is generally

struck down without further inquiry. Id. “When, however, a statute has only indirect

effects on interstate commerce and regulates evenhandedly, we have examined whether

the State’s interest is legitimate and whether the burden on interstate commerce clearly

exceeds the local benefits.” Brown-Forman Distillers, 476 U.S. at 579 (quoting Pike v.

Bruce Church, Inc., 397 U.S. 137, 142 (1970)). AmEx asserts that the Amendment

violates the dormant Commerce Clause under both tests.

Under the first test, AmEx argues that the TC business is an interstate and

international business that relies on the uniformity of regulation throughout the states,

noting that only Kentucky and New Jersey have deviated from the fifteen-year

presumptive abandonment period that has been adopted from the Uniform Unclaimed

Property Act. It contends that the Amendment impairs the free flow of commerce and

asserts that unless it chooses to sell TCs in Kentucky on a marginal basis or at a loss, the

Amendment forces it to choose between three options: (1) to cease selling TCs in

Kentucky; (2) to charge a fee for selling TCs in Kentucky, but not other places; or (3)

to charge a fee for selling TCs throughout the United States to maintain uniformity.

AmEx argues that this burdens interstate commerce by allowing Kentucky to dictate the

operation of its TC business nationwide.

AmEx’s argument fails because the Amendment does not practically or legally

require it to choose any of the three options it mentions. Instead, AmEx may choose on

its own volition to pursue one of its proposed options. This differs from the cases where

the Supreme Court has held state statutes unconstitutional under the Commerce Clause.

See, e.g., Healy v. Beer Inst., 491 U.S. 324, 335-343 (1989) (finding a Connecticut

statute unconstitutional because it controlled the prices at which out-of-state shippers

could sell their beer in other states); Brown-Forman, 476 U.S. at 583-84 (finding a New

York statute unconstitutional because it required distillers to seek approval of the New

York State Liquor Authority before lowering prices in other states). The regulations in

those cases had “the practical effect of controlling commerce that occur[red] entirely

outside of the state in question.” Boggs, 622 F.3d at 645. The Amendment here cannot

No. 12-6249 Am. Express Travel Related Servs. v. Commonwealth of Ky., et al. Page 8

be said to control commerce outside of Kentucky, nor does it require AmEx to operate

differently in Kentucky.

Under the second test, AmEx argues that the only real local benefit is to enrich

the state at its expense, which may be illusory if it ceases to sell TCs in Kentucky or

exits the TC industry in the United States altogether. However, while revenue

generation is not a local benefit that can justify discrimination against interstate

commerce, “it is a cognizable benefit for purposes of the Pike test.” United Haulers

Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 346 (2007).

Further, as previously noted, while AmEx may voluntarily choose to cease selling TCs

in Kentucky, or exit the TC market altogether, the Amendment does not directly or

indirectly require it to do so. Thus, AmEx’s Commerce Clause challenge fails.

VI.

In sum, although we are affirming the district court, we do so on different

grounds. We hold that the TC provision applies only prospectively from its enactment

date of April 24, 2008, and does not violate the Commerce Clause. However, we

recognize that the district court erroneously assumed that KRS § 393.060(2) applied

retroactively, without so ruling. We therefore remand the case to the district court with

instructions to enter a judgment finding that KRS § 393.060(2) applies only

prospectively from April 24, 2008.

AFFIRMED in part and REMANDED in part.