Taylor v. Westly

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CHRIS LUSBY TAYLOR; NANCY A. 

PEPPLE-GONSALVES,

Plaintiffs-Appellants, No. 02-16511

v.

 D.C. No.

CV-01-02407-FCD

STEVE WESTLY, in his capacity as

Controller of the State of OPINION

California,

Defendant-Appellee.



Appeal from the United States District Court

for the Eastern District of California

Frank C. Damrell, District Judge, Presiding

Argued and Submitted

October 10, 2003—San Francisco, California

Filed March 29, 2005

Before: Richard D. Cudahy,* Robert R. Beezer, and

Andrew J. Kleinfeld, Circuit Judges.

Opinion by Judge Kleinfeld

*The Honorable Richard D. Cudahy, Senior United States Circuit Judge

for the Seventh Circuit, sitting by designation.

3735

TAYLOR v. WESTLY 3739

COUNSEL

William W. Palmer, Sacramento, California, for the appel-

lants.

Robin B. Johansen, Remcho, Johansen & Purcell, San Lean-

dro, California, for the appellee.

OPINION

KLEINFELD, Circuit Judge:

Persons whose stock was escheated to the state sued to get

it back. The district court held that the Eleventh Amendment

barred their claims. We disagree.

Facts.

The dismissal was for lack of subject matter jurisdiction

pursuant to Federal Rule of Civil Procedure 12(b)(1).1 No

material disputes of fact have been asserted as to jurisdiction,

and the district court acted on the basis of what the plaintiffs

pleaded, so we proceed on the basis of the allegations of fact

in the complaint.2

Although this case was filed as a class action, it never

reached the point of class certification vel non. As it comes to

us, it is by two individuals against the state controller. One,

Chris Taylor, a former Intel employee, lives in England and

owns 52,224 shares of Intel stock. The other, Nancy Pepple-

Gonsalves, a former TWA flight attendant, lives in California,

in Riverside County, and owns 7,000 shares of TWA stock.

1

See Broudy v. United States, 661 F.2d 125, 128 n.5 (9th Cir. 1981).

2

See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th

Cir. 2003).

3740 TAYLOR v. WESTLY

Or at least they did own the stock, before the state took it

away.

The state controller took Mr. Taylor’s and Ms. Pepple-

Gonsalves’s stock as “unclaimed property.” But these individ-

uals do, in this lawsuit, claim it. The property was treated as

unclaimed because for three years these two individuals did

not cash dividend checks, respond to proxy notices, or other-

wise communicate to the companies in which they owned stock.3

Intel and TWA provided the State of California with lists of

shareholders who were “lost” or “unknown” by these three

criteria, as required by law, and issued “duplicate shareholder

certificates” to the state. The Controller then sold the stock

and deposited the money received in exchange into the state’s

general fund.

This case is about escheat. Escheat, at common law in

England, formerly terminated a tenancy so that on the death

of a tenant without heirs, or as a result of a tenant’s felony

that worked a corruption of the blood, the land escheated to

the lord of the fee.4 Title by escheat “was one of the fruits of

and consequences of feudal tenure.”5 “But, as the feudal ten-

ures do not exist in this country, there are no private persons

who succeed to the inheritance by escheat; and the state steps

in the place of the feudal lord, by virtue of its sovereignty, as

the original and ultimate proprietor of all the lands within its

jurisdiction.”6 Escheat of tangible or intangible personal prop-

erty arises from the same conceptual scheme.

Traditionally, constitutional disputes about escheat are

between financial institutions and state governments.7 The

3

See Cal. Civ. Proc. Code § 1516(b).

4

Cornelius J. Moynihan, Law of Real Property 21 (1962).

5

IV James Kent, Commentaries on American Law 419 (1830).

6

Id. at 420.

7

See Standard Oil Co. v. New Jersey, 341 U.S. 428 (1951); Conn. Mut.

Life Ins. Co. v. Moore, 333 U.S. 541 (1948).

TAYLOR v. WESTLY 3741

issues have traditionally concerned which of several potential

claimant states can get the money, or whether the financial

institution has a sufficient connection to the state for the state

to be entitled to the money. That is about what one would

expect, in a situation where the true owner of the money is

dead, leaving no descendants who are aware of the asset, and

the question is whether the financial institution gets the

money or one of several competing state governments.

Escheat is, after all, a means of dealing with money where

money and property are unclaimed and the person entitled to

it is dead or gone, gone to a degree that the person cannot be

found and there is no other individual with a good claim.

The escheat problem, in this case, arises from a new

approach used by some state governments, greatly shortening

the time before which untouched property is treated as though

it had been abandoned, greatly reducing or eliminating notice

to the true owner, and ignoring the true owner’s pleas. For

example, California is taking the flight attendant’s stock in

her airline on the basis, basically, that she cannot be found,

even while she is standing in court shouting, “Here I am! Here

I am! Give me my money!” And the State of California turns

a deaf ear, pretending it cannot hear her.

She is thought to be dead or gone, despite her obvious live-

liness and presence, because she has not cashed a dividend

check, sent a change of address to TWA, or sent in a proxy,

in five years.8 But, many companies do not pay dividends.

During the relevant three-year period, Intel did not pay any divi-

dends9 so there were no dividend checks to cash. And TWA

only paid a dividend to its preferred stockholders.10 Even

8

Cal. Civ. Proc. Code § 1516 (1990). In the case of Mr. Taylor, Cal.

Civ. Proc. Code § 1516 (1992) applies and looks only at a three-year time

frame.

9

Intel 1998 Annual Report at http://www.intel.com/intel/annual98/

summary.htm (covering ten-year span from 1989 to 1998) (last visited

March 21, 2005).

10

Trans World Airlines, Inc. 1991 Annual Report (covering three-year

span from 1989 to 1991).

3742 TAYLOR v. WESTLY

when dividends are paid, the dividend checks are often very

small and owners of small amounts of stock may forget to

cash them or may find it not worth a trip to the bank. As for

changes of address, many people do not change their

addresses over a three- or five-year period. As for voting their

proxies, a very high proportion of shareholders do not bother,11

because it does not make sense for them to spend an hour or

two studying a proxy statement to vote their few shares, when

they have neither enough stock to make a difference in the

election nor enough knowledge to know what difference they

would want to make.

Although state law provided for notice to shareholders and

an opportunity to claim their supposedly “unclaimed proper-

ty,” the Controller decided that the forms of notice provided

for by statute were impractical and unfunded. She decided not

to mail notices to shareholders’ last known addresses, and not

to publish, in newspaper ads, the individual names and prop-

erty being taken as unclaimed.

Neither of these plaintiffs were really hard to find, nor did

they mean to abandon their property. Chris Taylor acquired

his stock in Intel because he worked for Intel for a number of

years. His wife was general counsel for Intel in Europe. Intel

corresponds with him regarding his stock and his pension

fund and knows his address. He still has his original stock cer-

tificates, but the Controller has rendered them worthless by

getting duplicate stock certificates and selling the shares.

Nancy Pepple-Gonsalves worked as a flight attendant for

twenty years and invested part of her salary in TWA stock.

The company has at all times either known precisely where

she was, as with Mr. Taylor, or had the means to readily

locate her. Neither of these people were lost, and neither

meant to abandon their investments. Because they retained

11

Jeffrey M. Laderman, Moneymen May Stop Deep-Sixing Proxies,

Business Week, March 20, 1989, at 142.

TAYLOR v. WESTLY 3743

their original stock certificates, and were never notified of the

Controller’s actions, they had no reason to suspect that their

investments were disappearing into the State of California’s

general fund. The Controller has about $2.7 billion through

such escheats. Around $20 million is held as cash, after the

stock is sold, to cover claims of persons who make timely

claims, and the rest is deposited into the general fund.

This is, as was mentioned above, a new approach to

escheat. It used to be, until the seventies, that the period of

inaction before the property was deemed “unclaimed” was

sixteen years. Now it has been shortened to three years. Also,

until 1989, the Bureau of Unclaimed Property published the

names of shareholders, whose shares were thought to be

unclaimed, in newspapers in each county that listed an

address for the individual. The Controller also used to main-

tain a staff, in the 1980’s, to find owners and get their prop-

erty back to them.

Now the Controller just publishes advertisements describ-

ing their general practices, under a headline “Your Money?”

The text of the advertisement, in full, is in the footnote below.12

12

“Notice of Unclaimed Property — You May Be Owed Money!

The State Controller’s Office has received unclaimed property belonging

to over 2 million individuals and companies. This includes bank accounts,

stocks, bonds, uncashed checks, and safe deposit box contents. Most

accounts become unclaimed when there is no owner contact with the insti-

tution or account activity for three (3) years. Often the owner forgets the

account exists, moves and does not leave a forwarding address or the for-

warding address expires. This money is waiting to be claimed by its right-

ful owners.

Call 1-800-992-4647

STATE CONTROLLER’S OFFICE

Bureau of Unclaimed Property

P.O. Box 942850, Sacramento, CA 94250-5873

Hours: 8:00 a.m. to 5:00 p.m., Monday through Friday.

California Relay (Telephone) Service for the Deaf or Hearing Impaired

from TDD phones: 1-800-735-2929 and ask for 1-800-992-4647.

This ad is in lieu of CCP 1531 and is in accordance with Chapter 303.

Statutes of 1995.”

3744 TAYLOR v. WESTLY

Though the advertisement says what the criterion for taking

the property is — “no owner contact with the institution or

account activity for three (3) years” — it does not say what

property is being taken or from whom. No names of property

owners are listed. The ad says: “This money is waiting to be

claimed by its rightful owners,” but it does not say how long

the rightful owners have to claim the money before losing it

to the state.

The encouragement to claim one’s money is not all it might

seem. The Controller, according to the complaint, decided to

publish the ads at times, such as just before holidays, when a

lot of people would be away, because “her limited staff is

unable to handle the large influx of calls generated by adver-

tisements.” It is especially interesting that, in a font smaller

than the main text, the ad does not claim to comply with the

law, but instead admits that it is “in lieu of CCP 1531.” The

reference is to California Code of Civil Procedure section

1531, which required publication of names and also individu-

ally mailed notices to persons with listed addresses.13 Thus the

Controller is admitting right in her ad that she is violating the

law!

The Controller did not follow California’s statutory direc-

tive regarding how she is supposed to take “unclaimed prop-

erty.” Her intentional violations of the law implicated those

provisions that are reasonably calculated to give actual notice

to the owners. The reason why, according to a document from

the Controller’s office attached to the complaint, is that she

did not have the money to give the notice required by law.

“Funding for both the Locator Unit [that attempted to find

owners and return their property] and the publication of

13

This reference is to Cal. Civ. Proc. Code § 1531 as it existed during

the relevant time period between 1990 and 1994. Since 1997, Cal. Civ.

Proc. Code § 1531 has been amended and no longer requires publication

of names, and requires direct mailing only if the escheated account con-

tains a social security number.

TAYLOR v. WESTLY 3745

names in the newspapers was not available after 1989. In

1994, some publication funding was restored, and the Bureau

began placing ‘block ads’ [as quoted above] in newspapers of

wide circulation. In November, 1994, the ‘block ad’ covered

unclaimed property reports from 1990 through 1993.”

According to the complaint, sometimes the Controller pays

people an amount she deems appropriate for their stock, and

sometimes she pays nothing. Nancy Pepple-Gonsalves, the

TWA flight attendant, got nothing. Chris Taylor apparently is

treated by the Controller as having an “account” of about

$200,000 for 1,058 shares of Intel stock, but that misses the

stock splits and appreciation after she took it. According to

the complaint, had the Controller not taken Mr. Taylor’s stock

and sold it, he would actually have had 52,224 shares worth

$3,864,576.

The specific allegations in the complaint included the fol-

lowing:

• State law allows for property to escheat to the

state only if its owners are “lost” or “unknown.”

But in the case of Taylor and Pepple-Gonsalves,

Intel and TWA, respectively, knew where they

lived or could easily find them. In fact, Intel and

Taylor were in regular communication about

Taylor’s pension and stock.

• The state hired agents to threaten companies,

including out-of-state companies, with fines and

penalties, and paid its agents a percentage of the

revenue generated from the seized property.

• The state failed to give any reasonable notice to

those whose property it was about to seize and

made no real effort to locate owners, as required

by state law. It did not attempt direct-mail notice.

Nor did it comply with the express statutory obli-

3746 TAYLOR v. WESTLY

gation to give publication notice by publishing

the names of the property owners. Instead, the

Controller sometimes published generic adver-

tisements without listing any names or details

about the property to be seized. At other times,

the Controller ignored altogether the need to pro-

vide publication notice. When the state did place

generic ads, it purposefully placed them around

the holidays and at other “times of the year that

were calculated to minimize the number of mem-

bers of the public who would see the advertise-

ments.” The ads themselves said that the state

was publishing them “in lieu of” what the statutes

required.

• California seized property over which it had no

jurisdiction, including property belonging to non-

residents of California and held by non-

California companies (Taylor, for example, is a

resident of England, and Intel is a Delaware cor-

poration).

Plaintiffs seek a declaratory judgment, “disgorgement and

return of either their stock investment or the return of the rea-

sonable value thereof,” money damages, an injunction com-

manding the Controller to return their stock and to refrain

from engaging in future seizures of this sort without notice,

and other relief. The complaint asserts, inter alia, violations

of the Due Process and Takings Clauses of the United States

Constitution, federal securities laws, and the state Unclaimed

Property Act.

The district court dismissed all the claims without oral

argument on the ground that, under the Eleventh Amendment,

the district court had no jurisdiction. Plaintiffs appeal. Our

TAYLOR v. WESTLY 3747

review of a 12(b)(1) dismissal for lack of subject matter juris-

diction is de novo.14

Analysis.

[1] Generally, the Eleventh Amendment shields state gov-

ernments from money judgments in federal courts, and from

declaratory judgments against the state governments that

would have the practical effect of requiring the state treasury

to pay money to claimants.15 That is why the district court dis-

missed the money claims. Congress, using its authority to

enforce by legislation the provisions of the subsequently

adopted Fourteenth Amendment, can “abrogate” Eleventh

Amendment state governmental immunity by expressing its

intent to do so with sufficient clarity.16 Generally injunctions

against state officers are not barred by the Eleventh Amend-

ment.17 The presumption, as explained by the Supreme Court

in Ex parte Young, is that no state could or would authorize

a state officer to act contrary to the federal Constitution, so

any such action would be ultra vires, and state sovereignty

therefore cannot be offended by a federal judicial command

to the state officer to conform his conduct to the Constitution

in the future.18 The district court denied relief under this Ex

parte Young branch of Eleventh Amendment doctrine on the

theory that, although prospective in form, the requested

injunction was retrospective as a practical matter, in the

nature of a command to pay plaintiffs money that the state

owed them.

14

See Luong v. Circuit City Stores, Inc., 368 F.3d 1109, 1111 n.2 (9th

Cir. 2004).

15

See Frew v. Hawkins, 540 U.S. 431, 437 (2004).

16

See Quern v. Jordan, 440 U.S. 332, 345 (1979).

17

Ex parte Young, 209 U.S. 123 (1908).

18

Id.

3748 TAYLOR v. WESTLY

I. Return of Seized Property

Ordinarily, the Eleventh Amendment bars a plaintiff from

using a lawsuit in federal court to get money damages for

wrongful conduct by state officials out of the general fund of

the state government.19 In this case, the plaintiffs sue “Kath-

leen Connell, in her capacity as Controller of the State of Califor-

nia.”20 The plaintiffs’ complaint pleads that Connell acted in

the course of her duties in her elected position, but in viola-

tion of the statutes that govern her performance of those

duties and her constitutional responsibilities. The pleading

states that some money from sales of the stock she has taken

is retained in a fund she controls, and the bulk of the money

is immediately deposited into the general fund of the state

when she takes and sells the stock.

[2] The California statutes distinguish between “escheat”

and “permanent escheat.”21 Where the property has not “per-

manently” escheated to the state, the state’s Unclaimed Prop-

erty Law sets up a custodial escheat system. The statute

explicitly states that “property received by the state under this

chapter shall not permanently escheat to the state.”22 It pro-

vides that the Controller must “safeguard and conserve”

unclaimed property23 in a trust fund for the interests of all par-

ties having an interest in the property.24

19

See Edelman v. Jordan, 415 U.S. 651, 665-67 (1974).

20

Pursuant to Rule 43(c)(2) of the Federal Rules of Appellate Procedure,

Steve Westly, the present Controller, has been substituted for her as defen-

dant. We deny Appellants’s request to maintain Kathleen Connell in her

individual capacity, as she was named by the Appellants only in her offi-

cial capacity.

21

Cal. Civ. Proc. Code §§ 1300(c), (d).

22

Id. at § 1501.5. See also Harris v. Westly, 116 Cal. App. 4th 214, 219

(2004); and Fong v. Westly, 117 Cal. App. 4th 841, 844 (2004) (explain-

ing that the Unclaimed Property Law does not operate a true escheat

because the state holds the property as a custodian until the property’s

rightful owner can claim the property).

23

Cal. Civ. Proc. Code § 1365.

24

Id. at § 1313.

TAYLOR v. WESTLY 3749

[3] The state statutes unambiguously provide that the Con-

troller and even the Treasurer holds property he or she takes

as “unclaimed” in trust. Traditional trust language is used:

The care and custody of all property delivered to the

Treasurer or Controller pursuant to this title is

assumed by the State for the benefit of those entitled

thereto, and the State is responsible for the payment

of all claims established thereto pursuant to law, less

any lawful deductions.25

This is language establishing a custodial trust. Thus, to the

extent that the funds remained in the state’s special account,

they were being held in trust, rather than being in the state

treasury.

Before California escheated property is “permanently”

escheated, it is like a car that is towed and held in an impound

lot. The car is in the custody of the impounding government,

but it is held for its owner, if one turns up. Even if the Con-

troller has paid money over to the general fund of the state,

she is required by the California statutes to order it “retrans-

ferred” from the general fund back to the “Unclaimed Prop-

erty Fund” “if it is subsequently determined that such money

or . . . property is not, in fact, permanently escheated.”26

[4] The Controller’s obligation to order transfer from the

Treasurer, if money was deposited in the general fund but is

subsequently found not to be permanently escheated,27 plainly

establishes that the trust continues, even after the Controller

has transferred the money to the general fund. Thus the

money, even if in the general fund, is not held free and clear

by the State of California, but subject to retransfer if the prop-

erty is later found not to be permanently escheated. The Con-

25

Id. at § 1361.

26

Id. at § 1347.

27

Id.

3750 TAYLOR v. WESTLY

troller may sell escheated securities “whenever, in his

opinion, such action on his part is necessary or will tend to

safeguard and conserve the interests of all parties, including

the State, having any vested or expectant interest in the proper-

ty.”28 This sale provision plainly establishes that even after the

Controller has taken securities into her possession and sold

them, as she did with Mr. Taylor’s and Ms. Pepple-

Gonsalves’s Intel and TWA stock, she must “safeguard and

conserve” the interests of parties with vested rights. That too

implies that she holds the proceeds in trust. She has to deposit

the sale proceeds in her Unclaimed Property Fund “in the

name of which the property sold . . . was held” and the money

“shall be held for the benefit of those entitled to claim” it.29

Unrestricted title does not pass to the state unless and until the

property is “permanently escheated.”30

[5] The complaint does not establish that a permanent

escheat determination has been made. Nor, if the averments

of the complaint are true, could it have been made. The Cali-

fornia procedure for making such a determination has not yet

been followed. The procedure requires the Controller to file

suit in superior court, and publish repeated notice in newspa-

pers, which notice must include “the name of the owner or

claimant and his last known address.”31 A judgment then

establishes that title has passed to the state by escheat.32 But

even that judgment does not establish “permanent” escheat.

The escheat becomes “permanent” only “[u]pon the expira-

tion of five years after the date of entry of the judgment.”33

28

Id. at § 1371.

29

Id. at § 1390.

30

Id. at § 1300(d).

31

Id. at § 1410.

32

Id.

33

Id. at § 1430.

TAYLOR v. WESTLY 3751

Only then may the Controller order the property transferred to

the general fund.34

[6] The State of California’s sovereign immunity applies to

the state’s money. Money that the state holds in custody for

the benefit of private individuals is not the state’s money, any

more than towed cars are the state’s cars. Thus, where a per-

manent escheat determination has not yet been made, the

state’s Eleventh Amendment immunity from suit against it for

damages payable from its treasury has no application to

escheated property and sales proceeds from escheated prop-

erty, whether held by the Controller or the Treasurer.

The case at bar differs from Papasan v. Allain.35 There,

schools sued for money, arguably held in trust for the schools,

that the new state of Mississippi had lost.36 Mississippi had

invested the proceeds from sale of Chickasaw Indian Nation

“lieu lands” in the state’s extensive railroad network that was

destroyed a decade later during the Civil War.37 The lawsuit,

over a century later, was for this alleged breach of fiduciary

duty.38 The distinction between this case and Papasan is that

the suit in Papasan was, in substance, for damages because

the corpus of the trust was gone with the wind.39 Thus,

because of the loss of the corpus, any money recovery was

coming directly from state resources.40 Here, by contrast, the

corpus still exists and is available for return.

Because the plaintiffs’ money is held in a custodial trust,

this case is in line with the circumstances in United States v.

34

Id. at § 1431.

35

Papasan v. Allain, 478 U.S. 265 (1986).

36

Id. at 274.

37

Id. at 271-72.

38

Id. at 274.

39

Id. at 280-81.

40

Id. at 281.

3752 TAYLOR v. WESTLY

Lee,41 where the claimant sued for a return of his own prop-

erty, which was not property of the government. A descendent

of General Robert E. Lee sued for the return of land (the site

of Arlington National Cemetery) that he claimed was improp-

erly taken from his family by the federal government. The

Supreme Court held that sovereign immunity did not bar the

claim. The Court’s rationale was that this was not a suit in

which the plaintiff sought the government’s property as a

remedy. Rather, it was a suit in which the plaintiff merely

sought possession, which was wrongfully denied him by

agents of the government. This distinction meant that the case

was truly one against the possessor, the government agent,

and not against the sovereign, despite the fact that the agent

purported to possess on behalf of the sovereign.42

[7] While reading Lee in isolation suggests that suits for

return of property are not barred by sovereign immunity, sub-

sequent case law, in the 120 years since Lee was decided,

tempers its force. The most explicit limiting of Lee came in

Malone v. Bowdoin.43 The facts of Malone were in many

respects like those of Lee. The plaintiffs brought an action of

ejectment against an officer of the Forest Service, seeking to

recover possession of land that the plaintiffs claimed they

owned. The Court recognized that its opinions varied widely

with regard to the scope of Lee’s exception to sovereign immuni-

ty.44 Drawing from an earlier case that sought to reconcile this

“tangle” of precedent, the Court laid down the following

statement of law, which it explicitly described as a limitation

of Lee:

[T]he action of a federal officer affecting property

claimed by a plaintiff can be made the basis of a suit

for specific relief against the officer as an individual

41

United States v. Lee, 106 U.S. 196 (1882).

42

See id. at 208-09, 210-11.

43

Malone v. Bowdoin, 369 U.S. 643 (1962).

44

Id. at 646 & 646 nn.6, 7.

TAYLOR v. WESTLY 3753

only if the officer’s action is “not within the officer’s

statutory powers or, if within those powers, only if

the powers, or their exercise in the particular case,

are constitutionally void.”45

Thus, Malone preserved the force of Lee for suits in which a

plaintiff asserts a claim for return of his property, but it did

so only if the claim falls into one of two categories: (1) it

must be based on the public official having acted beyond his

statutory authority (the “ultra vires exception”46) or (2) the

plaintiff’s theory must be that the action leading to the gov-

ernment’s possession of the property was constitutionally

infirm.47 Later cases by both the Supreme Court and this court

validate these categories.48

Because we have interpreted plaintiffs’ claims as ones for

return of property, the threshold requirement for putting this

case within the Lee-Malone line of cases applies. Turning to

the specific requirements from Malone, we also conclude that

plaintiffs’ suit satisfies both of the ways in which a claim for

return of one’s property can fall outside the purview of sover-

eign immunity. That is, plaintiffs’ allegations are that the

Controller acted ultra vires by violating clear statutory restric-

tions and that, regardless of her authority, the manner in

45

Id. at 647 (quoting Larson v. Domestic & Foreign Commerce Corp.,

337 U.S. 682, 702 (1949)).

46

Washington v. Udall, 417 F.2d 1310, 1316 (9th Cir. 1969).

47

Malone, 369 U.S. at 647.

48

See, e.g., Fla. Dept. of State v. Treasure Salvors, Inc., 458 U.S. 670,

689 (1982) (plurality) (“These cases make clear that the Eleventh Amend-

ment does not bar an action against a state official that is based on a theory

that the officer acted beyond the scope of his statutory authority or, if

within that authority, that such authority is unconstitutional.”); Aminoil

U.S.A., Inc. v. Cal. State Water Res. Control Bd., 674 F.2d 1227, 1233

(9th Cir. 1982) (“Thus, a state court may entertain an action against an

officer . . . if the officer has exceeded his statutory or constitutional

authority.”).

3754 TAYLOR v. WESTLY

which she acted violated due process, making her actions con-

stitutionally infirm.

In interpreting the first of Malone’s two ways in which a

claim can avoid the effects of sovereign immunity, we have

said that “[a] simple mistake of fact or law does not necessar-

ily mean that an officer of the government has exceeded the

scope of his authority,” and “[o]fficial action is still action of

the sovereign, even if it is wrong, if it ‘does not conflict with

the terms of the officer’s valid statutory authority.’ ”49 In con-

trast, “action of an officer of the sovereign (be it holding, tak-

ing or otherwise legally affecting the plaintiff’s property), that

is beyond the officer’s statutory authority is not action of the

sovereign; a suit for specific relief against the officer is not

barred by the Eleventh Amendment.”50 As we have put it

when interpreting Malone’s rule, allegations that an officer

violated “a plain legal duty” can take the officer’s actions out-

side the scope of her delegated responsibilities.51 Relevant to

this inquiry is whether the statutory authority includes “words

of discretion” with regard to the challenged action.52

[8] As outlined above, plaintiffs assert many problems with

the way in which the Controller took their property. If true,

many of these obligations are arguably mistakes or abuses of

discretion, but not violations of the scope of the Controller’s

statutory authority. We need not parse each of plaintiffs’ alle-

gations, however, for some of them unquestionably assert vio-

lations that, if true, would clearly put the Controller’s actions

beyond her statutory authority. For example, plaintiffs assert

that they and their stock were wholly outside the escheat

scheme because they were never actually “lost” as the statute

49

Aminoil, 674 F.2d at 1234 (internal editing omitted) (quoting Larson,

337 U.S. at 695).

50

Treasure Salvors, 458 U.S. at 696-97 (internal quotation and citation

omitted).

51

Udall, 417 F.2d at 1316.

52

Id.

TAYLOR v. WESTLY 3755

requires.53 Also, at least with regard to Mr. Taylor, the com-

plaint asserts that he was not a resident of California, and that

his property was therefore outside the jurisdiction of the

escheat statute. At this stage of the proceedings, we are, of

course, in no position to assess the validity of these charges.

And we intimate no opinion on the merits of the allegations.

They are, however, the type of allegations that qualify a claim

for the ultra vires thread of the Lee-Malone exception to sov-

ereign immunity.

[9] As for the other category of cases Malone addressed,

the plaintiffs’ procedural due process claim qualifies for the

exception to sovereign immunity for that reason as well.

Because this is a constitutional claim for the return of prop-

erty taken and held in custody by the state, Malone’s second

exception removes the due process claim from the effects of

sovereign immunity. For this claim, plaintiffs need not even

show that the Controller exceeded the scope of her statutory

authority. Even if her actions were “within those powers” that

the statute gives her, sovereign immunity is unavailable “if

the powers, or their exercise in the particular case, are consti-

tutionally void.”54 Assuming that the plaintiffs’ allegations are

true, as we must, the Controller failed to give “notice reason-

ably calculated, under all the circumstances, to apprise inter-

53

See Cal. Civ. Proc. Code §§ 1510, 1516. The complaint states with

regard to Mr. Taylor that “[t]o this day, Intel continues to correspond with

Chris Lusby Taylor regarding his stock and his pension fund and the com-

pany knows precisely where he lives.” With regard to Ms. Pepple-

Gonsalves, it asserted that “the company at all times knew precisely where

Nancy A. Pepple-Gonsalves lived in the State of California, or could read-

ily have located her using her Social Security Number.” More generally,

the complaint also states that “[t]he Controller takes these actions though

the individual is known to the company and a list of the known owners

of the stock is provided to the Controller that includes, in nearly every

case, the stockowners’ addresses, taxpayer and social security numbers.”

54

Malone, 369 U.S. at 647 (internal quotation marks omitted).

3756 TAYLOR v. WESTLY

ested parties” of the fact that their property was being taken

and sold.55

[10] Thus, plaintiffs’ claims meet the requirements of the

Lee-Malone exception to sovereign immunity. The plaintiffs

seek return of their own property, rather than to gain owner-

ship of government property. They allege actions that would

fall outside the scope of the Controller’s statutory authority to

such an extent as to be ultra vires. California did not and

could not authorize its officer to take people’s property with-

out notice and in the absence of any connection to the State

of California.

The state invokes Edelman v. Jordan56 as a bar to plaintiffs’

suit. The argument is that because the state sold the stock it

took from the plaintiffs, any recovery would come in the form

of money from the state, which Edelman prohibits. But

Edelman has no application here. In Edelman, the plaintiffs

unquestionably sought money that belonged to the govern-

ment, but to which the plaintiffs asserted an entitlement. They

did not seek reinstatement of possession of property they

owned. In this case, there is no dispute that the plaintiffs own

the stock that the state took. The statutes plainly establish that

the state only holds the property on behalf of the true owners

and not as its own, because the property has not “permanent-

ly” escheated. As discussed above, the escheat is only custo-

dial and is “subject to the right of claimants to appear and

claim the escheated property.”57 In Lee, there was a dispute as

to who actually owned the property, the government or the

plaintiff. Here, there is not even a dispute. Properly viewed,

the claim is for return of property held in trust for the owners,

not for compensation for property full title to which has

passed to the state. This makes the claim one for return under

55

See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314

(1950).

56

Edelman, 415 U.S. 651.

57

Cal. Civ. Proc. Code § 1300(c).

TAYLOR v. WESTLY 3757

Lee and Malone, not one for compensation from the state’s

general fund under Edelman.

II. Prospective Relief

[11] The state custodial escheat scheme establishes as well

that prospective relief genuinely distinguishable from a dam-

ages award is available. An injunction may order the Control-

ler to exercise his or her power under Cal. Civ. Proc. Code

§ 1347 to order the Treasurer to remit the money back to the

Controller for redeposit in the Controller’s Unclaimed Prop-

erty Fund.

The district court was correct in concluding that, to the

extent the plaintiffs sought a declaratory judgment that Mr.

Taylor’s and Ms. Pepple-Gonsalves’s shares of stock were

unconstitutionally taken from them, and an injunction that the

state pay them money to compensate them, the claims would

not fall within the Ex parte Young prospective relief exception

to the Eleventh Amendment. While some may describe “this

retroactive award of monetary relief as a form of ‘equitable resti-

tution,’ ”58 such claims are “in practical effect indistinguish-

able in many aspects from an award of damages against the

State.”59

But not all of the plaintiffs’ claims are retroactive requests

for money. Plaintiffs’ claims for prospective relief include

some that really are entirely prospective. The complaint says

that the Controller “is unable to locate the proceeds” from the

sale of Ms. Pepple-Gonsalves’s TWA stock and lists her

shares “as permanently misplaced and unpayable.” Her claim

for an accounting is genuinely prospective, because the

court’s supervision of a full accounting may determine that

the state still has her shares, has not sold them, and is in a

position to return them. And because the Controller has statu-

58

Edelman, 415 U.S. at 668.

59

Id.

3758 TAYLOR v. WESTLY

tory authority to order the Treasurer to refund money not per-

manently escheated, genuinely prospective relief can direct

her to issue such an order.

More broadly, the complaint alleges that the Controller as

a matter of regular practice purports to take securities and

money from people’s bank accounts by escheat without pro-

viding them with the sort of notice required by state law, or

any sort of notice reasonably calculated to inform them that

the state is taking their property. The Controller’s own adver-

tisement admits that it is not the notice required by state law,

and is instead something “in lieu” of lawful notice. And the

Controller has conceded, according to the complaint, that she

discontinued trying to find owners, or even listing their names

in the published notices of escheat, because she lacked fund-

ing, not because the law does not require individualized

notice. There is no “lack of funding” exception to the Due

Process Clause.

[12] If these facts turn out to be true, prospective relief may

be available, both for these two plaintiffs to protect whatever

assets they still have and, more broadly, to protect remaining

members of the plaintiff class if class certification is achieved.

Aside from any monetary relief, the district court could

declare the notice practices of the Controller unconstitutional

and enjoin the Controller to conform to the state statute on

notice, or to whatever other standards were determined to be

appropriate. Such relief would fall within the prayer of the

complaint and within the Ex parte Young exception to the

Eleventh Amendment bar.

III. The Takings Claim

We need not decide the issue of sovereign immunity in the

context of a takings claim, since we have already decided that

plaintiffs’ property has not been taken at all, but has merely

been held in trust for them by the Controller. The plaintiffs’

suit is not against the state treasury and is merely a suit for the

TAYLOR v. WESTLY 3759

return of their property. Were the money permanently

escheated to the state, and therefore no longer held in trust for

the plaintiffs, we would be presented with the sovereign

immunity question in the context of a takings claim. Since

that has not occurred, we express no opinion on whether the

Eleventh Amendment would bar such a takings claim against

the state.

Conclusion.

[13] Because the plaintiffs seek genuinely prospective

relief, and because the funds they seek are held by the state

as custodian in trust for them rather than as the state’s own

funds, much as a municipality holds a car towed from an

expired parking meter, the complaint should not have been

dismissed under the Eleventh Amendment for lack of jurisdic-

tion. The judgment is vacated and the case is remanded for

proceedings consistent with this opinion.

VACATED AND REMANDED.