Suever v. Connell

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

AGNES SUEVER; MADONNA SUEVER; 

STEVE TUCKER; ALEXANDER

VONDJIDIS; RICHARD W. SEITZINGER;

JO-ANN SEITZINGER; JOHNSTONE

WHITLEY; TONY LEE; LYNN KEITH;

RICHARD V. VALDES,

Plaintiffs-Appellants,

No. 04-15555

v.

KATHLEEN CONNELL, Dr., in her  D.C. No.

CV-03-00156-RS

individual capacity; RICHARD

OPINION

CHIVARO, in his individual and

official capacities; GEORGE

DELEON, in his individual and

official capacities; STEVE WESTLY,

in his individual and official

capacities,

Defendants-Appellees.



Appeal from the United States District Court

for the Northern District of California

Richard Seeborg, Magistrate, Presiding

Argued and Submitted

December 9, 2005—San Francisco, California

Filed March 14, 2006

Before: Betty B. Fletcher, Michael Daly Hawkins, and

Carlos T. Bea, Circuit Judges.

Opinion by Judge Bea

2639

2642 SUEVER v. CONNELL

COUNSEL

William W. Palmer, Law Offices of William W. Palmer, Sac-

ramento, California, for the plaintiffs-appellants.

Robin B. Johansen, James C. Harrison & Thomas A. Willis,

Remcho, Johansen & Purcell, San Leandro, California, for the

defendants-appellees.

OPINION

BEA, Circuit Judge:

We are called upon to decide the extent to which the fed-

eral courts are open or closed by the Eleventh Amendment of

the Constitution to persons who claim a state has improperly

taken their property under a state’s escheat system. The

answer, as in many legal questions: “it depends.” It depends

on whether the property at issue is an individual’s property or

a state’s property, and whether the relief requested is prospec-

tive or retrospective.

Appellants Agnes Suever, et al. (collectively, “the class”)

appeal the district court’s order granting the motion of Appel-

lees Kathleen Connell, Richard Chivaro, Steve Westly, and

George DeLeon (collectively, “the Controller”)1 to dismiss the

1

Connell was the former Controller for the State of California and

Westly was the Controller at the time of the order. Chivaro was the chief

legal counsel at the Controller’s Office, and DeLeon works in the Control-

ler’s Unclaimed Property Division. Because the allegations relate to an

overall conspiracy in which all defendants were involved, it is sufficient

to refer to the defendants collectively.

SUEVER v. CONNELL 2643

class action without leave to amend. The class’s complaint

alleges that, to mitigate the State’s mounting debt, the Con-

troller improperly seized and retained the class’s property

under the California Unclaimed Property Law (UPL), Cal.

Civ. Proc. Code § 1500, et seq. The district court held that the

Eleventh Amendment barred the class’s complaint in its

entirety because the complaint alleged only that the class was

“entitled to monetary damages [as compensation from State

funds] for [state officials’] past constitutional violations” and

“fail[ed] to allege [state officials’] ‘ongoing violation of fed-

eral law’ or to seek ‘relief properly characterized as prospec-

tive’ ” that would warrant an exception to state sovereign

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

The district court erred because it overlooked that part of

what the class requests is the return of its own property, not

compensation from state funds for property permanently

taken from it. In a case related to the present one, this court

recently held that the Eleventh Amendment does not bar a

request for the return of a plaintiff’s property if the complaint

alleges that state officials acted either ultra vires or unconsti-

tutionally. Taylor v. Westly, 402 F.3d 924, 932-35 (9th Cir.

2005). Because, like the complaint in Taylor, the complaint

here alleges that state officials seized and retained the class’s

property through ultra vires and unconstitutional acts, the

Eleventh Amendment does not bar the class from suing to

obtain its property back from the Controller.

Beyond the return of its property, the class requests some

forms of relief that are permissibly prospective, whereas other

requested forms of relief may impermissibly require retro-

spective compensation from State funds. We leave it to the

district court upon remand to determine which claims the

Eleventh Amendment bars and which claims it does not.

Accordingly, we vacate the district court’s order dismissing

the class action and remand for proceedings consistent with

this opinion.

2644 SUEVER v. CONNELL

I. Background

A. Statutory Framework

Title 10 of the California Code of Civil Procedure deals

with unclaimed property located in California. Cal. Civ. Proc.

Code § 1300, et seq. “It is the purpose of this title to provide

for the receipt, custody, investment, management, disposal,

escheat and permanent escheat of various classes of

unclaimed property . . . .” Id. § 1305. This case relates to the

Controller’s authority to receive and manage escheated prop-

erty under the UPL, Chapter 7 of Title 10, id.§ 1500, et seq.

“ ‘Escheat[ ]’ . . . means the vesting in the state of title to

property the whereabouts of whose owner is unknown or

whose owner is unknown, . . . subject to the right of claimants

to appear and claim the escheated property . . . .” Id. § 1300(c)

(emphasis added). By contrast, “ ‘[p]ermanent escheat’ means

the absolute vesting in the state of title to property . . . pursu-

ant to judicial determination, pursuant to a proceeding of

escheat as provided by Chapter 5 . . . of [Title 10], or pursuant

to operation of law and the barring of all claims to the prop-

erty by the former [owner] thereof or his successors.” Id.

§ 1300(d) (emphasis added). This case does not involve per-

manently escheated property because the complaint does not

allege that any permanent escheat proceedings have taken

place; the Controller’s liquidation of any unclaimed asset by

itself does not convert the asset into permanently escheated

property. Id. § 1390.

Holders of unclaimed property, such as financial institu-

tions, must annually file a report with the Controller describ-

ing all escheated property in their possession. Id. § 1530.

Holders must concurrently “pay or deliver to the Controller

all escheated property specified in the report.” Id. § 1532(a).

Various types of property2 escheat to the State when for three

2

Eligible types of property include “demand, savings, or matured time

deposit[s],” Cal. Civ. Proc. Code § 1513, “contents of any safe deposit

box,” id. § 1514, funds from a life insurance policy, id.§ 1515, and “any

dividend, profit, distribution, interest, [or] payment on principal,”

id.§ 1516.

SUEVER v. CONNELL 2645

years the owner has not indicated an interest in the asset3 to

the holder.4 Id. § 1513-21. Escheated property must have a

jurisdictional nexus with California, such as when the owner’s

last known address was in the State or the holder is domiciled

there. Id. § 1510. “Upon the payment or delivery of escheated

property to the State Controller, the state shall assume custody

and shall be responsible for the safekeeping of the property.”

Id. § 1560(a). The Controller must ordinarily sell all

escheated property received from holders by auction, but he

must sell publicly traded securities on the relevant stock

exchange within two years of receipt.5 Id. § 1563(a) & (b). In

3

For instance, the funds in a bank account will not escheat if the owner

has “[i]ncreased or decreased the amount of the deposit” or

“[c]orresponded electronically or in writing with the banking organization

concerning the deposit.” Id. § 1513(a)(1) & (2). A dividend will not

escheat if the owner has claimed it or corresponded with the holder. Id.

§ 1516.

4

The State legislature shortened the applicable time period for most

assets from seven to five years in 1988 and from five to three years in

1990. See, e.g., 1990 Cal. Stat. 1069 § 1 (substituting “three years” for

“five years” within § 1513(d)).

5

The Controller will credit to the owner’s account all income, such as

dividends and interest, to have accrued from a certain asset prior to liqui-

dation. Cal. Civ. Proc. Code § 1562. However, the owner does not receive

any interest accrued on his asset once the Controller has liquidated the

asset and deposited its value in the Unclaimed Property Fund. Id. Before

2002, owners who claimed property that had been deposited in the

Unclaimed Property Fund received interest from the State treasury:

[T]he State Controller [would] add interest at the rate of 5 percent

compounded annually or the current interest rate received upon

deposits held in the Pooled Money Investment Account, which-

ever [was] lower, to the amount of any claim paid the owner . . .

for the period the property was on deposit in the Unclaimed Prop-

erty Fund, [starting January 1, 1977].

Id. § 1540 (amended 2002). The Pooled Money Investment Account is a

State portfolio of investments funded by surplus money held within the

State treasury. Cal. Gov’t Code § 16474. From 2002 until 2003, the legis-

lature substituted the “bond equivalent rate of 13-week United States Trea-

sury bills” for “current interest rate” in calculating the interest that should

2646 SUEVER v. CONNELL

addition, the Controller must notify the apparent owners that

their assets have escheated by publication in a newspaper of

general circulation and, in certain cases,6 by mail. Id. § 1531.

Owners of property that the Controller holds but that has

not permanently escheated to the State may claim and receive

their property back. Id. §§ 1350, 1352. In addition, the Con-

troller may return from the Unclaimed Property Fund or Gen-

eral Fund any property erroneously escheated or erroneously

permanently escheated. Id. §§ 1345-47.

B. The Class’s Allegations

The members of the class are individuals who claim the

Controller unlawfully seized, mishandled, liquidated, and

refused to return their assets. The class alleges, in its com-

be added to an asset when it is claimed. Cal. Civ. Proc. Code § 1540

(amended 2003). In addition, the interest rate would no longer be com-

pounded annually; the owners would receive simple interest. Id. Since

August 11, 2003, however—two months after the complaint in the present

case was filed—the same section has stated that “[n]o interest shall be

payable on any claim paid under this chapter.” Id.

6

The current UPL requires mailed notice in the following circumstance:

If an account paid or delivered to the Controller pursuant to Sec-

tion 1532 includes a social security number, the Controller shall

request the Franchise Tax Board to provide a current address for

the apparent owner on the basis of that number. The Controller

shall mail a notice to the apparent owner for whom a current

address is obtained if the address is different than the address pre-

viously reported to the Controller.

Id. § 1531(d). The current UPL does not require mailed notice in any other

circumstance.

Previously, the UPL’s notice requirements were more demanding.

Before 1996, the Controller was required to list each apparent owner’s

name in the published notification, whereas now the published notice may

be generic. 1996 Cal. Stat. 762 § 6. The Controller was also required to

mail notice to every apparent owner who had a last known address listed

on the escheated property’s account. Id.

SUEVER v. CONNELL 2647

plaint filed July 14, 2003, that the Controller unlawfully used

“auditors” to coerce financial institutions into paying or deliv-

ering property ineligible to be escheated. For instance, said

financial institutions knew some of the class members’

addresses at the time of transfer.7 In addition, the Controller

failed to provide adequate notice to the class to enable class

members to claim their property before it was liquidated.

After 1989, the Controller decided to publish only block ads

instead of listing the particular names and addresses of the

apparent owners, in violation of § 1531 of the UPL.8 The

Controller also failed to mail direct notices to the owners’ last

known address.

The complaint also alleges that the Controller mishandled

the property in the State’s possession. The class claims that

the Controller unconstitutionally applied interest rate legisla-

tion retroactively, stripping compound interest that had been

accruing on unclaimed property and replacing it at a much

lower simple interest rate. On some investments such as cash-

iers’ checks and dividends, the Controller allegedly failed to

pay interest altogether. The Controller also allegedly failed to

register cashiers checks or provide adequate notice, preclud-

ing the owners from claiming their property. She is alleged to

have commingled money from the Unclaimed Property Funds

with money from the General Fund. Finally, the Controller

7

As an example, the complaint alleges that the Controller escheated the

Intel stock of one class member who lives in England and there collects

an Intel pension, as though the class member were an “unknown” owner.

8

The Controller’s decision not to list individual owners in its published

advertisements predated by seven years the amendment to the UPL that

authorized such block ads. Regardless, the class alleges that the current

UPL statute authorizing block ads violates due process by failing to give

adequate notice. See Mullane v. Cent. Hanover Bank & Trust Co., 339

U.S. 306, 314 (1950) (“An elementary and fundamental requirement of

due process in any proceeding which is to be accorded finality is notice

reasonably calculated, under all the circumstances, to apprise interested

parties of the pendency of the action and afford them an opportunity to

present their objections.”).

2648 SUEVER v. CONNELL

allegedly instituted a shredding policy that destroyed many of

the documents necessary to prove the owners’ entitlement to

the property; contents of safety deposit boxes were also

destroyed without notice.

The class alleges that the Controller’s wrongful acts consti-

tute a conspiracy to withhold owners’ assets to alleviate Cali-

fornia’s budget crisis. The class claims the Controller allowed

certain companies, financial institutions, and regulated entities

unlawfully to retain owners’ property worth over $1 billion in

total. The class further alleges the Controller did not promul-

gate formal rules to carry out these acts, but rather changed

policies frequently without notice or accountability. The Con-

troller’s acts allegedly violated the class’s rights under the

Due Process, Takings, and Contracts Clauses of the Federal

Constitution; state and federal securities laws; and the UPL

itself.

The class alleges eleven claims for relief. It cites all the

violations discussed above as justifying declaratory relief. The

class claims that a determination of the class’s rights would

entitle it to disgorgement and return of either their property or

the reasonable value thereof. The class also alleges two fed-

eral § 1983 claims, based on procedural due process and the

Takings Clause respectively. The class alleges the Controller

violated due process by unlawfully seizing, and sometimes

selling, property without notice and paying too little interest

to owners. The class claims that these same unlawful acts also

constitute a “taking” for which it must receive just compensa-

tion. In addition, the class claims that it is entitled to the

“proper value of [its] property,” which “should be valued

according to the applicable principles of law for reimburse-

ment purposes.” These constitutional rights also form the

basis for an accounting of the class’s seized property; the pay-

ment of attorneys’ fees; the creation of a common fund to

return the class’s property “with proper interest”; and injunc-

tive relief to require the Controller no longer to violate the

SUEVER v. CONNELL 2649

Constitution or federal statutory law, and to return the class’s

property.

The class also alleges a variety of state law claims: tax-

payer action, violation of the UPL, breach of fiduciary duty,

negligence, and fraud. These violations allegedly merit the

payment of both restitution for the fair value of the owners’

property and punitive damages. In addition, the class contends

the state claims justify injunctive relief requiring the Control-

ler to comply with the UPL in the future.

II. Analysis

This court reviews de novo an order dismissing a complaint

based on a lack of subject matter jurisdiction. Taylor, 402

F.3d at 929.

A. Return of the Class’s Property

[1] The Eleventh Amendment does not bar the class’s

claims insofar as the claims request the return of the class’s

property. This court in Taylor held that the Eleventh Amend-

ment did not apply to funds that had been escheated, but not

permanently escheated, because the State held such funds in

custodial trust for the benefit of property owners—the funds

were not State funds. Id. at 931 (“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.”). Claims requesting the return of individuals’

property are less likely to offend a state’s sovereign immunity

than claims requesting the payment of government funds. See

id. at 932-35. Hence, although the Eleventh Amendment ordi-

narily bars claims primarily requesting funds held in the

State’s coffers, sovereign immunity does not apply to claims

alleging such funds are individuals’ property that the State

improperly seized through ultra vires or unconstitutional acts.

Id.

2650 SUEVER v. CONNELL

[2] Taylor found that the Eleventh Amendment did not bar

the plaintiffs’ claims requesting return of the plaintiffs’ prop-

erty because these claims alleged both ultra vires and uncon-

stitutional acts. Taylor employed the sovereign immunity

framework established in Malone v. Bowdoin, 369 U.S. 643,

647 (1962):

[A] plaintiff[’s] . . . claim for return of his property

[will not be barred by state sovereign immunity] . . .

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”) or (2) the plaintiff’s theory must be that

the action leading to the government’s possession of

the property was constitutionally infirm.

402 F.3d at 933 (quoting Washington v. Udall, 417 F.2d 1310,

1316 (9th Cir. 1969)) (footnotes omitted).

The plaintiffs in Taylor averred that the Controller seized

their property through ultra vires acts. An official’s act is not

ultra vires just because he erroneously applies his delegated

duty but only when he acts outside the scope of his duty. Id.

“[A]llegations that an officer violated ‘a plain legal duty’ can

take the officer’s actions outside the scope of her delegated

responsibilities.” Id. at 934 (quoting Udall, 417 F.2d at 1316).

Some of the plaintiffs’ claims in Taylor alleged the Controller

had violated a “plain legal duty”: the “plaintiffs assert[ed] that

they and their stock were wholly outside the escheat scheme

because they were never actually ‘lost’ as the statute requires.”9

Id. at 934.

9

For instance, the complaint in Taylor alleged 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.” 402 F.3d at 934 n.53 (citing Cal. Civ. Proc.

Code § 1516).

SUEVER v. CONNELL 2651

The plaintiffs in Taylor also averred that the Controller

escheated their property through unconstitutional acts. The

complaint in Taylor alleged that the Controller violated the

plaintiffs’ due process rights by failing to give adequate

notice before seizing their property. Id. The Taylor court con-

cluded, “Assuming that the plaintiffs’ allegations are true, as

we must, the Controller failed to give ‘notice reasonably cal-

culated, under all the circumstances, to apprise interested par-

ties’ of the fact that their property was being taken and sold.”

Id. (quoting Mullane, 339 U.S. at 314).

[3] Applying Taylor’s principles to the highly analogous

facts here, the Eleventh Amendment does not bar the class’s

claims requesting the return of the class’s property. First, the

complaint here avers that the Controller acted ultra vires by

improperly seizing property ineligible for escheat. Like the

complaint in Taylor, the class’s complaint avers that the Con-

troller seized property from “known” property owners.10 Sec-

ond, the complaint avers that the Controller acted

unconstitutionally by providing inadequate notice to property

owners whose property was to be escheated. Accordingly, the

class’s request that the Controller return the members’ prop-

erty is not barred by the State’s sovereign immunity.

B. Other Forms of Relief

Beyond the return of the class’s property, the complaint

requests some forms of relief that would permissibly require

the Controller’s prospective compliance with federal law, and

some other forms of relief that arguably would impermissibly

require compensation from the State treasury. The Supreme

Court in Ex parte Young held that a federal court could enjoin

a state officer to conform his future behavior to federal law.

209 U.S. at 159-60. Ex parte Young created an exception to

10

See Cal. Civ. Proc. Code § 1300(c) (limiting the applicability of

“[e]scheat . . . to property the whereabouts of whose owner is unknown

or whose owner is unknown”).

2652 SUEVER v. CONNELL

the Eleventh Amendment by holding that a state official who

acts unconstitutionally is “stripped of his official or represen-

tative character and is subjected in his person to the conse-

quences of his individual conduct” because the State could

not grant immunity for such an act. Id. at 160. Decades later,

in Edelman v. Jordan, 415 U.S. 651 (1974), the Court limited

the scope of Ex Parte Young’s exception to prospective equi-

table relief and state funds “ancillary” to such relief; the Elev-

enth Amendment bars retroactive compensation to plaintiffs

from State funds. Id. at 663-69.

[4] The district court erred when it found that the Ex parte

Young exception to the Eleventh Amendment did not apply to

the class’s amended complaint in its entirety because the com-

plaint “fails to allege an ‘ongoing violation of federal law’ or

to seek ‘relief properly characterized as prospective.’ ” The

amended complaint alleges types of harm that, if proven,

would amount to “ongoing violation[s] of federal law”:

including the Controller’s practices of publishing constitution-

ally inadequate notice for property to be escheated, seizing

assets that are ineligible for escheat, and misplacing escheated

property so that it cannot be returned to its owner. The com-

plaint requests prospective relief to remedy these ongoing vio-

lations: including an injunction to require the Controller to

publish constitutionally adequate notice, to refrain from seiz-

ing property ineligible for escheat, and to undertake an

accounting of funds illegally held within the State’s escheat

system. See Taylor, 402 F.3d at 935-36. By contrast, other

types of requested relief are clearly barred by the Eleventh

Amendment, for example, where the relief is premised solely

on the State’s compliance with state law. See Pennhurst State

Sch. & Hosp. v. Halderman, 465 U.S. 89, 105-06 (1984).

Apart from such prohibited relief, we leave it to the district

court upon remand to determine which types of requested

relief are permissibly prospective and which would imper-

missibly be “ ‘in practical effect indistinguishable in many

aspects from an award of damages against the State.’ ” See

Taylor, 402 F.3d at 935 (quoting Edelman, 415 U.S. at 668).

SUEVER v. CONNELL 2653

III. Conclusion

We VACATE the district court’s decision and REMAND

for proceedings consistent with this opinion.