Cwik v. Giannoulias

Docket No. 108313.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

DAVID CWIK, Successor Independent Adm’r of the Estate of

Genowefa Bogdanowicz, et al., Appellants, v. ALEXI

GIANNOULIAS, Treasurer of the State of Illinois, et al., Appellees.

Opinion filed May 20, 2010.

JUSTICE KARMEIER delivered the judgment of the court, with

opinion.

Chief Justice Fitzgerald and Justices Freeman, Thomas, Kilbride,

Garman, and Burke concurred in the judgment and opinion.

OPINION

In this appeal, plaintiffs challenge the state’s retention of interest

earned on property held by the state pursuant to section 15 of the

Uniform Disposition of Unclaimed Property Act (765 ILCS 1025/15

(West 2004)). In proceedings below, the circuit court of Cook County

denied the defendants’ motion to dismiss plaintiffs’ amended

complaint, which sought recovery of interest on plaintiff’s property

(money) previously held by the state under the Act; however, the

circuit court certified dispositive questions to the appellate court

pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308). In the

course of answering those questions, the appellate court ultimately

determined that the retention of interest by the state “may” be a

“taking” under section 15 of the Illinois Constitution of 1970 (Ill.

Const. 1970, art. I, §15) and the fifth and fourteenth amendments to

the United States Constitution (U.S. Const., amends. V, XIV), but

given the allegations in this case, the court concluded it is not a taking

for which just compensation is due. 389 Ill. App. 3d 21. This appeal

followed. 210 Ill. 2d Rs. 315, 317. For the reasons set forth hereafter,

we affirm the judgment of the appellate court.

STATUTE INVOLVED

The Uniform Disposition of Unclaimed Property Act (the Act)

(765 ILCS 1025/1 et seq. (West 2004)) was enacted by our General

Assembly in 1961. The Act creates a “presumption of abandonment”

pertaining to various forms of neglected or unclaimed property held

for the owners by, inter alia, financial organizations (765 ILCS

1025/2 (West 2004)), business associations (765 ILCS 1025/2a (West

2004)), insurance companies (765 ILCS 1025/3 (West 2004)), utilities

(765 ILCS 1025/4 (West 2004)), and governmental entities or

authorities (765 ILCS 1025/8, 8.1 (West 2004)), where the owners

have failed to claim or otherwise indicate an interest in the property

through statutorily specified acts for a period of time generally ranging

from five to seven years, depending upon the applicable provision.

Pursuant to section 11(a) of the Act ((765 ILCS 1025/11(a) (West

2004)), a holder of “funds or other property, tangible or intangible,

presumed abandoned under this Act, shall report and remit all

abandoned property specified in the report to the State Treasurer.”

Section 11(b) specifies information that must be provided to the

Treasurer, information that might help to identify or locate the owner

and verify that the property does fall under the statutory presumption

of abandonment. See 765 ILCS 1025/11(b) (West 2004). With that

information, the state is required, by section 12 of the Act (765 ILCS

1025/12 (West 2004)), to attempt to notify the owner by publishing

a notice in a newspaper of general circulation. The notice must list the

last known addresses of persons listed in the report, describe the

property in question, provide contact information concerning the

holder of the property, and include a “statement that the abandoned

property has been placed in the custody of the State Treasurer to

whom all further claims must thereafter be directed.” 765 ILCS

1025/12 (West 2004).

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The Act provides that “[e]very person who has filed a report as

provided by Section 11 shall deliver to the State Treasurer all

abandoned property specified in the annual report on the same date

that the annual report is filed.” 765 ILCS 1025/13 (West 2004).

“Upon the payment or delivery of abandoned property to the State

Treasurer, the state shall assume custody and shall be responsible for

the safekeeping thereof.” 765 ILCS 1025/14 (West 2004).

Significantly, for purposes of this appeal, the Act states:

“When property is paid or delivered to the State Treasurer

under this Act, the owner is not entitled to receive income or

other increments accruing thereafter, except that income

accruing on unliquidated stock and mutual funds after July 1,

1993, may be paid to the owner.” 765 ILCS 1025/15 (West

2004).

As to disposition of the “abandoned property,” the Act, in its

applicable 2004 form, provided:

“All abandoned property, other than money and that

property exempted by paragraphs (1), (2), and (3) of this

subsection, delivered to the State Treasurer under this Act

shall be sold within a reasonable time to the highest bidder at

public sale ***. 765 ILCS 1025/17(a) (West 2004).

Section 18 of the Act stated that the “Treasurer shall retain all funds

received under this Act, including the proceeds from the sale of

abandoned property under section 17, in a trust fund ***.” 765 ILCS

1025/18 (West 2004). Under the 2004 version of the Act, amounts in

that trust fund in excess of $2.5 million were to be deposited in the

State Pension Fund on dates certain twice annually. 765 ILCS

1025/18 (West 2004). Payment for claims allowed under the Act was

to be paid out of the trust fund. 765 ILCS 1025/18 (West 2004).

BACKGROUND

The plaintiffs, David Cwik, successor independent administrator

of the estate of Genowefa Bodganowicz, and Anita White, filed a

lawsuit against the defendants, Judy Barr Topinka,1 Treasurer of the

1

Alexi Giannoulias succeeded Judy Barr Topinka as Treasurer.

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State of Illinois, and Alissa Camp,2 director of the Unclaimed Property

Division of the office of the Illinois Treasurer (collectively the

Treasurer), on behalf of themselves and all others similarly situated,

seeking payment of interest on their property–money in the case of

each of the representative plaintiffs–held by the State of Illinois under

the Act prior to their claims of reclamation. The plaintiffs also sought

certification of the suit as a class action.

The circuit court denied the Treasurer’s motion to dismiss the

amended complaint, but certified two questions to the appellate court

pursuant to Supreme Court Rule 308 (155 Ill. 2d R. 308). Pursuant to

Supreme Court Rule 306(a)(8) (210 Ill. 2d R. 306(a)(8)), the

Treasurer also sought review of the circuit court’s order certifying the

class. The appellate court granted review in both instances and

consolidated the appeals.

The questions certified for review were stated as follows:

“Whether the retention for state purposes of the interest

earned on property held pursuant to the Illinois Uniform

Disposition of Unclaimed Property Act during the time it was

in the possession of the State Treasurer's Office and/or the

State's Retirement Systems is a taking for which just

compensation is due under the Fifth and Fourteenth

Amendments to the United States Constitution or Article II,

[sic] § 15, of the Illinois Constitution[.]

If so, whether just compensation should be measured by

the interest earned by the State on the property taken[.]”

In addressing the certified questions, the appellate court observed

that the majority of courts in other jurisdictions, considering a

property owner’s entitlement to interest under virtually identical

statutes, have relied upon the United States Supreme Court’s decision

in Texaco, Inc. v. Short, 454 U.S. 516, 70 L. Ed. 2d 738, 102 S. Ct.

781 (1982), in concluding that “the retention of earned interest by a

state under an unclaimed property statute is not a ‘taking’ requiring

2

Joshua Joyce succeeded Alissa Camp as director of the Unclaimed

Property Division.

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the payment of compensation.” 389 Ill. App. 3d at 29. The appellate

court noted that the circumstances in Texaco were distinguishable

insofar as the property in that case was considered abandoned under

the applicable statute, whereas this court, in Canel v. Topinka, 212 Ill.

2d 311 (2004), adopted the view that, under Illinois’ Disposition of

Unclaimed Property Act, the state does not acquire title to the

property in question, but merely holds the neglected property for the

owner. 389 Ill. App. 3d at 28, citing Canel, 212 Ill. 2d at 331.

Following a brief discussion of Brown v. Legal Foundation, 538 U.S.

216, 155 L. Ed. 2d 376, 123 S. Ct. 1406 (2003)–a case initiated by

vigilant property owners who sought the interest on their funds held

in lawyers’ trust accounts–the appellate court concluded the initial

portion of its analysis with this ambivalent statement: “Thus, while the

retention of interest [in the case at bar] may be a ‘taking,’ the question

is whether the named plaintiffs here have lost anything of value.”

(Emphasis added.) 389 Ill. App. 3d at 30-31.

In addressing that question, the appellate court observed:

“Nowhere in the [plaintiffs’] allegations do the plaintiffs plead that

their respective funds were earning interest at the time the State took

custody of them. When questioned at oral argument, the attorneys for

the parties acknowledged that they were unaware whether the

plaintiffs’ funds had been earning interest prior to the time they were

placed in state custody.” 389 Ill. App. 3d at 31. Assuming there had

been a “taking” for purposes of our state and federal constitutions, the

appellate court found the dearth of said allegations or claims

dispositive on the question of just compensation:

“Unlike the stock in Canel, which continued to produce

dividends even though ‘neglected’ by the owner, there is no

evidence that the plaintiffs’ property in this case was

producing any interest until the Treasurer took possession of

it under the Act. While the State may have gained the interest

income, the plaintiffs failed to plead that they were receiving

interest or expected to receive interest on the funds remitted

to the State under the Act. Simply put, the State’s gain did not

establish a loss on the part of the plaintiffs. As such, the

plaintiffs have no claim for a taking for which compensation

is due.” 389 Ill. App. 3d at 31-32.

Applying that rationale, the appellate court answered both questions

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“in the negative as they apply to this particular case.” 389 Ill. App. 3d

at 32. The court concluded: “As we have determined that the named

plaintiffs do not have a claim for a taking for which compensation is

due, they have no cause of action and may not seek relief on behalf of

the other class members. [Citation.] Therefore, the circuit court's

order granting class certification is reversed, and the cause remanded

for further proceedings consistent with the views expressed in this

opinion.” 389 Ill. App. 3d at 32.

ANALYSIS

Plaintiffs raise numerous issues on appeal. We need address only

one: “whether the defendants’ retention of the interest accrued on

unclaimed property pursuant to §15 of the Act is an unconstitutional

taking of private property without compensation.”

Statutes are presumed constitutional, and we have the duty to

construe statutes so as to uphold their constitutionality if there is any

reasonable way to do so. O’Brien v. White, 219 Ill. 2d 86, 98 (2006).

The party challenging the validity of the statute has the burden of

rebutting the presumption of constitutionality by clearly demonstrating

a constitutional violation. Napleton v. Village of Hinsdale, 229 Ill. 2d

296, 306 (2008). The constitutionality of a statute is a question of law

that is reviewed de novo. O’Brien, 219 Ill. 2d at 98.

We note at the outset that no interpretation of the statute itself is

necessary. The language of the statute is plain; its meaning is clear.

With two exceptions not applicable here (for “unliquidated stock and

mutual funds”), the statute provides that the owner of property “paid

or delivered to the State Treasurer” pursuant to the provisions of the

Act “is not entitled to receive income” thereon. 765 ILCS 1025/15

(West 2004). Thus, the Act clearly divests the property owner of any

right to interest earned on property held by the state pursuant to the

authority of the Act. The question before us is whether the legislature

can, without running afoul of our state and federal constitutions, enact

a statute that divests neglectful proper owners of interest earned on

their property while it is committed to the custody of the state for

safekeeping. Applying the precedent and reasoning of the Supreme

Court in Texaco, we hold that it can.

At issue in Texaco was an Indiana statute that automatically

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divested the owner of a severed mineral interest of his or her right

thereto–returning it to the surface owner–where the subsurface owner,

for a period of 20 years, failed to use the interest or at least file a

statement of claim with the local recorder of deeds. After examining

its pertinent precedent, the Supreme Court rejected appellants’

contention that the State of Indiana lacked “the power to provide that

property rights of this character shall be extinguished if their owners

do not take the affirmative action required by the State.” Referring to

that precedent, the Supreme Court noted:

“In each case, the Court upheld the power of the State to

condition retention of a property right upon the performance

of an act within a limited period of time. In each instance, as

a result of the failure of the property owner to perform the

statutory condition, an interest in fee was deemed as a matter

of law to be abandoned and to lapse.” Texaco, 454 U.S. at

529, 70 L. Ed. 2d at 750-51, 102 S. Ct. at 792.

Having established that the states may enact statutes resulting in

the lapse or divestment of a neglectful owner’s rights in property, the

Court went on to hold that the state was not required to pay

compensation to such an owner:

“In ruling that private property may be deemed to be

abandoned and to lapse upon the failure of its owner to take

reasonable actions imposed by law, this Court has never

required the State to compensate the owner for the

consequences of his own neglect. *** It is the owner’s failure

to make any use of the property–and not the action of the

State–that causes the lapse of the property right; there is no

‘taking’ that requires compensation.” Texaco, 454 U.S. at

530, 70 L. Ed. 2d at 751-52, 102 S. Ct. at 792-93.

The Court went on to address appellants’ due process concerns,

observing, first, that appellants, like all other citizens, “may be

presumed to have had knowledge of the terms” of the Indiana statute.

Texaco, 454 U.S. at 533, 70 L. Ed. 2d at 753, 102 S. Ct. at 794. See

generally People v. Lander, 215 Ill. 2d 577, 588 (2005) (“It is well

settled that all citizens are charged with knowledge of the law”). The

Court pointed out that it was “essential to recognize the difference

between the self-executing feature of the statute and a subsequent

judicial determination that a particular lapse did in fact occur.”

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Texaco, 454 U.S. at 533, 70 L. Ed. 2d at 753-54, 102 S. Ct. at 794.

In that respect, the Supreme Court rejected appellants’ reliance upon

the seminal due process decision in Mullane v. Central Hanover Bank

& Trust Co., 339 U.S. 306, 94 L. Ed. 865, 70 S. Ct. 652 (1950)

(establishing requirements of notice and an opportunity to present

objections), concluding: “The reasoning in Mullane is applicable to a

judicial proceeding brought to determine whether a lapse of a mineral

estate did or did not occur, but not to the self-executing feature of the

Mineral Lapse Act. *** The Court in Mullane itself distinguished the

situation in which a State enacted a general rule of law governing the

abandonment of property.” Texaco, 454 U.S. at 535, 70 L. Ed. 2d at

754, 102 S. Ct. at 795.

We find the reasoning of Texaco dispositive in the matter before

us, for if a state legislature can constitutionally enact a statute that

divests a neglectful owner of all rights in certain property absent the

performance of specified activities evincing a continued and

possessory interest in the property over the prescribed statutory

period, then it logically follows that the legislature can,

constitutionally, take the less drastic measure of enacting a statute that

operates to divest those owners of only certain incidents of ownership,

without mandating divestiture of all rights in the property. That is

what the Illinois legislature has done here. As in Texaco, “[i]t is the

owner’s failure to make any use of the property–and not the action of

the State–that causes the lapse of the property right; there is no

‘taking’ that requires compensation.” Texaco, 454 U.S. at 530, 70 L.

Ed. 2d at 752, 102 S. Ct. at 792-93. The fact that the Illinois

legislature has taken a more benevolent attitude toward those who

neglect their property than it might have does not render its enactment

unconstitutional.

While the circumstances here might not qualify as “abandonment”

under a common law definition, there appears to be no question,

under Texaco, that the state could enact statutory provisions

mandating the status of abandonment in appropriate circumstances or

declaring the property interest lapsed in toto. Instead, using the phrase

“presumed abandoned” sparingly, more commonly simply

“abandoned,” the legislature has effectively declared only an incident

of ownership lapsed–the right to income earned–and has set up a

system that at least allows errant property owners a reasonable period

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of time in which to recover their tangible property, and an unlimited

period in which to recover its monetary equivalent. Pursuant to this

system–triggered at the outset by the owner’s neglect rather than

proactive state action aimed at seizing property from the vigilant–the

Treasurer is to receive custody of the neglected property and then is

required to assume, in apparent perpetuity, the responsibility of

safekeeping the property, or the proceeds from the sale thereof, for

any owners who may wish to reclaim their “abandoned” property. In

return for this seemingly advantageous, long-term reclamation service,

the state receives the benefit of retaining the interest earned from its

management of the property after it is placed in state custody.

Quoting in part from the Seventh Circuit Court of Appeals’

decision in Commonwealth Edison Co. v. Vega, 174 F.3d 870, 872

(7th Cir. 1999), this court, in Canel, described the state’s role and

attendant benefit under the Act as follows:

“ ‘[N]ot only does the state have free use of the property

unless and until the owner reclaims it; the state is not

required to (and Illinois does not) pay any interest to a

reclaiming owner. [Citations.] In effect, the property is an

interest-free loan to the state–in perpetuity if the owner

never shows up to claim it.’ Vega, 174 F.3d at 872.

See also Note, Virginia’s Acquisition of Unclaimed and

Abandoned Personal Property, 27 Wm. & Mary L. Rev. 409,

419-20 (1986) (noting three dual policies of the uniform law

including the protection of owners in order to reunite them

with their property while providing adopting states with a

method for raising revenue).” Canel, 212 Ill. 2d at 325.

In Canel, we held that the state did not have the right to dividends

issued on plaintiff’s shares of unliquidated stock while the stock was

in the possession of the state. We reached that result after a thorough

examination of the unique features of corporate ownership:

“The shares of a corporation are the units into which the

proprietary interests in a corporation are divided. 805 ILCS

5/1.80 (West 2000). The proprietary interests represented by

the shares of stock consist of management or control rights,

rights to earnings, and rights to assets. Stroh v. Blackhawk

Holding Corp., 48 Ill. 2d 471, 479 (1971); 11 Fletcher’s

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Cyclopedia of Private Corporations §5081 (rev. vol. 2003).

Once a dividend is declared, it becomes a corporate debt

owed to the shareholders in proportion to their shares in the

corporation, and, if the corporation refuses to pay, the

shareholders may sue to recover the unpaid dividend. 11

Fletcher’s Cyclopedia of Private Corporations §5322 (rev. vol.

2003). A lawfully declared dividend is the separate property

of the shareholders, wholly disconnected from their shares.

Ford v. Ford Manufacturing Co., 222 Ill. App. 76, 83 (1921).

Stated simply, a dividend belongs to the owner of the shares.

In this case that owner remained, at all times, the plaintiff,

James Canel.” Canel, 212 Ill. 2d at 323-24.

Given the attributes of stock ownership, and the circumstances of that

case, we held that the dividends issued to Canel by the corporation

while Canel’s stock was in the custody of the state remained Canel’s

separate property and the state had no right to retain it. The retention

thereof constituted a “taking” for which just compensation was due.

We thus remanded the cause to the circuit court for a determination

of just compensation. Canel, 212 Ill. 2d at 331-33.

However, we repeatedly and pointedly limited our analysis and

holding to the retention of dividends by the state:

“Because this case involves dividends accruing on unliquidated

stock, we confine our analysis of section 15 to only dividends

earned on shares of unliquidated stock held by the state

pursuant to the Act.” Canel, 212 Ill. 2d at 323.

“We stress that our opinion today is limited only to

dividends accruing on stock held by the state under the Act.”

Canel, 212 Ill. 2d at 333.

As our quotation of Vega suggested (see Canel, 212 Ill. 2d at 325),

and our cautionary comments on the reach of the decision portended,

we believe interest earned via state action on a corpus of money or

other forms of property in the custody of the state can and should be

treated differently from dividends automatically issued to the record

holder of stock while the latter is in the state’s possession prior to

liquidation.

First, section 15 of the Act specifies different treatment for

“income or other increments accruing *** on unliquidated stock and

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mutual funds.” 765 ILCS 1025/15 (West 2004). This legislative

distinction recognizes–as did the limitation of our holding in

Canel–the unique attributes and nature of those forms of corporate

ownership and investment. Second, as our analysis in Canel

acknowledges, dividends are separate property issued to the owner of

stock, as the owner, irrespective of any action on his or her part.

While stocks are in the Treasurer’s custody, prior to liquidation,

stocks remain the property of their owners, and any dividends issued

are issued to them as owners of record–automatically. No action is

required of either the owner or the state. The same is not true of

interest earned on sums of money coming into the Treasurer’s

possession pursuant to the provisions of the Act. Without state action,

the corpus earns nothing. Thus, there is a reasoned basis for treating

dividends and interest differently.

We reiterate, pursuant to the holding in Texaco, the Illinois

legislature has the authority–without violating our state or federal

constitutions–to declare property statutorily “abandoned” where the

owners have failed to show interest in the property through the

performance of specified acts over a prescribed period of time. By

such a declaration, our statute–self-executing as in Texaco–divests the

owner of only certain incidents of ownership–unlike the Indiana

statute at issue in Texaco–while the state provides safekeeping of the

corpus and reclamation services. Our statute effects what may be

described as limited lapse or divestment. There is no taking that would

require compensation.

We emphasize that this situation differs from those extant in cases

cited by plaintiffs in that this property was not wrested from a vigilant

and reluctant property owner, who was actively involved with its

oversight or management, and who disputed the appropriation at the

time of the alleged taking.

We also note in passing plaintiffs’ suggestion, in their reply brief,

that application of the principles accepted in Texaco might result in a

denial of due process in some case. Plaintiffs contend, “if the [third-

party] holder is later determined to have turned the property over to

the State by mistake” the Act “provides the owner with no mechanism

to challenge the loss of his property right, nor does it require the State

to prove the facts necessary to support the forfeiture.” Plaintiffs do

not argue that the third-party holders of their property turned it over

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to the state by mistake, or that the facts would not support limited

lapse of their property rights under the statute. Those observations,

considered in conjunction with the Texaco Court’s approval of the

“self-executing” feature of the Indiana statute there at issue, suggest

to us that plaintiffs lack standing to make that type of challenge to the

statute. See People v. Funches, 212 Ill. 2d 334, 346 (2004) (“A party

has standing to challenge the constitutionality of a statute only insofar

as it adversely impacts his or her own rights”). Even if this were not

the case, plaintiffs fail to address notification (765 ILCS 1025/12

(West 2004)), claims (765 ILCS 1025/19, 20 (West 2004)), and

review (765 ILCS 1025/21 (West 2004)) provisions of the Act itself,

and of the Code of Civil Procedure generally, to explain why those

provisions are inadequate to provide procedural due process to those

who fall within the purview of the Act. As our appellate court has

aptly observed, a court of review is entitled to have the issues on

appeal clearly defined with pertinent authority cited and reasoned,

cohesive legal argument. First National Bank of LaGrange v. Lowrey,

375 Ill. App. 3d 181, 208 (2007). An issue not clearly defined and

sufficiently presented fails to satisfy the requirements of Supreme

Court Rule 341(h)(7) (210 Ill. 2d R. 341(h)(7)).

For the foregoing reasons, given the facts of this case, we find that

no “taking” occurred when the state retained interest earned on

plaintiffs’ property held in its custody pursuant to the provisions of the

Act. In this respect, our holding is not entirely consistent with the

analysis of the appellate court, which was ambivalent on that point.

Nonetheless, we may affirm on any basis supported by the record

(People v. Durr, 215 Ill. 2d 283, 296 (2005)), and we agree with the

result reached by the appellate court. Thus, the judgment of the

appellate court is affirmed.

Affirmed.

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