Treasurer State NJ v. US Dept Treas

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 10-1963

______________

TREASURER OF THE STATE OF NEW JERSEY;

TREASURER OF THE STATE OF NORTH CAROLINA;

DIRECTOR OF THE DEPARTMENT OF REVENUE OF

THE STATE OF MONTANA; TREASURER OF THE

STATE OF KENTUCKY; TREASURER OF THE STATE

OF OKLAHOMA; ATTORNEY GENERAL OF THE

STATE OF MISSOURI; TREASURER OF THE STATE OF

PENNSYLVANIA

v.

UNITED STATES DEPARTMENT OF THE TREASURY;

SECRETARY OF THE UNITED STATES TREASURY

DEPARTMENT;

BUREAU OF PUBLIC DEBT, a Division of the United

States Treasury Department; COMMISSIONER OF THE

BUREAU OF PUBLIC DEBT,

Treasurer of the State of New Jersey,

Director of the Department of Revenue

of the State of Montana,

Treasurer of the State of Kentucky,

Treasurer of the State of Oklahoma,

Attorney General of the State of

Missouri,

Treasurer of the State of Pennsylvania,

Appellants

(Pursuant to Fed. R. App. P. 43(c)(1))

______________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 04-4368)

Honorable Mary L. Cooper, District Judge

______________

Argued April 11, 2012

BEFORE: HARDIMAN, GREENAWAY, JR., and

GREENBERG, Circuit Judges

(Filed: June 27, 2012)

______________

Carter G. Phillips (argued)

Sidley Austin

1501 K Street, N.W.

Washington, DC 20005

Peter G. Angelos

M. Albert Figinski

Law Offices of Peter G. Angelos

2

100 North Charles Street

One Charles Center, 22nd Floor

Baltimore, MD 21201

Randall K. Berger

Joanne M. Cicala

Roger W. Kirby

Kirby McInerney

825 Third Avenue

16th Floor

New York, NY 10022

William C. Cagney

Robert J. Luddy

Windels, Marx, Lane & Mittendorf

120 Albany Street Plaza, 6th Floor

New Brunswick, NJ 08901

William H. Murphy, Jr.

Andrew J. Toland

The Murphy Firm

1 South Street, 23rd Floor

Baltimore, MD 21202

Ernest A. Young

203 Strolling Way

Durham, NC 27707

Jeremiah J. Morgan, Sr.

Joel A. Poole

Office of Attorney General of Missouri

3

P.O. Box 899

Jefferson City, MO 65101

Gita F. Rothschild

McCarter & English

100 Mulberry Street

Four Gateway Center, 14th Floor

Newark, NJ 07102-06552

Attorneys for Appellants

Alisa B. Klein (argued)

Mark B. Stern

United States Department of Justice, Civil Division

950 Pennsylvania Avenue, N.W.

Washington, DC 20530

David E. Dauenheimer

Office of the United States Attorney

970 Broad Street, Room 700

Newark, NJ 07102

Attorneys for Appellees

______________

OPINION OF THE COURT

______________

GREENBERG, Circuit Judge.

I. INTRODUCTION

4

In this action seven plaintiff States (“the States”) sought

to recover proceeds of matured but unredeemed United States

savings bonds from the United States Treasury (“the

Treasury”).1 In addition to the Treasury, the States also named

other United States Government entities and officials in their

official capacities as defendants and we refer to all the

defendants collectively as the “Government” or “Federal

Government.” The States asserted that the Treasury has

possession of approximately $16 billion worth of matured but

unredeemed savings bonds, of which persons whose last known

addresses were within the plaintiff States own $1.6 billion. The

States contended that their respective unclaimed property acts

obliged the Treasury to account for and deliver the proceeds of

these bonds to the States for reunification with their owners.

The Government moved to dismiss the case and the District

Court granted its motion as it concluded that the Government‟s

sovereign immunity and intergovernmental immunity barred the

action and that federal law and regulations preempted the States‟

statutory authority to obtain the proceeds of the savings bonds.

Six of the States appealed. Though we do not agree with the

District Court with respect to the application of sovereign

immunity, we do agree with its other conclusions and therefore

we will affirm.

II. FACTS AND PROCEDURAL HISTORY

A. The United States Savings Bond Program

1

Throughout this opinion we refer to the plaintiffs in this action

as “States” but to the 50 states as a whole as “states.”

5

Pursuant to its constitutional power “to borrow money on

the credit of the United States,” Free v. Bland, 369 U.S. 663,

666-67, 82 S.Ct. 1089, 1092 (1962) (citing U.S. Const. art. I, §

8, cl. 2), Congress delegated authority to the Secretary of the

Treasury (“the Secretary”), with the approval of the President, to

issue savings bonds “for expenditures authorized by law.” 31

U.S.C. § 3105(a).2 The Government sold savings bonds,

originally called liberty bonds, “[t]o obtain money for the United

States Government . . . [and] to encourage thrift and savings by

small investors.” Moore‟s Adm‟r v. Marshall, 196 S.W.2d 369,

372 (Ky. 1946). A United States savings bond is a contract

between the United States and the bond‟s owner. Rotman v.

United States, 31 Fed. Cl. 724, 725 (Fed. Cl. 1994). The

Secretary may establish the terms and conditions that govern the

savings bond program, a power that includes the authority to fix

the bonds‟ investment yield, to promulgate terms and conditions

providing that bondholders may keep the bonds beyond the date

of their maturity, and to place conditions on transfer and

redemption of the bonds and their sales prices. 31 U.S.C. §

3105(b)-(c). Most of the bonds that are the subject matter of

this case are Series E bonds issued between 1941 and 1980. The

Government sold the Series E bonds at a discount and paid

interest on them only at maturity; according to the States, after

maturity interest stopped accruing on the bonds.3 The last Series

2

This statute previously was codified at 31 U.S.C. § 757c(a).

See Free, 369 U.S. at 666-67, 82 S.Ct. at 1092.

3

The plaintiff States‟ representation that interest ceased to

accrue on Series E bonds after maturity may be somewhat

misleading but we will accept it in adjudicating this appeal. The

reason we think that this representation may be misleading is

6

E bonds matured in 2011.

Pursuant to his statutory authority, the Secretary has

promulgated various regulations governing the savings bond

program that the Supreme Court has held preempt conflicting

state law. See United States v. Chandler, 410 U.S. 257, 262, 93

S.Ct. 880, 883 (1973) (citing Free 369 U.S. at 668, 82 S.Ct. at

1093) (“[A]bsent fraud, the regulations creating a right of

survivorship in United States Savings Bonds . . . pre-empt[] any

inconsistent state property law.”). In contrast to many other

types of securities, “[s]avings bonds are not transferable and are

that 31 U.S.C. § 3105(b)(2)(A) indicates that the Secretary may

prescribe regulations that provide for savings bonds to continue

to earn interest during “a period beyond maturity.” Moreover,

31 C.F.R. § 315.30 provides that “[a]ll Series E bonds and

savings notes have been extended and continue to earn interest

until their final maturity dates, unless redeemed earlier.” The

regulations allow for such an “extended maturity period,” a

“period after the original maturity date during which the owner

may retain a bond and continue to earn interest on the maturity

value” of the bond. 31 C.F.R. § 315.2(c). We see little

difference between a bond paying interest accrued beyond

maturity and extending a bond‟s maturity date for a period

during which the bond earns interest. Indeed, it appears that

when this action was commenced in 2004 some Series E bonds

had passed their original maturity dates but were continuing to

earn interest as their maturity dates had been extended. See 31

C.F.R. § 316.8. Obviously, if interest runs after the bonds‟

original maturity dates, the States‟ case, if affected at all, only

could be weaker.

7

payable only to the owners named on the bonds, except as

specifically provided in [the federal] regulations and then only

in the manner and to the extent so provided.” 31 C.F.R. §§

315.15, 353.15.

There are limited exceptions to the general rule

precluding the transfer of savings bonds, including cases in

which a third party attains an interest in a bond through valid

judicial proceedings. 31 C.F.R. §§ 315.20(b), 353.20(b).4 As

4

31 C.F.R. § 315.39(a) and (b) provide for payment of series A,

B, C, D, E, F, G, H, J, and K bonds, and 31 C.F.R. § 353.39(a)

provides for payment of series EE bonds. The regulations

contain identical language:

The Department of the Treasury will recognize a

claim against an owner of a savings bond and

conflicting claims of ownership of, or interest in,

a bond between coowners or between the

registered owner and the beneficiary, if

established by valid, judicial proceedings, but

only as specifically provided in this Subpart.

Section 315.23 [or section 353.23] specifies the

evidence required to establish the validity of the

judicial proceedings.

31 C.F.R. §§ 315.20(b), 353.20(b). 31 C.F.R. § 315.23 requires

“that certified copies of the final judgment, decree, or court

order, and of any necessary supplementary proceedings,” be

submitted to establish the validity of judicial proceedings, and

also makes provisions for payment to certain bankruptcy trustees

8

will be seen below, it is highly significant that the regulations do

not impose any time limits for bond owners to redeem the

savings bonds, at least with respect to the bonds that are the

subject matter of this case. Consequently, their owners can

present them for payment to an authorized agent of the United

States at any time. See 31 U.S.C. § 3105(b)(2)(A) (authorizing

the Secretary to promulgate regulations providing that “owners

of savings bonds may keep the bonds after maturity”). Though

it might be thought unlikely that an owner would present a long-

matured savings bond for redemption, the record shows that the

Treasury as of 1989 was receiving claims of $7,000 to $10,000 a

day for payment on savings bonds that had matured many years

earlier. App. at 169.5 As relevant here, a registered owner of a

bond is presumed conclusively to be its owner absent errors in

registration. 31 C.F.R. §§ 315.5, 353.5.

The redemption process is not complex, as the owner of a

bond seeking to redeem it need only present the bond to an

authorized payment agent for redemption, 31 C.F.R. §§

315.39(a), 353.39(a), establish his identity, sign the request for

payment, and provide his address. The agent then may pay the

bond with a check drawn against funds of the United States.

and receivers.

5

We note that the States in their complaint assert that “[n]ot

surprisingly, Treasury has not been approached by owners in

significant numbers seeking long-matured savings bonds.” We

cannot reconcile this allegation with the evidence in the record

to which we have referred.

9

See 31 C.F.R. §§ 315.38, 353.38. Payment agents, ordinarily

banks, are financial institutions qualified under Treasury

regulations to pay sums due on savings bonds. See 31 C.F.R. §§

315.2(j), 353.2(f). The relevant statutes and regulations do not

contain provisions for locating owners of matured but

unredeemed bonds. In 2000, the Treasury, however, created a

“Treasury Hunt” Internet website, which provides information

on matured but unredeemed Series E bonds issued after 1974 in

a database searchable by Social Security Number.6

B. The States‟ Unclaimed Property Acts

All of the plaintiff States have enacted unclaimed

property acts, most of which they have based on some version of

the Uniform Unclaimed Property Act, which is rooted in the

common-law doctrine of escheat. See Conn. Mut. Life Ins. Co.

v. Moore, 333 U.S. 541, 547, 68 S.Ct. 682, 686 (1948) (“The

right of appropriation by the state of abandoned property has

existed for centuries in the common law.”). The plaintiff-

appellant States of New Jersey, Kentucky, Montana, Oklahoma,

Missouri and Pennsylvania claim that the unclaimed bonds are

property of their residents within the meaning of their respective

unclaimed property acts. See New Jersey Uniform Unclaimed

Property Act, N.J. Stat. Ann. § 46:30B-1 et seq. (West 2003);

Kentucky statutes regarding descent, wills and the

administration of decedents‟ estates, Ky. Rev. Stat. Ann. §

6

The website is available at Treasury Hunt,

http://www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.ht

m.

10

393.010 et seq. (West 2012); Montana Uniform Unclaimed

Property Act, Mont. Code Ann. § 70-9-801 et seq. (2012);

Oklahoma Uniform Unclaimed Property Act, Okla. Stat. tit. 60,

§ 651 et seq. (2012); Missouri Uniform Disposition of

Unclaimed Property Act, Mo. Ann. Stat. §§ 447.500 et seq.

(West 2012); Pennsylvania statutes regarding disposition of

abandoned and unclaimed Property, 72 Pa. Stat. Ann. § 1301.9

et seq. (West 1995). The States‟ unclaimed property acts require

that, after time periods that differ from State to State, holders of

unclaimed property turn the property over to the State for

safekeeping though the original property owner retains the right

to recover the proceeds of the property. See, e.g., N.J. Stat.

Ann. § 46:30B-7 (“Except as otherwise provided by this chapter,

all property . . . that is held . . . and has remained unclaimed by

the owner for more than three years after it became payable or

distributable is presumed abandoned.”).

The unclaimed property acts at issue in this case are

“custody” escheat statutes rather than “title” escheat statutes in

that under them the State does not take title to abandoned

property, but, instead, obtains its custody and beneficial use

pending identification of the property owner.7 Thus “[t]he

7

According to the plaintiff States, “statutes that transfer title

[are] an obsolescent form of escheat no longer in force in any

state.” Appellants‟ br. at 3. We have some question as to

whether this statement may be overbroad as it is difficult to

understand how there can be an escheat of real or tangible

personal property without a transfer of title, inasmuch as a state

to dispose of such property ordinarily would need to sell it to a

purchaser who would want title to the property. We, however,

11

presumption of abandonment raised by the statute is rebuttable

at any time.” John V. Orth, Escheat: Is the State the Last Heir?,

13 Green Bag 2d 73, 82 (2009). Although “[t]he practical

reason behind the states‟ action is to prevent unclaimed personal

property being eventually appropriated by the present holder,”

the state being “better able to provide long-term . . . custody” of

the property, “it is sometimes admitted that the statutes are also

a means of raising revenue.” Id. at 78 (citing, e.g., Louisiana

Health Serv. & Indem. Co. v. McNamara, 561 So. 2d 712, 716

(La. 1990)) (“Although one purpose of such acts is to protect the

missing owners, the primary rationale behind this legislation is

its use as a revenue raising device.”); see, e.g., Clymer v.

Summit Bancorp., 792 A.2d 396, 400 (N.J. 2002) (noting that

75% of the funds that New Jersey collects under its Uniform

Unclaimed Property Act are transferred to the General State

Fund, and the State “has full use” of the money “until the

rightful owner comes forward to claim it”). Accordingly,

consider that an inquiry into the accuracy of the States‟

representation would be beyond the scope of this opinion and so

do not make it. We recently described the New Jersey

Unclaimed Property Act in American Express Travel Related

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

in which we upheld a New Jersey statute that reduced the period

after which travelers checks are presumed abandoned from 15

years to three years. Id. at 364. We indicated that after a

transfer of abandoned property to the State of New Jersey it

holds the property for the benefit of its owner in perpetuity. Id.

at 365. Though American Express is an informative case with

respect to the New Jersey act it does not address issues similar to

those here.

12

though the States contend that their intent in bringing this action

has been benevolent, the objective reality obviously is

otherwise. The truth is that this case is a dispute between the

States and the United States as to whether a State or the United

States will obtain the benefit of having custody of and

availability for use of the proceeds of the matured but

unredeemed bonds even if it does not obtain title to the proceeds

of the bonds or title to the bonds themselves.

The unclaimed property acts contain specific provisions

for presuming property to be “abandoned” when the United

States either holds the property or is obligated to make payment

for it to its owner. See N.J. Stat. Ann. § 46:30B-41.2

(presuming property to be abandoned if unclaimed for more than

one year after it became payable by “the executive, legislative,

or judicial branch of the United States Government”); Okla.

Stat. tit. 60, § 657 (property held by a state or other government

presumed abandoned after being unclaimed for one year); Ky.

Rev. Stat. Ann. § 393.068(1) (property held by Federal

Government presumed abandoned if it remains unclaimed for

more than five years); Mo. Rev. Stat. § 447.532(2) (property

held by any agency or department of the United States deemed

abandoned if unclaimed for more than three years); Mont. Code

Ann. § 70-9-803(1)(k) (property held by a government or

governmental subdivision unclaimed one year after it becomes

distributable presumed abandoned); 72 Pa. Stat. Ann. § 1301.9

(any property held for its owner by any “instrumentality of the

United States” unclaimed for five years from the date it first

became demandable or distributable presumed abandoned).

C. The States‟ Efforts to Claim Proceeds of Matured

13

but Unredeemed Savings Bonds

Over the last several decades, various states have sought

to recover the proceeds from matured but unredeemed savings

bonds. On February 27, 1952, the Treasury issued a bulletin

reprinting a letter dated January 28, 1952, from the Secretary to

the Comptroller of the State of New York in response to the

Comptroller‟s inquiry regarding “the prospective right of the

state of New York . . . to receive payment of certain United

States securities of which it is not the registered owner.” App.

at 134. The Secretary explained that the Federal Government

would pay the proceeds of savings bonds to the State of New

York if it actually obtained title to the bonds, but would not do

so where the State merely obtained a right to the custody of the

proceeds. The Secretary made this distinction because he

believed that the effect of applying a custody-based escheat

statute to savings bonds would

either provide the obligor with a discharge, valid

within and without New York, or fail to provide

such discharge. If the discharge is provided in the

case of the ordinary debtor, then the other party to

the contract has substituted for his right to pursue

his obligor in any jurisdiction, a right merely to

prosecute a claim against the State Comptroller of

New York; if an effective discharge is not

provided, the obligor is subject to suit outside the

State of New York and the necessity of making

double payment — in exchange he has a right to

claim relief from the Comptroller under . . . [New

York‟s] Abandoned Property Law.

14

Id. at 135. The Secretary concluded that “[n]either of these

possible alterations of [the] contract [created by the savings

bond] is contemplated in the agreement by which the United

States pledges its faith on its securities,” because “the rights and

duties of the United States are governed by federal rather than

local law.” Id. at 135-36.

To the best of our knowledge the Treasury last articulated

its position with respect to the application of state escheat laws

on savings bonds or their proceeds in 2000 on its Internet

website, “EE/E Savings Bonds FAQs” (frequently asked

questions). In particular, the Treasury posted an answer to the

question: “In a state that has a permanent escheatment law, can

the state claim the money represented by securities that the state

has in its possession. For example, can a state cash savings

bonds that it‟s gotten from abandoned safe deposit boxes?” The

plaintiff States refer to the Treasury‟s answer to this question —

which is consistent with the bulletin that the Treasury issued

almost one half of a century earlier and that we have quoted —

as the “Escheat Decision.” The Escheat Decision answered that:

The Department of the Treasury will

recognize claims by States for payment of United

States securities where the States have succeeded

to the title and ownership of the securities

pursuant to valid escheat proceedings. The

Department, however, does not recognize claims

for payment by a State acting merely as custodian

of unclaimed or abandoned securities and not as

successor in title and ownership of the securities.

15

In other words, the Treasury recognizes

escheat statutes that provide that a State has

succeeded to the legal ownership of securities

because in such case payment of the securities

results in full discharge of the Treasury‟s

obligation and this discharge is valid in all

jurisdictions.

But, payment of securities to a State

claiming only as a custodian results in the

substitution of one obligor, the Department of the

Treasury, for another, the State. Not only is there

serious question whether there is authority for a

State to effect such a substitution, but also there

seems to be no basis for believing that payment to

a State custodian would discharge Treasury of its

obligation. Even if the discharge were claimed

effective in the State to which the payment is

made, it is believed that the Treasury‟s obligation

and liability would still remain in force in all

other jurisdictions.8

In the District Court, the parties stipulated that the Escheat

Decision “is defendants‟ interpretation of federal savings bond

8

The Escheat Decision took this statement nearly verbatim from

a 1983 letter from the Treasury to the State of Kentucky. See

app. at 139. The Escheat Decision is available at

http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res

_e_bonds_eefaq.htm.

16

regulations . . . and reflects defendants‟ understanding of

existing laws” and that “the Department has no intention of

deviating from the statement.” Id. at 142. The Treasury,

however, has not adopted the Escheat Decision as a rule in

accordance with the Administrative Procedure Act (“APA”), 5

U.S.C. § 551 et seq.

D. Procedural History

The Treasurer of the State of New Jersey filed this action

on September 8, 2004, against the Treasury, the Secretary, the

Bureau of Public Debt,9 and the Commissioner of the Bureau of

Public Debt under the New Jersey Uniform Unclaimed Property

Act. The Treasurer of the State of North Carolina joined the

action shortly thereafter.10 The plaintiff States sought an order

directing the Government to pay the proceeds of matured but

unredeemed savings bonds to the plaintiff States according to

the last known addresses of their owners and for an accounting

of the amounts owed pursuant to their unclaimed property acts.

It was and remains clear that if the unclaimed property acts are

applied as written, by their terms they would entitle the States to

substantially the relief that they seek in this action.

Nevertheless, on February 5, 2005, the Government moved to

dismiss or transfer the action to the United States Court of

Federal Claims as it contended that only that court had subject

9

The Bureau of Public Debt is the division of the Treasury

responsible for administrating the savings bond program.

10

North Carolina has not joined in this appeal. See app. at 1

(notice of appeal).

17

matter jurisdiction. In making this motion the Government

contended that the only applicable waiver of sovereign

immunity that would permit this action to proceed was within

the Tucker Act, which grants the Court of Federal Claims

jurisdiction over “any claim against the United States founded

either upon the Constitution, or any Act of Congress or any

regulation of an executive department, or upon any express or

implied contract with the United States, or for liquidated or

unliquidated damages in cases not sounding in tort.” 28 U.S.C.

§ 1491(a)(1). The District Court agreed with the Government

with respect to the court that should entertain the action as it

transferred the case to the Court of Federal Claims in July of

2005 pursuant to 28 U.S.C. § 1631 as it held that the States‟

claims were “based on contracts” — the savings bonds. The

States appealed from the order for transfer to the United States

Court of Appeals for the Federal Circuit, the court with

jurisdiction to entertain appeals from the Court of Federal

Claims as the transferee court, rather than to this Court. See

Carteret Sav. Bank v. Shushan, 919 F.2d 225, 228 (3d Cir.

1990).

On June 15, 2006, the Court of Appeals for the Federal

Circuit held that the Court of Federal Claims lacked jurisdiction

over this case and the court of appeals accordingly remanded the

case to the District Court for further proceedings. See

McCormac v. U.S. Dep‟t of Treasury, 185 F. App‟x 954 (Fed.

Cir. 2006). In briefs filed in the court of appeals, the United

States acknowledged that it had erred in requesting the transfer

and conceded that the case was not within the limited

jurisdiction of the Court of Federal Claims. The court of

appeals wrote that the Court of Federal Claims did not have

18

jurisdiction because the States “do not assert a contractual

relationship . . . that provides a substantive right to money

damages.” Id. at 955. Accordingly, “although the States [were]

asserting a claim that involves a contract, they [were] not

asserting a contract claim for money damages against the

government.” Id. at 956. Moreover “[t]he States [were] not

named parties to the bond contract, [and thus there was not]

privity between the States and the Government.” Id. The court

of appeals noted that the States, by operation of their unclaimed

property acts, sought to act only as conservators, not as parties to

any contracts. Id.

After the return of the case to the District Court the

plaintiff States amended their complaint multiple times to add as

plaintiffs officials of the States of Montana, Kentucky,

Oklahoma, Missouri, and Pennsylvania, and to add claims that

the Escheat Decision violated the Tenth Amendment11 and the

notice and comment provisions of the APA contained in 5

U.S.C. § 553.12 In November of 2008, the Government filed a

11

The Tenth Amendment provides that “[t]he powers not

delegated to the United States by the Constitution, nor

prohibited by it to the States, are reserved to the States

respectively, or to the people.”

12

5 U.S.C. § 553 provides in relevant part:

19

motion to dismiss the fourth amended complaint, again

contending that the District Court did not have jurisdiction but

this time predicating that contention on an argument that the

(b) General notice of proposed rule making shall

be published in the Federal Register, unless

persons subject thereto are named and either

personally served or otherwise have actual notice

thereof in accordance with law. . . .

Except when notice or hearing is required by

statute, this subsection does not apply—

(A) to interpretative rules, general

statements of policy, or rules of agency

organization, procedure, or practice; or

(B) when the agency for good cause finds

(and incorporates the finding and a brief statement

of reasons therefor in the rules issued) that

notice and public procedure thereon are

impracticable, unnecessary, or contrary to

the public interest.

(c) After notice required by this section, the

agency shall give interested persons an

opportunity to participate in the rule making

through submission of written data, views, or

arguments with or without opportunity for oral

presentation. . . .

20

United States had not waived sovereign immunity and thus the

Federal Government could not be made a defendant in this

action. The Government, however, did not contend that even if

it did not enjoy sovereign immunity in this case the Court still

would not have statutory jurisdiction under 28 U.S.C. § 1331 or

any other statute. In the alternative, the Government sought

summary judgment on the grounds of intergovernmental

immunity and federal preemption of the States‟ unclaimed

property acts.

After oral argument, the District Court denied the

Government‟s motion without prejudice, but granted it leave to

file a motion to dismiss pursuant to Federal Rule of Civil

Procedure 12(b). In July of 2009, the Government filed the

ultimately successful motion to dismiss and obtained the order

that the States challenge on this appeal.13 The Government

argued that dismissal for lack of jurisdiction was warranted

under Rule 12(b)(1) because the States had not established that

the Government had waived sovereign immunity. Alternatively,

the Government argued that dismissal was appropriate under

Rule 12(b)(6) because federal law preempted the States‟

13

The Government addressed its motion to dismiss to the fourth

amended complaint but after oral argument on the motion the

States sought leave to amend the complaint to add the Treasurer

of Pennsylvania as a plaintiff. The Government consented to the

amendment, thus generating a fifth amended complaint.

Because the fifth amended complaint was substantially the same

as the fourth amended complaint, the District Court‟s opinion

referenced the fourth amended complaint.

21

unclaimed property acts to the extent that the States sought to

apply those acts in this case. The Government also contended

that the doctrine of intergovernmental immunity barred the

States‟ case and the case lacked merit insofar as the States based

their claims on the Tenth Amendment and violations of the

APA‟s notice and comment provisions.

The District Court began its analysis with the

Government‟s arguments on the merits under Rule 12(b)(6) even

though “Article III [of the Constitution] generally requires a

federal court to satisfy itself of its jurisdiction over the subject

matter before it considers the merits of a case.”14 Ruhrgas AG

v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 1569

(1999). The District Court first addressed the issue of

intergovernmental immunity, and concluded that the imposition

of the States‟ escheat acts impermissibly would regulate the

Federal Government by imposing potential civil and criminal

penalties on the Government for failure to comply with the acts‟

14

In Steel Co. v. Citizens for a Better Environment, 523 U.S.

83, 118 S.Ct. 1003 (1998), the Supreme Court disapproved of

the practice that some courts of appeals, including this Court,

had adopted of assuming “hypothetical jurisdiction” when

facing difficult jurisdictional questions in situations in which the

party entitled to prevail on the merits would be the same party

prevailing if the court did not have jurisdiction. Id. at 93-94,

118 S.Ct. at 1012. Under the rule of Steel Co., when a court

lacks jurisdiction its “only function . . . is that of announcing the

fact and dismissing the cause” as any further discussion would

amount to an “advisory opinion.” Id. at 94, 101, 118 S.Ct. at

1012, 1016.

22

record-keeping and reporting requirements, and would interfere

with Congress‟s constitutional power, U.S. Const. art. IV, § 3,

cl. 2, to “dispose of and make all needful Rules and Regulations

respecting the . . . Property belonging to the United States.”

App. at 28-30. The Court also observed that implementing the

laws “could result in multiple obligations on the same bond by

the United States,” id. at 30, because the respective States would

be substituted as obligors on the bonds, while the Federal

Government would remain contractually and statutorily

obligated on the bonds to the original bondholder or his legal

successors.

Next, addressing preemption, the District Court held that

the States‟ proposal for taking custody of the bonds pursuant to

their escheat laws impermissibly would interfere with the

contract between the bondholders and the United States, thus

conflicting “with the narrow regulations governing redemption

of the bonds.” Id. at 30-31. The Court also rejected the States‟

Tenth Amendment reserved power claim that they had the right

to enforce their unclaimed property acts to gain custody of the

proceeds of the savings bonds. In this regard, the Court held

because the States‟ acts had been preempted, Congress had not

infringed the States‟ reserved powers by exercising powers not

delegated to the United States. Finally, the Court held that the

States‟ notice and comment claim failed because the Escheat

Decision concerns government contracts and thus the Decision

explicitly was exempt from the requirements of 5 U.S.C. §

23

553.15 See 5 U.S.C. § 553(a) (stating that “[t]his section applies

. . . except to the extent there is involved . . . a matter relating to

agency . . . contracts”). Alternatively, with respect to the States‟

notice and comment claim the Court held that the Escheat

Decision was an “interpretive rule” or “general statement[] of

policy” not subject to the statute‟s requirements. See 5 U.S.C. §

553(b)(A) (stating with exceptions not relevant here that the

APA‟s notice provision does not apply to “interpretive rules,

general statements of policy, or rules of agency organization,

procedure, or practice”).

15

On this appeal, the States essentially do not challenge the

District Court‟s ruling rejecting their 5 U.S.C. § 553 notice and

comment argument, and therefore they have waived their right

to contend that the Court erred in making that ruling. See FDIC

v. Deglau, 207 F.3d 153, 169 (3d Cir. 2000). They indicate,

however, in their brief that they contingently “do assert a claim

under the APA concerning Treasury‟s failure to promulgate its

Escheat Decision through notice and comment rulemaking or to

publish it in the Federal Register . . . but [do so] simply to

forestall any assertion by defendants that the Escheat Decision is

agency action that preempts the States‟ cause of action under

their escheat statutes.” Appellants‟ br. at 17 n.5. The

Government, however, does not make that contention as it

argues that federal constitutional provisions, laws, and duly

adopted regulations preempt the States‟ unclaimed property acts.

Obviously, the Escheat Decision has no preemptive effect as it

merely is the Treasury‟s opinion as to the effect of those primary

sources of law.

24

When it addressed the sovereign immunity and

jurisdictional issues, the District Court concluded that the

Escheat Decision and the Government‟s refusal to turn over the

unclaimed bonds did not constitute “final agency action” subject

to judicial review. See 5 U.S.C. § 704 (“Agency action made

reviewable by statute and final agency action for which there is

no other adequate remedy in a court are subject to judicial

review. A preliminary, procedural, or intermediate agency

action or ruling not directly reviewable is subject to review on

the review of the final agency action.”).16 On February 5, 2010,

the Court entered an order dismissing this action. This appeal

followed.

III. JURISDICTION AND STANDARD OF REVIEW

The question of whether the District Court had

jurisdiction is at issue in this appeal. Accordingly, we will

address its jurisdiction in our discussion below. We have

appellate jurisdiction under 28 U.S.C. § 1291.

Our review of the dismissal in this case involving a facial

challenge to the District Court‟s jurisdiction is plenary. In re

16

The District Court did not specify whether it based its

decision to dismiss the case on the merits pursuant to Rule

12(b)(6) or on its lack of jurisdiction under Rule 12(b)(1). As

we discuss below, regardless of the District Court‟s intent we

affirm its dismissal on the basis of Rule 12(b)(6) as we are

satisfied that it had jurisdiction.

25

Kaiser Grp. Int‟l Inc., 399 F.3d 558, 561 (3d Cir. 2005). Thus,

in our jurisdictional determination we “accept all [the] well-

pleaded allegations in the complaint as true and view them in the

light most favorable to the [States].” Id.

We exercise plenary review of the District Court‟s order

granting the Government‟s motion to dismiss under Rule

12(b)(6) for failure to state a claim. See Allen ex rel. Martin v.

LaSalle Bank, N.A., 629 F.3d 364, 367 (3d Cir. 2011).

Similarly, as in our jurisdictional review, in reviewing the

dismissal under Rule 12(b)(6), “we accept all factual allegations

as true [and] construe the complaint in the light most favorable

to the [States].” Warren Gen. Hosp. v. Amgen Inc., 643 F.3d

77, 84 (3d Cir. 2011) (quoting Pinker v. Roche Holdings, Ltd.,

292 F.3d 361, 374 n.7 (3d Cir. 2002)). A court may grant a

motion to dismiss under Rule 12(b)(6) “only if, accepting all

well-pleaded allegations in the complaint as true and viewing

them in the light most favorable to the plaintiff, [it] finds that [a]

plaintiff‟s claims lack facial plausibility.” Id. (citing Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 1964-

65 (2007)).

IV. DISCUSSION

A. Subject Matter Jurisdiction

Without a waiver of sovereign immunity, a court is

without subject matter jurisdiction over claims against federal

agencies or officials in their official capacities. United States v.

26

Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351 (1980) (“The

United States, as sovereign, is immune from suit save as it

consents to be sued.”) (alteration and citation omitted). A

waiver of sovereign immunity must be express and

unambiguous to confer subject matter jurisdiction on a court.

United States v. Bein, 214 F.3d 408, 412 (3d Cir. 2000). As the

Supreme Court said in United States v. United States Fidelity &

Guaranty Co., 309 U.S. 506, 514, 60 S.Ct. 653, 657 (1940),

“[c]onsent alone gives jurisdiction to adjudge against a

sovereign. Absent that consent, the attempted exercise of

judicial power is void.” Moreover, as the Court also has

explained “a waiver of sovereign immunity must be strictly

construed in favor of the sovereign,” Orff v. United States, 545

U.S. 596, 601-02, 125 S.Ct. 2606, 2610 (2005), and “[t]he terms

of [the] waiver define the extent of the court‟s jurisdiction.”

United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224,

2229 (1986) (citation omitted).

The States initially argue that the proposed application of

their respective unclaimed property acts to the savings bonds or

their proceeds does not implicate sovereign immunity because it

does not create a context in which the Federal Defendants might

be able to assert their sovereign immunity. The States predicate

this argument on the circumstance that the United States does

not assert an ownership interest in the proceeds of the unclaimed

bonds or in the bonds themselves. We, however, conclude that

this argument lacks merit. In rejecting the States‟ argument we

note that we have observed, rather unsurprisingly, that

“sovereign immunity is implicated” when “a plaintiff [is] suing

the United States.” Scheafnocker v. Comm‟r, 642 F.3d 428, 433

n.8 (3d Cir. 2011) (citing Becton Dickinson and Co. v.

27

Wolckenhauer, 215 F.3d 340, 345 (3d Cir. 2000)); see S. Delta

Water Agency v. U.S. Dep‟t of Interior, 767 F.2d 531, 536 (9th

Cir. 1985) (noting that “[f]ederal agencies and instrumentalities,

as well as federal employees acting in their official capacities

within their authority are [also] immune from suit” absent a

congressional waiver of sovereign immunity) (citation omitted).

The States next assert that even if sovereign immunity is

implicated in this case, the APA provides for its waiver. We

agree with the States‟ APA argument and thus hold that the

District Court erred to the extent it relied on sovereign immunity

to dismiss the case under Rule 12(b)(1). In considering

sovereign immunity we initially observe that the APA “sets forth

the procedures by which federal agencies are accountable to the

public and their actions subject to review by the courts.”

Franklin v. Massachusetts, 505 U.S. 788, 796, 112 S.Ct. 2767,

2773 (1992). Thus, the APA in 5 U.S.C. § 702 provides in

relevant part:

A person suffering legal wrong because of agency

action, or adversely affected or aggrieved by

agency action within the meaning of a relevant

statute, is entitled to judicial review thereof. An

action in a court of the United States seeking

relief other than money damages and stating a

claim that an agency or an officer or employee

thereof acted or failed to act in an official capacity

or under color of legal authority shall not be

dismissed nor relief therein be denied on the

ground that it is against the United States or that

the United States is an indispensable party.

28

The second sentence of the above portion of section 702 had its

origin in the 1976 amendments to the APA by which Congress

sought to “remove three technical barriers to the consideration

on the merits of citizens‟ complaints against the Federal

Government, its agencies, or employees.” H.R. Rep. No. 94-

1656, at 3 (1976), reprinted in 1976 U.S.C.C.A.N. 6121, 6123.

A key “technical barrier” that Congress removed was “the

defense of sovereign immunity as a bar to judicial review of

Federal administrative action otherwise subject to judicial

review.” 5 U.S.C. § 702, Historical and Statutory Notes. The

Supreme Court subsequently clarified that “it is undisputed that

the 1976 amendment to § 702 was intended to broaden the

avenues for judicial review of agency action by eliminating the

defense of sovereign immunity in cases covered by the

amendment.” Bowen v. Massachusetts, 487 U.S. 879, 891-92,

108 S.Ct. 2722, 2731 (1988). Thus, section 702 “provides both

a waiver of sovereign immunity and a right of judicial review.”

NVE, Inc. v. Dep‟t of Health and Human Servs., 436 F.3d 182,

189 (3d Cir. 2006).

The States now contend that the District Court erred in

holding that the scope of the waiver of sovereign immunity

under section 702 is limited to “final agency action.”17 The

17

The States took the position before the District Court that if a

waiver of sovereign immunity was necessary, the Escheat

Decision would have to have been “final agency action” for it to

be reviewable under the APA. That contention is inconsistent

with their position on this appeal. The States complain that the

District Court “severely limited discovery to the issues of

ripeness and whether Treasury‟s policy on escheat constituted

29

APA in 5 U.S.C. § 704 sets forth limitations on the type of

agency actions reviewable under the APA, as it provides that

“[a]gency action made reviewable by statute and final agency

action for which there is no other adequate remedy in a court are

subject to judicial review. A preliminary, procedural, or

intermediate agency action or ruling not directly reviewable is

subject to review on the review of the final agency action.” See

5 U.S.C. § 551(13) (“„agency action‟ includes the whole or a

part of an agency rule, order, license, sanction, relief, or the

equivalent or denial thereof, or failure to act”). The District

Court concluded that because the Escheat Decision was not

reviewable by statute and was not a “final agency action,”

section 702 did not waive sovereign immunity in this case.

But the District Court‟s conclusion was at odds with

opinions of several courts of appeals that have clarified that the

waiver of sovereign immunity in section 702 extends to all non-

monetary claims against federal agencies and their officers,

regardless of whether or not the cases seek review of “agency

action” or “final agency action” as set forth in section 704. For

example, in Trudeau v. Federal Trade Commission, 456 F.3d

178, 187 (D.C. Cir. 2006), the United States Court of Appeals

for the District of Columbia Circuit held that section 702‟s

final agency action,” Appellants‟ reply br. at 2, and assert that

broader discovery would have been useful on the issues of

“whether escheat of unclaimed bonds would interfere with the

administration of the federal bond program, or subject Treasury

to double liability, or confuse bondholders.” Id. at 2-3. They,

however, do not ask us to reverse because of the Court‟s

limitation on discovery.

30

waiver of sovereign immunity “is not limited to APA cases” and

applies “regardless of whether the elements of an APA cause of

action are satisfied.” In Trudeau, the Federal Trade Commission

(“FTC”) issued what the plaintiff alleged was a false and

misleading press release about his business activities. The

plaintiff asserted that the FTC violated his rights under the First

Amendment and he was entitled to relief under 5 U.S.C. § 706,

which provides that a reviewing court may set aside agency

action found to be “in excess of statutory jurisdiction, authority,

or limitations.” Id. at 188. The district court dismissed the

complaint for lack of subject matter jurisdiction because the

press release was not “final agency action” under section 704.

Id. at 182. The court of appeals in reversing held that even

though the plaintiff‟s claims failed on the merits that

circumstance made no difference for jurisdictional purposes

because regardless of whether the FTC press release constituted

a “final agency action” the District Court had jurisdiction. In

reaching its conclusion, the court of appeals cited the Senate

Report accompanying the 1976 APA amendments, which

indicated that section 702‟s partial waiver of sovereign

immunity extended to nonstatutory review18 of federal

administrative action, and thus included the plaintiff‟s claims

even if he had not made them under the APA. Id. at 187 (citing

S. Rep. No. 94-996, at 8 (1976) reprinted in 1976 U.S.C.C.A.N.

6121, 6129).

In its opinion the Trudeau court dealt with the first

18

Such lawsuits “are called „nonstatutory‟ because they are not

brought under the statutes that specially provide for review of

agency action.” Jaffee, 592 F.2d at 719 n.12.

31

sentence of section 702 which reads, “[a] person suffering legal

wrong because of agency action . . . is entitled to judicial review

thereof,” but then emphasized that the statute‟s waiver of

sovereign immunity was in the second sentence of section 702

which reads:

An action in a court of the United States seeking

relief other than money damages and stating a

claim that an agency or an officer or employee

thereof acted or failed to act in an official capacity

or under color of legal authority shall not be

dismissed nor relief therein be denied on the

ground that it is against the United States or that

the United States is an indispensable party.

Id. at 185. The court of appeals emphasized that while

the second sentence refers to a claim against an

“agency,” and thus carries that limitation to the scope of

the waiver of sovereign immunity, the sentence does not

use the terms “agency action” or “final agency action.”

Furthermore, the court of appeals observed that the

House and Senate Reports accompanying the 1976

amendments reflected Congress‟s intent to waive

immunity for “any” and ”all” actions for non-monetary

relief against an agency. Id. at 187 (citing H.R. Rep. No.

94-1656, at 3, S. Rep. No. 94-996, at 8, reprinted in 1976

U.S.C.C.A.N. at 6129). In sum, the court of appeals held

that section 704‟s “final agency action” requirement only

limited the viability of claims made under the APA, and

because section 702 operated as a waiver for all non-

monetary claims, including those claims not made under

32

the APA, section 704 did not limit section 702‟s waiver

of sovereign immunity.

The Court of Appeals for the Ninth Circuit recently

agreed with Trudeau that section 702‟s waiver of sovereign

immunity is not limited to actions brought under the APA. In

Veterans for Common Sense v. Shinseki, 644 F.3d 845 (9th Cir.

2011), a veterans‟ group claimed that the Department of

Veterans Affairs‟ dilatory processing of mental health claims

violated the veterans‟ constitutional right to benefits. Id. at 860-

61. In Veterans for Common Sense the district court held that

the “final agency action” limitation in section 704 restricted the

waiver of sovereign immunity in section 702, and inasmuch as

the delays in processing claims did not constitute “final agency

action,” section 702 did not waive sovereign immunity. Id. at

863. The court of appeals reversed, concurring with Trudeau

and holding that the first sentence of section 702 referred to a

cause of action created by the APA, and not any jurisdictional

limitation. Id. at 866 (“The first and second sentences of § 702

play quite different roles.”). Therefore, the court of appeals held

that section 702 waived sovereign immunity for purposes of the

plaintiff‟s request for injunctive relief based on the Constitution,

even if judicial review did not involve “agency action” under

section 704.

The Veterans for Common Sense court relied on its

earlier decision in Presbyterian Church (U.S.A.) v. United

States, 870 F.2d 518 (9th Cir. 1989), where the plaintiffs alleged

that there had been First and Fourth Amendment violations

when federal agencies secretly recorded church services. There,

the court of appeals noted that while the original 1946 form of

33

section 702, which contained the first but not second sentence,

may have limited judicial review to “agency action,” the 1976

amendments, which added the second sentence, reflected an

“unqualified waiver of sovereign immunity in actions seeking

nonmonetary relief against legal wrongs for which governmental

agencies are accountable,” and “[n]othing in the language of the

amendment suggests that the waiver of sovereign immunity is

limited to claims challenging conduct falling in the narrow

definition of „agency action.‟” Id. at 525.

Other courts of appeals have taken the same position as

the Trudeau and Veterans for Common Sense courts. In Delano

Farms Co. v. California Table Grape Commission, 655 F.3d

1337, 1344 (Fed. Cir. 2011), the Court of Appeals for the

Federal Circuit held that grape growers could maintain a patent

claim against the United States Department of Agriculture for

declaratory relief because section 702 applied broadly to waive

sovereign immunity for all claims not seeking money damages.

The Courts of Appeals for the Seventh and First Circuits have

viewed the waiver of sovereign immunity in the second sentence

of section 702 similarly. See Michigan v. U.S. Army Corps of

Eng‟rs, 667 F.3d 765, 775 (7th Cir. 2011) (“the conditions of §

704 affect the right of action contained in the first sentence of §

702, but they do not limit the waiver of immunity in § 702‟s

second sentence”) (citing Veterans for Common Sense, 644 F.3d

at 866-68); Blagojevich v. Gates, 519 F.3d 370, 372 (7th Cir.

2008) (holding that section 702 waives immunity for a lawsuit

by a state governor alleging that the Department of Defense

violated a statute requiring the governor‟s approval before

moving a national guard unit from the state); Puerto Rico v.

United States, 490 F.3d 50, 57-58 (1st Cir. 2007) (holding that

34

section 702 encompasses all actions for specific relief against a

federal agency or its officers).

Although we acknowledge that section 702 is not a model

of clarity, our independent review of our precedents and the

statute‟s legislative history leads us to agree with the position

taken by the courts of appeals in the opinions to which we have

referred. In Specter v. Garrett, 995 F.2d 404 (3d Cir. 1993),

rev‟d on other grounds sub nom. Dalton v. Specter, 511 U.S.

462, 114 S.Ct. 1719 (1994), we held that an action seeking an

order enjoining the Secretary of the Navy from closing a naval

shipyard could proceed under the Defense Base Closure and

Realignment Act of 1990 despite the defendants‟ invocation of

sovereign immunity, stating that “the waiver of sovereign

immunity contained in § 702 is not limited to suits brought

under the APA.” Id. at 410. Although we did not address

directly whether section 704 operates as a limitation on section

702‟s waiver of sovereign immunity, we recently clarified that

the judicial review provisions of the APA such as section 704,

are not jurisdictional, but rather “provide a limited cause of

action for parties adversely affected by agency action.”

Chehazeh v. Attorney Gen. of the United States, 666 F.3d 118,

125 n.11 (3d Cir. 2012) (quoting Oryszak v. Sullivan, 576 F.3d

522, 525 (D.C. Cir. 2009)). “Thus, if agency action is . . . not

final agency action, 5 U.S.C. § 704, a plaintiff who challenges

such an action cannot state a claim under the APA . . . and the

action must be dismissed.” Id. (citing Oryszak, 576 F.3d at 525)

(internal quotation marks omitted).

The House of Representatives Report accompanying the

1976 amendments confirms that Congress contemplated that the

35

amendments would implement a broad waiver of sovereign

immunity. As stated above, prior to the amendments section

702 contained the first sentence, which provided that a person

aggrieved by agency action within the meaning of a relevant

statute is entitled to judicial review, but it did not contain the

second sentence. Thus, in 1976 when Congress added the

second sentence it did so for the specific purpose of waiving

sovereign immunity. See H.R. Rep. No. 94-1656, at 1, reprinted

in 1976 U.S.C.C.A.N. at 6121. The House Report, however,

explained that the second sentence of section 702, providing that

a federal agency and its officers could be named as defendants

in non-monetary actions, was subject to limitations. First, the

amendment only waives sovereign immunity for actions in a

federal court; second, such actions must seek non-monetary

relief; and third, it is “applicable only to functions falling within

the definition of „agency‟ in 5 U.S.C. section 701.” Id. at 11,

reprinted in 1976 U.S.C.C.A.N. at 6131.

But the House Report does not state that there is a fourth

limitation limiting the waiver of sovereign immunity in section

702 to suits challenging “agency action” as defined in the APA.

Rather, the Report indicates that “[t]he amendment made to

section 702 of title 5 would eliminate the defense of sovereign

immunity in any action in a federal court seeking relief other

than money damages and stating a claim based on the assertion

of unlawful official action by an agency or by an officer or

employee of that agency.” Id. at 3, reprinted in 1976

U.S.C.C.A.N. at 6123 (emphasis added); see id. at 9, 1976

U.S.C.C.A.N. at 6129 (“[T]he time now [has] come to eliminate

the sovereign immunity defense in all equitable actions for

specific relief against a Federal agency or officer acting in an

36

official capacity.”) (emphasis added.). Accordingly, section 704

in limiting review to “final agency action” concerns whether a

plaintiff has a cause of action under the APA that can survive a

motion to dismiss under Rule 12(b)(6) but does not provide a

basis for dismissal on grounds of sovereign immunity.19 Here,

of course, the States seek equitable relief and not monetary

damages and accordingly, the Government‟s sovereign

immunity from this action has been waived.20

19

The Government contends that the waiver of sovereign

immunity should be limited to actions brought under federal law

rather than state law as the States have done here to the extent

that they seek relief under their unclaimed property acts.

Though in view of the circumstance that most cases against the

Government are under federal law so that Congress probably

was focused on that law when it adopted the 1976 amendments

to the APA, we see no support for the distinction that the

Government makes between federal and state law in either the

text or the history of section 702.

20

We emphasize here that although in this action the States seek

to recover a very large sum of money, this action does not seek

“money damages” within the meaning of section 702. In

Bowen, 487 U.S. 879, 108 S.Ct. 2722, the State of

Massachusetts sued the Secretary of Health and Human Services

in order to enforce a provision of the Medicaid statute requiring

that the Federal Government reimburse it for certain Medicaid

expenditures that it had made. The Court held that section 702

waived sovereign immunity in that case even though

Massachusetts sought to make a monetary recovery from the

37

Although the defense of sovereign immunity raises a

claim constituting a jurisdictional limitation, even if, as we now

hold here, the defense is unsuccessful, the court in which the

plaintiff has brought the action cannot entertain the case unless

it has jurisdiction under Article III of the Constitution and the

statutes that Congress has adopted providing a federal court with

jurisdiction over the case. Accordingly, as distinct from its

arguments that the States‟ lawsuit does not fall within the APA‟s

waiver of sovereign immunity, the Government now contends

Federal Government, observing that “[o]ur cases have long

recognized the distinction between an action at law for damages

— which are intended to provide a victim with monetary

compensation for an injury to his person, property, or reputation

— and an equitable action for specific relief — which may

include an order providing for the reinstatement of an employee

with backpay, or for „the recovery of specific property or

monies, ejectment from land, or injunction either directing or

restraining the defendant officer‟s actions.‟ Larson v. Domestic

& Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457,

1460 (1949) (emphasis added)).” Id. at 893, 108 S.Ct. at 2732;

see id. at 895, 108 S.Ct. at 2732 (explaining that “[d]amages are

given to the plaintiff to substitute for a suffered loss, whereas

specific remedies are not substitute remedies at all, but attempt

to give the plaintiff the very thing to which he was entitled.”

(citation and internal quotation marks omitted)). Accordingly,

the Court held that “[t]he fact that a judicial remedy may require

one party to pay money to another is not a sufficient reason to

characterize the relief as „money damages.‟” Id. at 893, 108

S.Ct. at 2732.

38

— even though it did not advance this point in the District Court

— that the District Court lacked an independent basis for federal

question jurisdiction because the States are making claims under

state, not federal law. Thus, the Government contends that the

District Court did not have jurisdiction over the States‟ action

under 28 U.S.C. § 1331 or, indeed, under any other statute.21

Although we sometimes have referred to the APA as conferring

“jurisdiction,” see, e.g., Pinho v. Gonzales, 432 F.3d 193, 200

(3d Cir. 2005), the Supreme Court has stated that “the APA does

not afford an implied grant of subject-matter jurisdiction

permitting federal judicial review of agency action.” Califano v.

Sanders, 430 U.S. 99, 107, 97 S.Ct. 980, 985 (1977).

Accordingly, we have recognized that ordinarily “the „federal

question‟ statute, 28 U.S.C. § 1331, „confer[s] jurisdiction on

federal courts to review agency action.‟” Chehazeh, 666 F.3d at

125 n.11 (quoting Califano, 430 U.S. at 105, 97 S.Ct. at 984).

See Chrysler Corp. v. Brown, 441 U.S. 281, 317 n.47, 99 S.Ct.

1705, 1725 n.47 (1979) (“Jurisdiction to review agency action is

found in 28 U.S.C. § 1331.”); Jaffee v. United States, 592 F.2d

712, 718 (3d Cir. 1979) (“[S]ection 702, when it applies, waives

sovereign immunity in „nonstatutory‟ review of agency action

under section 1331.”) (emphasis added).

We thus must decide whether the States‟ claims arise

21

Of course, inasmuch as we must assure ourselves that the

District Court had subject matter jurisdiction the Government

may assert this jurisdictional argument initially on this appeal.

See Arizonans for Official English v. Arizona, 520 U.S. 43, 73,

117 S.Ct. 1055, 1071-72 (1997).

39

“under the Constitution, laws, or treaties of the United States,”

so that the District Court had jurisdiction pursuant to 28 U.S.C.

§ 1331, or whether the Court had jurisdiction pursuant to

another statute. See Trudeau, 456 F.3d at 185 (“[B]ecause the

APA neither confers nor restricts jurisdiction, we must still

determine whether some other statute provides it.”). See

Alvarado v. Table Mountain Rancheria, 509 F.3d 1008, 1016

(9th Cir. 2007) (“To confer subject matter jurisdiction in an

action against a sovereign, in addition to a waiver of sovereign

immunity, there must be statutory authority vesting a district

court with subject matter jurisdiction.”). In considering the

federal jurisdiction question we recognize that it might be

thought that inasmuch as the States are attempting to enforce

their unclaimed property acts in this action, this case could not

be within federal jurisdiction under 28 U.S.C. § 1331.

Even though the States have brought this action with the

intent ultimately to obtain relief under their laws there is no

escape from the fact that this case largely involves the

Government‟s claim that federal statutes and regulations

preempt the States‟ unclaimed property acts. That circumstance

compels us to consider the long established well-pleaded

complaint rule to the end that “federal courts have federal

question jurisdiction only when a federal claim appears in the

complaint, and not when a federal preemption defense may

eventually be raised in litigation.” Levine v. United Healthcare

Corp., 402 F.3d 156, 162 (3d Cir. 2005) (citation omitted). Yet

the States not unreasonably cite Grable & Sons Metal Products,

Inc. v. Darue Engineering and Manufacturing, 545 U.S. 308,

125 S.Ct. 2363 (2005), as support for their contention that the

District Court did have jurisdiction. It is true that aspects of

40

Grable read in isolation seem to support the States‟ jurisdictional

contention with respect to the preemption issues in this case for

this case raises and, indeed, is about, in the words of Grable,

“significant federal issues.” Grable, 545 U.S. at 312, 125 S.Ct.

at 2367. Moreover, the state law claims being advanced here

under the States‟ unclaimed property acts, in the words of

Supreme Court jurisprudence even before Grable, “depend[ ]

upon the construction or application of [federal law].” Smith v.

Kansas City Title & Trust Co., 255 U.S. 180, 199, 41 S.Ct. 243,

245 (1921).22 Furthermore, this case is a direct action against

the Government and thus differs from the ordinary preemption

case in which a private defendant relies on federal law as a

defense to a state cause of action. See, e.g., PLIVA, Inc. v.

Mensing, 131 S.Ct. 2557, 2577-78 (2011). Indeed, we cannot

help but wonder whether the States could have cast this case as a

declaratory judgment action seeking a declaration that a

judgment obtained in a proceeding under their unclaimed

property acts would be enforceable against the Federal

Government with respect to the proceeds of matured but

unredeemed savings bonds.23

22

The dominance of federal law in this case is highlighted in the

States‟ brief in which they correctly point out that the “United

States does not dispute that the States‟ unclaimed property laws

require unclaimed savings bonds to be turned over to state

custody pending location of the absent owners. The question on

the merits is thus whether federal law somehow preempts the

operation of these escheat laws.” Appellants‟ br. at 22.

23

In this regard, we note that the Supreme Court indicated in

41

Grable, however, insofar as the States advance it as

support for their jurisdictional contentions, has its limitations.

In Grable a federal taxpayer brought an action to quiet title in a

state court against a purchaser of the property who acquired the

property by a quitclaim deed from the Government. The

Government sold the property to the purchaser to satisfy the

taxpayer‟s tax delinquency. In the quiet title action the taxpayer

asserted that the purchaser‟s title was invalid because the

Government did not follow proper procedure in giving required

notice when seizing the property. The purchaser removed the

case to a federal court claiming that there was federal question

jurisdiction even though the plaintiff-taxpayer sought to quiet

title to its property in a state court, a classic state law procedure,

and even though there was no suggestion in the case that there

was diversity of citizenship between the parties. The taxpayer

moved to remand the case to state court but the district court

denied the motion and the court of appeals affirmed. The

Supreme Court granted certiorari and affirmed.

The Supreme Court held that there was federal question

jurisdiction in Grable principally because of the dominance of

Bowen, 487 U.S. at 893, 108 S.Ct. at 2731, that the 1976

amendment referring to relief other than money damages “does

not foreclose judicial review of the actions brought by the State

challenging the Secretary‟s disallowance decisions.” The Court

first noted that “insofar as the complaints sought declaratory and

injunctive relief, they were certainly not actions for money

damages.” The Court went on to state that “even the monetary

aspects of the relief that the State sought are not „money

damages‟ as that term is used in the law.”

42

significant federal issues in that case. But as the Court of

Appeals for the Ninth Circuit said in California Schock Trauma

Air Rescue v. State Compensation Insurance Fund, 636 F.3d

538, 542 (9th Cir. 2011), “the Grable complaint did present a

federal issue on its face” with respect to the Internal Revenue

Service not following proper procedures in the seizure of the

taxpayer‟s property. Therefore, the court of appeals understood

Grable to uphold the assertion of federal jurisdiction because the

complaint “satisfie[d] both the well-pleaded complaint rule and

passe[d] the implicates significant federal issues test.” Id.

(internal quotation marks and brackets omitted). We also are

aware that the Supreme Court itself in Empire Healthcare

Assurance, Inc. v. McVeigh, 547 U.S. 677, 699, 126 S.Ct. 2121,

2136 (2006), emphasized the limitations of Grable when it

indicated that Grable dealt with a “special and small category”

of cases that qualify for federal question jurisdiction.

In the end, however, we do not find it necessary to decide

whether the District Court had jurisdiction by reason of the

presence of the preemption issue in this case. We bypass the

preemption jurisdictional question because it is clear that the

Court had jurisdiction in light of the States having advanced a

significant Tenth Amendment claim in their complaint which

seeks relief on the basis of the “Treasury‟s Escheat Decision

[having] violate[d] the Tenth Amendment of the United States

Constitution.” App. at 109. In considering the effect of this

claim with respect to federal jurisdiction we start from the

unquestioned principle that jurisdiction lies under 28 U.S.C. §

1331 when a cause of action arises under federal law on the

basis of the plaintiff having made a claim under the Tenth

Amendment. As the court of appeals indicated in Bolden v. City

43

of Mobile, 571 F.2d 238, 247 (5th Cir. 1978), rev‟d on other

grounds, City of Mobile v. Bolden, 446 U.S. 55, 100 S.Ct. 1490

(1980):

The abuse of local governmental power, when of

the constitutional magnitude in this case, is a

power denied the States by the Constitution

within the meaning of the tenth amendment. The

power to remedy the unconstitutional wrong is

one delegated to the United States by the

Constitution. The Constitution expressly provides

for federal court jurisdiction in claims arising

under this Constitution (or) Laws of the United

States. U.S. Const. art. 3, § 2. Congress has

given the federal courts original jurisdiction over

such claims. 28 U.S.C. § 1331.

Id. (internal quotation marks omitted); see also Hodges v.

Shalala, 121 F. Supp. 2d 854, 863-64 (D.S.C. 2000) (federal

question jurisdiction exists under section 1331 in action in

which state contends that Congress overstepped boundaries of

the Tenth Amendment and the Spending Clause when it

statutorily attached certain conditions to states‟ receipt of federal

funding).

The Supreme Court at one time regarded the Tenth

Amendment as little more than a tautology that could not

support a cause of action:

The amendment states but a truism that all is

retained which has not been surrendered. There is

44

nothing in the history of its adoption to suggest

that it was more than declaratory of the

relationship between the national and state

governments as it had been established by the

Constitution before the amendment or that its

purpose was other than to allay fears that the new

national government might seek to exercise

powers not granted, and that the states might not

be able to exercise fully their reserved powers.

United States v. Darby, 312 U.S. 100, 124, 61 S.Ct. 451, 462

(1941).

More recently, however, the Court has embraced the view

that the states may invoke the Tenth Amendment as a basis for

invalidating federal action. Most notably, in New York v.

United States, 505 U.S. 144, 112 S.Ct. 2408 (1992), the Court

invalidated under the Tenth Amendment portions of a federal

law concerning disposal of radioactive waste. The origin of that

case may be traced to Congress having reacted to a shortage of

suitable radioactive waste disposal sites by passing the Low-

Level Radioactive Waste Policy Amendments Act of 1985. The

1985 statute imposed responsibility on the states to dispose of

waste within their borders, including a requirement that states

“take title” to waste not disposed of as of 1996 and that these

states would be liable for damages incurred by their failure to

take possession of that waste. Id. at 153-54, 112 S.Ct. at 2416.

The Court held that the “take title” provisions of the law were

unconstitutional because by forcing states to take ownership of

the waste the law impermissibly would “commandeer” state

governments contrary to the Tenth Amendment. The Court

45

believed that this attempted exercise of federal power exceeded

Congress‟s powers under Article I of the Constitution. In

reaching its result the Court stated that “[t]he Federal

Government may not compel the States to enact or administer a

federal regulatory program,” id. at 188, 112 S.Ct. at 2435,

because doing so would limit state government accountability,

as state governments forced to implement a federal program

would be held responsible for decisions they did not make.

The Supreme Court in New York v. United States

rejected the reasoning of Darby and, rather than regarding the

Tenth Amendment as a mere tautology as it had done in Darby,

“direct[ed] [courts] to determine . . . whether an incident of state

sovereignty is protected by a limitation on [congressional]

power.” Id. at 157, 112 S.Ct. at 2418. As in New York v.

United States, the States in this case claim that Congress is

asserting a power that it does not have — a de facto federal

escheat power — that is an affront to a state sovereign

prerogative: to take custody to property it deems “unclaimed” or

“abandoned” within its borders.

Of course, a court makes a different analysis when

determining if it has jurisdiction over a claim than it makes

when considering the merits of the claim. As the Supreme

Court has stated, “[d]ismissal for lack of subject-matter

jurisdiction because of the inadequacy of the federal claim is

proper only when the claim is so insubstantial, implausible,

foreclosed by prior decisions of [the Supreme] Court, or

otherwise completely devoid of merit as not to involve a federal

controversy.” Steel Co. v. Citizens for a Better Env‟t, 523 U.S.

83, 89, 118 S.Ct. 1003, 1010 (1998) (internal quotation marks

46

and citation omitted). While, as we discuss below, we do not

find that the States‟ Tenth Amendment claim is meritorious, in

light of developing Tenth Amendment law the claim surely is

colorable and not frivolous. Accordingly, the District Court had

jurisdiction because “[it] is firmly established . . . that the

absence of a valid (as opposed to arguable) cause of action does

not implicate subject-matter jurisdiction, i.e., the courts‟

statutory or constitutional power to adjudicate the case.” Id.

Inasmuch as the District Court had jurisdiction under 28

U.S.C. § 1331 over the States‟ Tenth Amendment claim, by

reason of 28 U.S.C. § 1367 it had jurisdiction over the States‟

entire complaint. Section 1367 provides, with inapplicable

exceptions, if “the district courts have original jurisdiction,

[they] shall have supplemental jurisdiction over all other claims

that are so related to claims in the action within such original

jurisdiction that they form part of the same case or controversy

under Article III of the United States Constitution.” Here it is

clear that all of the States‟ claims are related to their claim under

the Tenth Amendment. In this regard, we point out that in the

introduction to their complaint the States assert that “Treasury‟s

refusal to comply with state laws governing unclaimed property

usurps sovereign power exercised by the states since the

Declaration of Independence, and reserved to the states under

the Tenth Amendment of the U.S. Constitution.” App. at 88.

The Supreme Court in City of Chicago v. International

College of Surgeons, 522 U.S. 156, 164-65, 118 S.Ct. 523, 529

(1997), indicated that a district court may exercise supplemental

jurisdiction if the case before it involves claims “derive[d] from

a common nucleus of operative fact such that the relationship

47

between the federal claim and the state claim permits the

conclusion that the entire action before the court comprises but

one constitutional claim.” (internal quotation marks and

brackets omitted). This case fits within that criterion because

the States in this action have a single goal, i.e., to obtain a

judgment requiring that the Government remit to them and

account for the proceeds of matured but unredeemed savings

bonds.24

24

The States also assert that the Mandamus and Venue Act, 28

U.S.C. § 1361, and 28 U.S.C. § 1346 (containing the Little

Tucker Act and the Federal Tort Claims Act), provide for

federal jurisdiction here but we do not decide whether either

statute would confer jurisdiction in light of our conclusion that

the District Court had jurisdiction by reason of the States‟ Tenth

Amendment claim under 28 U.S.C. § 1331 and 28 U.S.C. §

1367.

Though we do not predicate our result on this point we note

that if the District Court could not exercise jurisdiction in this

case it well may be that there would not be any court in which

plaintiff States could have brought their claims against the

Federal Defendants under their unclaimed property acts. After

all, the New Jersey state courts are well aware that section 702

“does not waive sovereign immunity in actions in a state court”

and thus they would not entertain an action seeking an order

enjoining the Securities and Exchange Commission from

prosecuting an administrative complaint against the plaintiff in

the state court action. First Jersey Secs., Inc. v. Sec. Exch.

Comm‟n, 476 A.2d 861, 867-68 (N.J. Super. Ct. App. Div.

48

B. State-Law Claims and the Supremacy Clause

Inasmuch as we have determined that sovereign

immunity does not bar this action and that the District Court had

constitutional and statutory jurisdiction we finally reach the

substantive aspects of the case. We start this discussion by

recognizing that although this case is essentially a dispute over

the application of federal law, the States‟ claims arise from their

attempt to enforce their unclaimed property acts against the

Federal Government. The Government asserts that these claims

run afoul of the Supremacy Clause of the Constitution in art. VI,

cl. 2, which provides that the Constitution and laws in pursuance

of it “shall be the supreme Law of the Land.” State laws may

violate the Supremacy Clause in two ways. Under the doctrine

of federal preemption, state laws are invalid if they “conflict

with an affirmative command of Congress.” North Dakota v

United States, 495 U.S. 423, 434, 110 S.Ct. 1986, 1994 (1990)

(citing Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23

(1824)). And under the doctrine of intergovernmental

immunity, states may not “regulate the Government directly or

1984). In view of First Jersey Securities we see no reason to

believe that even without regard for federal court intervention

through the exercise of removal jurisdiction or Supreme Court

appellate review, the New Jersey courts would have entertained

this action if the State of New Jersey had initiated the case in the

New Jersey Superior Court and named the Federal Defendants

as defendants. Of course, a result that the States did not have

any forum in which to bring their claims surely would have been

inconsistent with the intent of Congress in adopting the 1976

APA amendments.

49

discriminate against it.” North Dakota, 495 U.S. at 434, 110

S.Ct. at 1994 (citing McCulloch v. Maryland, 17 U.S. (4

Wheat.) 316, 425-37, 4 L.Ed. 579 (1819)).

1. Federal Preemption

Federal preemption doctrine “provid[es] Congress with

the power to preempt state legislation if it so intends.” Roth v.

Norfalco LLC, 651 F.3d 367, 374 (3d Cir. 2011) (internal

quotation marks and citation omitted). There are three types of

preemption: express preemption and two types of implied

preemption, field preemption and conflict preemption. Farina v.

Nokia Inc., 625 F.3d 97, 115 (3d Cir. 2010) (citing Hillsborough

Cnty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105

S.Ct. 2371, 2375 (1985)). There is express preemption when a

federal enactment contains language that is explicit about its

preemptive effect. See St. Thomas-St. John Hotel & Tourism

Ass‟n v. Gov‟t of the V.I., 218 F.3d 232, 238 (3d Cir. 2000).

There is field preemption when Congress has regulated an area

so pervasively that it has not left room for state regulation. See

United States v. Locke, 529 U.S. 89, 111, 120 S.Ct. 1135, 1149

(2000). There is conflict preemption when compliance with

both state and federal law is impossible, “or where state law

erects an „obstacle to the accomplishment and execution of the

full purposes and objectives of Congress.‟” Farina, 625 F.3d at

115 (internal quotation marks omitted). Moreover, “[w]here

Congress has delegated the authority to regulate a particular

field to an administrative agency, the agency‟s regulations

issued pursuant to that authority have no less preemptive effect

than federal statutes.” Fellner v. Tri-Union Seafoods, LLC, 539

F.3d 237, 243 (3d Cir. 2008). Although courts define the

50

categories of preemption separately the categories are not

“rigidly distinct. Indeed, field pre-emption may be understood

as a species of conflict pre-emption: A state law that falls within

a pre-empted field conflicts with Congress‟ intent . . . to

exclude state regulation.” English v. Gen. Elec. Co., 496 U.S.

72, 79 n.5, 110 S.Ct. 2270, 2275 n.5 (1990).

There are two guiding principles of preemption

jurisprudence. “„First, the purpose of Congress is the ultimate

touchstone in every pre-emption case.‟” Wyeth v. Levine, 555

U.S. 555, 565, 129 S.Ct. 1187, 1194 (2009) (quoting Medtronic,

Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 2259 (1996)).

Second, we are guided by a “presumption against preemption,”

Roth, 651 F.3d at 375 (citing Deweese v. Nat‟l R.R. Passenger

Corp., 590 F.3d 239, 246 (3d Cir. 2009)), because we assume

“that the historic police powers of the States [are] not to be

superseded by the Federal Act unless that was the clear and

manifest purpose of Congress.” Levine, 555 U.S. at 565, 129

S.Ct. at 1194-95 (quoting Lohr, 518 U.S. at 485, 116 S.Ct. at

2250) (internal quotation marks omitted). However, the

presumption against preemption does not apply where Congress

has adopted the statute claimed to have preemptive effect to

apply in a field that “the States have [not] traditionally

occupied.” Buckman Co. v. Plaintiffs‟ Legal Comm., 531 U.S.

341, 347-48, 121 S.Ct. 1012, 1017 (2001) (quoting Rice v. Santa

Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152

(1947)).

We agree with the District Court that the federal statutes

and regulations pertaining to United States savings bonds

preempt the States‟ unclaimed property acts insofar as the States

51

seek to apply their acts to take custody of the proceeds of the

matured but unredeemed savings bonds. In reaching this

conclusion we recognize that there is no federal statute or

regulation that expressly preempts the application of the States‟

unclaimed property acts in the way that the States seek to

enforce them in this litigation. But it is equally important to

recognize that “[f]ederal law of course governs the interpretation

of the nature of the rights and obligations created by the

Government bonds themselves.” Free, 369 U.S. at 669-70, 82

S.Ct. at 1094 (quoting Bank of Am. Trust & Savs. Ass‟n v.

Parnell, 352 U.S. 29, 34, 77 S.Ct. 119, 122 (1956)). Thus, in

Free a surviving husband filed an action against a beneficiary of

his wife‟s will to determine the parties‟ rights in United States

savings bonds that the husband and wife purchased together.

The Supreme Court held that Texas law providing that the

savings bonds were community property was inconsistent with

federal regulations that provide that when either co-owner dies,

“the survivor will be recognized as the sole and absolute owner

[of the bonds] and thus the federal regulation preempted the

Texas law.” Id. at 664-65, 82 S.Ct. at 1091 (quoting 31 C.F.R. §

315.61). While in the case before us the conflict between state

and federal law is less stark, we similarly hold that the relevant

federal statutes and regulations preempt the States‟ unclaimed

property acts.

The States‟ unclaimed property acts conflict with federal

law regarding United States savings bonds in multiple ways.

First, in advancing the goal of making the bonds “attractive to

savers and investors,” see Free, 369 U.S. at 669, 82 S.Ct. at

1093, Congress has authorized the Secretary to implement

regulations specifying that “owners of savings bonds may keep

52

the bonds after maturity.” 31 U.S.C. § 3105(b)(2)(A).25 The

plaintiff States‟ unclaimed property acts, by contrast, specify

that matured bonds are abandoned and their proceeds are subject

to the acts if not redeemed within a time period as short as one

year after maturity. See, e.g., N.J. Stat. Ann. § 46:30B-41.2.

Such provisions starkly conflict with savings bonds regulations

imposing “conditions governing their redemption.” 31 U.S.C. §

3105(c)(4); see 31 C.F.R. § 315.5(a) (providing that the

registered owner of the bond is presumed conclusively to be the

owner); § 315.15 (providing that savings bonds are “payable

only to the owners named on the bonds, except as specifically

provided in these regulations and then only in the manner and to

the extent so provided.”); § 315.20(b) (providing that the

Department of the Treasury will recognize a claim of ownership

or interest in a bond only if “established by valid, judicial

proceedings”); § 315.35(a) (providing that payment may be

made only to persons entitled to it under the regulations); §

315.39 (providing that the owner of the bond may present it to

an authorized paying agent for redemption).

The States assert that the “restrictions on „payment‟ in

these regulations foreclose only redemption of bonds by persons

who are not owners, not application of historic laws governing

disposition of property not redeemed by its owner.” Appellants‟

br. at 29. In other words, the States argue that because they

25

The Secretary effectively has allowed owners of savings

bonds to keep them after maturity and to earn interest after

maturity because the Treasury has extended the bonds‟ original

maturity dates and interest accrues during the extension period.

See supra note 3.

53

seek only custody of the bond proceeds, their unclaimed

property acts will not interfere directly with federal contracts or

the regulations regarding redemption. However, those

regulations conflict with the outcome that the States seek here.

Most critically, application of the States‟ unclaimed property

acts would interfere with the terms of the contracts between the

United States and the owners of the bonds because, according to

the States‟ complaint, they effectively would substitute the

respective States for the United States as the obligor on affected

savings bonds. See app. at 99 (asserting that “delivery of an

Unclaimed Bond to a State . . . will discharge the Treasury from

its obligation under the bond,” such that the bond owners may

“claim their property from the state”). As the Government

points out, the bonds are pledged “on the credit of the United

States,” U.S. Const. art. I, § 8, cl. 2, and not on the credit of any

individual state. Both bondholders and the United States, who

bargained for a federal redemption process that the Federal

Government set forth in detail in the relevant statutes and

regulations, instead would have to comply with procedures set

forth in the various States‟ unclaimed property acts, thus

“intrud[ing] upon the rights and the duties of the United States.”

See Free, 369 U.S. at 669, 82 S.Ct. at 1094. The federal

regulations regarding redemption effectively would be nullified.

This change in redemption procedures if the States obtain

custody of the proceeds of the matured but unredeemed bonds

might not be a small thing from the point of view of an owner of

a bond seeking to redeem it. As we explained above,

redemption of a matured savings bond is now an uncomplicated

process involving little more than a trip to a bank, a venue likely

to be familiar to the owner of the bond, with the bondholder

54

dealing with a bank employee with whom he already may be

acquainted. On the other hand, though it is possible that the

States would designate the same payment agents as the

Government now designates if the States obtained custody of the

proceeds of the bonds, an owner seeking those funds would

have to navigate whatever procedures the States adopted for the

owner to receive the funds and those procedures could be more

complex than those presently in place under federal law.

Moreover, a bondholder‟s effort to recover the funds in a State‟s

custody might require the bondowner to deal with what almost

certainly would be an unfamiliar state bureaucracy. We simply

do not know.

The Government also has expressed concerns that a

substitution of the plaintiff States as obligors on the bonds could

result in the United States being subject to multiple obligations

on a single savings bond. Thus, the Government fears that

bondholders still would have a contractual right to payment

from the United States based on the terms of the bonds even

though the various state unclaimed property acts would give

bondholders the right to recover the proceeds of property

deemed “abandoned” or “unclaimed” from the States. Although

the States have indicated that they would indemnify the Federal

Government if it was required to make payments on matured

bonds to bondholders after the Government delivered the

proceeds of the bonds to the States pursuant to their unclaimed

property acts, the possible availability of indemnification does

not change the fact that application of the States‟ acts in the

redemption process significantly would alter that process as

55

contemplated in the relevant federal regulations.26

The States note that the federal statutes and regulations

implementing the savings bond program do not include

provisions for the disposition of abandoned property, and thus

they argue that federal law leaves room for the operation of their

unclaimed property acts in this field. However, the bond

proceeds are not “abandoned” or “unclaimed” under federal law

because the owners of the bonds may redeem them at any time

after they mature, and thus Congress has not been silent with

respect to the fate of the proceeds of unclaimed bonds. The

States‟ efforts to impose the status of “abandoned” or

“unclaimed” on the Federal Government‟s obligations only

underscores the conflict between federal and state law, in which

federal law must prevail. There simply is no escape from the

fact that the Federal Government does not regard matured but

unredeemed bonds as abandoned even in situations in which a

state would do exactly that. Of course, in a preemption analysis

26

We are not predicating our result on a conclusion that

honoring a custody-based unclaimed property act might subject

the United States to multiple liabilities on a single bond. We

decline to speculate on what would happen if a bondholder

sought to redeem a bond by presenting it to a Government

payment agent and requesting that he be paid the proceeds if the

Government already had delivered the proceeds of the bond to a

State pursuant to its unclaimed property act. That situation is

not before us and, in any event, even disregarding the possibility

that the Government might face multiple liabilities on a single

bond by complying with a State‟s unclaimed property act, the

States‟ unclaimed property acts are preempted.

56

the distinction between the custody of the proceeds of the bonds

or physical custody of the bonds themselves is without legal

significance. The States seek the transfer of $1.6 billion of

federally-held funds to their treasuries together with a

substantial realignment of the obligations that the bonds

evidence and the procedures for redemption that federal laws

and regulations have established. It is clear to us that the federal

statutes and regulations are sufficiently pervasive so as not to

leave room for the enforcement of the unclaimed property acts

to achieve the result that the States seek.

2. Intergovernmental Immunity

The Supreme Court‟s decision in McCulloch, 17 U.S. (4

Wheat.) at 322, established the bedrock principle that “the States

have no power, by taxation or otherwise, to retard, impede,

burden, or in any manner control, the operations of the

constitutional laws enacted by Congress to carry into execution

the powers vested in the national government.” Thus, that

famous decision is the source of the doctrine of

intergovernmental immunity. We agree with the District Court

that the States‟ desired application of their unclaimed property

acts would violate the constitutional principles of

intergovernmental immunity that “states may not directly

regulate the federal government‟s operations or property.” See

Arizona v. Bowsher, 935 F.2d 332, 334 (D.C. Cir. 1991) (citing

Hancock v. Train, 426 U.S. 167, 178-80, 96 S.Ct. 2006, 2012-13

(1976)).

First, in this regard, the unclaimed property acts would

interfere with Congress‟s “[p]ower to dispose of and make all

57

needful Rules Acts and Regulations respecting the . . . Property

belonging to the United States.” See U.S. Const. art. IV, § 3, cl.

2. On this point, the States argue that the United States no

longer has a beneficial interest in the undisbursed proceeds from

the matured but unredeemed bonds. But we disagree. In

support of their position, the States cite United States v. Klein,

303 U.S. 276, 58 S.Ct. 536 (1938), in which the Escheator of the

Commonwealth of Pennsylvania sought to recover funds that a

private company owed its bondholders pursuant to a judgment

entered by a federal district court. Unclaimed funds were paid

into a court registry and later transferred to the United States

Treasury under 28 U.S.C. § 852, which at that time provided

that when money deposited into the registry of a federal court

was unclaimed for five years, it would be deposited with the

Treasury, and further provided that “[a]ny person or persons . . .

entitled to any such money may . . . obtain an order of court

directing payment of such money to the claimant.” The

Supreme Court in holding that the State of Pennsylvania could

acquire title to unclaimed funds through valid escheat

proceedings observed that the United States held the funds for a

limited administrative purpose, and did not assert “any right,

title or interest” in the funds. 303 U.S. at 280, 58 S.Ct. at 538.

Further, 28 U.S.C. § 852 “contemplate[ed] that changes in

ownership of the fund may occur, since it provides that after the

right to the fund has been finally adjudicated and it has been

covered into the Treasury it shall be paid over to any person

entitled, upon full proof of his right to receive it.” Id. at 282, 58

S.Ct. at 539.

The plaintiff States also rely on In re Moneys Deposited,

243 F.2d 443 (3d Cir. 1957), where we addressed the status of

58

private funds that were not claimed in bankruptcy proceedings

and thus were transferred to the United States Treasury for

administrative purposes under 28 U.S.C. § 2042, the successor

legislation to the statute in issue in Klein. Following Klein, this

Court held that Pennsylvania could obtain title to the funds

through escheat proceedings because, as in Klein, the United

States did not have a beneficial interest in the money deposited

in the federal registry. In this case, in contrast to how it

obtained the funds in issue in both Klein and Moneys Deposited,

the United States did not acquire the funds due on matured but

unredeemed bonds through the exercise of an administrative

function. Quite to the contrary, the Government acquired the

funds from its sale of savings bonds for its own use. Thus,

unlike the claimants in Klein and Moneys Deposited, the States

here do not seek funds due on privately undertaken obligations,

as in Klein, or seek funds in which the Government as custodian

never had a property interest as was true in both Klein and

Money Deposited. Rather, the States seek to acquire funds that

have their origin in debt that the United States incurred to

finance the operations of the Government.

As did the District Court, we find Bowsher to be

persuasive on this point. In Bowsher, 23 states sued the

Comptroller General of the United States and the Secretary

claiming the right to custody pursuant to their respective

unclaimed property acts of money held by the Treasury pursuant

to 31 U.S.C. § 1322, which granted the Treasury custody of

money that federal agencies owed to persons whose

whereabouts were unknown. 935 F.2d at 334. Like the plaintiff

States in this case, the plaintiffs in Bowsher argued that they

wanted to return the unclaimed property to its true owners, but

59

the court observed that “[w]hen the United States sets aside

money for the payment of specific debts, it does not thereby lose

its property interest in that money.” Id. The court further stated:

The money here is federal money. That various

persons have claims against the United States in

amounts exactly matching the funds, and intended

by Congress to be paid from these funds, does not

give those individuals a property interest in the

money. Thus, the states‟ plan would amount to

direct regulation of federal property. In extracting

funds from the Treasury, the states would

effectively subordinate federal property to their

own laws and appropriate that property, at least

for a period, for themselves.

Id. Accordingly, the court held that the states‟ plan to take

custody of the money violated the doctrine of intergovernmental

immunity.

We recognize that the States argue that their unclaimed

property acts come, in the words of Bowsher, “with a patina of

ancient history,” see id. at 335, and that there is a presumption

against preemption of laws of such origin. Nevertheless, we see

no reason to reach a different result here from that reached in

Bowsher. Although the United States must pay holders of

matured bonds the sums due on the bonds when the owners

present them for payment, until it does so the funds remain

federal property, and the Government may use the proceeds

from the sale of savings bonds “for expenditures authorized by

[federal] law,” 31 U.S.C. § 3105(a).

60

The States argue that instead of following Bowsher we

should be guided by the Supreme Court‟s analysis in

Connecticut Mutual Life, 333 U.S. at 547, 68 S.Ct. at 686,

where the Court held that the State of New York could apply its

unclaimed property act to life insurance policies that out-of-state

insurers had issued. In rejecting the insurance company‟s

argument in Moore that the state law violated the Contract

Clause, the Court noted that “[t]he state is acting as a

conservator, not as a party to a contract.” Id. Moreover, the

Court recognized that New York‟s conservatorship of insurance

money was possible because “[f]oreign corporations must obtain

state authority to do business, segregate securities, [and] submit

to examination and state process.” Id. at 550-51, 68 S.Ct. at

668. But states‟ extensive regulatory powers over corporations

operating within their borders, in light of McCulloch, do not and

could not have a counterpart in their relationships with the

Federal Government, and consequently Connecticut Mutual Life

is inapposite here.

For similar reasons, we hold that an order compelling the

accounting that the plaintiff States request would violate the

governmental immunity of the United States. As the District

Court observed, the States‟ unclaimed property acts impose

“onerous record-keeping and reporting requirements, [and] civil

and criminal penalties for failure to comply.” App. at 29; see,

e.g., 72 Pa. Cons. Stat. § 1301.11 (describing reporting

requirements); § 1301.25 (failure to comply with reporting

requirements a criminal offense subject to fine and

imprisonment); N.J. Stat. Ann. § 46:30B-93 (subjecting holders

of unclaimed property to examination of records by the state

administrator); Mont. Code Ann. § 70-9-824 (providing for

61

financial penalties against holders of unclaimed property who

fail to report and deliver property to the state administrator).

Although the States argue that they only seek relief requiring the

Federal Government to comply with generally applicable laws,

several of the States have enacted provisions in their unclaimed

property acts specifically addressed to property within the

possession of the Federal Government. See N.J. Stat. Ann. §

46:30B-41.2 (providing that property where the obligor is a

branch of the United States government is presumed abandoned

after one year); Ky. Rev. Stat. Ann. § 393.068 (“[a]ll . . .

personal property . . . held by the federal government . . . shall

be presumed abandoned if remained unclaimed for five years);

Mo. Rev. Stat. § 447.532 (property held by an agency of the

United States deemed abandoned if unclaimed for three years);

72 Pa. Cons. Stat. § 1301.9 (property held for its owner by any

“instrumentality of the United States” unclaimed for five years

deemed abandoned).

When Congress was considering legislation in the late

1980s that would have required the Federal Government to

transfer unclaimed money obtained from various sources —

including savings bonds — to the states, the General Accounting

Office estimated that tracking owners of such property would

cost over $23 million.27 See app. at 185. Although the States

assert that they will not seek to enforce civil and criminal

penalties in the event the Federal Government fails to comply

with their respective acts, even if future State officials adhere to

this policy, the fact remains that forcing the Federal Government

27

We are not drawing any inference with respect to the issues in

this case from the fact that Congress did not adopt that bill.

62

to account to the plaintiff States for unredeemed savings bonds

or their proceeds — regardless of how stringently the States

decide to enforce the reporting requirements contained in their

respective acts — would result in a direct regulation of the

Federal Government in contravention of the Supremacy Clause.

This result is not permissible.

C. The Tenth Amendment

The Tenth Amendment provides that “[t]he powers not

delegated to the United States by the Constitution, nor

prohibited by it to the States, are reserved to the States

respectively, or to the people.” The States argue that the status

quo amounts to a federal escheat of the proceeds from the

unclaimed bonds, a process which they contend violates the

Tenth Amendment because the Federal Government does not

possess the escheat power, as it is a traditional prerogative of the

states. However, the funds at issue here have not been

escheated to the Government and the Government does not seek

to acquire them through escheat proceedings. To the contrary

the Government is holding the funds and will disburse them to

the bondholders or their successors if they present the bonds for

redemption. Moreover, our result does not nullify state escheat

laws for, as provided in the federal regulations and as

recognized by the Treasury, third parties, including the States,

may obtain ownership of the bonds — and consequently the

right to redemption — through “valid[] judicial proceedings,” 31

C.F.R. § 315.20(b), so long as they submit certified copies of the

judgment or order affecting ownership and other evidence that

may be necessary to support the validity of the judgment or

order. See 31 C.F.R. § 315.23. The Government through its

63

issuance of the Escheat Decision admits as much. Here,

however, the States merely seek custody of, not title to, the

funds at issue under their unclaimed property acts.28

In considering the States‟ Tenth Amendment contentions

it is important to remember that the Government administers the

savings bond program pursuant to the federal constitutional

power “[t]o borrow money on the credit of the United States.”

Free, 369 U.S. at 666-67, 82 S.Ct. at 1092. Pursuant to this

power, 31 U.S.C. § 3105(b)(2)(A) authorizes the Secretary of

the Treasury to “prescribe regulations providing that . . . owners

of savings bonds may keep the bonds after maturity or after a

period beyond maturity.” “If Congress acts under one of its

28

We hasten to add that while in concluding that the State

custody-based unclaimed property acts are preempted we are

distinguishing, as does the Government itself, those acts from

title-based acts, we do not imply that our result would be

different if, confronted with a judgment of escheat under a title-

based escheat act, the Government abandoned its long held

position as reflected in the Escheat Decision and refused to

recognize the enforceability of the judgment with respect to

savings bonds or their proceeds. We simply are not faced with

that possibility and thus we do not address it. We merely are

ruling on the basis of the legal picture as the Government

presently sees it. Furthermore, we neither are agreeing nor

disagreeing with the States with respect to their contention that

the Federal Government does not have escheat power. We see

no need to pass on this contention as the Federal Government is

not seeking to escheat the proceeds of matured but unredeemed

bonds.

64

enumerated powers . . . there can be no violation of the Tenth

Amendment.” United States v. Parker, 108 F.3d 28, 31 (3d Cir.

1997) (quoting United States v. Mussari, 95 F.3d 787, 791 (9th

Cir. 1996)). Accordingly, the States‟ Tenth Amendment claim

must fail.

V. CONCLUSION

Though the United States pursuant to 5 U.S.C. § 702 has

waived its sovereign immunity from suit in this case, we do not

find any merit in any of the States‟ claims. Therefore, we will

affirm the District Court‟s February 5, 2010 order dismissing the

action under Rule 12(b)(6).

65