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Suever v. Connell

August 26, 2009

AGNES SUEVER, DECEASED; MADONNA SUEVER; STEVE TUCKER; ALEXANDER VONDJIDIS; RICHARD W. SEITZINGER; JO-ANN SEITZINGER, INDIVIDUALLY AND AS TRUSTEES FOR THE SEITZINGER FAMILY TRUST; JOHNSTONE WHITLEY; TONY LEE; LYNN KEITH, PLAINTIFFS-APPELLANTS,
v.
KATHLEEN CONNELL, IN HER INDIVIDUAL CAPACITY; RICHARD CHIVARO, IN HIS INDIVIDUAL AND OFFICIAL CAPACITY; GEORGE DELEON, IN HIS INDIVIDUAL AND OFFICIAL CAPACITY; STEVE WESTLY, IN HIS INDIVIDUAL AND OFFICIAL CAPACITY AS CONTROLLER OF THE STATE OF CALIFORNIA, DEFENDANTS-APPELLEES.
AGNES SUEVER; MADONNA SUEVER; STEVE TUCKER; RICHARD W. SEITZINGER, INDIVIDUALLY AND AS TRUSTEES FOR THE SEITZINGER FAMILY TRUST; ALEXANDER VONDJIDIS; JO-ANN SEITZINGER INDIVIDUALLY AND AS TRUSTEES FOR THE SEITZINGER FAMILY TRUST; JOHNSTONE WHITLEY; LYNN KEITH; TONY LEE; RICHARD V. VALDES, PLAINTIFFS-APPELLEES,
v.
JOHN CHIANG, IN HIS INDIVIDUAL AND OFFICIAL CAPACITY AS CONTROLLER OF THE STATE OF CALIFORNIA, AND IN HIS CUSTODIAL CAPACITY AS ADMINISTRATOR OF THE UNCLAIMED PROPERTY FUND; RICHARD CHIVARO, IN HIS INDIVIDUAL AND OFFICIAL CAPACITY, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Northern District of California Richard Seeborg, District Judge, Presiding D.C. No. 5:03-CV-00156-RS.

The opinion of the court was delivered by: Milan D. Smith, Jr., Circuit Judge

FOR PUBLICATION

Argued and Submitted July 13, 2009-San Francisco, California

Before: Barry G. Silverman, Richard R. Clifton, and Milan D. Smith, Jr., Circuit Judges.

OPINION

Plaintiffs, an uncertified class of individuals whose financial assets escheated to the Controller's Office pursuant to California's unclaimed property law (UPL), CAL. CIV. PROC. CODE §§ 1300, et seq., sued alleging insufficient notice and mishandling of their property. Defendants are Kathleen Con-nell, Richard Chivaro, Steve Westly, and George DeLeon (collectively, the Controller).*fn1 For the reasons discussed below, we affirm the district court's (1) denial without prejudice of Plaintiffs' motion for a permanent injunction requiring the State to pay interest on unclaimed property at California's alternative borrowing rate; and (2) partial summary judgment determining that the Eleventh Amendment bars Plaintiffs' "restitution" claims and dismissing former Controller Westly as a defendant in his individual capacity. However, we reverse the district court's rulings that (3) the State is constitutionally required to pay interest when it returns property to owners under the UPL; and that (4) the Eleventh Amendment does not bar Plaintiffs from being awarded such interest retroactively.

I. BACKGROUND

A. Statutory Framework

Title 10 of the California Code of Civil Procedure governs unclaimed property located within California. See CAL. CIV. PROC. CODE §§ 1300, et seq. Its purpose is "to provide for the receipt, custody, investment, management, disposal, escheat and permanent escheat of various classes of unclaimed property . . . ." Id. § 1305. " 'Escheat[ ]' . . . means the vesting in the state of title to property the whereabouts of whose owner is unknown or whose owner is unknown . . . subject to the right of claimants to appear and claim the escheated property . . . ." Id.

§ 1300(c). " 'Permanent escheat' means the absolute vesting in the state of title to property . . . pursuant to judicial determination, pursuant to a proceeding of escheat as provided by Chapter 5 . . . of [Title 10], or pursuant to operation of law and the barring of all claims to the property by the former owner thereof or his successors." Id. § 1300(d).

During the time in which Plaintiffs submitted their claims to the Controller's Office for return of their escheated assets, California Code of Civil Procedure § 1540(c) stated:

The Controller shall add interest at the rate of 5 percent or the bond equivalent rate of 13-week United States Treasury bills, whichever is lower, to the amount of any claim paid the owner under this section for the period the property was on deposit in the Unclaimed Property Fund. No interest shall be payable for any period prior to January 1, 1977. Any interest required to be paid by the state pursuant to this section shall be computed as simple interest, not compound interest. For purposes of this section, the bond equivalent rate of 13-week United States treasury bills shall be defined in accordance with the following criteria:

(1) The bond equivalent rate of 13-week United States Treasury bills established at the first auction held during the month of January shall apply for the following July 1 to December 31, inclusive.

(2) The bond equivalent rate of 13-week United States Treasury bills established at the first auction held during the month of July shall apply for the following January 1 to June 30, inclusive.

Since August 11, 2003, however, § 1540(c) has stated: "No interest shall be payable on any claim paid under this chapter."

The Controller's Office must deposit proceeds from the sale of escheated property in the Unclaimed Property Fund in an Abandoned Property account. Id. § 1564(a). At least monthly, the Controller's Office must also transfer to California's General Fund all money in the Abandoned Property account in excess of $50,000. Id. § 1564(c).

B. The Putative*fn2 Class Allegations*fn3

Plaintiffs allege that the Controller wrongfully appropriated, misused, sold, and refused to relinquish their financial assets. In their first amended complaint, they claim that the Controller unlawfully employed "auditors" to pressure certain financial institutions into paying or turning over assets that were not properly subject to escheat. For example, these financial institutions purportedly had knowledge of some of Plaintiffs' addresses when the transfers occurred. Moreover, the Controller allegedly failed to provide the requisite notice to Plaintiffs, thereby preventing them from reclaiming their property before its liquidation. After 1989, Plaintiffs assert, the Controller implemented a policy of publishing only block advertisements rather than listing the specific names and addresses of putative owners, in violation of California Code of Civil Procedure § 1531. The Controller also allegedly stopped mailing direct notices to owners' last known addresses.

The first amended complaint further alleges that the Controller misused the property it unlawfully seized. For instance, Plaintiffs assert that the Controller unconstitutionally applied simple-interest-rate legislation retroactively, thereby appropriating compound interest that had accrued on escheated property. Meanwhile, the Controller purportedly refused to pay any interest at all on escheated cashier's checks and dividends. Nor, according to Plaintiffs, did the Controller properly register or notify owners of escheated cashier's checks, or properly segregate the money in the Unclaimed Property Fund from the money in the General Fund. The Controller also allegedly destroyed documents pertaining to proof of ownership as well as the contents of safety deposit boxes, again without notice.

Plaintiffs claim that these unlawful acts amount to a conspiracy on the Controller's part to obtain funds with which to mitigate California's longstanding budget crisis. Through this conspiracy, the Controller allegedly permitted several companies, regulated entities, and financial institutions to unlawfully withhold over $1 billion in personal property. Rather than promulgating any formal rules to authorize these actions, the Controller switched internal policies repeatedly, failed to provide any notice, and insulated itself from public accountability. In doing so, Plaintiffs allege, the Controller violated not only the federal Due Process, Takings, and Contracts Clauses, but also federal and state securities statutes and the UPL itself.

Plaintiffs cite the above-mentioned violations as supporting their claim for declaratory relief, which in turn, they assert, would require the Controller to disgorge or return either their property or the reasonable value thereof. In addition, Plaintiffs allege two 42 U.S.C. § 1983 claims based on procedural due process and the Takings Clause. Specifically, Plaintiffs assert that the Controller violated procedural due process by appropriating and liquidating assets without adequate notice, and that these same actions also constitute a "taking" that requires the State to pay just compensation. Plaintiffs also allege that they deserve the "proper value of their property, which "should be valued according to the applicable principles of law for reimbursement purposes," and that they are entitled to: (1) an accounting of their appropriated property; (2) attorneys' fees; (3) creation of a common fund for return of their property "with proper interest"; and (4) injunctive relief to require the return of their property and to prevent the Control-ler's continued violation of federal constitutional or statutory law.

Finally, Plaintiffs allege several state law actions: negligence, fraud, a taxpayer claim, breach of fiduciary duty, and violation of the UPL. These violations purportedly warrant payment of "restitution" in the amount of the difference between the proceeds of the sale of their unclaimed property and the current market value, as well as punitive damages. Plaintiffs also assert that the state claims warrant injunctive relief to require the Controller's prospective compliance with the UPL.

C. Status of Individual Plaintiffs' Claims for Escheated Property

In 1993, Plaintiff Agnes Suever (now deceased and represented in this lawsuit by her daughter, Plaintiff Madonna Suever, who held general and financial power of attorney over her) purchased a cashier's check from World Savings and Loan Bank in the amount of $13,603.24. She then "forgot" about the check, which "fell under a piece of heavy furniture for quite some time." The check escheated to the State in October 1999. According to the declaration of the Chief of the Division of Collections at the Controller's Office, "[t]he fact that the Controller reimbursed World Savings for the full amount of the cashier's check that had previously escheated to the State indicates that Agnes Suever reclaimed her property from World Savings rather than the Controller. If Mrs. Suever reclaimed her property from the State, the State would have paid her the statutory rate of interest then in effect."

In November 1991, 505 shares of Plaintiff Steve Tucker's Intel stock escheated to the State. He alleges that his stock "was seized by the . . . Controller . . . without notice, his knowledge or consent, and while he was living in England as an English citizen." In 1999, the State returned to Tucker $74,728, including $18,703 in interest. He claims that he is entitled to "roughly double" the interest he actually received because the State was able to "avoid[ ] borrowing costs" while it held his property.

Plaintiff Alexander Vondjidis purchased stock from Hewlett Packard (HP) when he worked in HP's office in Athens, Greece, in the 1970s. He stopped working for HP in 1978, and the Athens office closed in the early 1980s. His stock escheated in 1993. In 2001, he filed a claim for it, and the Controller returned to him $25,961, including $4464 in interest.

General Electric transferred stock owned by Plaintiffs Richard and Jo-Ann Seitzinger to the State in 1994. The Seitzingers submitted a claim for the shares in September 2000, and the Controller ...


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