Treasurer of New Jersey v. U.S. Department of the Treasury, No. 10-1963; Third Circuit; opinion by Greenberg, U.S.C.J.; filed June 27, 2012. Before Judges Hardiman, Greenaway and Greenberg. On appeal from the District of New Jersey. [Sat below: Judge Cooper.] DDS No. 21-8-7017 [65 pp.]
Seven states, including New Jersey, sought to recover the proceeds of matured but unredeemed U.S. savings bonds, mostly Series E bonds issued between 1941 and 1980, from the U.S. Treasury. They asserted that the Treasury possessed approximately $16 billion of such 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 them for reunification with their owners.
The district court granted the government’s motion to dismiss, concluding that the government’s sovereign immunity and intergovernmental immunity barred the action and that federal law and regulations pre-empted the states’ statutory authority to obtain the proceeds of the savings bonds.
Held: The government’s sovereign immunity in this action has been waived. The federal statutes and regulations pertaining to the bonds pre-empt the states’ unclaimed property acts insofar as the states seek to apply them to take custody of the proceeds of the bonds, and the state’s desired application of their acts would violate the constitutional principles of intergovernmental immunity. The status quo does not violate the Tenth Amendment.
Regulations promulgated by the secretary of the Department of the Treasury provide that savings bonds are not transferable and are payable only to the owners named on the bonds. There is an exception to this general rule for cases in which a third party attains an interest in a bond through valid judicial proceedings. There is no limit on the time for redemption.
Plaintiffs’ unclaimed property acts are “custody” escheat statutes, i.e., under them the state does not take title to abandoned property but obtains custody and beneficial use pending identification of the owner. Essentially, this case is a dispute 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 bonds.
The Treasury most recently articulated its position with respect to unclaimed bonds or their proceeds in 2000 on its Internet website. Its “Escheat Decision” provides that the Treasury will recognize claims by states for payment of U.S. securities where the states have succeeded to the title and ownership of the securities pursuant to valid escheat proceedings. It will not recognize claims for payment by a state acting as custodian of unclaimed or abandoned securities.
The court first addresses whether the district court had jurisdiction in this matter. It rejects the states’ argument that the proposed application of their acts to the bonds or their proceeds does not implicate sovereign immunity, noting that sovereign immunity is implicated when a plaintiff is suing the United States.
However, the court agrees with the states that § 702 of the Administrative Procedure Act, 5 U.S.C. § 551 et seq., waives sovereign immunity here and holds that the district court erred in concluding that because the escheat decision was not reviewable by statute and was not a “final agency action,” § 702 did not waive sovereign immunity in this case. The court says that that conclusion is at odds with opinions of several courts of appeals, with which it agrees, that have clarified that the waiver of sovereign immunity in § 702 extends to all nonmonetary claims against federal agencies and their officers.
The government also contends that the district court did not have jurisdiction over the states’ action under 28 U.S.C. § 1331 or under any other statute because the states are making claims under state, not federal, law. The court says it is clear that the court had jurisdiction in light of the states having advanced a significant Tenth Amendment 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 of property it deems unclaimed or abandoned within its borders.
The court then turns to the substantive aspects of the case.
It says 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.
The court says federal statutes and regulations pertaining to the bonds pre-empt the states’ unclaimed property acts insofar as the states seek to apply their acts to take custody of the proceeds of the bonds. Although there is no federal statute or regulation expressly pre-empting application of the states’ acts, federal law governs the interpretation of the rights and obligations created by the bonds themselves. Here, the states’ acts conflict with federal law regarding the bonds in multiple ways. For example, the federal regulations specify that owners of savings bonds may keep the bonds after maturity. The states’ acts specify that matured bonds are abandoned and their proceeds are subject to the acts if not redeemed within a specified time period. The court says the states seek the transfer of federally held funds to their treasuries and a substantial realignment of the obligations that the bonds evidence and the procedures for redemption that federal law and regulations have established. The federal statutes and regulations are sufficiently pervasive so as not to leave room for enforcement of the state acts to achieve the result that the states seek.
The court also says that the states’ application of their acts would violate the principles of intergovernmental immunity that states may not directly regulate the federal government’s operations or property. It says the acts would interfere with Congress’s power to dispose of and make all necessary regulations regarding the property of the United States, rejecting the states’ claim that the United States no longer has a beneficial interest in the undisbursed proceeds from the bonds. The court says that until the government pays the bondholders the sums due on them, the funds remain federal property.
Finally, the court rejects the states’ argument that the status quo amounts to a federal escheat of the proceeds from the bonds that violates the Tenth Amendment because the government does not possess the escheat power. The funds have not been escheated to the government and it does not seek to acquire them through escheat proceedings. Rather, it is holding the funds and will disburse them to the bond owners if the bonds are presented for redemption.
For appellants — Carter G. Phillips, of the D.C. bar (Sidley Austin); Peter G. Angelos and M. Albert Figinski, of the Md. bar; Randall K. Berger, Joanne M. Cicala and Roger W. Kirby, of the N.Y. bar (Kirby McInerney); William C. Cagney and Robert J. Luddy (Windels, Marx, Lane & Mittendorf); William H. Murphy and Andrew J. Toland, of the Md. bar (The Murphy Firm); Ernest A. Young, of the N.C. bar; Jeremiah J. Morgan Sr. and Joel A. Poole, of the Mo. bar (Office of the Attorney General of Missouri); and Gita F. Rothschild (McCarter & English). For appellees — Alisa B. Klein and Mark B. Stern, of the D.C. bar (U.S. Department of Justice, Civil Division) and David E. Dauenheimer (Office of the U.S. Attorney).