Suever v. Connell , 439 F.3d 1142 ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
AGNES SUEVER; MADONNA SUEVER; 
STEVE TUCKER; ALEXANDER
VONDJIDIS; RICHARD W. SEITZINGER;
JO-ANN SEITZINGER; JOHNSTONE
WHITLEY; TONY LEE; LYNN KEITH;
RICHARD V. VALDES,
Plaintiffs-Appellants,
No. 04-15555
v.
KATHLEEN CONNELL, Dr., in her  D.C. No.
CV-03-00156-RS
individual capacity; RICHARD
OPINION
CHIVARO, in his individual and
official capacities; GEORGE
DELEON, in his individual and
official capacities; STEVE WESTLY,
in his individual and official
capacities,
Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, Magistrate, Presiding
Argued and Submitted
December 9, 2005—San Francisco, California
Filed March 14, 2006
Before: Betty B. Fletcher, Michael Daly Hawkins, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea
2639
2642 SUEVER v. CONNELL
COUNSEL
William W. Palmer, Law Offices of William W. Palmer, Sac-
ramento, California, for the plaintiffs-appellants.
Robin B. Johansen, James C. Harrison & Thomas A. Willis,
Remcho, Johansen & Purcell, San Leandro, California, for the
defendants-appellees.
OPINION
BEA, Circuit Judge:
We are called upon to decide the extent to which the fed-
eral courts are open or closed by the Eleventh Amendment of
the Constitution to persons who claim a state has improperly
taken their property under a state’s escheat system. The
answer, as in many legal questions: “it depends.” It depends
on whether the property at issue is an individual’s property or
a state’s property, and whether the relief requested is prospec-
tive or retrospective.
Appellants Agnes Suever, et al. (collectively, “the class”)
appeal the district court’s order granting the motion of Appel-
lees Kathleen Connell, Richard Chivaro, Steve Westly, and
George DeLeon (collectively, “the Controller”)1 to dismiss the
1
Connell was the former Controller for the State of California and
Westly was the Controller at the time of the order. Chivaro was the chief
legal counsel at the Controller’s Office, and DeLeon works in the Control-
ler’s Unclaimed Property Division. Because the allegations relate to an
overall conspiracy in which all defendants were involved, it is sufficient
to refer to the defendants collectively.
SUEVER v. CONNELL 2643
class action without leave to amend. The class’s complaint
alleges that, to mitigate the State’s mounting debt, the Con-
troller improperly seized and retained the class’s property
under the California Unclaimed Property Law (UPL), Cal.
Civ. Proc. Code § 1500, et seq. The district court held that the
Eleventh Amendment barred the class’s complaint in its
entirety because the complaint alleged only that the class was
“entitled to monetary damages [as compensation from State
funds] for [state officials’] past constitutional violations” and
“fail[ed] to allege [state officials’] ‘ongoing violation of fed-
eral law’ or to seek ‘relief properly characterized as prospec-
tive’ ” that would warrant an exception to state sovereign
immunity under Ex parte Young, 209 U.S. 123 (1908).
The district court erred because it overlooked that part of
what the class requests is the return of its own property, not
compensation from state funds for property permanently
taken from it. In a case related to the present one, this court
recently held that the Eleventh Amendment does not bar a
request for the return of a plaintiff’s property if the complaint
alleges that state officials acted either ultra vires or unconsti-
tutionally. Taylor v. Westly, 402 F.3d 924, 932-35 (9th Cir.
2005). Because, like the complaint in Taylor, the complaint
here alleges that state officials seized and retained the class’s
property through ultra vires and unconstitutional acts, the
Eleventh Amendment does not bar the class from suing to
obtain its property back from the Controller.
Beyond the return of its property, the class requests some
forms of relief that are permissibly prospective, whereas other
requested forms of relief may impermissibly require retro-
spective compensation from State funds. We leave it to the
district court upon remand to determine which claims the
Eleventh Amendment bars and which claims it does not.
Accordingly, we vacate the district court’s order dismissing
the class action and remand for proceedings consistent with
this opinion.
2644 SUEVER v. CONNELL
I. Background
A. Statutory Framework
Title 10 of the California Code of Civil Procedure deals
with unclaimed property located in California. Cal. Civ. Proc.
Code § 1300, et seq. “It is the purpose of this title to provide
for the receipt, custody, investment, management, disposal,
escheat and permanent escheat of various classes of
unclaimed property . . . .” Id. § 1305. This case relates to the
Controller’s authority to receive and manage escheated prop-
erty under the UPL, Chapter 7 of Title 10, id.§ 1500, et seq.
“ ‘Escheat[ ]’ . . . means the vesting in the state of title to
property the whereabouts of whose owner is unknown or
whose owner is unknown, . . . subject to the right of claimants
to appear and claim the escheated property . . . .” Id. § 1300(c)
(emphasis added). By contrast, “ ‘[p]ermanent escheat’ means
the absolute vesting in the state of title to property . . . pursu-
ant to judicial determination, pursuant to a proceeding of
escheat as provided by Chapter 5 . . . of [Title 10], or pursuant
to operation of law and the barring of all claims to the prop-
erty by the former [owner] thereof or his successors.” Id.
§ 1300(d) (emphasis added). This case does not involve per-
manently escheated property because the complaint does not
allege that any permanent escheat proceedings have taken
place; the Controller’s liquidation of any unclaimed asset by
itself does not convert the asset into permanently escheated
property. Id. § 1390.
Holders of unclaimed property, such as financial institu-
tions, must annually file a report with the Controller describ-
ing all escheated property in their possession. Id. § 1530.
Holders must concurrently “pay or deliver to the Controller
all escheated property specified in the report.” Id. § 1532(a).
Various types of property2 escheat to the State when for three
2
Eligible types of property include “demand, savings, or matured time
deposit[s],” Cal. Civ. Proc. Code § 1513, “contents of any safe deposit
box,” id. § 1514, funds from a life insurance policy, id.§ 1515, and “any
dividend, profit, distribution, interest, [or] payment on principal,”
id.§ 1516.
SUEVER v. CONNELL 2645
years the owner has not indicated an interest in the asset3 to
the holder.4 Id. § 1513-21. Escheated property must have a
jurisdictional nexus with California, such as when the owner’s
last known address was in the State or the holder is domiciled
there. Id. § 1510. “Upon the payment or delivery of escheated
property to the State Controller, the state shall assume custody
and shall be responsible for the safekeeping of the property.”
Id. § 1560(a). The Controller must ordinarily sell all
escheated property received from holders by auction, but he
must sell publicly traded securities on the relevant stock
exchange within two years of receipt.5 Id. § 1563(a) & (b). In
3
For instance, the funds in a bank account will not escheat if the owner
has “[i]ncreased or decreased the amount of the deposit” or
“[c]orresponded electronically or in writing with the banking organization
concerning the deposit.” Id. § 1513(a)(1) & (2). A dividend will not
escheat if the owner has claimed it or corresponded with the holder. Id.
§ 1516.
4
The State legislature shortened the applicable time period for most
assets from seven to five years in 1988 and from five to three years in
1990. See, e.g., 1990 Cal. Stat. 1069 § 1 (substituting “three years” for
“five years” within § 1513(d)).
5
The Controller will credit to the owner’s account all income, such as
dividends and interest, to have accrued from a certain asset prior to liqui-
dation. Cal. Civ. Proc. Code § 1562. However, the owner does not receive
any interest accrued on his asset once the Controller has liquidated the
asset and deposited its value in the Unclaimed Property Fund. Id. Before
2002, owners who claimed property that had been deposited in the
Unclaimed Property Fund received interest from the State treasury:
[T]he State Controller [would] add interest at the rate of 5 percent
compounded annually or the current interest rate received upon
deposits held in the Pooled Money Investment Account, which-
ever [was] lower, to the amount of any claim paid the owner . . .
for the period the property was on deposit in the Unclaimed Prop-
erty Fund, [starting January 1, 1977].
Id. § 1540 (amended 2002). The Pooled Money Investment Account is a
State portfolio of investments funded by surplus money held within the
State treasury. Cal. Gov’t Code § 16474. From 2002 until 2003, the legis-
lature substituted the “bond equivalent rate of 13-week United States Trea-
sury bills” for “current interest rate” in calculating the interest that should
2646 SUEVER v. CONNELL
addition, the Controller must notify the apparent owners that
their assets have escheated by publication in a newspaper of
general circulation and, in certain cases,6 by mail. Id. § 1531.
Owners of property that the Controller holds but that has
not permanently escheated to the State may claim and receive
their property back. Id. §§ 1350, 1352. In addition, the Con-
troller may return from the Unclaimed Property Fund or Gen-
eral Fund any property erroneously escheated or erroneously
permanently escheated. Id. §§ 1345-47.
B. The Class’s Allegations
The members of the class are individuals who claim the
Controller unlawfully seized, mishandled, liquidated, and
refused to return their assets. The class alleges, in its com-
be added to an asset when it is claimed. Cal. Civ. Proc. Code § 1540
(amended 2003). In addition, the interest rate would no longer be com-
pounded annually; the owners would receive simple interest. Id. Since
August 11, 2003, however—two months after the complaint in the present
case was filed—the same section has stated that “[n]o interest shall be
payable on any claim paid under this chapter.” Id.
6
The current UPL requires mailed notice in the following circumstance:
If an account paid or delivered to the Controller pursuant to Sec-
tion 1532 includes a social security number, the Controller shall
request the Franchise Tax Board to provide a current address for
the apparent owner on the basis of that number. The Controller
shall mail a notice to the apparent owner for whom a current
address is obtained if the address is different than the address pre-
viously reported to the Controller.
Id. § 1531(d). The current UPL does not require mailed notice in any other
circumstance.
Previously, the UPL’s notice requirements were more demanding.
Before 1996, the Controller was required to list each apparent owner’s
name in the published notification, whereas now the published notice may
be generic. 1996 Cal. Stat. 762 § 6. The Controller was also required to
mail notice to every apparent owner who had a last known address listed
on the escheated property’s account. Id.
SUEVER v. CONNELL 2647
plaint filed July 14, 2003, that the Controller unlawfully used
“auditors” to coerce financial institutions into paying or deliv-
ering property ineligible to be escheated. For instance, said
financial institutions knew some of the class members’
addresses at the time of transfer.7 In addition, the Controller
failed to provide adequate notice to the class to enable class
members to claim their property before it was liquidated.
After 1989, the Controller decided to publish only block ads
instead of listing the particular names and addresses of the
apparent owners, in violation of § 1531 of the UPL.8 The
Controller also failed to mail direct notices to the owners’ last
known address.
The complaint also alleges that the Controller mishandled
the property in the State’s possession. The class claims that
the Controller unconstitutionally applied interest rate legisla-
tion retroactively, stripping compound interest that had been
accruing on unclaimed property and replacing it at a much
lower simple interest rate. On some investments such as cash-
iers’ checks and dividends, the Controller allegedly failed to
pay interest altogether. The Controller also allegedly failed to
register cashiers checks or provide adequate notice, preclud-
ing the owners from claiming their property. She is alleged to
have commingled money from the Unclaimed Property Funds
with money from the General Fund. Finally, the Controller
7
As an example, the complaint alleges that the Controller escheated the
Intel stock of one class member who lives in England and there collects
an Intel pension, as though the class member were an “unknown” owner.
8
The Controller’s decision not to list individual owners in its published
advertisements predated by seven years the amendment to the UPL that
authorized such block ads. Regardless, the class alleges that the current
UPL statute authorizing block ads violates due process by failing to give
adequate notice. See Mullane v. Cent. Hanover Bank & Trust Co., 339
U.S. 306, 314 (1950) (“An elementary and fundamental requirement of
due process in any proceeding which is to be accorded finality is notice
reasonably calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an opportunity to
present their objections.”).
2648 SUEVER v. CONNELL
allegedly instituted a shredding policy that destroyed many of
the documents necessary to prove the owners’ entitlement to
the property; contents of safety deposit boxes were also
destroyed without notice.
The class alleges that the Controller’s wrongful acts consti-
tute a conspiracy to withhold owners’ assets to alleviate Cali-
fornia’s budget crisis. The class claims the Controller allowed
certain companies, financial institutions, and regulated entities
unlawfully to retain owners’ property worth over $1 billion in
total. The class further alleges the Controller did not promul-
gate formal rules to carry out these acts, but rather changed
policies frequently without notice or accountability. The Con-
troller’s acts allegedly violated the class’s rights under the
Due Process, Takings, and Contracts Clauses of the Federal
Constitution; state and federal securities laws; and the UPL
itself.
The class alleges eleven claims for relief. It cites all the
violations discussed above as justifying declaratory relief. The
class claims that a determination of the class’s rights would
entitle it to disgorgement and return of either their property or
the reasonable value thereof. The class also alleges two fed-
eral § 1983 claims, based on procedural due process and the
Takings Clause respectively. The class alleges the Controller
violated due process by unlawfully seizing, and sometimes
selling, property without notice and paying too little interest
to owners. The class claims that these same unlawful acts also
constitute a “taking” for which it must receive just compensa-
tion. In addition, the class claims that it is entitled to the
“proper value of [its] property,” which “should be valued
according to the applicable principles of law for reimburse-
ment purposes.” These constitutional rights also form the
basis for an accounting of the class’s seized property; the pay-
ment of attorneys’ fees; the creation of a common fund to
return the class’s property “with proper interest”; and injunc-
tive relief to require the Controller no longer to violate the
SUEVER v. CONNELL 2649
Constitution or federal statutory law, and to return the class’s
property.
The class also alleges a variety of state law claims: tax-
payer action, violation of the UPL, breach of fiduciary duty,
negligence, and fraud. These violations allegedly merit the
payment of both restitution for the fair value of the owners’
property and punitive damages. In addition, the class contends
the state claims justify injunctive relief requiring the Control-
ler to comply with the UPL in the future.
II. Analysis
This court reviews de novo an order dismissing a complaint
based on a lack of subject matter jurisdiction. Taylor, 402
F.3d at 929.
A. Return of the Class’s Property
[1] The Eleventh Amendment does not bar the class’s
claims insofar as the claims request the return of the class’s
property. This court in Taylor held that the Eleventh Amend-
ment did not apply to funds that had been escheated, but not
permanently escheated, because the State held such funds in
custodial trust for the benefit of property owners—the funds
were not State funds. Id. at 931 (“Before California escheated
property is ‘permanently’ escheated, it is like a car that is
towed and held in an impound lot. The car is in the custody
of the impounding government, but it is held for its owner, if
one turns up.”). Claims requesting the return of individuals’
property are less likely to offend a state’s sovereign immunity
than claims requesting the payment of government funds. See
id. at 932-35. Hence, although the Eleventh Amendment ordi-
narily bars claims primarily requesting funds held in the
State’s coffers, sovereign immunity does not apply to claims
alleging such funds are individuals’ property that the State
improperly seized through ultra vires or unconstitutional acts.
Id.
2650 SUEVER v. CONNELL
[2] Taylor found that the Eleventh Amendment did not bar
the plaintiffs’ claims requesting return of the plaintiffs’ prop-
erty because these claims alleged both ultra vires and uncon-
stitutional acts. Taylor employed the sovereign immunity
framework established in Malone v. Bowdoin, 369 U.S. 643,
647 (1962):
[A] plaintiff[’s] . . . claim for return of his property
[will not be barred by state sovereign immunity] . . .
if the claim falls into one of two categories: (1) it
must be based on the public official having acted
beyond his statutory authority (the “ultra vires
exception”) or (2) the plaintiff’s theory must be that
the action leading to the government’s possession of
the property was constitutionally infirm.
402 F.3d at 933 (quoting Washington v. Udall, 417 F.2d 1310,
1316 (9th Cir. 1969)) (footnotes omitted).
The plaintiffs in Taylor averred that the Controller seized
their property through ultra vires acts. An official’s act is not
ultra vires just because he erroneously applies his delegated
duty but only when he acts outside the scope of his duty. Id.
“[A]llegations that an officer violated ‘a plain legal duty’ can
take the officer’s actions outside the scope of her delegated
responsibilities.” Id. at 934 (quoting Udall, 417 F.2d at 1316).
Some of the plaintiffs’ claims in Taylor alleged the Controller
had violated a “plain legal duty”: the “plaintiffs assert[ed] that
they and their stock were wholly outside the escheat scheme
because they were never actually ‘lost’ as the statute requires.”9
Id. at 934.
9
For instance, the complaint in Taylor alleged that “[t]he Controller
takes these actions though the individual is known to the company and a
list of the known owners of the stock is provided to the Controller that
includes, in nearly every case, the stockowners’ addresses, taxpayer and
social security numbers.” 402 F.3d at 934 n.53 (citing Cal. Civ. Proc.
Code § 1516).
SUEVER v. CONNELL 2651
The plaintiffs in Taylor also averred that the Controller
escheated their property through unconstitutional acts. The
complaint in Taylor alleged that the Controller violated the
plaintiffs’ due process rights by failing to give adequate
notice before seizing their property. Id. The Taylor court con-
cluded, “Assuming that the plaintiffs’ allegations are true, as
we must, the Controller failed to give ‘notice reasonably cal-
culated, under all the circumstances, to apprise interested par-
ties’ of the fact that their property was being taken and sold.”
Id. (quoting Mullane, 339 U.S. at 314).
[3] Applying Taylor’s principles to the highly analogous
facts here, the Eleventh Amendment does not bar the class’s
claims requesting the return of the class’s property. First, the
complaint here avers that the Controller acted ultra vires by
improperly seizing property ineligible for escheat. Like the
complaint in Taylor, the class’s complaint avers that the Con-
troller seized property from “known” property owners.10 Sec-
ond, the complaint avers that the Controller acted
unconstitutionally by providing inadequate notice to property
owners whose property was to be escheated. Accordingly, the
class’s request that the Controller return the members’ prop-
erty is not barred by the State’s sovereign immunity.
B. Other Forms of Relief
Beyond the return of the class’s property, the complaint
requests some forms of relief that would permissibly require
the Controller’s prospective compliance with federal law, and
some other forms of relief that arguably would impermissibly
require compensation from the State treasury. The Supreme
Court in Ex parte Young held that a federal court could enjoin
a state officer to conform his future behavior to federal law.
209 U.S. at 159-60. Ex parte Young created an exception to
10
See Cal. Civ. Proc. Code § 1300(c) (limiting the applicability of
“[e]scheat . . . to property the whereabouts of whose owner is unknown
or whose owner is unknown”).
2652 SUEVER v. CONNELL
the Eleventh Amendment by holding that a state official who
acts unconstitutionally is “stripped of his official or represen-
tative character and is subjected in his person to the conse-
quences of his individual conduct” because the State could
not grant immunity for such an act. Id. at 160. Decades later,
in Edelman v. Jordan, 415 U.S. 651 (1974), the Court limited
the scope of Ex Parte Young’s exception to prospective equi-
table relief and state funds “ancillary” to such relief; the Elev-
enth Amendment bars retroactive compensation to plaintiffs
from State funds. Id. at 663-69.
[4] The district court erred when it found that the Ex parte
Young exception to the Eleventh Amendment did not apply to
the class’s amended complaint in its entirety because the com-
plaint “fails to allege an ‘ongoing violation of federal law’ or
to seek ‘relief properly characterized as prospective.’ ” The
amended complaint alleges types of harm that, if proven,
would amount to “ongoing violation[s] of federal law”:
including the Controller’s practices of publishing constitution-
ally inadequate notice for property to be escheated, seizing
assets that are ineligible for escheat, and misplacing escheated
property so that it cannot be returned to its owner. The com-
plaint requests prospective relief to remedy these ongoing vio-
lations: including an injunction to require the Controller to
publish constitutionally adequate notice, to refrain from seiz-
ing property ineligible for escheat, and to undertake an
accounting of funds illegally held within the State’s escheat
system. See Taylor, 402 F.3d at 935-36. By contrast, other
types of requested relief are clearly barred by the Eleventh
Amendment, for example, where the relief is premised solely
on the State’s compliance with state law. See Pennhurst State
Sch. & Hosp. v. Halderman, 465 U.S. 89, 105-06 (1984).
Apart from such prohibited relief, we leave it to the district
court upon remand to determine which types of requested
relief are permissibly prospective and which would imper-
missibly be “ ‘in practical effect indistinguishable in many
aspects from an award of damages against the State.’ ” See
Taylor, 402 F.3d at 935 (quoting Edelman, 415 U.S. at 668).
SUEVER v. CONNELL 2653
III. Conclusion
We VACATE the district court’s decision and REMAND
for proceedings consistent with this opinion.