Sogg v. Zurz , 121 Ohio St. 3d 449 ( 2009 )

[Cite as Sogg v. Zurz, 121 Ohio St.3d 449, 2009-Ohio-1526.]
SOGG, EXR., APPELLANT, v. ZURZ, DIR., APPELLEE.
[Cite as Sogg v. Zurz, 121 Ohio St.3d 449, 2009-Ohio-1526.]
Unclaimed funds — R.C. 169.08(D) — Denial of interest unconstitutional.
(No. 2007-1452 — Submitted September 16, 2008 — Decided April 8, 2009.)
APPEAL from the Court of Appeals for Franklin County,
No. 06AP-883, 2007-Ohio-3219.
__________________
PFEIFER, J.
{¶ 1} The issue before this court is whether the first sentence of R.C.
169.08(D), which provides that “[i]nterest is not payable to claimants of
unclaimed funds held by the state,” is constitutional. We conclude that it is not.
Background
{¶ 2} Appellee, the director of commerce of the state of Ohio, now
Kimberly Zurz, supervises and administers the Division of Unclaimed Funds,
pursuant to R.C. Chapter 169, the Unclaimed Funds Act (“UFA”). Property
becomes “unclaimed funds” when the owner has not generated any specified
activity for a prescribed period. R.C. 169.02. A holder of unclaimed property is
required to report the property to the division, R.C. 169.03(A), which sets up an
account for the reported property and credits the property to that account. Enough
of the property is held in the Unclaimed Funds Trust Fund to pay anticipated
claims of owners, R.C. 169.08(D), and the unclaimed funds never become the
property of the holder or the state of Ohio.
{¶ 3} Appellant, Wilton S. Sogg, the executor of his mother’s estate,
filed a claim with the division for the return of two separate amounts: an
insurance policy claim payment reported by Blue Cross & Blue Shield Mutual and
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dividends reported by the Bank of New York. Sogg received a check from the
division for $320.72, which represented the total of the two amounts, including
interest earned through July 26, 1991, minus a five percent administrative fee.
R.C. 169.08. The amount that Sogg received did not include interest earned after
July 26, 1991, because R.C. 169.08(D) was amended effective July 26, 1991, to
provide, “Interest is not payable to claimants of unclaimed funds held by the
state.” 1991 Am.Sub.S.B. No. 298, 144 Ohio Laws, Part III, 4038.
{¶ 4} Sogg was certified as the representative for the class of “[a]ll
persons or entities who filed, or will file, claims for unclaimed funds with the
Defendant (that is, with the Division of Unclaimed Funds of the Ohio Department
of Commerce), and who have recovered unclaimed funds but not been paid
interest on such funds for any period after July 26, 1991.” Sogg’s amended
complaint alleged that R.C. 169.08(D) “is unconstitutional and void because it
denies the protection of the property owner’s private property rights afforded by
Art. I, § 19 of the Ohio Constitution and the Fifth and Fourteenth Amendments to
the United States Constitution.” Sogg moved for summary judgment, which the
trial court granted, ruling that when the state retains interest earned on unclaimed
funds, it engages in a taking. Sogg v. White, 139 Ohio Misc.2d 58, 2006-Ohio-
4223, 860 N.E.2d 163. The court of appeals reversed, concluding that unclaimed
funds are abandoned property and, therefore, that the state’s retention of interest
“does not constitute a taking that requires compensation.” Sogg v. Dir., Ohio
Dept. of Commerce, Franklin App. No. 06AP-883, 2007-Ohio-3219, ¶ 34. We
accepted Sogg’s discretionary appeal.
Analysis
{¶ 5} We review the granting of summary judgment de novo. Comer v.
Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8.
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{¶ 6} The first sentence of R.C. 169.08(D) states, “Interest is not payable
to claimants of unclaimed funds held by the state.” This declaration is
breathtakingly bold and strikes at the core of the concept of private property
because, at a stroke, the General Assembly severed the link between the owner of
an asset and the income produced by that asset. Nevertheless, “the General
Assembly may pass any law unless it is specifically prohibited by the state or
federal Constitutions.” State v. Warner (1990), 55 Ohio St.3d 31, 43, 564 N.E.2d
18, citing State ex rel. Jackman v. Cuyahoga Cty. Court of Common Pleas (1967),
9 Ohio St.2d 159, 162, 38 O.O.2d 404, 224 N.E.2d 906.
{¶ 7} Much is written in the briefs and lower court opinions about the
common-law trust principle that the “[i]nterest follows the principal.” Ohio City v.
Cleveland & Toledo RR. Co. (1856), 6 Ohio St. 489, paragraph three of the
syllabus. We need not consider it here because that venerable principle applies
only “in the absence of a statute or stipulation to the contrary.” Eshelby v.
Cincinnati Bd. of Edn. (1902), 66 Ohio St. 71, 74, 63 N.E. 586. See Thompson v.
Indus. Comm. (1982), 1 Ohio St.3d 244, 249, 1 OBR 265, 438 N.E.2d 1167. R.C.
169.08(D) is plainly a statute to the contrary.
Unclaimed Funds Are Not Abandoned
{¶ 8} Even if the General Assembly may exercise its plenary powers to
declare that “[i]nterest is not payable to claimants of unclaimed funds held by the
state,” it is an entirely different matter for the state to assume ownership of the
interest earned. Nothing in the UFA states that the interest earned on the property
held by the state becomes the property of the state. In her brief, Zurz states that
the UFA “benefits the public by allowing the State to use the unclaimed funds in
its possession and draw interest on those assets for public purposes,” though she
does not cite a specific provision of the UFA. Zurz is apparently relying on the
state’s “inherent sovereign authority to assume ownership of unclaimed property.”
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See Connecticut Mut. Life Ins. Co. v. Moore (1948), 333 U.S. 541, 547, 68 S.Ct.
682, 92 L.Ed. 863 (“The right of appropriation by the state of abandoned property
has existed for centuries in the common law”). Zurz also states that “the UFA
properly treats an owner’s interests in unclaimed funds as forfeited by the owner’s
inaction.” No authority for this statement is provided. The UFA does not use any
form of the words “forfeited,” “abandoned,” or “escheated” except in referring to
the laws of other states. R.C. 169.041. Nothing in the UFA indicates that the
General Assembly intended to treat unclaimed funds as if they had been
abandoned, forfeited, or escheated.
{¶ 9} The court of appeals relied extensively on three cases in other
states to conclude that pursuant to the UFA, “unclaimed property is essentially
abandoned property.” 2007-Ohio-3219, ¶ 28. Smolow v. Hafer
(Pa.Commw.2005), 867 A.2d 767; Smyth v. Carter (Ind.App.2006), 845 N.E.2d
219; Hooks v. Kennedy (La.App.2007), 961 So.2d 425. We find this reliance
unpersuasive because, as the court of appeals candidly acknowledged, the “UFA
does not contain a presumption of abandonment as do the statutes at issue in
Indiana, Louisiana, and Pennsylvania.” 2007-Ohio-3219, ¶ 28. Zurz quotes
Texaco, Inc. v. Short (1982), 454 U.S. 516, 526, 102 S.Ct. 781, 70 L.Ed.2d 738,
for the proposition that “[s]tates have the power to permit unused or abandoned
interests in property to revert to another after the passage of time.” Although we
do not doubt that this is a fair characterization of the law in Texaco, it is irrelevant
for present purposes because, as noted above, nothing in the UFA indicates an
intent to change the ownership of the unclaimed funds, whether due to the passage
of time or any other reason. Furthermore, “[f]orfeitures are not favored by the
law. The law requires that we favor individual property rights when interpreting
forfeiture statutes.” Ohio Dept. of Liquor Control v. Sons of Italy Lodge 0917
(1992), 65 Ohio St.3d 532, 534, 605 N.E.2d 368; see also State v. Lilliock (1982),
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70 Ohio St.2d 23, 25, 24 O.O.3d 64, 434 N.E.2d 723 (forfeitures are not favored
in law or equity); Kiser v. Logan Cty. Bd. of Commrs. (1911), 85 Ohio St. 129,
131, 97 N.E. 52 (“Whether or not a proprietor has abandoned his rights or his
property, is usually a question of fact for a jury to answer, and the answer must
depend primarily upon an intention by the proprietor to abandon. * * * But mere
non-user is not ordinarily sufficient to establish the fact of abandonment”). We
conclude that the General Assembly has not plainly legislated that unclaimed
funds are or can be deemed abandoned property.
{¶ 10} The parties also agree that unclaimed funds are not abandoned
property; otherwise they would not have stipulated the following: “[T]he
unclaimed monies are held in trust in perpetuity for the benefit of the owners of
the unclaimed property. The funds never become the property of the State of
Ohio.” Under the UFA, the unclaimed property remains the property of the
original owner. What we are left with is the state’s control over and use of the
interest earned on the property of another.
The State’s Power to Take Private Property Is Limited by
Section 19, Article I, Ohio Constitution
{¶ 11} Section 19, Article I, Ohio Constitution, states: “Private property
shall ever be held inviolate, but subservient to the public welfare. When taken in
time of war or other public exigency, imperatively requiring its immediate seizure
or for the purpose of making or repairing roads, which shall be open to the public,
without charge, a compensation shall be made to the owner, in money, and in all
other cases, where private property shall be taken for public use, a compensation
therefor shall first be made in money, or first secured by a deposit of money; and
such compensation shall be assessed by a jury, without deduction for benefits to
any property of the owner.” See Cotter v. Doty (1832), 5 Ohio 393, 398, where
this court stated, “No man ought to be deprived of his property by forfeiture
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without having a legal investigation.” Because “the General Assembly may pass
any law unless it is specifically prohibited by the state or federal Constitutions,”
Warner, 55 Ohio St.3d at 43, 564 N.E.2d 18, citing State ex rel. Jackman, 9 Ohio
St.2d at 162, 38 O.O.2d 404, 224 N.E.2d 906, we now examine whether the first
sentence of R.C. 169.08(D) is specifically prohibited by the Ohio Constitution.
Because we conclude that it is, it is immaterial whether it is prohibited or
permitted by the Constitution of the United States.
{¶ 12} The question becomes: Does the first sentence of R.C. 169.08(D)
enable the state to assume ownership of interest earned on unclaimed funds that
the state holds for the owner without violating Section 19, Article I of the Ohio
Constitution? The state may limit private property rights through the exercise of
its police power when “the interests of the general public require its exercise and
the means of restriction [are not] unduly oppressive upon individuals.” State ex
rel. Pizza v. Rezcallah (1998), 84 Ohio St.3d 116, 131, 702 N.E.2d 81, citing
Froelich v. Cleveland (1919), 99 Ohio St 376, 391, 124 N.E. 212, which states
that general laws “must be impartial in operation and not unduly oppressive upon
individuals, must have a real and substantial relation to their purpose, and must
not interfere with private rights beyond the necessities of the situation.” See
Norwood v. Horney, 110 Ohio St.3d 353, 2006-Ohio-3799, 853 N.E.2d 1115, ¶ 41
(“Section 19, Article I requires that the taking be necessary for the common
welfare”). We conclude that the first sentence of R.C. 169.08(D) violates Section
19, Article I, Ohio Constitution, as to interest earned on unclaimed funds for
which a claim is ultimately submitted.
{¶ 13} “The argument is made that the constitution emanated from the
people and that the welfare of the people is paramount to any private interest.
Very true, but written constitutions have heretofore been framed chiefly to protect
the weak from the strong and to secure to all the people ‘equal protection and
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benefit.’ They have been constructed upon the theory that majorities can and will
take care of themselves; but that the safety and happiness of individuals and
minorities need to be secured by guaranties and limitations in the social compact,
called a constitution. Hence, while it is declared in Article I., Section 19, of our
Constitution, that private property shall be held ‘subservient to the public
welfare,’ it is also declared that it shall ever be held inviolate and shall not be
taken for the public use without compensation, in most cases compensation first
to be made in money.
{¶ 14} “It is regrettable that there should be an apparent necessity for re-
stating such familiar principles; but there seems to be a growing disposition to
legislate, by ordinance and by general statute, regardless of constitutional
limitations, thus imposing upon the courts the odium of declaring them to be
unconstitutional.” (Emphasis sic.) Kiser, 85 Ohio St. at 132-133, 97 N.E. 52.
Statute of Limitations
{¶ 15} R.C. 169.08(B) states, “No statute of limitations shall bar the
allowance of a claim.” This sentence is dispositive as to a claim for underlying
property, but it does not speak to a claim for interest. Sogg argues that R.C.
169.08(B) should apply and that there should be no statute of limitations even as
to interest. We disagree; R.C. 169.08(B) cannot apply to a claim for interest
because the UFA does not allow claims for interest. Zurz argues that the two-year
general statute of limitations for unspecified personal-injury actions should apply,
R.C. 2305.10(A). We disagree because this case does not involve a personal
injury. R.C. 2305.09 states that a claim “[f]or the recovery of personal property,
or for taking or detaining it” must “be brought within four years after the cause
thereof accrued.” We consider this the appropriate statute of limitations because
this case and the UFA are concerned with the recovery of personal property.
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Accordingly, Sogg may recover interest earned on his property in the four years
preceding the date of his claim.
Conclusion
{¶ 16} “Unclaimed funds” are not abandoned; they are the property of
their owner. Accordingly, the state may not appropriate for its own use, against
the owner of the underlying property, interest earned on that property. The first
sentence of R.C. 169.08(D) is unconstitutional. We remand to the trial court to
determine the method to be used to determine how much interest is owed to each
claimant.
Judgment reversed
and cause remanded.
MOYER, C.J., and LUNDBERG STRATTON, O’CONNOR, O’DONNELL, and
CUPP, JJ., concur.
LANZINGER, J., concurs in judgment only.
__________________
Thompson Hine, L.L.P., and William C. Wilkinson; Futterman, Howard,
Watkins, Wylie & Ashley, Chtd., John R. Wylie, and Charles R. Watkins; and
Susman, Heffner & Hurst, L.L.P., Glenn L. Hara, and Arthur T. Susman, for
appellant.
Richard Cordray, Attorney General, Benjamin C. Mizer, Solicitor General,
and William J. Cole and John T. Williams, Assistant Attorneys General, for
appellee.
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