Ninth Circuit: No Taking of Interest on Abandoned (Escheated) Property

You snooze, you lose.  That's the lesson from Turnacliff v. Westly, No. 07-15287 (Oct. 15, 2008), where the Ninth Circuit rejected a claim that California's escheat statute, which sets a rate for interest on abandoned property, violated the Takings Clause.  The owner whose abandoned property was eventually returned (with statutory interest) claimed that the state had a constitutional obligation to use some form of market rate for calculating the interest.

The court assumed the existence of a property right in interest earned on escheated property, but held that because that property itself had been abandoned, the owner had forfeited any property claim in the interest on the property.  The owner got its money back, with interest, and the court held the owner

. . . has no Fifth Amendment right to "actual" or "constructive" interest earned by its property while held by the State; California need not further compensate the Estate for the consequences of the Estate’s neglect.

Slip op. at 14560.  The takings analysis starts at page 14558 of the slip opinion.

Update: the San Francisco Chronicle has a story on this case with an angle not noted in the opinion.  California has apparently amended its statute to provide no interest on escheated property:

The dispute before the Ninth U.S. Circuit Court of Appeals in San Francisco involved funds that the state confiscated when California law entitled the owner to collect interest, at a specified rate, when reclaiming the property. But the ruling also applies to seizures after 2003, when state law was changed to eliminate interest.

. . .

William Palmer, a lawyer for the property owner in that case, wants to convert the lawsuit to a class action on behalf of 6.4 million people - all of whom, he said, had their property seized by the state without notice. He said the state has estimated their potential interest payments at a minimum of $500 million.

Palmer disagreed with Morazzini and said he doesn't think Wednesday's ruling will eliminate interest to everyone who reclaims their property from the state.

"My clients are not people who abandoned their property," because they had no way of knowing it had been seized, he said.