Estes v. U.S. Department of the Treasury
219 F. Supp. 3d 17
| D.D.C. | 2016Background
- The Treasury promulgated a Rule (80 Fed. Reg. 80258, Dec. 24, 2015) specifying when it will honor states’ claims to redeem U.S. savings bonds acquired via state escheat statutes; key requirements include state possession of the physical bonds, notice/due-process in the escheat proceeding, and evidence of abandonment.
- Historically Treasury guidance recognized payment where a state succeeded to title via valid escheat proceedings, but prior materials did not clearly address redemption when a state lacked possession; beginning around 2004 Treasury began denying claims for bonds not physically held by a state.
- Kansas (and other states) enacted title-escheat statutes; Kansas sought large redemptions for bonds it did not possess. Kansas obtained a favorable interlocutory decision in the Court of Federal Claims (Estes I), which interpreted existing regs to potentially cover title-escheat judgments.
- Treasury issued the Rule after notice-and-comment to clarify its authority (relying on waiver authority 31 C.F.R. § 315.90) and to require possession as evidence of abandonment; states sued challenging the Rule under the APA and the Constitution.
- The District Court (Cooper, J.) upheld the Rule, granting summary judgment to Treasury and rejecting claims that the Rule was an unexplained policy reversal, arbitrary and capricious, in violation of the Appointments Clause, preemptive of state judgments, or violative of the Tenth Amendment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule unlawfully changed prior Treasury policy by requiring state possession and adding discretionary review | Plaintiffs: Treasury reversed prior practice—it previously recognized title-based escheat judgments; possession requirement and discretionary waiver are unexplained departures | Treasury: Prior guidance never authorized payment for bonds not possessed; Rule clarifies and formalizes discretionary standards Treasury has long applied | Court: No arbitrary change. Rule is a clarifying, reasoned explanation; possession requirement and discretion explained and supported |
| Whether Rule is otherwise arbitrary and capricious (failure to weigh state unclaimed-property evidence; error in property law; discriminatory treatment) | Plaintiffs: Treasury ignored evidence that states better reunite owners, misinterpreted property law (title should control), and improperly discriminates against states | Treasury: Addressed commenters, explained concerns about notice, inconsistent state regimes, litigation/double-payment risk, and bondowner protections; possession is probative of abandonment | Court: Treasury reasonably considered evidence and articulated rational connection; Rule not arbitrary; disparate-treatment claim fails |
| Whether promulgation violated Appointments Clause (Fiscal Assistant Secretary acted as principal officer) | Plaintiffs: Fiscal Assistant Secretary exercised principal-officer authority in issuing Rule; appointment defective | Treasury: Fiscal Assistant Secretary is removable at will and supervised within statutory/organizational chain; structural oversight exists | Court: No Appointments Clause violation—official is an inferior officer under Edmond factors |
| Whether Rule unlawfully reviews or reverses state-court judgments and violates Tenth Amendment | Plaintiffs: Rule permits agency appellate-style review of state judgments and intrudes on states’ sovereign power over abandoned property | Treasury: Agency determines federal law of ownership and abandonment under statutory authority; Rule evaluates sufficiency of state proceedings for federal redemption purposes; Supremacy permits preemption | Court: Treasury may decline to give federal effect to state escheat judgments when inconsistent with federal savings-bond rules; Rule does not improperly usurp state courts or violate Tenth Amendment |
Key Cases Cited
- Free v. Bland, 369 U.S. 663 (1962) (Congressional delegation permits Treasury to define conditions of savings bonds)
- Treasurer of N.J. v. Dep’t of the Treasury, 684 F.3d 382 (3d Cir. 2012) (state custody-escheat statutes conflict with federal savings-bond scheme)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (1983) (arbitrary-and-capricious review requires reasoned explanation and connection between facts and agency choice)
- FCC v. Fox Television Stations, 556 U.S. 502 (2009) (agencies may change policy but must acknowledge and justify changes)
- Encino Motorcars v. Navarro, 136 S. Ct. 2117 (2016) (agency must give reasoned explanation for policy reversals)
- Auer v. Robbins, 519 U.S. 452 (1997) (deference to agency interpretations of its own ambiguous regulations)
- Edmond v. United States, 520 U.S. 651 (1997) (Appointments Clause analysis; supervision and review are key in inferior-officer determination)