869 F.3d 532
7th Cir.2017Background
- Kolton deposited funds in an Illinois interest-bearing account; after inactivity the funds were transferred to Illinois under the Disposition of Unclaimed Property Act (765 ILCS 1025).
- Illinois takes custody (not ownership) of presumed-abandoned property and keeps/invests it; the owner may claim back only the principal amount the State received (no interest) under 765 ILCS 1025/15.
- Kolton sued the State Treasurer (in his official capacity) under 42 U.S.C. § 1983, alleging the statute’s denial of accrued interest violates the Takings Clause (Fifth Amendment, applied to the States via the Fourteenth).
- Seventh Circuit precedent (Cerajeski v. Zoeller) holds a state may not keep income earned by property it holds in custody; owners must receive the property’s earnings (bookkeeping fees excepted).
- The district court dismissed for lack of subject-matter jurisdiction under Williamson County (requiring pursuit of state compensation procedures before federal takings suits) because Kolton had not sought relief from the Treasurer or in state court.
- The Seventh Circuit vacated and remanded, holding Williamson County is not jurisdictional when state law clearly forecloses compensation; but § 1983 cannot be used to obtain a money judgment against the State and Ex parte Young only allows prospective relief against state officers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 765 ILCS 1025/15 effects a compensable taking by denying interest/time value | Kolton: statute takes time value of money in violation of Takings Clause (citing Brown/Phillips/Webb) | Treasurer: statute is lawful custody-scheme; Illinois not required to pay interest (Cwik supports) | Court: Federal takings claim not barred where state law (Cwik/statute) clearly denies compensation; Cerajeski supports Kolton on the merits regarding earnings |
| Whether Williamson County exhaustion requirement is jurisdictional | Kolton: no need to exhaust where state law plainly precludes relief | Treasurer: Kolton must pursue state procedures before federal suit | Held: Williamson County is not strictly jurisdictional; exhaustion may be forfeited/waived; where state courts already have resolved compensation question, federal forum is available |
| Whether Kolton forfeited argument that state remedies are inadequate | Kolton: Cited statute and Cwik showing state will not provide interest; so exhaustion would be futile | Treasurer: Kolton forfeited by not using state procedures | Held: No forfeiture — statute language and Cwik demonstrate state will not pay, so pursuing state remedies would have been pointless |
| Whether § 1983 suit against State Treasurer can recover money damages despite Eleventh Amendment sovereign immunity | Kolton: seeks damages and injunctive/declaratory relief under § 1983 | Treasurer/State: Eleventh Amendment bars suit for money damages against state; question whether Takings Clause is an exception | Held: Suits against a state official in official capacity are suits against the State; § 1983 does not authorize money judgments against a State. Ex parte Young permits prospective relief only; money damages against Illinois unavailable in this § 1983 action |
Key Cases Cited
- Brown v. Legal Foundation of Washington, 538 U.S. 216 (Takings Clause protects time value of money)
- Phillips v. Washington Legal Foundation, 524 U.S. 156 (same principle on interest/time value)
- Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (interest can be compensable in takings context)
- Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (rule routing takings plaintiffs to state procedures before federal suit)
- Horne v. Department of Agriculture, 569 U.S. 513 (Williamson County not strictly jurisdictional)
- Cerajeski v. Zoeller, 735 F.3d 577 (7th Cir.) (state may not retain income earned on custodial property)
- Will v. Michigan Department of State Police, 491 U.S. 58 (a State is not a "person" under § 1983)
- Ex parte Young, 209 U.S. 123 (prospective relief against state officers for unconstitutional laws)
- Lapides v. University System of Georgia, 535 U.S. 613 (procedural doctrines and sovereign immunity principles)
- Cwik v. Giannoulias, 237 Ill.2d 409 (Ill. Supreme Court: statute divests owner of right to interest; state need not pay)