Lea v. United States
132 Fed. Cl. 705
Fed. Cl.2017Background
- Arkansas amended its unclaimed-property law to allow title-based escheat of matured, unredeemed U.S. savings bonds and obtained a state-court judgment declaring title to bonds (including many that Arkansas did not physically possess) whose owners’ last-known addresses in Treasury records were in Arkansas.
- Arkansas submitted a certified copy of the escheat judgment to the Department of the Treasury and requested redemption of the proceeds for those “absent bonds.” Treasury denied the request.
- Treasury’s regulations (31 C.F.R. pt. 315) treat savings bonds as federal contracts, provide that registration is conclusive of ownership, permit recognition of ownership established by valid judicial proceedings (§ 315.20(b)), and include procedures for relief when bond certificates are lost (§§ 315.25–.26). Treasury later amended regulations to require state possession for recognition of escheat judgments.
- Arkansas sued in the Court of Federal Claims alleging breach of contract (failure to redeem) and related claims; the government moved for summary judgment and Arkansas moved for partial summary judgment on liability.
- The Court held the material facts undisputed and, following its prior reasoning in Estes/LaTurner, concluded that (1) § 315.20(b) requires Treasury to recognize valid state escheat judgments that vest title and (2) Treasury breached the bond contracts by refusing to recognize Arkansas’s ownership and by refusing to provide identifying information or treating possession as a prerequisite to redemption.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a state-court escheat judgment can transfer ownership recognized under 31 C.F.R. § 315.20(b) | Arkansas: § 315.20(b) requires Treasury to recognize ownership established by valid judicial proceedings, including title-based escheat judgments. | U.S.: § 315.20(b) does not encompass escheat judgments; Treasury’s longstanding practice did not require recognizing title-vesting escheats for absent bonds. | Court: Held for Arkansas—§ 315.20(b) covers valid escheat judgments; Treasury’s contrary litigating position conflicted with prior agency statements and regulation text. |
| Whether physical possession of bond certificates is a prerequisite to redemption after title vests | Arkansas: Possession is not required; regulations allow relief for lost bonds and recognition of judicial transfers via certified judgments (§ 315.23, § 315.25). | U.S.: Treasury argues it need not pay absent bonds unless the state presents physical certificates; possession is a practical prerequisite. | Court: Held for Arkansas—possession is not categorically required; treating possession as an absolute prerequisite conflicts with § 315.20(b) and § 315.23 and is premature without giving Arkansas owner information to pursue lost-bond procedures. |
| Whether Arkansas’s title-based escheat statute is preempted or violates intergovernmental immunity | Arkansas: Statute fits within federal regulations that allow title transfers by valid judicial proceedings and thus is not preempted; it does not directly regulate federal operations. | U.S.: State deadline for escheat conflicts with federal law (bonds have no expiration) and would impermissibly compel payment from the Treasury or regulate federal property. | Court: Held for Arkansas—no preemption or intergovernmental-immunity bar where title vests under § 315.20(b); title-based escheat differs materially from custody-based schemes found preempted in Treasurer of N.J. |
| Whether the state-court escheat proceedings satisfied Fourteenth Amendment due process (in rem jurisdiction and notice) | Arkansas: Bonds are intangible; Texas v. New Jersey rule (last-known address) applies; publication notice satisfied Mullane where owners were unlocatable and Treasury records were confidential. | U.S.: The state court lacked constitutional basis for in rem jurisdiction over intangible federal obligations and notice by publication was inadequate. | Court: Held for Arkansas—escheat asserted valid in rem jurisdiction for intangibles under Texas; publication notice constitutionally adequate under Mullane given practical constraints and Treasury’s confidentiality of owner records. |
Key Cases Cited
- Free v. Bland, 369 U.S. 663 (1962) (Treasury-issued savings bonds are federal contracts and federal regulation can displace state property rules)
- Clearfield Trust Co. v. United States, 318 U.S. 363 (1943) (federal law governs rights in federal commercial paper)
- Treasurer of N.J. v. United States Dep’t of the Treasury, 684 F.3d 382 (3d Cir.) (2012) (federal regulations preempt state custody-based unclaimed-property acts; third parties may obtain ownership via valid judicial proceedings)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) (due process requires notice reasonably calculated under the circumstances)
- Texas v. New Jersey, 379 U.S. 674 (1965) (for intangibles, escheat entitlement generally governed by creditor’s last-known address in debtor’s records)
- Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944) (state unclaimed-property statutes and notice-by-publication principles upheld in bank-deposit escheat context)
- Stockton E. Water Dist. v. United States, 583 F.3d 1344 (Fed. Cir. 2009) (trial courts may favor deciding contract claims before constitutional takings claims)