912 F.3d 1009
7th Cir.2019Background
- Plaintiffs challenge Illinois’s retention of earnings from property turned over under the Disposition of Unclaimed Property Act after the state takes custody.
- Seventh Circuit previously held that owners are entitled to the time value (interest/earnings) of property retained by a state, less reasonable custodial fees (Kolton; Cerajeski).
- On remand the district court refused class certification, holding owners get time value only if the property was earning interest before the state took custody.
- The district court granted summary judgment for the State for putative class representative Goldberg, whose $100 check was not in an interest-bearing account pre-transfer.
- Plaintiffs appealed the partial final judgment; the Seventh Circuit reviews whether pre-transfer earning status controls entitlement to time value.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether owners are entitled to time value of property taken by the state regardless of whether the property earned interest pre-transfer | Time value is protected by the Takings Clause; entitlement does not depend on prior interest status (Kolton/Cerajeski) | Relief limited to property that was earning interest pre-transfer (per Cwik) | Owner is entitled to time value if the property could earn net interest in the state’s hands; prior private interest-bearing status is irrelevant |
| Whether Brown v. Legal Foundation permits withholding earnings for de minimis amounts | Brown allows withholding when principal cannot earn net interest after administrative costs | State says Brown bars recovery for small amounts like Goldberg’s $100 | Brown applies to amounts that cannot earn net interest; state may argue on remand that very small parcels qualify, but prior interest status still irrelevant |
| Effect on class certification | Class can be cohesive because entitlement depends on property’s ability to earn net interest, not on prior account type | District court thought internal divisions (interest-bearing vs non) defeated certification | Court signals district court should reconsider class certification under correct legal standard |
| Appropriate remedy when state invests proceeds after taking custody | Owner must receive earnings (less custodial fees) as substitute for lost appreciation or cash’s option value | State can retain bookkeeping fees and argue costs exceed earnings | State must return earnings earned in custody (unless Brown’s de minimis exception applies); custodial fees may be deducted |
Key Cases Cited
- Kolton v. Frerichs, 869 F.3d 532 (7th Cir. 2017) (held owners entitled to time value of property taken by state, less custodial fees)
- Cerajeski v. Zoeller, 735 F.3d 577 (7th Cir. 2013) (applied Supreme Court takings precedents to require states to return earnings)
- Brown v. Legal Foundation of Washington, 538 U.S. 216 (2003) (permits withholding earnings when principal cannot earn net interest after administrative costs)
- Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998) (Takings Clause protects time value of money)
- Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980) (recognized time value protection under the Takings Clause)
- Cwik v. Topinka, 389 Ill. App. 3d 21 (Ill. App. Ct. 2009) (Illinois appellate decision limiting recovery to property already earning interest; district court relied on this but Seventh Circuit rejected its application here)