Lead Opinion
Aрpellant, Ronald J. Smolow, challenges the Commonwealth Court’s decision to dismiss his class action complaint against the State Treasurer and the Treasury Department (collectively, the “Department”), which asserted, inter alia, a challenge to the constitutionality of Pennsylvania’s Disposition of Abandoned and Unclaimed Property Act, Act of December 9, 1982, P.L. 1057 § 5 (as amended 72 P.S. §§ 1301.1-1301.29) (“DAU-PA”), and a claim for damages and attorney fees pursuant to 42 U.S.C. § 1983.
The facts as pled in Smolow’s amended complaint are as follows: In August 2002, the Department took possession of 300 shares of common stock in Parker Drilling Company as abandoned and/or unclaimed property, pursuant to DAUPA. See 72 P.S. § 1301.6 (prescribing that certificates of stock are “presumed abandoned or unclaimed” if the owner has not claimed such property or corresponded in writing with the business association within five years of the prescribed date of delivery);
After discovering this in August 2003, Smolow filed a claim with the Department asserting ownership of the stock and seeking recovery of its proceeds, which was granted; however, pursuant to its interpretation of the governing statute and the Department’s policies and procedures, the Department paid no interest on the claim. Accord 72 P.S. § 1301.17(d) (“The State Treasurer shall be responsible to an owner only for the amount actually received by the State Treasurer upon the sale оf any property----”). In January 2004, Smolow filed a claim requesting interest, estimated at $30, which the Department denied.
Smolow then filed his seven-count, class action civil-rights complaint, invoking the Commonwealth Court’s jurisdiction under Section 1301.21 of DAUPA, which provides:
Any person aggrieved by a decision of the State Treasurer or as to whose claim the State Treasurer has failed to act within ninety (90) days after the filing of the claim, may commence an action in the Commonwealth Court to estаblish his claim. The proceeding shall be brought within thirty (30) days after the decision of the State Treasurer or within one hundred twenty (120) days from the filing of the claim if the State Treasurer fails to act. The action shall be tried de novo without a jury.
72 P.S. § 1301.21. Smolow defined the class as “[a]ll persons and entities whose property was delivered to the defendants as unclaimed or abandoned property pursuant to the DAUPA, converted to cash, and returned to the owner without just compensation” within a six-year period prior to the filing of the class action lawsuit. Amended Complaint ¶ 22.
In the complaint, Smolow asserted that the Department was obliged to pay class members earned interest under Section 1301.15 of DAUPA, which provides, “When property is paid or delivered to the State Treasurer under this article, the owner is entitled to receive income or other increments actually received by the State Treasurer.” 72 P.S. § 1301.15. Alternatively, Smolow contended that, to the extent that DAUPA does not rеquire the payment of interest, the statute is unconstitutional under Article 1, Section 10 of the Pennsylvania Constitution,
Initially, the Department offered to pay Smolow’s clаim to resolve it. After this was refused, the Department filed preliminary objections, asserting that the class action complaint was erroneously brought in the Commonwealth Court’s original jurisdiction when, in fact, it represented an
In its published opinion supporting the granting of the preliminary objections and dismissal of the class action complaint with prejudice, the Commonwealth Court first agreed with Smolow’s position that his action resided within the court’s original, as opposed to appellate, jurisdiction. Smolow v. Hafer,
The Commonwealth Court then held that Smolow’s cause of action should be dismissed as a matter of law. See id. at 774-76. In this respect, the court indicated that Smolow had been neglectful in abandoning his property, thus foreclosing the conclusion that the Commonwealth had engaged in any “taking” for purposes of Article 1, Section 10. See id. at 775. The court explained that its holding was consistent with federal constitutional law cases opining that the State is not required “to compensate the owner for the consequences of his own neglect.” Texaco v. Short, 454 U.S. 516,
Turning to his individual claims, Smolow contends that the concept of just compensation under Article 1, Section 10 requires not only the return of the principal property, but also interest, earnings, or other accruals on the property while held in the state’s custody subject to utilization for public purposes.
Smolow asserts his individual claim relying on the maxim that interest follows principal, averring that, by analogy, an owner holds title to both the abandoned property and the interest earned. Smolow relies upon the federal constitutional decisions exemplified by Webb’s Fabulous Pharmacies, Inc. v. Beckwith,
The Department’s brief follows the Commonwealth Court’s reasoning, emphasizing the High Court’s admonition in Texaco that, where the owner’s failure to make any use of the property, and not the actions of the state, causes the lapse of a property right, there is no taking. See Texaco,
We reject Smolow’s argument because it strains common sense to suggest that the Commonwealth is obligated to pay interest to a negligent owner, who has presumably ignored his property for several years. The conceit present in Smolow’s theory is that the negligent owner is entitled to interest despite the lack of an indication that the interest would have been earned by the negligent owner if he had possession of the property during the relevant time. For example, if the property had been an abandoned suitcase of cash, why should the owner receive interest earned through the DAUPA system, when that cash would not have eаrned any interest sitting in the suitcase?
Indeed, Plaintiff’s claim has already been rejected in substance by the United States Supreme Court. As noted, in Texaco, the Court concluded that an owner was not entitled to compensation when he lost property rights based upon his own negligence in failing to make use of his property, rather than through any action of the state. Id. (“[T]his Court has never required the [sjtate to compensate the owner for the consequences of his own neglect.”). As notеd by Smolow, however, Texaco can be distinguished from the DAUPA situation because the state never obtained control over the property in Texaco, but instead merely caused the title of the property to pass from the subsurface owner who abandoned the property, to the surface owner.
A Louisiana appellate court, however, looked to the holding in Texaco, premised on the owner’s negligence, and applied it to contrast eminent domain cases with litigation under abаndoned property statutes, similar to DAUPA. The court observed, “[t]he triggering event in the exercise of the state’s power of eminent domain is the state’s overt act of taking private property from an owner,” Hooks v. Treasurer,
We can find no bar to this statutory scheme. When the state receives custody, it is also required to assume, in аpparent perpetuity, the responsibility of safekeeping the property for any owners who may wish to re-claim their abandoned property. In return for this advantageous long-term reclaiming service, the state is afforded the benefit of retaining, after any deductions required by law, the interest earned from post-abandonment actions of the state.
Id. The Louisiana court opined that the statutory duty to maintain a system for safekeeping the abandoned property “cannot logically or fairly be stretched to create a higher fiduciary duty to pay interest not earned by any action of an owner who abandoned not only his property and investment opportunities, but also the responsibility
Similarly, the United States District Court for the Eastern District of Pennsylvania, in reviewing a successor plaintiff to Smolow
In contrast, a few courts have concluded that a taking occurs when interest is retained under statutes similar to DAUPA. See Suever v. Connell,
After review, we fully agree with the decisions of our sister courts, including the Eastern District of Pennsylvania looking at this ease, that owners of presumptively abandoned property have no claim to the interest earned while the abandoned property is held in perpetual temporary custody of the state. The DAUPA procedures result not from a taking by overt act of the Commonwealth, but are triggered by the neglect of the owner. See Texaco,
As the claims of the putative class would fail for the same reasons that Smolow’s individual constitutional takings challenge to the statute fails, we do not reach the questions of class certification, but instead
Notes
. This case was reassigned to this author.
. Section 1983 "creates a remedy for violations of federal rights committed by persons acting under color of state law.” Howlett v. Rose,
. The statute was amended, effective July 1, 2002, to provide that property is presumed abandoned after five years, rather than the previous period of seven years.
. DAUPA's mechanics are discussed at greater length in the Commonwealth Court's opinion. See Smolow v. Hafer,
. Article I, Section 10 represents Pennsylvania’s analogue to the federal Takings Clause, reposited in the Fifth Amendment to the United States Constitution. It provides, inter alia, that "private property [shall not] be taken or applied to public use, without authority of law and without just compensation being first made or secured.”
. This Court has applied the federal constitutional takings jurisprudence embodied in the decisions of the United States Supreme Court when considering takings issues under the Pennsylvania Constitution. See Machipongo Land and Coal Co., Inc. v. Commonwealth of Pennsylvania, Dep’t of Env.,
. The federal litigation was initially stayed, see id.; the stay was ultimately lifted, Smolow v. Hafer,
. The Commonwealth Court also agreed with the Department that class certification would be inappropriate, because putative class members failed to comply with DAUPA’s requirement of submitting claims to the Department. See Smolow,
. We acknowledge that the Commonwealth Court incorrectly framed Smolow's argument as contending that the Commonwealth committed a compensable taking upon initial receipt of Smolow's stock. Smolow notes that no compensable taking could occur at the time the Department received the principal because at that point the Department was not claiming ownership but was merely holding the principal in perpetuity until claimed by the owner. Instead, Smolow maintains that a compensable taking oсcurred when the Department gave the principal back but retained the interest. Accordingly, the moment when the Department returned the principal (over which it never claimed ownership) but retained the interest (thus asserting ownership) is the only time Appellant asserts that a compensable taking occurred.
. Brown, however, also stands for a second proposition that is arguably fatal to Smolow’s claim, "that the 'just compensation' required by the Fifth Amendment is measured by the property owner’s loss rather than the government's gain.” Brown,
. The federal district court dismissed Smolow as the named-plaintiff in his parallel federal action after determining that Smolow could not claim any net loss justifying compensation, even if the court determined that a taking had occurred. After considering expert testimony presented by both sides, the federal court, concluded that thе $170.48 in costs of managing Smolow's presumptively abandoned property far exceeded the interest earned, even taking Smolow’s interest figure, which exceeded the Commonwealth’s interest figure. Smolow,
. Moreover, even if Smolow had stated a claim, it would have been a waste of judicial resources to remand this case for development of the record to determine if he had suffered the net loss required to justify compensation. See Brown,
Dissenting Opinion
dissenting.
As the majority observes, other courts are divided on the subject matter of this appeal, namely, whether a state implementing a scheme of custodial escheat for unclaimed property may appropriate interest earned on reclaimed funds. Compare Suever v. Connell, No. C 03-00156 RS, slip op.,
Although I do not necessarily disagree with the majority’s decision on the merits to the extent that it is read as rejecting only a facial (as opposed to as-applied) constitutional attack on the statute as implemented by the Department, left to my own devices, I would not reach the merits of Appellant’s arguments at this juncture. Rather, I believe the Commonwealth Court should have considered the general principle that courts will not address debatable constitutional challenges where there is an alternate basis for disposition. See Commonwealth v. Hughes,
In summary, 1 believe that the most prudential approach to this appeal would be to enforce the application of the settled approach of screening for grounds for resolution alternative to addressing a debatable constitutional claim, рarticularly since this would clarify whether the decision on the constitutional question is in any way meaningful to the party in interest. Notably, again, the majority ultimately concludes that its own decision simply is not. See id.
. The majority's suitcase-of-cash example can be contrasted with a continuum of other situations in which an owner may not have the present ability to monitor his or her property, such as circumstances of medical incapacity or inheritance of unknown assets.
. It oсcurs to me that the consistent application of this prudential sort of approach to the review is particularly preferable in cases reaching this Court via direct appeal, as it ensures that appeals as of right are appropriately framed and developed for the appellate review. Notably, in the direct-review matters, this Court does not have the ability to prescreen the cases based upon suitability considerations, as it does on the discretionary review docket.