American Exp. Travel Related Services v. Kentucky

Decision Date26 January 2009
Docket NumberNo. 3:08-58-DCR.,3:08-58-DCR.
Citation597 F.Supp.2d 717
PartiesAMERICAN EXPRESS TRAVEL RELATED SERVICES, INC., Plaintiff, v. Commonwealth of KENTUCKY, Kentucky Department of Treasury, and Todd Hollenbach, Treasurer, In His Official Capacity, Defendants.
CourtU.S. District Court — Eastern District of Kentucky

Byron Riggs Lewis, Kathryn V. Eberle, Timothy J. Eifler, Walter L. Sales, Stoll, Keenon & Ogden, PLLC, Louisville, KY, Paul Christopher Harnice, Sarah Jackson Bishop, Stoll Keenon Ogden, Frankfort, KY, for Plaintiff.

Angela Christine Evans, Kentucky Attorney General, Stuart W. Cobb, Tad Thomas, Office of Attorney General, Frankfort, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

DANNY C. REEVES, District Judge.

This case is before the Court for consideration of the Motion to Dismiss filed by Defendants Commonwealth of Kentucky, Kentucky Department of Treasury, and Todd Hollenbach, in his official capacity as Treasurer ("Defendants"). [Record No. 27] These Defendants ask the Court to dismiss the Complaint [Record No. 1] filed by Plaintiff American Express Travel Related Services, Inc. ("American Express" or "Plaintiff"). At issue is the constitutionality of legislative enactments that shorten the presumptive abandonment period of traveler's checks from 15 years to 7 years.

The legislative enactments at issue are Part III, Section 30 of House Bill 406 ("Section 30") and House Bill 704 ("HB 704"). Section 30 reads as follows:

30. Abandonment of Traveler's Checks: Notwithstanding K.R.S. 393.060, traveler's checks held or owing by a banking or financial organization shall be presumed abandoned when the period of time the traveler's checks have been outstanding exceeds seven years, unless the owner has within seven years corresponded in writing with the banking or financial organization concerning the traveler's checks, or otherwise indicated an interest as evidenced by a memorandum on file with the banking of financial organization.

Part III, Section 30, HB 406. HB 704 mirrors the language of Section 30. The relationship between Section 30 and HB 704 is discussed in more detail below. American Express challenges the constitutionality of both provisions.

I. BACKGROUND

The Kentucky General Assembly passed House Bill 380 ("2006 Budget Bill") to apply to fiscal years 2007 to 2008. The 2006 Budget Bill substituted a 7-year presumed abandonment period for traveler's checks in place of the existing 15-year period. This provision was an amendment to K.R.S. 393.060, which had provided for an original 15-year period. In response to this enactment, American Express filed suit in Franklin Circuit Court against the Commonwealth of Kentucky, the Kentucky Department of Treasury, the Treasurer in his official capacity, and the State Budget Director in his official capacity.

The Franklin Circuit Court ruled in favor of the Plaintiff on the grounds that the legislature did not follow the "constitutional and statutory procedures that have been created to protect Kentucky's citizens from stealth legislation." [Record No. 8, Exhibit C] Specifically, the circuit court found that the legislature had failed to meet the notice and publication requirements of Section 51 of the Kentucky Constitution by attempting to amend K.R.S. § 393.060 within a budget bill. [Record No. 8, Exhibit C] However, the court did not rule on the question of the constitutionality of the actual presumed abandonment period. The State Budget Director appealed this decision and the Kentucky Court of Appeals dismissed the appeal on procedural grounds in October 2008. [Record No. 23, Attach. 1] An appeal from that decision has been filed.

In 2008, the General Assembly passed House Bill 406 ("2008 Budget Bill") which included Section 30, a provision that once again amended K.R.S. § 393.060 to reflect a 7-year presumed abandonment period. Additionally, the General Assembly passed HB 704, which contained, in substance, the same information as Section 30. However, HB 704 was a measure taken to comply with the Franklin Circuit Court's ruling from the 2006 Budget Bill. HB 704 followed the notice and publication procedures that the Franklin Circuit Court had found were integral to the constitutionality of the 2006 Budget Bill provision. [See Record No. 8] American Express filed suit in this Court on July 28, 2008, seeking declaratory and injunctive relief. [Record No. 1] It bases its suit on both federal and state grounds. The federal claims, asserted under 42 U.S.C.1983, allege that Section 30 and HB 704 violate the Due Process Clause of the 14th Amendment; the Contract Clause of Article 1, Section 10, of the United States Constitution; and the Takings Clause of the 5th Amendment. The state claims allege that Section 30 and HB 704 violate provisions of the Kentucky Constitution—specifically, the provisions that mirror the above federal constitutional provisions, along with Sections 42, 51, and 56, which govern the title of laws and the length of legislative sessions. In essence, the Commonwealth of Kentucky and American Express are locked in a battle over the "float," or, the investment income generated from possession of traveler's check proceeds before they are cashed. The Defendants lay claim to these funds based on its sovereign escheat power.

II. STANDARD OF REVIEW

This Court will grant a motion brought pursuant to Rule 12(b)(6) "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). A court must construe the complaint in a light most favorable to the plaintiff, accept all the factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief. See Ley v. Visteon Corp., 540 F.3d 376, 380 (6th Cir.2008); Lillard v. Shelby County Bd. of Educ., 76 F.3d 716, 724 (6th Cir.1996). "Factual allegations contained in a complaint must raise a right to relief above the speculative level." Bassett v. Nat'l Coll. Athletic Ass'n, 528 F.3d 426, 430 (6th Cir.2008) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In other words, the plaintiff's arguments "require[ ] more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964-1965. However, heightened fact pleading of specifics is not required—only enough facts to state a claim to relief that is plausible on its face. See Bassett, 528 F.3d at 426. The Court may consider the complaint, as well as "any exhibits attached thereto, public records, [and] items appearing in the record of the case." Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir.2001) (citation omitted). Additionally, a federal court sitting in diversity must apply the law of the forum state. Lukowski v. CSX Transp., Inc., 416 F.3d 478, 484 (6th Cir. 2005).

III. ANALYSIS
A. Abstention

The Defendants argue that the Court should abstain from hearing this action. They base their argument on two doctrines: (1) Younger abstention, which prohibits federal courts from interfering with ongoing state proceedings; and (2) Pullman abstention, which prohibits federal courts from resolving a federal constitutional issue when state law is uncertain and a state court's clarification of state law might make the federal court's constitutional ruling unnecessary. Both doctrines are based on seminal Supreme Court cases: Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) and R.R. Comm'n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941).

As a general rule, district courts have an obligation and a duty to decide cases properly before them, and "[a]bstention from the exercise of federal jurisdiction is the exception, not the rule." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). In the present case, the requirements for the Younger abstention doctrine have been met as to the Plaintiff's state claim in Count VI of the Complaint, alleging violation of §§ 42 and 56 of the Kentucky Constitution. This issue is being addressed by the Franklin Circuit Court. See Williams v. Grayson, Civil Action No. 08-CI-856 (Franklin Circuit Court). Therefore, the Court will not interfere with the state court's determination of these state law issues. See Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987).

However, abstention is not appropriate regarding Plaintiff's federal claims of Due Process, Contract Clause, and Takings Clause violations. Although the federal claims concern two state legislative enactments, the outcome of the litigation turns on an interpretation of federal constitutional law, not state law. These federal claims are certainly matters which may be resolved by this Court.

B. Eleventh Amendment Immunity

The Defendants next argue that this suit is barred by the Eleventh Amendment to the United States Constitution.1 States have long enjoyed certain immunities from suit in federal court. The concept of sovereign immunity derives not only from the Eleventh Amendment, but also from the structure and history of the Constitution itself, along with older fundamentals of state sovereignty existing before the ratification of the Constitution. Alden v. Me., 527 U.S. 706, 713, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999). This immunity bars suits by citizens of the state itself as well as citizens of other states or foreign countries. See Hans v. La., 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890). Thus, American Express' claims against the Commonwealth of Kentucky and the Kentucky Department of Treasury are barred by the protective arm of the Eleventh Amendment. The Department of Treasury is clearly a part of the state for purposes of...

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