Am. Express Travel Related Serv. Co. Inc. v. Commonwealth of Ky.

• Citation: 641 F.3d 685
• Decision Date: 05 May 2011
• Docket Number: No. 09–5898.,09–5898.
• Parties: AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Plaintiff–Appellee,v.Commonwealth of KENTUCKY, Kentucky Department of the Treasury, Defendant,Todd Hollenbach, Treasurer, in his official capacity, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

641 F.3d 685

AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Plaintiff–Appellee,

v.Commonwealth of KENTUCKY, Kentucky Department of the Treasury, Defendant,Todd Hollenbach, Treasurer, in his official capacity, Defendant–Appellant.

No. 09–5898.

United States Court of Appeals, Sixth Circuit.

Argued: March 11, 2011.Decided and Filed: May 5, 2011.

OPINION TEXT STARTS HEREWest CodenotesNegative Treatment VacatedKRS 393.060ARGUED: Stuart W. Cobb, Office of the Kentucky Attorney General, Frankfort, Kentucky, for Appellant. Walter L. Sales, Stoll Keenon Ogden PLLC, Louisville, Kentucky, for Appellee. ON BRIEF: Stuart W. Cobb, Tad Thomas, Office of the Kentucky Attorney General, Frankfort, Kentucky, for Appellant. Walter L. Sales, Timothy J. Eifler, David S. Sullivan, Stoll Keenon Ogden PLLC, Louisville, Kentucky, for Appellee.Before: KENNEDY and MARTIN, Circuit Judges; MURPHY, District Judge. ^*

OPINION

CORNELIA G. KENNEDY, Circuit Judge.

Defendant–Appellant Todd Hollenbach, the Treasurer of Kentucky, appeals the district court's order declaring unconstitutional an amendment to section 393.060 of the Kentucky Revised Statutes. The amendment shortens the period after which state law imposes a presumption of abandonment on traveler's checks, thereby accelerating the date at which the issuer of an unclaimed traveler's check must remit the outstanding funds to the state. The district court determined that the amendment violated the Fourteenth Amendment Due Process Clause because it lacked a rational basis. Accordingly, the district court granted declaratory and injunctive relief to Plaintiff–Appellee American Express Travel Related Services Co. (“American Express”). Because we hold that the amendment does not violate the Due Process Clause, we VACATE the district court's decision and REMAND the case for consideration of American Express's remaining constitutional claims.

FACTUAL AND PROCEDURAL BACKGROUND

American Express is in the business of issuing traveler's checks, which are preprinted “checks” in fixed dollar amounts ranging from $20–100. Upon the sale of a traveler's check, either by American Express directly or through a third-party vendor, American Express receives the funds tendered for the check and records the serial number of the check, its amount, and the date and place of sale; thereafter, American Express will honor the check in its full amount upon presentation by a holder in due course. American Express sells traveler's checks to its customers at face value, that is, free of any service charges or fees. It profits from this business by investing the funds it receives from the sale of traveler's checks, which it retains until the checks are redeemed. Traveler's checks have no expiration date, and although the majority of purchasers cash their traveler's checks within one year, American Express relies on a small percentage of traveler's checks remaining uncashed for several years. It can therefore invest some funds from outstanding traveler's checks in long-term, high-yield investments, up until state property law imposes a presumption of abandonment on uncashed traveler's checks. At that point, American Express must remit the outstanding funds to the state. Until recently, all fifty states followed the presumption that a traveler's check was abandoned if still outstanding more than fifteen years after issuance, as recommended in the Uniform Unclaimed Property Act.

In 2006, the Kentucky General Assembly shortened the presumptive abandonment period for traveler's checks to seven years as part of its budget legislation for fiscal years 2007 and 2008 (the “2006 amendment”).¹ American Express claims that the legislation will render its traveler's check business in Kentucky unprofitable, as the shorter presumptive abandonment period curtails its ability to place the funds from uncashed traveler's checks in long-term investments. Consequently, American Express challenged the 2006 amendment in Kentucky state court under both the Kentucky Constitution and the Federal Constitution. The Franklin Circuit Court invalidated the enactment for failure to comply with the procedure for amending legislation required by Section 51 of the Kentucky Constitution, but it did not consider American Express's other claims of unconstitutionality. An appeal of this decision was dismissed on procedural grounds by the Kentucky Court of Appeals, Lassiter v. Am. Express Travel Related Servs. Co., Nos.2007–CA–000908, 2007–CA–000973, 2008 WL 7448204 (Ky.Ct.App. Oct. 3, 2008), and then reinstated by the Kentucky Supreme Court, Lassiter v. Am. Express Travel Related Servs. Co., 308 S.W.3d 714 (Ky.2010); the Kentucky Court of Appeals is currently holding the case in abeyance pending disposition of this appeal.

In 2008, the Kentucky General Assembly again passed legislation amending section 393.060 to reflect a seven-year presumptive abandonment period for traveler's checks (the “2008 amendment”). The enactment was incorporated into the budget legislation for fiscal years 2009 and 2010, as well as a separate bill designed to cure the procedural defects identified by the Franklin Circuit Court with respect to the 2006 amendment. In response, American Express filed suit in the United States District Court for the Eastern District of Kentucky against the Commonwealth of Kentucky, the Kentucky Department of Treasury, and Todd Hollenbach, in his official capacity as Treasurer of Kentucky. American Express requested declaratory and injunctive relief, asserting that the 2008 amendment violates the Due Process Clause of the Fourteenth Amendment, the Contracts Clause of Article I, Section 10, and the Takings Clause of the Fifth and Fourteenth Amendments, as well as provisions of the Kentucky Constitution. The district court dismissed American Express's state-law claims based on abstention principles and dismissed as defendants the Commonwealth and the Department of Treasury based on sovereign immunity. Am. Express Travel Related Servs. v. Kentucky, 597 F.Supp.2d 717 (E.D.Ky.2009).

Both American Express and the Treasurer moved for summary judgment on American Express's federal constitutional claims, and the district court granted summary judgment to American Express. The district court concluded that, because the 2008 amendment was intended as a revenue-raising measure, it did not satisfy rational basis review and it therefore violated substantive due process principles. Am. Express Travel Related Servs. Co. v. Hollenbach, 630 F.Supp.2d 757, 760–64 (E.D.Ky.2009). Though the district court expressed doubt about the viability of American Express's challenges under the Contracts Clause and the Takings Clause, it declined to rule on these claims given its holding that the 2008 amendment violated the Due Process Clause. Id. at 764–66. After the district court denied the Treasurer's motion for reconsideration, Am. Express Travel Related Servs. Co. v. Hollenbach, No. 08–58, 2009 WL 2382407 (E.D.Ky. July 30, 2009), the Treasurer timely filed the instant appeal.

STANDARD OF REVIEW

“This Court reviews de novo a district court's grant of summary judgment.” LensCrafters, Inc. v. Robinson, 403 F.3d 798, 802 (6th Cir.2005) (citing Gribcheck v. Runyon, 245 F.3d 547, 550 (6th Cir.2001)). Summary judgment is proper where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A court considering a summary judgment motion considers the facts in the light most favorable to the nonmoving party and draws all reasonable inferences in favor of the nonmoving party.” LensCrafters, 403 F.3d at 802 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). “The constitutionality of a state statute is a question of law which this Court reviews de novo.” Cherry Hill Vineyards, LLC v. Lilly, 553 F.3d 423, 431 (6th Cir.2008) (citing Cmtys. for Equity v. Mich. High Sch. Athletic Ass'n, 459 F.3d 676, 680 (6th Cir.2006)).

ANALYSIS

I. Substantive Due Process Claim

In analyzing American Express's substantive due process claim, the district court used “a two-part analysis” involving the determination of whether American Express's interest in the unclaimed funds from issued traveler's checks constitutes “a protected liberty or property interest under the Fourteenth Amendment.” Hollenbach, 630 F.Supp.2d at 760–61 (relying on Wojcik v. City of Romulus, 257 F.3d 600, 609 (6th Cir.2001)). Though a plaintiff must demonstrate a deprivation of a constitutionally protected liberty or property interest in order to establish a due process violation based on discretionary conduct of government officials, see Prater v. City of Burnside, Ky., 289 F.3d 417, 431–32 (6th Cir.2002), such a showing is not necessary to establish that a state law is unconstitutional, see, e.g., Craigmiles v. Giles, 312 F.3d 220, 223–24 (6th Cir.2002) (evaluating plaintiffs' due process challenge to a Tennessee statute governing licensure of funeral directors by considering only whether the statute survived rational basis scrutiny). An individual or entity with constitutional standing to challenge legislation on due process grounds has at stake the “right not to be subject to ‘arbitrary or capricious' action by a state either by legislative or administrative action.” Pearson v. City of Grand Blanc, 961 F.2d 1211, 1217 (6th Cir.1992). Accordingly, we consider only whether the 2008 amendment “is judicially voidable on its face [because] it necessarily compels results in all cases which are ‘arbitrary and capricious, bearing no relation to the police power.’ ” Sam & Ali, Inc. v. Ohio Dep't of Liquor Control, 158 F.3d 397, 402–03 (6th Cir.1998) (quoting Eastlake v. Forest City Enters., Inc., 426 U.S. 668, 676, 96 S.Ct. 2358, 49 L.Ed.2d 132 (1976)).

“ ‘[L]egislation that does not proscribe fundamental liberties ... violates the Due Process Clause’ where it imposes burdens without any ‘rational...