Garza v. Woods

• Docket Number: CV-22-01310-PHX-JJT
• Decision Date: 30 August 2023
• Parties: Jessica Garza, et al., Plaintiffs, v. Rob Woods, et al., Defendants.
• Court: U.S. District Court — District of Arizona

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Jessica Garza, et al., Plaintiffs,
v.
Rob Woods, et al., Defendants.

No. CV-22-01310-PHX-JJT

United States District Court, D. Arizona

August 30, 2023

ORDER

Honorable John J. Tuchi United States District Judge

At issue is Defendants' Partial Motion to Dismiss First Amended Complaint (Doc. 20, MTD), to which Plaintiffs filed a Response (Doc. 23, Resp.) and Defendants filed a corrected Reply (Doc. 25-1, Reply). In this Order, the Court will also resolve Plaintiffs' Motion for Preliminary Injunction (Doc. 27), to which Defendants filed a Response (Doc. 34), Plaintiffs filed a Reply (Doc. 38), amicus National Association of Unclaimed Property Administrators filed a brief in opposition (Doc. 40), and Plaintiffs filed a Response thereto (Doc. 41). The Court will resolve these Motions without oral argument. LRCiv 7.2(f).

I. BACKGROUND

In 2000, Arizona enacted into law its present version of the Unclaimed Property Act, A.R.S. §§ 44-301 et seq. (“AUPA”), based on the then-current (1995) version of the Uniform Unclaimed Property Act promulgated by the Uniform Law Commission. See A.R.S. § 44-331 (“This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states that enact the uniform unclaimed property act.”).^[1] In the corrected First Amended

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Complaint (Doc. 19-1, FAC), Plaintiffs Jessica Garza and Kevin Terrell, on behalf of themselves and a putative class, challenge the constitutionality of AUPA, naming as Defendants Rob Woods, in his official capacity as Director of Arizona Department of Revenue (“ADOR”), and William Nagel, in his official capacity as Unclaimed Property Administrator within ADOR.

As background, Defendants explain

The twin goals of the AUPA were to provide a centralized source for owners or their heirs to locate and make claims for unclaimed property, and to give the State the ability to use unclaimed funds for the public good until and unless such time that an owner or heir submits a valid claim. The procedure established by the AUPA, as in the Uniform Act, is straightforward. After a lengthy dormancy period i.e., a period in which the apparent owner of the property does nothing indicating an interest in the property (or otherwise ceases contact with the holder) the holder of the property sends written notice to the apparent owner using its most current information, seeking confirmation of ownership. If the apparent owner does not respond within four months, the property is deemed abandoned, at which point the holder is required to transfer it to the State's custody with nearly all of the cash balances (and proceeds from sale of tangible property) later deposited into the general fund for public use. The State, in turn, provides notice to potential claimants, not only through publication, but through social media and a publicly available website, searchable by name or address. Using the website, an owner can easily locate his or her abandoned property and, with just a few clicks, submit a claim. If the State finds that the claim is valid, it is paid; if not, there is an administrative process for resolving any dispute.

(MTD at 1-2.) Plaintiffs allege individuals can make claims with the State for unclaimed property for a period of 35 years under A.R.S. § 44-317(E). (FAC ¶ 31 (citing A.R.S. § 44-317(E) (“. . . a person may file a claim . . . within thirty-five years after the final day of the fiscal year in which the department receives the unclaimed property”)).)

Plaintiffs claim AUPA is facially unconstitutional “because it does not require Defendants to provide notice to property owners prior to depriving them of their private property” or “provide adequate notice to property owners after depriving them of their private property.” (FAC ¶¶ 60(a)-(b).) Plaintiffs further claim Defendants violated Plaintiffs' rights “under the Fifth Amendment (Takings Clause) and Fourteenth

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Amendment (Due Process Clause)” and “acted ultra vires by enforcing [AUPA].” (FAC ¶¶ 60(c)-(d).)

Plaintiffs bring the following claims: (1) declaratory relief, (2) procedural due process violation under 42 U.S.C. § 1983 based on lack of adequate pre-transfer notice, (3) procedural due process violation under § 1983 based on lack of adequate post-transfer notice, (4) procedural due process violation under the United States Constitution based on lack of adequate pre-transfer notice, (5) procedural due process violation under the Constitution based on lack of adequate post-transfer notice, (6) Takings Clause violation under § 1983, and (7) Takings Clause violation under the Constitution. In addition to a refund of the value of their property Plaintiffs allege Arizona is holding, Plaintiffs seek permanent injunctive relief and “[Restitution and disgorgement of all ill-gotten gains to the public and/or claimants.” (FAC at 24, Prayer for Relief 5.) Plaintiffs allege that over 1.8 billion dollars of unclaimed property “has been seized” by ADOR as of June 30, 2021. (FAC ¶ 32.)

In their Response brief, Plaintiffs concede that “the Court should dismiss their constitutional claims not asserted within the context of 42 U.S.C. § 1983.” (Resp. at 5 n.3.) The Court agrees and will dismiss Counts 4, 5, and 7.

Defendants now contend the Court lacks subject matter jurisdiction over Plaintiffs' claims for retrospective relief based on Defendants' Eleventh Amendment immunity from suit regarding those claims, and Defendants therefore seek dismissal of those claims under Federal Rule of Civil Procedure 12(b)(1). Defendants also contend that Plaintiffs fail to state a claim with regard to the constitutionality of the post-transfer notice provisions and with regard to the Takings Clause, and Defendants seek dismissal of those claims under Rule 12(b)(6).

II. LEGAL STANDARDS

“A motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) may attack either the allegations of the complaint as insufficient to confer upon the court subject matter jurisdiction, or the existence of subject matter

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jurisdiction in fact.” Renteria v. United States, 452 F.Supp.2d 910, 919 (D. Ariz. 2006) (citing Thornhill Publ'g Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979)). “Where the jurisdictional issue is separable from the merits of the case, the [court] may consider the evidence presented with respect to the jurisdictional issue and rule on that issue, resolving factual disputes if necessary.” Thornhill, 594 F.2d at 733; see also Autery v. United States, 424 F.3d 944, 956 (9th Cir. 2005) (“With a 12(b)(1) motion, a court may weigh the evidence to determine whether it has jurisdiction.”). The burden of proof is on the party asserting jurisdiction to show that the court has subject matter jurisdiction. See Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). “[B]ecause it involves a court's power to hear a case,” subject matter jurisdiction “can never be forfeited or waived.” United States v. Cotton, 535 U.S. 625, 630 (2002).

Rule 12(b)(6) is designed to “test[] the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal under Rule 12(b)(6) for failure to state a claim can be based on either: (1) the lack of a cognizable legal theory; or (2) the absence of sufficient factual allegations to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). When analyzing a complaint for failure to state a claim, the well-pled factual allegations are taken as true and construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). A plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” BellAtl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

“While a complaint attacked by a Rule 12(b)(6) motion does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a

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cause of action will not do.” Twombly, 550 U.S. at 555 (cleaned up and citations omitted). Legal conclusions couched as factual allegations are not entitled to the assumption of truth and therefore are insufficient to defeat a motion to dismiss for failure to state a claim. Iqbal, 556 U.S. at 679-80. However, “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that ‘recovery is very remote and unlikely.'” Twombly, 550 U.S. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

III. ANALYSIS

A. Sovereign Immunity

Defendants move to dismiss the claims for retrospective relief through monetary compensation-portions of Counts 2, 3, and 6 because, they argue, they enjoy sovereign immunity from those claims. The Eleventh Amendment prevents a state from being sued in federal court without its consent. Seven Up Pete Venture v. Schweitzer, 523 F.3d 948, 952 (9th Cir. 2008). When the state is “the real, substantial party in interest,” Eleventh Amendment immunity extends to “suit[s] against state officials.” Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101 (1984) (quotations omitted). Ex parte Young provides an exception to Eleventh Amendment immunity, but it applies only to “claims seeking prospective injunctive...