Treasurer of N.J. v. U.S. Dep't of the Treasury

• Decision Date: 27 June 2012
• Docket Number: No. 10–1963.,10–1963.
• Parties: TREASURER OF the State of NEW JERSEY; Treasurer of the State of North Carolina; Director of the Department of Revenue of the State of Montana; Treasurer of the State of Kentucky; Treasurer of the State of Oklahoma; Attorney General of the State of Missouri; Treasurer of the State of Pennsylvania v. UNITED STATES DEPARTMENT OF the TREASURY; Secretary of the United States Treasury Department; Bureau of Public Debt, a Division of the United States Treasury Department; Commissioner of the Bureau of Public Debt, Treasurer of the State of New Jersey, Director of the Department of Revenue of the State of Montana, Treasurer of the State of Kentucky, Treasurer of the State of Oklahoma, Attorney General of the State of Missouri, Treasurer of the State of Pennsylvania, Appellants (Pursuant to Fed. R. App. P. 43(c)(1)).
• Court: U.S. Court of Appeals — Third Circuit

684 F.3d 382

TREASURER OF the State of NEW JERSEY; Treasurer of the State of North Carolina; Director of the Department of Revenue of the State of Montana; Treasurer of the State of Kentucky; Treasurer of the State of Oklahoma; Attorney General of the State of Missouri; Treasurer of the State of Pennsylvania

v.UNITED STATES DEPARTMENT OF the TREASURY; Secretary of the United States Treasury Department; Bureau of Public Debt, a Division of the United States Treasury Department; Commissioner of the Bureau of Public Debt, Treasurer of the State of New Jersey, Director of the Department of Revenue of the State of Montana, Treasurer of the State of Kentucky, Treasurer of the State of Oklahoma, Attorney General of the State of Missouri, Treasurer of the State of Pennsylvania, Appellants

(Pursuant to Fed. R. App. P. 43(c)(1)).

No. 10–1963.

United States Court of Appeals,Third Circuit.

Argued April 11, 2012.

Filed: June 27, 2012.

Preempted

N.J.S.A. 46:30B–1, 46:30B–7, 46:30B–41.2, 46:30B–93; Ky.Rev.St.Ann. 393.010, 393.068; Mont.Code.Ann. 70–9–801, 70–9–803(1)(k), 70–9–824; 60 Okl.St.Ann. §§ 651, 657; 72 Pa.St.Ann. §§ 1301.9, 1301.11; V.A.M.S. §§ 447.500, 447.532Carter G. Phillips (argued), Sidley Austin, Washington, DC, Peter G. Angelos, M. Albert Figinski, Law Offices of Peter G. Angelos, Baltimore, MD, Randall K. Berger, Joanne M. Cicala, Roger W. Kirby, Kirby McInerney, New York, NY, William C. Cagney, Robert J. Luddy, Windels, Marx, Lane & Mittendorf, New Brunswick, NJ, William H. Murphy, Jr., Andrew J. Toland, The Murphy Firm, Baltimore, MD, Ernest A. Young, Durham, NC, Jeremiah J. Morgan, Sr., Joel A. Poole, Office of Attorney General of Missouri, Jefferson City, MO, Gita F. Rothschild, McCarter & English, Newark, NJ, Attorneys for Appellants.

Alisa B. Klein (argued), Mark B. Stern, United States Department of Justice, Civil Division, Washington, DC, David E. Dauenheimer, Office of the United States Attorney, Newark, NJ, Attorneys for Appellees.

BEFORE: HARDIMAN, GREENAWAY, JR., and GREENBERG, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

In this action seven plaintiff States (“the States”) sought to recover proceeds of matured but unredeemed United States savings bonds from the United States Treasury (“the Treasury”).¹ In addition to the Treasury, the States also named other United States Government entities and officials in their official capacities as defendants and we refer to all the defendants collectively as the “Government” or “Federal Government.” The States asserted that the Treasury has possession of approximately $16 billion worth of matured but unredeemed savings bonds, of which persons whose last known addresses were within the plaintiff States own $1.6 billion. The States contended that their respective unclaimed property acts obliged the Treasury to account for and deliver the proceeds of these bonds to the States for reunification with their owners. The Government moved to dismiss the case and the District Court granted its motion as it concluded that the Government's sovereign immunity and intergovernmental immunity barred the action and that federal law and regulations preempted the States' statutory authority to obtain the proceeds of the savings bonds. Six of the States appealed. Though we do not agree with the District Court with respect to the application of sovereign immunity, we do agree with its other conclusions and therefore we will affirm.

II. FACTS AND PROCEDURAL HISTORY

A. The United States Savings Bond Program

Pursuant to its constitutional power “to borrow money on the credit of the United States,” Free v. Bland, 369 U.S. 663, 666–67, 82 S.Ct. 1089, 1092, 8 L.Ed.2d 180 (1962) (citing U.S. Const. art. I, § 8, cl. 2), Congress delegated authority to the Secretary of the Treasury (“the Secretary”), with the approval of the President, to issue savings bonds “for expenditures authorized by law.” 31 U.S.C. § 3105(a).² The Government sold savings bonds, originally called liberty bonds, “[t]o obtain money for the United States Government ... [and] to encourage thrift and savings by small investors.” Moore's Adm'r v. Marshall, 302 Ky. 729, 196 S.W.2d 369, 372 (1946). A United States savings bond is a contract between the United States and the bond's owner. Rotman v. United States, 31 Fed.Cl. 724, 725 (Fed.Cl.1994). The Secretary may establish the terms and conditions that govern the savings bond program, a power that includes the authority to fix the bonds' investment yield, to promulgate terms and conditions providing that bondholders may keep the bonds beyond the date of their maturity, and to place conditions on transfer and redemption of the bonds and their sales prices. 31 U.S.C. § 3105(b)– (c). Most of the bonds that are the subject matter of this case are Series E bonds issued between 1941 and 1980. The Government sold the Series E bonds at a discount and paid interest on them only at maturity; according to the States, after maturity interest stopped accruing on the bonds.³ The last Series E bonds matured in 2011.

Pursuant to his statutory authority, the Secretary has promulgated various regulations governing the savings bond program that the Supreme Court has held preempt conflicting state law. See United States v. Chandler, 410 U.S. 257, 262, 93 S.Ct. 880, 883, 35 L.Ed.2d 247 (1973) (citing Free, 369 U.S. at 668, 82 S.Ct. at 1093) (“[A]bsent fraud, the regulations creating a right of survivorship in United States Savings Bonds ... pre-empt [ ] any inconsistent state property law.”). In contrast to many other types of securities, “[s]avings bonds are not transferable and are payable only to the owners named on the bonds, except as specifically provided in [the federal] regulations and then only in the manner and to the extent so provided.” 31 C.F.R. §§ 315.15, 353.15.

There are limited exceptions to the general rule precluding the transfer of savings bonds, including cases in which a third party attains an interest in a bond through valid judicial proceedings. 31 C.F.R. §§ 315.20(b), 353.20(b).⁴ As will be seen below, it is highly significant that the regulations do not impose any time limits for bond owners to redeem the savings bonds, at least with respect to the bonds that are the subject matter of this case. Consequently, their owners can present them for payment to an authorized agent of the United States at any time. See31 U.S.C. § 3105(b)(2)(A) (authorizing the Secretary to promulgate regulations providing that “owners of savings bonds may keep the bonds after maturity”). Though it might be thought unlikely that an owner would present a long-matured savings bond for redemption, the record shows that the Treasury as of 1989 was receiving claims of $7,000 to $10,000 a day for payment on savings bonds that had matured many years earlier. App. at 169.⁵ As relevant here, a registered owner of a bond is presumed conclusively to be its owner absent errors in registration. 31 C.F.R. §§ 315.5, 353.5.

The redemption process is not complex, as the owner of a bond seeking to redeem it need only present the bond to an authorized payment agent for redemption, 31 C.F.R. §§ 315.39(a), 353.39(a), establish his identity, sign the request for payment, and provide his address. The agent then may pay the bond with a check drawn against funds of the United States. See31 C.F.R. §§ 315.38, 353.38. Payment agents, ordinarily banks, are financial institutions qualified under Treasury regulations to pay sums due on savings bonds. See31 C.F.R. §§ 315.2(j), 353.2(f). The relevant statutes and regulations do not contain provisions for locating owners of matured but unredeemed bonds. In 2000, the Treasury, however, created a “Treasury Hunt” Internet website, which provides information on matured but unredeemed Series E bonds issued after 1974 in a database searchable by Social Security Number.⁶

B. The States' Unclaimed Property Acts

All of the plaintiff States have enacted unclaimed property acts, most of which they have based on some version of the Uniform Unclaimed Property Act, which is rooted in the common-law doctrine of escheat. See Conn. Mut. Life Ins. Co. v. Moore, 333 U.S. 541, 547, 68 S.Ct. 682, 686, 92 L.Ed. 863 (1948) ( “The right of appropriation by the state of abandoned property has existed for centuries in the common law.”). The plaintiff-appellant States of New Jersey, Kentucky, Montana, Oklahoma, Missouri and Pennsylvania claim that the unclaimed bonds are property of their residents within the meaning of their respective unclaimed property acts. See New Jersey Uniform Unclaimed Property Act, N.J. Stat. Ann. § 46:30B–1 et seq. (West 2003); Kentucky statutes regarding descent, wills and the administration of decedents' estates, Ky.Rev.Stat. Ann. § 393.010 et seq. (West 2012); Montana Uniform Unclaimed Property Act, Mont.Code Ann. § 70–9–801 et seq. (2012); Oklahoma Uniform Unclaimed Property Act, Okla. Stat. tit. 60, § 651 et seq. (2012); Missouri Uniform Disposition of Unclaimed Property Act, Mo. Ann. Stat. §§ 447.500 et seq. (West 2012); Pennsylvania statutes regarding disposition of abandoned and unclaimed Property, 72 Pa. Stat. Ann. § 1301.9 et seq. (West 1995). The States' unclaimed property acts require that, after time periods that differ from State to State, holders of unclaimed property turn the property over to the State for safekeeping though the original property owner retains the right to recover the proceeds of the property. See, e.g.,N.J. Stat. Ann. § 46:30B–7 (“Except as otherwise provided by this chapter, all property ... that is held ... and has remained unclaimed by the owner for more than three years after it became payable or distributable is presumed abandoned.”).

The unclaimed property acts at issue in this case are “custody” escheat statutes rather than “title” escheat statutes in that under them the State does not take title to abandoned property, but, instead, obtains its custody and beneficial use pending...