Cook County Record

Sunday, December 15, 2019

Judge dismisses constitutional challenge of IL Treasurer's unclaimed property program

By Scott Holland | Sep 21, 2016


The Illinois Treasurer’s Office will be allowed to continue its selling of unclaimed property after a federal judge dismissed a lawsuit that argued the practice amounts to an unconstitutional taking of private property. 

Anthony D. Kolton and S. David Goldberg had filed a federal class action complaint March 29 against Illinois Treasurer Michael W. Frerichs, arguing the Illinois Uniform Disposition of Unclaimed Property Act violates the Fifth and 14th amendments to the U.S. Constitution. On June 20, Frerichs moved to dismiss the claim, which District Judge Charles P. Kocoras granted Sept. 16 because he said the lawsuit doesn’t actually allege Frerichs’ office did anything wrong, and plaintiffs should have filed suit in state courts first, as he lacks “subject matter jurisdiction” over their claims. 

The state law at the heart of the lawsuit governs personal property in the possession of a third party. It requires private holders to maintain possession for five years, and seven years for government entities, until it can be classified as abandoned. After the waiting period, and a mandated attempt to notify the original owner, the property is deemed abandoned and must be delivered to the treasurer’s custody to be sold at auction. 

According to Kocoras’ opinion, the proceeds from those sales are generally deposited into the state pension fund. The treasurer, however, is required to keep $2.5 million so anyone who files an approved claim for unclaimed property is paid promptly. 

Kocoras cited the Seventh Circuit Court of Appeals ruling in Cerajeski v. Zoeller which held “unclaimed property” is distinct from “abandoned property” under an Indiana law similar to the Illinois statute. Kolton and Goldberg relied on Cerajeski in their complaint because the appeals court had found Indiana’s practice of confiscating interest on unclaimed property accounts to be unconstitutional. 

In the original complaint, Kolton said the state is holding his property, delivered by Bank One and worth more than $100. While he could claim the property, he said he sued because he believed the Illinois treasurer’s office would not pay him interest he believed should have accrued while the money was in their custody. 

In response, Frerichs invoked a 1985 ruling in Williamson County Regional Planning Commission et al. v. Hamilton Bank of Johnson City, arguing Kolton and Goldberg failed to exhaust all of the available options under the law to reclaim their property before filing suit. The plaintiffs, however, said they believed finality should not be an issue, as they made a facial challenge to the constitutionality of a state law. 

Kocoras, however, said he believed the plaintiffs were not denied just compensation, so “there is no constitutional violation.” Further, he noted the Illinois Supreme Court 2010 opinion in Cwik v. Giannoulias emphasized the state’s right to declare property abandoned, which is different from a “taking that would require compensation” as required under the Fifth Amendment. 

Kocoras also rejected the plaintiffs’ assertions they had merely raised a facial challenge, noting their lawsuit sought more than a declaration that the law was unconstitutional; the lawsuit had asked the court to determine just compensation for them and class members, the judge said. 

Further, since Kolton and Goldberg “do not actually allege that they have filed a claim pursuant to the Act,” the judge said they have only speculated how Frerichs might respond had they done so. Neither have they tried to pursue litigation in state court nor contended “state court remedies are unavailable or inadequate.” 

Kocoras said the “broader contention that state court may not be a proper forum for Plaintiffs to litigate their federal constitutional challenges” is an “assertion that lacks merit.” 

The plaintiffs were represented in the action by attorneys with the firms of Wexler Wallace, The Saunders Law Firm and Susman Heffner & Hurst, each of Chicago.

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Organizations in this Story

Susman Heffner and Hurst LLPIllinois Supreme CourtWexler Wallace LLPIllinois Treasurer Judy Baar Topinka