Appeals court gives new chance to class action vs IL treausurer over sales of unclaimed property

By Scott Holland | Jan 7, 2019

A federal appeals panel has again tossed a ruling from a Chicago federal judge, saying he ignored its earlier opinion in an ongoing dispute over how much the Illinois Treasurer’s Office owes to people whose unclaimed property it sold.

On Jan. 2, the three-judge panel of the U.S. Seventh Circuit Court of Appeals delivered their ruling in a matter that goes back to a federal class action filed in March 2016 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.

Seventh Circuit Judge Frank Easterbrook wrote the opinion, in which he said District Judge Charles P. Kocoras wrongly declined to certify the proposed class of plaintiffs because he overlooked an earlier Seventh Circuit opinion holding people are entitled to receive interest on their held property, less reasonable custodial fees. According to Easterbrook, Kocoras determined “owners of property in the state’s custody are entitled to be compensated for the time value of money only if the property was earning interest at the moment the state took it into custody,” creating divisions among would-be class members.

After that decision, Kocoras granted summary judgment to the state against one of the named plaintiffs, S. David Goldberg, whose property hadn’t been earning interest at the time the state took possession. Goldberg’s appeal of that partial final judgment is what gave rise to the Jan. 2 opinion.

Illinois Treasurer Mike Frerichs  

Easterbrook said Kocoras “relied principally on Cwik v. Topinka,” a 2009 Illinois Third District Appellate Court decision preceding two more recent Seventh Circuit opinions and also one that interprets a state law instead of the U.S. Constitution’s Takings Clause.

“The proposition is untenable, as we have already explained,” Easterbrook wrote, citing his panel’s own 2017 opinion in Kolton v. Frerichs and adding “what the property earns in the state’s hands does not depend on what it had been earning in the owner’s hands.”

The money in question was a $100 check made out to Goldberg but which he hadn’t claimed. If the state used smaller amounts like that to pool into a larger sum in order to make an investment, the panel said, Goldberg and other property owners would be entitled to proportional returns.

The panel vacated Kocoras’ judgment and remanded the case for further proceeding. In so doing, Easterbrook wrote, it is possible the state will invoke Brown v. Legal Foundation of Washington, in which the U.S. Supreme Court said a state isn’t obligated to give earnings to people whose principal amounts are small enough so as to have not been able to generate net interest if held privately. He explained those property owners couldn’t have lost anything because their money alone couldn’t have earned enough interest to cover administrative expenses. So long as their capital is returned, they are made whole.

However, Easterbrook clarified, that opinion has no connection to the issue with whether the principal was generating interest before the state took possession.

“All we decide today is that it does not matter under Brown, or any other decision by the Supreme Court or this court, whether property that is able to earn net interest was in an interest-bearing account before its transfer to the state,” Easterbrook wrote. “This conclusion also may lead the district court to reconsider its ruling on class certification.”

Seventh Circuit Judges Michael Kanne and Ilana Rovner concurred in the opinion.

Goldberg is represented in the action by attorneys Terry Rose Saunders, of The Saunders Law Firm; attorney Arthur Susman; and Thomas A. Doyle, of Wexler Wallace LLP, all of Chicago.

Frerichs’ office is represented by the Illinois Attorney General.

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Organizations in this Story

Illinois State Treasurer Mike Frerichs Law Offices of Arthur Susman Office of the Illinois Attorney General The Saunders Law Firm U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois Wexler Wallace LLP

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