Crime & Federalism

Today the Ninth Circuit handed down the most cryptic decision I've ever read.  It's not confusing, since I am fluent in Eleventh Amendment-speak.  Rather, it's cryptic.  I'm not quite sure what the court held (beyond ruling that the suit may go forward), or what it's rationale was.  Check out Taylor v. Westly, No. 02-16511 (9th Cir. Mar. 29, 2005).

Under California law, the state has the right to steal a shareholders’s stock if the shareholder does not cash dividend checks or respond to proxy notices for three years.  The corporation then cancels the shareholder’s certificates and issues duplicate certificates to the state.  The Controller then redeems the stock and deposits the money into state's general account.
   
Indeed, the two plaintiffs in Taylor sued after California used its confiscatory procedure to deprive them of a lot of money - 52,224 shares of Intel stock from one plaintiff; and 7,000 shares of TWA stock from another.

The plaintiffs sued for declaratory and injunctive relief, and money damages.  The district court dismissed the suit, recognizing that however unfair or disgusting California’s procedure may be, the only legal issue is whether the former stockholders may sue the state for the sale of the stock proceeds.  That is, can a plaintiff sue a state for money damages?  A unanimous three-judge panel reversed.

The State of California’s sovereign immunity applies to the state’s money. Money that the state holds in custody for the benefit of private individuals is not the state’s money, any more than towed cars are the state’s cars. Thus, where a permanent escheat determination has not yet been made, the state’s Eleventh Amendment immunity from suit against it for damages payable from its treasury has no application to escheated property and sales proceeds from escheated property, whether held by the Controller or the Treasurer. 

Id. at *14.  Is the panel suggesting that California does not possess the res since it’s held in trust?  Thus, Deep Sea Research (holding that the Eleventh Amendment does not bar in rem proceedings where a state is seeking title to property) would apply?  Perhaps there is a good argument for this position.  It would have been nice if the panel had developed it.

Surprisingly (or not), the panel does not cite the Court’s very recent, and very applicable decision in Tenn. Student Assistance Corp. v. Hood.  In Hood the Court held that requiring a state to answer a debtor's complaint in bankruptcy court did was not barred by the Eleventh Amendment because "the bankruptcy court’s jurisdiction is premised on the res, not on the persona," i.e, the jurisdiction is over the debt and not the State.  Perhaps the argument is that since the stock is held in a trust account, that the state does not have title to the money in the trust?  Again, there is a good argument for that.  But the panel does not raise it.

However, the Court in Hood noted that had Tennessee had title to the property, then the suit would be barred.  Here, Taylor involves a straight-forward application of Deep Sea Research.  California holds the res.

Moreover, on page *17, the panel suggested that this is really a mere Ex parte Young action, since the plaintiffs were suing the Controller for injunctive and declaratory relief -- Give us our money! But the remedial tail wags the Eleventh Amendment dog – If they are demanding that the Controller pay retrospective relief, then it’s a suit for money damages.  The panel tried getting around this point, writing: "The plaintiffs seek return of their own property, rather than to gain ownership of government property."  Id. at *19.

But that's not correct.  If I sell your stock certificates, I no longer possess your stock.  Rather, I possess money.  If you sued me, you would be able to trace the sale of that stock and attach my property and obtain money from me.  But I don't enjoy immunity from suit.  States do.

I’m not sure whether this decision is so wrong that the Court will grant cert.   Then again, the holding and rationale are so convoluted that the advocates might not be able to properly frame the issues.

Anyhow, I'll update this post once (if) I figure this case out.