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Supreme Court Invites Constitutional Challenge to Escheat Laws


On the same day that Justice Thomas surprised the world by asking his first-in-a-decade question in a U.S. Supreme Court oral argument, and just shy of a year since Justice Kennedy surprised corporate America in DMA v. Brohl by inviting states to bring him a case challenging Quill v. North Dakota's Commerce Clause substantial nexus standard, Justice Alito gave us all a surprise of his own on Monday, issuing an invitation to bring him a case challenging the constitutionality, on due process grounds, of state unclaimed property laws.

Joined by Justice Thomas, Alito agreed with the Court's denial of certiorari in Taylor v. Yee – a case that asks whether California's unclaimed property law, Cal. Civ. Proc. Code Ann. §1510 et seq, "provides property owners with constitutionally sufficient notice before escheating their financial assets" – but went further than the other six justices by issuing a rare concurring opinion regarding their underlying rationale.

The legal community has known for many years that, most of the time, nothing ought to be read into denials of cert because the Court rarely explains its reasoning. Alito broke the code of silence here, however, giving us a window into his and Thomas' thought process. Alito explained essentially that it's not that he doesn't think the issue to be cert-worthy. He certainly does. Rather, the "convoluted history of this [particular] case makes it a poor vehicle for reviewing the important question it presents."

This certainly is an "important question." State unclaimed property (escheat) laws constitute a taking of private property, so the constitutional stakes are high. The Due Process Clause of the U.S. Constitution "undoubtedly requires that, before seizing private property, the government must give 'notice and opportunity for hearing …'" Mullane v. Central Hanover Bank, 339 U.S. 306, 313 (1950) (cited by Justice Alito here). One can sense from the text of his opinion Alito's exasperation with recent enactments by "[c]ash strapped States" of shortened dormancy periods that enable them to "shore up state budgets" instead of getting the escheated property back into the hands of the true owners. He likewise bemoans the states' shady reliance, in the internet age, on "decidedly old-fashioned methods" of notifying potential owners of escheated property, methods that are "unlikely to be effective" because newspaper notices and the like are today little more than "empty rituals".

It is gratifying to see Justices Alito and Thomas standing up for bedrock principles of Due Process that lay at the heart of the work so many of us do each day in the fields of unclaimed property and state and local taxation. "This trend – combining shortened escheat periods with minimal notification procedures – raises important due process concerns." Indeed. One case to watch is Temple-Inland v. Cook, involving a due process challenge to the abusive sampling techniques used by Delaware to estimate holders' unclaimed property liabilities in audits typically performed by third-party bounty-hunter contractors like Kelmar Associates. The district court denied the defendants' motion to dismiss last March, allowing the case to proceed and giving holders hope that Delaware's abusive audit techniques may be nearing an end.

As we watch this important case, let's all seek together to identify more good cases to bring to Justices Alito and Thomas in response to their invitation.

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