State’s Handling of Unclaimed Property Doesn’t Violate Constitution, Court of Appeal Rules


California’s administration of the Unclaimed Property Law (UPL) does not violate residents’ constitutional rights, the First District Court of Appeal ruled February 28, siding with State Controller Malia Cohen and dismissing a class-action suit filed a decade ago.

The suit, which originally named then-Controller John Chiang, alleged that the state violated Californians’ rights under the takings and due process clauses of the U.S. Constitution. After traveling through the judicial system, the suit was tossed in 2020 by the San Francisco County Superior Court, which rejected the plaintiffs’ third amended complaint without leave for additional amendments.

In this week’s unpublished decision in Aaron Hasim, et al., v. Malia Cohen as State Controller, et al., the Court of Appeal upheld the trial court’s decision.

The plaintiffs contend they were owners of “certain unclaimed property – specifically money in an amount less than $50,” and argued that the Controller’s Office “does not request owner-identifying information for unclaimed property with a value of less than $50, violating the UPL and effecting a permanent deprivation and taking of their property without constitutional … notice.”

In their initial complaint, the petitioners asserted five causes of action: declaratory relief; deprivation of the constitutional right to procedural due process in violation of 42 United States Code section 19834; unconstitutional taking of personal property in violation of 42 United States Code section 1983; violation of the UPL; and breach of fiduciary duty.

The trial court sustained the controller’s demurrer with leave to amend for the first, second, and fourth causes of action, and without leave to amend for the third and fifth.

After two failed amended complaints and the court sustaining a demurrer to the claim that the UPL was violated, the trial court granted a leave to amend the remaining claims for declaratory relief and deprivation of procedural due process.

However, the court found that the plaintiffs could not state the claim against the controller as an individual due to the doctrine of qualified immunity. The trial court reviewed “federal decisions in similar litigation initiated by plaintiffs,” and found that the claims had been rejected.

The plaintiffs had “knowledge that their property is held in custody, yet plaintiffs do not allege that they sought return of their property from the Controller or that the Controller denied their requests,” the Court of Appeal wrote, adding: “Based on plaintiffs’ allegations, the trial court was correct in finding that plaintiffs have not alleged that the government took a property interest.”

The court also noted that property escheats to the unclaimed property fund based on the owners’ actions, or lack thereof.

“[A]ny property deprivation that may have occurred resulted from plaintiffs’ inattention to their property, not a government taking for which just compensation is due,” the court wrote. “… It is the owner’s failure to make any use of the property – and not the action of the State – that causes the lapse of the property right; there is no ‘taking’ that requires compensation.”

The court also rejected the claim that due process was violated. The plaintiffs “have not alleged facts showing that the Controller permanently deprived them of their property without due process,” the court wrote, reiterating that the plaintiffs didn’t seek the return of their property in the first place.