In Turnacliff v. Westly, (— F.3d —, C.A.9 (Cal.), Oct. 15, 2008), the United States Court of Appeals considered whether the California State Controller improperly calculated interest due to the owner of unclaimed property by applying a single interest rate for the whole time the State held the unclaimed property. The Court of Appeals held that the Controller did not err by applying a single interest for the whole period of time that the unclaimed property was held by the State.
Kathleen M. Dodd died in 1958. Beginning in 1978, Echlin, Inc., made several attempts to send dividend checks to Dodd. The dividend checks were never cashed and most were returned to Echlin by the Postal Service. In 1990, the State Controller of the State of California, who serves as administrator of the Unclaimed Property Fund, received 57,600 shares of Echlin stock, which had belonged to Dodd. The shares earned dividends in excess of $347,000 while they were held by the Controller. The Controller sold the stocks in June 1993 for more than $1,513,000.
Michael Turnacliff, the Administrator of Dodd’s Estate, filed a claim in May 2003, for return of the Estate’s property. The Controller issued the Estate a check for approximately $1,983,000, which represented the principal plus simple interest of 1.69%. The Controller later issued the Estate an additional $201,000 because the interest had been incorrectly calculated.
The Estate filed a lawsuit against the Controller alleging, among other things, that the Controller applied the wrong interest rate. The district court held that the Controller correctly applied a single interest rate for the time that the State held the principal of the unclaimed property.
The Court of Appeals affirmed the decision of the district court. The Court of Appeals found that the Controller correctly interpreted statutory law and applied a single interest rate for the entire time that the state held the unclaimed property.
At the time the Controller received the claim for the property brought by the Estate, California Code of Civil Procedure § 1540(c) provided that the Controller must “add interest at the rate of 5 percent or the bond equivalent rate of 13-week United States Treasury Bills, whichever is lower, to the amount of any claim paid the owner under this section for the period the property was on deposit in the Unclaimed Property Fund.” Section 1540(c) further provides that the interest “shall be computed as simple interest, not compound interest.”
Turnacliff asserted “that the Controller should have applied an average of various interest rates that California earned while holding the property.” Turnacliff claimed that the interest rate that should have been applied was 4.5%.
The court found that § 1540(c) “requires the Controller to add interest at a ‘rate,’ in the singular, not plural, ‘for the period the property was on deposit.'” The statute’s plain language “supports the Controller’s construction that a single interest rate must be applied for the whole time period that unclaimed property was held.” Turnacliff’s proposed statutory construction would change the statute’s text. The court opined, “We see no reason why the California Legislature would not have included the word ‘average’ in the statute if indeed it had intended to require the Controller to average the statutorily-defined interest rates and apply the average interest rate to the principal of unclaimed property.”
Turnacliff also asserted the Controller violated the Takings Clause of the Fifth Amendment to the United States Constitution. He claims that all interest earned by the unclaimed property while held by the State belongs to the Estate. The Takings Clause provides that the government shall not take private property for public use without just compensation.
The court found that, even if the Estate “had a cognizable property right to interest earned by its escheated property, and that this property was ‘taken’ by California, no further compensation is due to the Estate because when the Estate abandoned its property, it forfeited any right to interest earned by that property.” The State does not need to further compensate the Estate for the consequences of the neglect of the Estate.
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