United States District Court, N.D. Illinois, Eastern Division
ANTHONY D. KOLTON and S. DAVID GOLDBERG, individually and on behalf of classes of all others similarly situated, Plaintiffs,
MICHAEL W. FRERICHS, Illinois State Treasurer, Defendant.
CHARLES P. KOCORAS UNITED STATES DISTRICT JUDGE.
matter comes before the Court on the motion of Defendant
Michael W. Frerichs (“Frerichs”), in his official
capacity as the Illinois State Treasurer (the
“Treasurer”), to dismiss, Dkt. 15, the Class
Action Complaint (the “Complaint”), Dkt. 1, of
Plaintiffs Anthony D. Kolton (“Kolton”) and S.
David Goldberg (“Goldberg”), individually, and on
behalf of classes of all others similarly situated
(collectively, “Plaintiffs”) pursuant to Federal
Rules of Civil Procedure 12(b)(1) and 12(b)(6). Dkt. 15, at
p. 1. For the reasons set forth below, Frerichs's motion
is granted under Rule 12(b)(1). The Court lacks
subject-matter jurisdiction; consequently, it does not reach
the merits of the case, nor does it rule on Frerichs's
motion to dismiss under Rule 12(b)(6).
purposes of the instant motion, the following well-pleaded
allegations derived from the Complaint are accepted as true.
Ed Miniat. Inc. v. Global Life Ins. Grp., Inc., 805
F.2d 732, 733 (7th Cir. 1986); Dilallo v. Miller &
Steeno, P.C., et al., No. 16 C 51, 2016 WL 4530319, at
*1 (N.D. Ill. Aug. 30, 2016). The Court draws all reasonable
inferences in favor of Plaintiffs and construes all
allegations in the light most favorable to Plaintiffs.
Illinois Uniform Disposition of Unclaimed Property Act, 765
ILCS § 1025/1, et seq., (the
“Act”), pertains to personal property held by a
third party (the “holder”). Dkt. 1, at p. 1,
¶ 2. Holders include, but are not limited to, banks,
corporations, or public utilities. Id. The Act aims
to “reunite owners with their property, ” and to
permit the State of Illinois (the “State”),
instead of the holder, to use the property prior to such a
reunion. Id. at p. 4, ¶ 10.
the Act, personal property is “presumed
abandoned” if its owner has not written to the holder
regarding the property, or has not otherwise indicated
interest in the property. Id. at p. 1-2, ¶ 2,
p. 3-4, ¶ 10; see 765 ILCS § 1025/2. For
private holders, the owner has five years to indicate an
interest, and for government holders, the owner must act
within a seven-year period. Id. If a holder
determines that it possesses “presumed abandoned”
property, it must then attempt to notify the owner. Dkt. 1,
at p. 4, ¶ 11; see 765 ILCS 1025/11. If the
owner does not claim his or her property, the holder is
required to deliver it to the Treasurer's,
Frerichs's, custody. Dkt. 1, at p. 2, ¶ 2, p. 4,
¶ 11; see 765 ILCS 1025/13. While in his
custody, Frerichs has “a reasonable time” to sell
tangible property at a public sale for the highest bid. Dkt.
1, at p. 4, ¶ 11. To sell securities or commodities,
Frerichs may engage “a suitable broker or sales
agent.” Id. Frerichs continues to hold the
“presumed abandoned” property, and proceeds from
the sale thereof, in custody for the owner. Id. At
any time, the owner may reclaim his or her property from the
State. Id. The “presumed abandoned”
property, or proceeds, and its earnings also fund state
programs. Id. at p. 2, ¶ 2.
deposits all of the money received under the Act into the
State Pension Fund. Id. at p. 4, ¶ 12;
see 765 ILCS § 1025/18. Frerichs, however, is
to retain an amount capped at two million, five hundred
thousand dollars ($2, 500, 000) to ensure that owners who
file approved claims to their property are promptly paid.
Id. Property that is submitted to Frerichs in
accordance with the Act “earns interest, dividends or
other accruals, ” and it is sometimes “held in
interest-bearing accounts or instruments.” Dkt. 1, at
p. 5, ¶ 14. The State Pension Fund uses such accruals.
Id. Under the State Finance Act, 30 ILCS §
105/8.12 (“Section 105/8.12”), all of the
reserves held in the State Pension Fund “are to be used
for the administration of the Act and for partial payment of
the State's required contributions to designated State
employee retirement systems.” Dkt. 1, at p. 4, ¶
13; see 30 ILCS § 105/8.12. In accordance with
Section 105/8.12, annually, the General Assembly is to
appropriate the monies in the State Pension Fund to state
pension systems, to the exclusion of five million dollars
($5, 000, 000). Dkt. 1, at p. 4, ¶ 13.
is distinct from an escheat statute. Id. at p. 5,
¶ 15. Under an escheat statute, the State may eventually
gain title to abandoned property. Id. The Act, in
contrast, “is purely custodial in nature.”
Id. Title to “presumed abandoned”
property under the Act remains at all times with the owner.
reclaim his or her property, an owner would file a claim with
the Treasurer. Id. at ¶ 16; see 765
ILCS § 1025/20. An owner is entitled only to the
property that the holder has submitted to the State-or the
proceeds from the sale thereof. Dkt. 1, at p. 2, ¶ 3, p.
5, ¶ 16, p. 6 ¶ 17. He or she is not entitled to
“any interest or dividends or other increments that
accrue on the property after delivery to the state, ”
“the loss of the beneficial use of the property,
” “or use of that property to fund state
obligations during the period it is in the state's
custody.” Id. at p. 2, ¶ 3; p. 6 ¶
17; see 765 ILCS § 1025/15 (“When
property is paid or delivered to the State Treasurer under
this Act, the owner is not entitled to receive income or
other increments accruing thereafter, except that income
accruing on unliquidated stock and mutual funds after July 1,
1993, may be paid to the owner.”). The Act disallows
owners “from receiving interest, dividends or other
income or increments on any property that is liquidated or is
in a cash account, regardless of the nature of the
property.” Dkt. 1, at p. 6, ¶ 19; see Cwik v.
Giannoulias, 237 Ill.2d 409, 418-19 (2010). Plaintiffs
allege, “on information and belief, ” that
“it is the policy and practice of the Treasurer not
to return to the property owner any income or other
increments which have accrued on mutual funds held in custody
pursuant to the Act.” Dkt. 1, at 6, ¶ 18. Dividend
bearing securities are the exception to the rule: owners are
entitled to dividends accrued before the security is sold.
Dkt. 1, at p. 2, ¶ 3, p. 5-6, ¶ 17; see Canel
v. Topinka, 342 Ill.App.3d 65, 75 (2003),
aff'd, 212 Ill.2d 311 (2004).
United States Court of Appeals for the Seventh Circuit
decided, in Cerajeski v. Zoeller, that
“unclaimed property” is distinct from
“abandoned property” under the Indiana Unclaimed
Property Act, a similar statute to the Act, holding
“that the state's confiscation of interest on an
interest-bearing account delivered to the State as unclaimed
property [is] an unconstitutional taking of a portion of
plaintiff's property for which just compensation [is]
due.” Dkt. 1, at 7, ¶ 21; 735 F.3d 577, 580 (7th
Cir. 2013). In reliance on Cerajeski, on March 29,
2016, Plaintiffs filed the Complaint alleging that Frerichs,
as Treasurer of the State of Illinois, violated 42 U.S.C.
§ 1983 (“Section 1983”) and the Fifth and
Fourteenth Amendments to the United States Constitution
through his supervision and administration of the Act. Dkt.
1, at p. 1, ¶ 1.
allege that the Act, by allowing the State to retain interest
and other income on unclaimed property, as well as
beneficially use the property without paying the owner,
constitutes a taking without just compensation. Id.
at p. 2, ¶ 4. Frerichs has at all times held and
continues to hold property belonging to Plaintiffs in his
custody. Id. at p. 2, ¶ 5, p. 3, ¶ 6, p.
8-9, ¶ 24, ¶ 27. Such property is subject to
“being claimed by or on behalf of” Plaintiffs.
Id. at p. 9, ¶ 27. Plaintiffs are
“owners” of property, as defined in the Act.
Id. at p. 2, ¶ 5, p. 3, ¶ 6; see
765 ILCS § 1025/1(f). Kolton asserts that his unclaimed
property exceeds a value of one hundred dollars ($100). Dkt.
1, at p. 8, ¶ 24. Kolton believes that Bank One
delivered his property to the State, and that the State held
it in an interest-bearing bank deposit account. Id.
While in Frerichs's custody, the State has allegedly used
Plaintiffs' property “for public purposes,
including by investing the property and earning interest, and
otherwise using it to fund the state's operations and
programs.” Id. at ¶ 25, p. 9, ¶ 28.
Plaintiffs assert that under Sections 1025/15 and 1025/20 of
the Act, if Plaintiffs claim their property, Frerichs will
return it, but he will not compensate Plaintiffs for the
interest accrued and seized by the State, or the State's
use of the property while in its custody. Id. at p.
8, ¶ 26, p. 9, ¶ 29. Plaintiffs claim, based on
Cerajeski, that the Fifth Amendment protects both
“the principal of unclaimed property in the custody of
the state, ” as well as “the ‘fruits'
of the property, that is, the interest, accruals or other
value that attaches to the property or that is associated
with the ownership of the property.” Id. at p.
11, ¶ 40. Thus, Plaintiffs allege that they and the
purported class members should receive just compensation for
the State's taking of the interest or other increases in
value of their property, which they claim is in violation of
the Fifth Amendment. Id.
Complaint contains two counts, each of which outlines
multiple prayers for relief. Count I urges this Court to
declare: (i) “that the state's use for public
purposes of the property delivered to the state under the act
is a taking of property;” (ii) “that the proper
measure of just compensation is the fair market value of
property taken;” (iii) “the standard for
Plaintiffs and the members of the Rule 23(b)(2) Class for
measuring fair market value;” and (iv) “that
Defendant must pay just compensation as determined by this
Court to Plaintiffs and members of the Rule 23(b)(2) Class .
. . who have filed claims or who file claims after the filing
of this action.” Id. at p. 13, ¶¶
C-F. In Count I, Plaintiffs also urge this Court to issue an
injunction “to ensure” Frerichs's compliance.
Id. at ¶ F. In Count II, Plaintiffs request
that this Court award “Plaintiffs and members of the
Damages Class just compensation as determined by this
Court.” Id. at p. 14, ¶ C. Both Counts I
and II urge this Court to decide “that the state's
confiscation of interest, dividends or other fruits of the
property delivered to the state under the Act and used for
public purposes is a taking of property . . . for which the
state is required to pay just compensation.”
Id. at p. 12, ¶ A, p. 14, ¶ A. Plaintiffs
also request that this Court certify this action under
Federal Rules of Civil Procedure 23(a), (b)(2), and (b)(3).
Id. at p. 12, ¶ A, p. 14, ¶ A; see
Caraluzzi v. Prudential Sec., Inc., 824 F.Supp. 1206,
1210-11 (N.D. Ill. 1993) (explaining when a court may
consider a motion to dismiss prior to addressing a class
certification question). Finally, Plaintiffs ask the Court to
award “their attorneys' fees and reimbursement of
their expenses, including those provided in 42 U.S.C. §
1988;” as well as any other relief that this Court
deems proper and just. Dkt. 1, at p. 13 ¶¶ G-H, p.
15 ¶¶ D-E. Plaintiffs have issued a jury demand for
all such triable claims. Id. at p. 15. On June 20,
2016, Frerichs moved to dismiss the Complaint pursuant to
Federal Rules of Civil Procedure 12(b)(1) and (6). Dkt. 16,
at p. 1.
courts are courts of limited jurisdiction; “they have
only the power that is authorized by Article III of the
Constitution and the statutes enacted by Congress pursuant
thereto.” Bender v. Williamsport Area Sch.
Dist., 475 U.S. 534, 541 (1986). Further, “[t]he
district courts shall have original jurisdiction of all civil