DENVER (CN) — The 10th Circuit on Friday revived a lawsuit from two Coloradans who claim the state’s practice of converting unclaimed property into funds for the government violates their Fifth Amendment rights.
“The moment a state takes private property for public use without just compensation, a property owner has an actionable claim under the takings clause,” wrote U.S. Circuit Judge Allison Eid in a 19-page opinion.
Three years ago, David Knellinger and Robert Storey, who live in Fremont County, Colorado, learned they each had unclaimed property being held by the state Department of the Treasury.
Instead of making claims through the state agency, as laid out in a 2019 law, Knellinger and Storey filed a class action against the state in June 2022 for unlawful takings under the Fifth Amendment. In their complaint, Knellinger and Storey argued Colorado was using the law to separate owners from their property, rather than reuniting them.
Abandoned property might be the last paycheck a former employee never picked up or a refund a customer was owed but never collected. Instead of “finders keepers,” Colorado law requires a property holder to report and deliver abandoned property to the state treasurer. The treasurer holds the property for three years and then may place proceeds from a sale in a trust that is usually directed to the general fund or spent on public projects like the state fair.
In the complaint, Knellinger quoted a state database listing his lost property as being related to “Verizon Communications Inc.,” valued at $50 to $249. Storey’s lost property was listed as related to “Lawyers Title Insurance Corporation,” valued at under $50.
In their complaint, Knellinger and Storey said that the state’s conversion of their property into funds for the government, instead of simply holding on to it, constituted an unlawful taking.
Joe Biden-appointed U.S. Judge Charlotte Sweeney dismissed the lawsuit on Jan. 6, 2023, finding the men lacked standing, in part because they hadn’t filed an agency claim.
Knellinger and Storey appealed, arguing that regardless of the state process, they had shown their property was taken for public use without compensation. The 10th Circuit affirmed in part and reversed in part.
Where the lower court concluded the men hadn’t sufficiently shown that the property listed on the state’s website belonged to them, the 10th Circuit said to conclude otherwise was to draw “improper inferences against plaintiffs.”
Under Eid’s assessment, Sweeney also improperly placed weight on the fact that Knellinger and Storey hadn’t first filed a state claim — a condition that is not required to make a claim for an unlawful taking.
While the 10th Circuit reversed dismissal of the lawsuit based on the men’s monetary claims, the appellate court affirmed the lower court’s dismissal of their equitable relief claims, finding they had no basis to challenge the state’s procedure for collecting property.
“The Fifth Amendment describes a right to just compensation, not a right to particular procedures to secure such compensation,” wrote Eid, a Donald Trump appointee. “Knellinger and Storey have no ability to force Colorado to compensate property owners through their procedure of choice.”
In remanding the case back to Sweeney’s desk in the U.S. District of Colorado, Eid said it was too early to determine whether a taking had actually occurred or whether the issue merited a class action.
Barack Obama-appointed U.S. Circuit Judges Robert Bacharach and Gregory Phillips signed onto the opinion.
A spokesperson for the office of Colorado Treasurer David Young declined to comment.
Attorney Richard Paul III, of Kansas City, Missouri, represented Knellinger and Storey on appeal. He did not immediately respond to a request for comment.