PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 10-1963
______________
TREASURER OF THE STATE OF NEW JERSEY;
TREASURER OF THE STATE OF NORTH CAROLINA;
DIRECTOR OF THE DEPARTMENT OF REVENUE OF
THE STATE OF MONTANA; TREASURER OF THE
STATE OF KENTUCKY; TREASURER OF THE STATE
OF OKLAHOMA; ATTORNEY GENERAL OF THE
STATE OF MISSOURI; TREASURER OF THE STATE OF
PENNSYLVANIA
v.
UNITED STATES DEPARTMENT OF THE TREASURY;
SECRETARY OF THE UNITED STATES TREASURY
DEPARTMENT;
BUREAU OF PUBLIC DEBT, a Division of the United
States Treasury Department; COMMISSIONER OF THE
BUREAU OF PUBLIC DEBT,
Treasurer of the State of New Jersey,
Director of the Department of Revenue
of the State of Montana,
Treasurer of the State of Kentucky,
Treasurer of the State of Oklahoma,
Attorney General of the State of
Missouri,
Treasurer of the State of Pennsylvania,
Appellants
(Pursuant to Fed. R. App. P. 43(c)(1))
______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 04-4368)
Honorable Mary L. Cooper, District Judge
______________
Argued April 11, 2012
BEFORE: HARDIMAN, GREENAWAY, JR., and
GREENBERG, Circuit Judges
(Filed: June 27, 2012)
______________
Carter G. Phillips (argued)
Sidley Austin
1501 K Street, N.W.
Washington, DC 20005
Peter G. Angelos
M. Albert Figinski
Law Offices of Peter G. Angelos
2
100 North Charles Street
One Charles Center, 22nd Floor
Baltimore, MD 21201
Randall K. Berger
Joanne M. Cicala
Roger W. Kirby
Kirby McInerney
825 Third Avenue
16th Floor
New York, NY 10022
William C. Cagney
Robert J. Luddy
Windels, Marx, Lane & Mittendorf
120 Albany Street Plaza, 6th Floor
New Brunswick, NJ 08901
William H. Murphy, Jr.
Andrew J. Toland
The Murphy Firm
1 South Street, 23rd Floor
Baltimore, MD 21202
Ernest A. Young
203 Strolling Way
Durham, NC 27707
Jeremiah J. Morgan, Sr.
Joel A. Poole
Office of Attorney General of Missouri
3
P.O. Box 899
Jefferson City, MO 65101
Gita F. Rothschild
McCarter & English
100 Mulberry Street
Four Gateway Center, 14th Floor
Newark, NJ 07102-06552
Attorneys for Appellants
Alisa B. Klein (argued)
Mark B. Stern
United States Department of Justice, Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
David E. Dauenheimer
Office of the United States Attorney
970 Broad Street, Room 700
Newark, NJ 07102
Attorneys for Appellees
______________
OPINION OF THE COURT
______________
GREENBERG, Circuit Judge.
I. INTRODUCTION
4
In this action seven plaintiff States (“the States”) sought
to recover proceeds of matured but unredeemed United States
savings bonds from the United States Treasury (“the
Treasury”).1 In addition to the Treasury, the States also named
other United States Government entities and officials in their
official capacities as defendants and we refer to all the
defendants collectively as the “Government” or “Federal
Government.” The States asserted that the Treasury has
possession of approximately $16 billion worth of matured but
unredeemed savings bonds, of which persons whose last known
addresses were within the plaintiff States own $1.6 billion. The
States contended that their respective unclaimed property acts
obliged the Treasury to account for and deliver the proceeds of
these bonds to the States for reunification with their owners.
The Government moved to dismiss the case and the District
Court granted its motion as it concluded that the Government‟s
sovereign immunity and intergovernmental immunity barred the
action and that federal law and regulations preempted the States‟
statutory authority to obtain the proceeds of the savings bonds.
Six of the States appealed. Though we do not agree with the
District Court with respect to the application of sovereign
immunity, we do agree with its other conclusions and therefore
we will affirm.
II. FACTS AND PROCEDURAL HISTORY
A. The United States Savings Bond Program
1
Throughout this opinion we refer to the plaintiffs in this action
as “States” but to the 50 states as a whole as “states.”
5
Pursuant to its constitutional power “to borrow money on
the credit of the United States,” Free v. Bland, 369 U.S. 663,
666-67, 82 S.Ct. 1089, 1092 (1962) (citing U.S. Const. art. I, §
8, cl. 2), Congress delegated authority to the Secretary of the
Treasury (“the Secretary”), with the approval of the President, to
issue savings bonds “for expenditures authorized by law.” 31
U.S.C. § 3105(a).2 The Government sold savings bonds,
originally called liberty bonds, “[t]o obtain money for the United
States Government . . . [and] to encourage thrift and savings by
small investors.” Moore‟s Adm‟r v. Marshall, 196 S.W.2d 369,
372 (Ky. 1946). A United States savings bond is a contract
between the United States and the bond‟s owner. Rotman v.
United States, 31 Fed. Cl. 724, 725 (Fed. Cl. 1994). The
Secretary may establish the terms and conditions that govern the
savings bond program, a power that includes the authority to fix
the bonds‟ investment yield, to promulgate terms and conditions
providing that bondholders may keep the bonds beyond the date
of their maturity, and to place conditions on transfer and
redemption of the bonds and their sales prices. 31 U.S.C. §
3105(b)-(c). Most of the bonds that are the subject matter of
this case are Series E bonds issued between 1941 and 1980. The
Government sold the Series E bonds at a discount and paid
interest on them only at maturity; according to the States, after
maturity interest stopped accruing on the bonds.3 The last Series
2
This statute previously was codified at 31 U.S.C. § 757c(a).
See Free, 369 U.S. at 666-67, 82 S.Ct. at 1092.
3
The plaintiff States‟ representation that interest ceased to
accrue on Series E bonds after maturity may be somewhat
misleading but we will accept it in adjudicating this appeal. The
reason we think that this representation may be misleading is
6
E bonds matured in 2011.
Pursuant to his statutory authority, the Secretary has
promulgated various regulations governing the savings bond
program that the Supreme Court has held preempt conflicting
state law. See United States v. Chandler, 410 U.S. 257, 262, 93
S.Ct. 880, 883 (1973) (citing Free 369 U.S. at 668, 82 S.Ct. at
1093) (“[A]bsent fraud, the regulations creating a right of
survivorship in United States Savings Bonds . . . pre-empt[] any
inconsistent state property law.”). In contrast to many other
types of securities, “[s]avings bonds are not transferable and are
that 31 U.S.C. § 3105(b)(2)(A) indicates that the Secretary may
prescribe regulations that provide for savings bonds to continue
to earn interest during “a period beyond maturity.” Moreover,
31 C.F.R. § 315.30 provides that “[a]ll Series E bonds and
savings notes have been extended and continue to earn interest
until their final maturity dates, unless redeemed earlier.” The
regulations allow for such an “extended maturity period,” a
“period after the original maturity date during which the owner
may retain a bond and continue to earn interest on the maturity
value” of the bond. 31 C.F.R. § 315.2(c). We see little
difference between a bond paying interest accrued beyond
maturity and extending a bond‟s maturity date for a period
during which the bond earns interest. Indeed, it appears that
when this action was commenced in 2004 some Series E bonds
had passed their original maturity dates but were continuing to
earn interest as their maturity dates had been extended. See 31
C.F.R. § 316.8. Obviously, if interest runs after the bonds‟
original maturity dates, the States‟ case, if affected at all, only
could be weaker.
7
payable only to the owners named on the bonds, except as
specifically provided in [the federal] regulations and then only
in the manner and to the extent so provided.” 31 C.F.R. §§
315.15, 353.15.
There are limited exceptions to the general rule
precluding the transfer of savings bonds, including cases in
which a third party attains an interest in a bond through valid
judicial proceedings. 31 C.F.R. §§ 315.20(b), 353.20(b).4 As
4
31 C.F.R. § 315.39(a) and (b) provide for payment of series A,
B, C, D, E, F, G, H, J, and K bonds, and 31 C.F.R. § 353.39(a)
provides for payment of series EE bonds. The regulations
contain identical language:
The Department of the Treasury will recognize a
claim against an owner of a savings bond and
conflicting claims of ownership of, or interest in,
a bond between coowners or between the
registered owner and the beneficiary, if
established by valid, judicial proceedings, but
only as specifically provided in this Subpart.
Section 315.23 [or section 353.23] specifies the
evidence required to establish the validity of the
judicial proceedings.
31 C.F.R. §§ 315.20(b), 353.20(b). 31 C.F.R. § 315.23 requires
“that certified copies of the final judgment, decree, or court
order, and of any necessary supplementary proceedings,” be
submitted to establish the validity of judicial proceedings, and
also makes provisions for payment to certain bankruptcy trustees
8
will be seen below, it is highly significant that the regulations do
not impose any time limits for bond owners to redeem the
savings bonds, at least with respect to the bonds that are the
subject matter of this case. Consequently, their owners can
present them for payment to an authorized agent of the United
States at any time. See 31 U.S.C. § 3105(b)(2)(A) (authorizing
the Secretary to promulgate regulations providing that “owners
of savings bonds may keep the bonds after maturity”). Though
it might be thought unlikely that an owner would present a long-
matured savings bond for redemption, the record shows that the
Treasury as of 1989 was receiving claims of $7,000 to $10,000 a
day for payment on savings bonds that had matured many years
earlier. App. at 169.5 As relevant here, a registered owner of a
bond is presumed conclusively to be its owner absent errors in
registration. 31 C.F.R. §§ 315.5, 353.5.
The redemption process is not complex, as the owner of a
bond seeking to redeem it need only present the bond to an
authorized payment agent for redemption, 31 C.F.R. §§
315.39(a), 353.39(a), establish his identity, sign the request for
payment, and provide his address. The agent then may pay the
bond with a check drawn against funds of the United States.
and receivers.
5
We note that the States in their complaint assert that “[n]ot
surprisingly, Treasury has not been approached by owners in
significant numbers seeking long-matured savings bonds.” We
cannot reconcile this allegation with the evidence in the record
to which we have referred.
9
See 31 C.F.R. §§ 315.38, 353.38. Payment agents, ordinarily
banks, are financial institutions qualified under Treasury
regulations to pay sums due on savings bonds. See 31 C.F.R. §§
315.2(j), 353.2(f). The relevant statutes and regulations do not
contain provisions for locating owners of matured but
unredeemed bonds. In 2000, the Treasury, however, created a
“Treasury Hunt” Internet website, which provides information
on matured but unredeemed Series E bonds issued after 1974 in
a database searchable by Social Security Number.6
B. The States‟ Unclaimed Property Acts
All of the plaintiff States have enacted unclaimed
property acts, most of which they have based on some version of
the Uniform Unclaimed Property Act, which is rooted in the
common-law doctrine of escheat. See Conn. Mut. Life Ins. Co.
v. Moore, 333 U.S. 541, 547, 68 S.Ct. 682, 686 (1948) (“The
right of appropriation by the state of abandoned property has
existed for centuries in the common law.”). The plaintiff-
appellant States of New Jersey, Kentucky, Montana, Oklahoma,
Missouri and Pennsylvania claim that the unclaimed bonds are
property of their residents within the meaning of their respective
unclaimed property acts. See New Jersey Uniform Unclaimed
Property Act, N.J. Stat. Ann. § 46:30B-1 et seq. (West 2003);
Kentucky statutes regarding descent, wills and the
administration of decedents‟ estates, Ky. Rev. Stat. Ann. §
6
The website is available at Treasury Hunt,
http://www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.ht
m.
10
393.010 et seq. (West 2012); Montana Uniform Unclaimed
Property Act, Mont. Code Ann. § 70-9-801 et seq. (2012);
Oklahoma Uniform Unclaimed Property Act, Okla. Stat. tit. 60,
§ 651 et seq. (2012); Missouri Uniform Disposition of
Unclaimed Property Act, Mo. Ann. Stat. §§ 447.500 et seq.
(West 2012); Pennsylvania statutes regarding disposition of
abandoned and unclaimed Property, 72 Pa. Stat. Ann. § 1301.9
et seq. (West 1995). The States‟ unclaimed property acts require
that, after time periods that differ from State to State, holders of
unclaimed property turn the property over to the State for
safekeeping though the original property owner retains the right
to recover the proceeds of the property. See, e.g., N.J. Stat.
Ann. § 46:30B-7 (“Except as otherwise provided by this chapter,
all property . . . that is held . . . and has remained unclaimed by
the owner for more than three years after it became payable or
distributable is presumed abandoned.”).
The unclaimed property acts at issue in this case are
“custody” escheat statutes rather than “title” escheat statutes in
that under them the State does not take title to abandoned
property, but, instead, obtains its custody and beneficial use
pending identification of the property owner.7 Thus “[t]he
7
According to the plaintiff States, “statutes that transfer title
[are] an obsolescent form of escheat no longer in force in any
state.” Appellants‟ br. at 3. We have some question as to
whether this statement may be overbroad as it is difficult to
understand how there can be an escheat of real or tangible
personal property without a transfer of title, inasmuch as a state
to dispose of such property ordinarily would need to sell it to a
purchaser who would want title to the property. We, however,
11
presumption of abandonment raised by the statute is rebuttable
at any time.” John V. Orth, Escheat: Is the State the Last Heir?,
13 Green Bag 2d 73, 82 (2009). Although “[t]he practical
reason behind the states‟ action is to prevent unclaimed personal
property being eventually appropriated by the present holder,”
the state being “better able to provide long-term . . . custody” of
the property, “it is sometimes admitted that the statutes are also
a means of raising revenue.” Id. at 78 (citing, e.g., Louisiana
Health Serv. & Indem. Co. v. McNamara, 561 So. 2d 712, 716
(La. 1990)) (“Although one purpose of such acts is to protect the
missing owners, the primary rationale behind this legislation is
its use as a revenue raising device.”); see, e.g., Clymer v.
Summit Bancorp., 792 A.2d 396, 400 (N.J. 2002) (noting that
75% of the funds that New Jersey collects under its Uniform
Unclaimed Property Act are transferred to the General State
Fund, and the State “has full use” of the money “until the
rightful owner comes forward to claim it”). Accordingly,
consider that an inquiry into the accuracy of the States‟
representation would be beyond the scope of this opinion and so
do not make it. We recently described the New Jersey
Unclaimed Property Act in American Express Travel Related
Services, Inc. v. Sidamon-Eristoff, 669 F.3d 359 (3d Cir. 2012),
in which we upheld a New Jersey statute that reduced the period
after which travelers checks are presumed abandoned from 15
years to three years. Id. at 364. We indicated that after a
transfer of abandoned property to the State of New Jersey it
holds the property for the benefit of its owner in perpetuity. Id.
at 365. Though American Express is an informative case with
respect to the New Jersey act it does not address issues similar to
those here.
12
though the States contend that their intent in bringing this action
has been benevolent, the objective reality obviously is
otherwise. The truth is that this case is a dispute between the
States and the United States as to whether a State or the United
States will obtain the benefit of having custody of and
availability for use of the proceeds of the matured but
unredeemed bonds even if it does not obtain title to the proceeds
of the bonds or title to the bonds themselves.
The unclaimed property acts contain specific provisions
for presuming property to be “abandoned” when the United
States either holds the property or is obligated to make payment
for it to its owner. See N.J. Stat. Ann. § 46:30B-41.2
(presuming property to be abandoned if unclaimed for more than
one year after it became payable by “the executive, legislative,
or judicial branch of the United States Government”); Okla.
Stat. tit. 60, § 657 (property held by a state or other government
presumed abandoned after being unclaimed for one year); Ky.
Rev. Stat. Ann. § 393.068(1) (property held by Federal
Government presumed abandoned if it remains unclaimed for
more than five years); Mo. Rev. Stat. § 447.532(2) (property
held by any agency or department of the United States deemed
abandoned if unclaimed for more than three years); Mont. Code
Ann. § 70-9-803(1)(k) (property held by a government or
governmental subdivision unclaimed one year after it becomes
distributable presumed abandoned); 72 Pa. Stat. Ann. § 1301.9
(any property held for its owner by any “instrumentality of the
United States” unclaimed for five years from the date it first
became demandable or distributable presumed abandoned).
C. The States‟ Efforts to Claim Proceeds of Matured
13
but Unredeemed Savings Bonds
Over the last several decades, various states have sought
to recover the proceeds from matured but unredeemed savings
bonds. On February 27, 1952, the Treasury issued a bulletin
reprinting a letter dated January 28, 1952, from the Secretary to
the Comptroller of the State of New York in response to the
Comptroller‟s inquiry regarding “the prospective right of the
state of New York . . . to receive payment of certain United
States securities of which it is not the registered owner.” App.
at 134. The Secretary explained that the Federal Government
would pay the proceeds of savings bonds to the State of New
York if it actually obtained title to the bonds, but would not do
so where the State merely obtained a right to the custody of the
proceeds. The Secretary made this distinction because he
believed that the effect of applying a custody-based escheat
statute to savings bonds would
either provide the obligor with a discharge, valid
within and without New York, or fail to provide
such discharge. If the discharge is provided in the
case of the ordinary debtor, then the other party to
the contract has substituted for his right to pursue
his obligor in any jurisdiction, a right merely to
prosecute a claim against the State Comptroller of
New York; if an effective discharge is not
provided, the obligor is subject to suit outside the
State of New York and the necessity of making
double payment — in exchange he has a right to
claim relief from the Comptroller under . . . [New
York‟s] Abandoned Property Law.
14
Id. at 135. The Secretary concluded that “[n]either of these
possible alterations of [the] contract [created by the savings
bond] is contemplated in the agreement by which the United
States pledges its faith on its securities,” because “the rights and
duties of the United States are governed by federal rather than
local law.” Id. at 135-36.
To the best of our knowledge the Treasury last articulated
its position with respect to the application of state escheat laws
on savings bonds or their proceeds in 2000 on its Internet
website, “EE/E Savings Bonds FAQs” (frequently asked
questions). In particular, the Treasury posted an answer to the
question: “In a state that has a permanent escheatment law, can
the state claim the money represented by securities that the state
has in its possession. For example, can a state cash savings
bonds that it‟s gotten from abandoned safe deposit boxes?” The
plaintiff States refer to the Treasury‟s answer to this question —
which is consistent with the bulletin that the Treasury issued
almost one half of a century earlier and that we have quoted —
as the “Escheat Decision.” The Escheat Decision answered that:
The Department of the Treasury will
recognize claims by States for payment of United
States securities where the States have succeeded
to the title and ownership of the securities
pursuant to valid escheat proceedings. The
Department, however, does not recognize claims
for payment by a State acting merely as custodian
of unclaimed or abandoned securities and not as
successor in title and ownership of the securities.
15
In other words, the Treasury recognizes
escheat statutes that provide that a State has
succeeded to the legal ownership of securities
because in such case payment of the securities
results in full discharge of the Treasury‟s
obligation and this discharge is valid in all
jurisdictions.
But, payment of securities to a State
claiming only as a custodian results in the
substitution of one obligor, the Department of the
Treasury, for another, the State. Not only is there
serious question whether there is authority for a
State to effect such a substitution, but also there
seems to be no basis for believing that payment to
a State custodian would discharge Treasury of its
obligation. Even if the discharge were claimed
effective in the State to which the payment is
made, it is believed that the Treasury‟s obligation
and liability would still remain in force in all
other jurisdictions.8
In the District Court, the parties stipulated that the Escheat
Decision “is defendants‟ interpretation of federal savings bond
8
The Escheat Decision took this statement nearly verbatim from
a 1983 letter from the Treasury to the State of Kentucky. See
app. at 139. The Escheat Decision is available at
http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res
_e_bonds_eefaq.htm.
16
regulations . . . and reflects defendants‟ understanding of
existing laws” and that “the Department has no intention of
deviating from the statement.” Id. at 142. The Treasury,
however, has not adopted the Escheat Decision as a rule in
accordance with the Administrative Procedure Act (“APA”), 5
U.S.C. § 551 et seq.
D. Procedural History
The Treasurer of the State of New Jersey filed this action
on September 8, 2004, against the Treasury, the Secretary, the
Bureau of Public Debt,9 and the Commissioner of the Bureau of
Public Debt under the New Jersey Uniform Unclaimed Property
Act. The Treasurer of the State of North Carolina joined the
action shortly thereafter.10 The plaintiff States sought an order
directing the Government to pay the proceeds of matured but
unredeemed savings bonds to the plaintiff States according to
the last known addresses of their owners and for an accounting
of the amounts owed pursuant to their unclaimed property acts.
It was and remains clear that if the unclaimed property acts are
applied as written, by their terms they would entitle the States to
substantially the relief that they seek in this action.
Nevertheless, on February 5, 2005, the Government moved to
dismiss or transfer the action to the United States Court of
Federal Claims as it contended that only that court had subject
9
The Bureau of Public Debt is the division of the Treasury
responsible for administrating the savings bond program.
10
North Carolina has not joined in this appeal. See app. at 1
(notice of appeal).
17
matter jurisdiction. In making this motion the Government
contended that the only applicable waiver of sovereign
immunity that would permit this action to proceed was within
the Tucker Act, which grants the Court of Federal Claims
jurisdiction over “any claim against the United States founded
either upon the Constitution, or any Act of Congress or any
regulation of an executive department, or upon any express or
implied contract with the United States, or for liquidated or
unliquidated damages in cases not sounding in tort.” 28 U.S.C.
§ 1491(a)(1). The District Court agreed with the Government
with respect to the court that should entertain the action as it
transferred the case to the Court of Federal Claims in July of
2005 pursuant to 28 U.S.C. § 1631 as it held that the States‟
claims were “based on contracts” — the savings bonds. The
States appealed from the order for transfer to the United States
Court of Appeals for the Federal Circuit, the court with
jurisdiction to entertain appeals from the Court of Federal
Claims as the transferee court, rather than to this Court. See
Carteret Sav. Bank v. Shushan, 919 F.2d 225, 228 (3d Cir.
1990).
On June 15, 2006, the Court of Appeals for the Federal
Circuit held that the Court of Federal Claims lacked jurisdiction
over this case and the court of appeals accordingly remanded the
case to the District Court for further proceedings. See
McCormac v. U.S. Dep‟t of Treasury, 185 F. App‟x 954 (Fed.
Cir. 2006). In briefs filed in the court of appeals, the United
States acknowledged that it had erred in requesting the transfer
and conceded that the case was not within the limited
jurisdiction of the Court of Federal Claims. The court of
appeals wrote that the Court of Federal Claims did not have
18
jurisdiction because the States “do not assert a contractual
relationship . . . that provides a substantive right to money
damages.” Id. at 955. Accordingly, “although the States [were]
asserting a claim that involves a contract, they [were] not
asserting a contract claim for money damages against the
government.” Id. at 956. Moreover “[t]he States [were] not
named parties to the bond contract, [and thus there was not]
privity between the States and the Government.” Id. The court
of appeals noted that the States, by operation of their unclaimed
property acts, sought to act only as conservators, not as parties to
any contracts. Id.
After the return of the case to the District Court the
plaintiff States amended their complaint multiple times to add as
plaintiffs officials of the States of Montana, Kentucky,
Oklahoma, Missouri, and Pennsylvania, and to add claims that
the Escheat Decision violated the Tenth Amendment11 and the
notice and comment provisions of the APA contained in 5
U.S.C. § 553.12 In November of 2008, the Government filed a
11
The Tenth Amendment provides that “[t]he powers not
delegated to the United States by the Constitution, nor
prohibited by it to the States, are reserved to the States
respectively, or to the people.”
12
5 U.S.C. § 553 provides in relevant part:
19
motion to dismiss the fourth amended complaint, again
contending that the District Court did not have jurisdiction but
this time predicating that contention on an argument that the
(b) General notice of proposed rule making shall
be published in the Federal Register, unless
persons subject thereto are named and either
personally served or otherwise have actual notice
thereof in accordance with law. . . .
Except when notice or hearing is required by
statute, this subsection does not apply—
(A) to interpretative rules, general
statements of policy, or rules of agency
organization, procedure, or practice; or
(B) when the agency for good cause finds
(and incorporates the finding and a brief statement
of reasons therefor in the rules issued) that
notice and public procedure thereon are
impracticable, unnecessary, or contrary to
the public interest.
(c) After notice required by this section, the
agency shall give interested persons an
opportunity to participate in the rule making
through submission of written data, views, or
arguments with or without opportunity for oral
presentation. . . .
20
United States had not waived sovereign immunity and thus the
Federal Government could not be made a defendant in this
action. The Government, however, did not contend that even if
it did not enjoy sovereign immunity in this case the Court still
would not have statutory jurisdiction under 28 U.S.C. § 1331 or
any other statute. In the alternative, the Government sought
summary judgment on the grounds of intergovernmental
immunity and federal preemption of the States‟ unclaimed
property acts.
After oral argument, the District Court denied the
Government‟s motion without prejudice, but granted it leave to
file a motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b). In July of 2009, the Government filed the
ultimately successful motion to dismiss and obtained the order
that the States challenge on this appeal.13 The Government
argued that dismissal for lack of jurisdiction was warranted
under Rule 12(b)(1) because the States had not established that
the Government had waived sovereign immunity. Alternatively,
the Government argued that dismissal was appropriate under
Rule 12(b)(6) because federal law preempted the States‟
13
The Government addressed its motion to dismiss to the fourth
amended complaint but after oral argument on the motion the
States sought leave to amend the complaint to add the Treasurer
of Pennsylvania as a plaintiff. The Government consented to the
amendment, thus generating a fifth amended complaint.
Because the fifth amended complaint was substantially the same
as the fourth amended complaint, the District Court‟s opinion
referenced the fourth amended complaint.
21
unclaimed property acts to the extent that the States sought to
apply those acts in this case. The Government also contended
that the doctrine of intergovernmental immunity barred the
States‟ case and the case lacked merit insofar as the States based
their claims on the Tenth Amendment and violations of the
APA‟s notice and comment provisions.
The District Court began its analysis with the
Government‟s arguments on the merits under Rule 12(b)(6) even
though “Article III [of the Constitution] generally requires a
federal court to satisfy itself of its jurisdiction over the subject
matter before it considers the merits of a case.”14 Ruhrgas AG
v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 1569
(1999). The District Court first addressed the issue of
intergovernmental immunity, and concluded that the imposition
of the States‟ escheat acts impermissibly would regulate the
Federal Government by imposing potential civil and criminal
penalties on the Government for failure to comply with the acts‟
14
In Steel Co. v. Citizens for a Better Environment, 523 U.S.
83, 118 S.Ct. 1003 (1998), the Supreme Court disapproved of
the practice that some courts of appeals, including this Court,
had adopted of assuming “hypothetical jurisdiction” when
facing difficult jurisdictional questions in situations in which the
party entitled to prevail on the merits would be the same party
prevailing if the court did not have jurisdiction. Id. at 93-94,
118 S.Ct. at 1012. Under the rule of Steel Co., when a court
lacks jurisdiction its “only function . . . is that of announcing the
fact and dismissing the cause” as any further discussion would
amount to an “advisory opinion.” Id. at 94, 101, 118 S.Ct. at
1012, 1016.
22
record-keeping and reporting requirements, and would interfere
with Congress‟s constitutional power, U.S. Const. art. IV, § 3,
cl. 2, to “dispose of and make all needful Rules and Regulations
respecting the . . . Property belonging to the United States.”
App. at 28-30. The Court also observed that implementing the
laws “could result in multiple obligations on the same bond by
the United States,” id. at 30, because the respective States would
be substituted as obligors on the bonds, while the Federal
Government would remain contractually and statutorily
obligated on the bonds to the original bondholder or his legal
successors.
Next, addressing preemption, the District Court held that
the States‟ proposal for taking custody of the bonds pursuant to
their escheat laws impermissibly would interfere with the
contract between the bondholders and the United States, thus
conflicting “with the narrow regulations governing redemption
of the bonds.” Id. at 30-31. The Court also rejected the States‟
Tenth Amendment reserved power claim that they had the right
to enforce their unclaimed property acts to gain custody of the
proceeds of the savings bonds. In this regard, the Court held
because the States‟ acts had been preempted, Congress had not
infringed the States‟ reserved powers by exercising powers not
delegated to the United States. Finally, the Court held that the
States‟ notice and comment claim failed because the Escheat
Decision concerns government contracts and thus the Decision
explicitly was exempt from the requirements of 5 U.S.C. §
23
553.15 See 5 U.S.C. § 553(a) (stating that “[t]his section applies
. . . except to the extent there is involved . . . a matter relating to
agency . . . contracts”). Alternatively, with respect to the States‟
notice and comment claim the Court held that the Escheat
Decision was an “interpretive rule” or “general statement[] of
policy” not subject to the statute‟s requirements. See 5 U.S.C. §
553(b)(A) (stating with exceptions not relevant here that the
APA‟s notice provision does not apply to “interpretive rules,
general statements of policy, or rules of agency organization,
procedure, or practice”).
15
On this appeal, the States essentially do not challenge the
District Court‟s ruling rejecting their 5 U.S.C. § 553 notice and
comment argument, and therefore they have waived their right
to contend that the Court erred in making that ruling. See FDIC
v. Deglau, 207 F.3d 153, 169 (3d Cir. 2000). They indicate,
however, in their brief that they contingently “do assert a claim
under the APA concerning Treasury‟s failure to promulgate its
Escheat Decision through notice and comment rulemaking or to
publish it in the Federal Register . . . but [do so] simply to
forestall any assertion by defendants that the Escheat Decision is
agency action that preempts the States‟ cause of action under
their escheat statutes.” Appellants‟ br. at 17 n.5. The
Government, however, does not make that contention as it
argues that federal constitutional provisions, laws, and duly
adopted regulations preempt the States‟ unclaimed property acts.
Obviously, the Escheat Decision has no preemptive effect as it
merely is the Treasury‟s opinion as to the effect of those primary
sources of law.
24
When it addressed the sovereign immunity and
jurisdictional issues, the District Court concluded that the
Escheat Decision and the Government‟s refusal to turn over the
unclaimed bonds did not constitute “final agency action” subject
to judicial review. See 5 U.S.C. § 704 (“Agency action made
reviewable by statute and final agency action for which there is
no other adequate remedy in a court are subject to judicial
review. A preliminary, procedural, or intermediate agency
action or ruling not directly reviewable is subject to review on
the review of the final agency action.”).16 On February 5, 2010,
the Court entered an order dismissing this action. This appeal
followed.
III. JURISDICTION AND STANDARD OF REVIEW
The question of whether the District Court had
jurisdiction is at issue in this appeal. Accordingly, we will
address its jurisdiction in our discussion below. We have
appellate jurisdiction under 28 U.S.C. § 1291.
Our review of the dismissal in this case involving a facial
challenge to the District Court‟s jurisdiction is plenary. In re
16
The District Court did not specify whether it based its
decision to dismiss the case on the merits pursuant to Rule
12(b)(6) or on its lack of jurisdiction under Rule 12(b)(1). As
we discuss below, regardless of the District Court‟s intent we
affirm its dismissal on the basis of Rule 12(b)(6) as we are
satisfied that it had jurisdiction.
25
Kaiser Grp. Int‟l Inc., 399 F.3d 558, 561 (3d Cir. 2005). Thus,
in our jurisdictional determination we “accept all [the] well-
pleaded allegations in the complaint as true and view them in the
light most favorable to the [States].” Id.
We exercise plenary review of the District Court‟s order
granting the Government‟s motion to dismiss under Rule
12(b)(6) for failure to state a claim. See Allen ex rel. Martin v.
LaSalle Bank, N.A., 629 F.3d 364, 367 (3d Cir. 2011).
Similarly, as in our jurisdictional review, in reviewing the
dismissal under Rule 12(b)(6), “we accept all factual allegations
as true [and] construe the complaint in the light most favorable
to the [States].” Warren Gen. Hosp. v. Amgen Inc., 643 F.3d
77, 84 (3d Cir. 2011) (quoting Pinker v. Roche Holdings, Ltd.,
292 F.3d 361, 374 n.7 (3d Cir. 2002)). A court may grant a
motion to dismiss under Rule 12(b)(6) “only if, accepting all
well-pleaded allegations in the complaint as true and viewing
them in the light most favorable to the plaintiff, [it] finds that [a]
plaintiff‟s claims lack facial plausibility.” Id. (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 1964-
65 (2007)).
IV. DISCUSSION
A. Subject Matter Jurisdiction
Without a waiver of sovereign immunity, a court is
without subject matter jurisdiction over claims against federal
agencies or officials in their official capacities. United States v.
26
Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351 (1980) (“The
United States, as sovereign, is immune from suit save as it
consents to be sued.”) (alteration and citation omitted). A
waiver of sovereign immunity must be express and
unambiguous to confer subject matter jurisdiction on a court.
United States v. Bein, 214 F.3d 408, 412 (3d Cir. 2000). As the
Supreme Court said in United States v. United States Fidelity &
Guaranty Co., 309 U.S. 506, 514, 60 S.Ct. 653, 657 (1940),
“[c]onsent alone gives jurisdiction to adjudge against a
sovereign. Absent that consent, the attempted exercise of
judicial power is void.” Moreover, as the Court also has
explained “a waiver of sovereign immunity must be strictly
construed in favor of the sovereign,” Orff v. United States, 545
U.S. 596, 601-02, 125 S.Ct. 2606, 2610 (2005), and “[t]he terms
of [the] waiver define the extent of the court‟s jurisdiction.”
United States v. Mottaz, 476 U.S. 834, 841, 106 S.Ct. 2224,
2229 (1986) (citation omitted).
The States initially argue that the proposed application of
their respective unclaimed property acts to the savings bonds or
their proceeds does not implicate sovereign immunity because it
does not create a context in which the Federal Defendants might
be able to assert their sovereign immunity. The States predicate
this argument on the circumstance that the United States does
not assert an ownership interest in the proceeds of the unclaimed
bonds or in the bonds themselves. We, however, conclude that
this argument lacks merit. In rejecting the States‟ argument we
note that we have observed, rather unsurprisingly, that
“sovereign immunity is implicated” when “a plaintiff [is] suing
the United States.” Scheafnocker v. Comm‟r, 642 F.3d 428, 433
n.8 (3d Cir. 2011) (citing Becton Dickinson and Co. v.
27
Wolckenhauer, 215 F.3d 340, 345 (3d Cir. 2000)); see S. Delta
Water Agency v. U.S. Dep‟t of Interior, 767 F.2d 531, 536 (9th
Cir. 1985) (noting that “[f]ederal agencies and instrumentalities,
as well as federal employees acting in their official capacities
within their authority are [also] immune from suit” absent a
congressional waiver of sovereign immunity) (citation omitted).
The States next assert that even if sovereign immunity is
implicated in this case, the APA provides for its waiver. We
agree with the States‟ APA argument and thus hold that the
District Court erred to the extent it relied on sovereign immunity
to dismiss the case under Rule 12(b)(1). In considering
sovereign immunity we initially observe that the APA “sets forth
the procedures by which federal agencies are accountable to the
public and their actions subject to review by the courts.”
Franklin v. Massachusetts, 505 U.S. 788, 796, 112 S.Ct. 2767,
2773 (1992). Thus, the APA in 5 U.S.C. § 702 provides in
relevant part:
A person suffering legal wrong because of agency
action, or adversely affected or aggrieved by
agency action within the meaning of a relevant
statute, is entitled to judicial review thereof. An
action in a court of the United States seeking
relief other than money damages and stating a
claim that an agency or an officer or employee
thereof acted or failed to act in an official capacity
or under color of legal authority shall not be
dismissed nor relief therein be denied on the
ground that it is against the United States or that
the United States is an indispensable party.
28
The second sentence of the above portion of section 702 had its
origin in the 1976 amendments to the APA by which Congress
sought to “remove three technical barriers to the consideration
on the merits of citizens‟ complaints against the Federal
Government, its agencies, or employees.” H.R. Rep. No. 94-
1656, at 3 (1976), reprinted in 1976 U.S.C.C.A.N. 6121, 6123.
A key “technical barrier” that Congress removed was “the
defense of sovereign immunity as a bar to judicial review of
Federal administrative action otherwise subject to judicial
review.” 5 U.S.C. § 702, Historical and Statutory Notes. The
Supreme Court subsequently clarified that “it is undisputed that
the 1976 amendment to § 702 was intended to broaden the
avenues for judicial review of agency action by eliminating the
defense of sovereign immunity in cases covered by the
amendment.” Bowen v. Massachusetts, 487 U.S. 879, 891-92,
108 S.Ct. 2722, 2731 (1988). Thus, section 702 “provides both
a waiver of sovereign immunity and a right of judicial review.”
NVE, Inc. v. Dep‟t of Health and Human Servs., 436 F.3d 182,
189 (3d Cir. 2006).
The States now contend that the District Court erred in
holding that the scope of the waiver of sovereign immunity
under section 702 is limited to “final agency action.”17 The
17
The States took the position before the District Court that if a
waiver of sovereign immunity was necessary, the Escheat
Decision would have to have been “final agency action” for it to
be reviewable under the APA. That contention is inconsistent
with their position on this appeal. The States complain that the
District Court “severely limited discovery to the issues of
ripeness and whether Treasury‟s policy on escheat constituted
29
APA in 5 U.S.C. § 704 sets forth limitations on the type of
agency actions reviewable under the APA, as it provides that
“[a]gency action made reviewable by statute and final agency
action for which there is no other adequate remedy in a court are
subject to judicial review. A preliminary, procedural, or
intermediate agency action or ruling not directly reviewable is
subject to review on the review of the final agency action.” See
5 U.S.C. § 551(13) (“„agency action‟ includes the whole or a
part of an agency rule, order, license, sanction, relief, or the
equivalent or denial thereof, or failure to act”). The District
Court concluded that because the Escheat Decision was not
reviewable by statute and was not a “final agency action,”
section 702 did not waive sovereign immunity in this case.
But the District Court‟s conclusion was at odds with
opinions of several courts of appeals that have clarified that the
waiver of sovereign immunity in section 702 extends to all non-
monetary claims against federal agencies and their officers,
regardless of whether or not the cases seek review of “agency
action” or “final agency action” as set forth in section 704. For
example, in Trudeau v. Federal Trade Commission, 456 F.3d
178, 187 (D.C. Cir. 2006), the United States Court of Appeals
for the District of Columbia Circuit held that section 702‟s
final agency action,” Appellants‟ reply br. at 2, and assert that
broader discovery would have been useful on the issues of
“whether escheat of unclaimed bonds would interfere with the
administration of the federal bond program, or subject Treasury
to double liability, or confuse bondholders.” Id. at 2-3. They,
however, do not ask us to reverse because of the Court‟s
limitation on discovery.
30
waiver of sovereign immunity “is not limited to APA cases” and
applies “regardless of whether the elements of an APA cause of
action are satisfied.” In Trudeau, the Federal Trade Commission
(“FTC”) issued what the plaintiff alleged was a false and
misleading press release about his business activities. The
plaintiff asserted that the FTC violated his rights under the First
Amendment and he was entitled to relief under 5 U.S.C. § 706,
which provides that a reviewing court may set aside agency
action found to be “in excess of statutory jurisdiction, authority,
or limitations.” Id. at 188. The district court dismissed the
complaint for lack of subject matter jurisdiction because the
press release was not “final agency action” under section 704.
Id. at 182. The court of appeals in reversing held that even
though the plaintiff‟s claims failed on the merits that
circumstance made no difference for jurisdictional purposes
because regardless of whether the FTC press release constituted
a “final agency action” the District Court had jurisdiction. In
reaching its conclusion, the court of appeals cited the Senate
Report accompanying the 1976 APA amendments, which
indicated that section 702‟s partial waiver of sovereign
immunity extended to nonstatutory review18 of federal
administrative action, and thus included the plaintiff‟s claims
even if he had not made them under the APA. Id. at 187 (citing
S. Rep. No. 94-996, at 8 (1976) reprinted in 1976 U.S.C.C.A.N.
6121, 6129).
In its opinion the Trudeau court dealt with the first
18
Such lawsuits “are called „nonstatutory‟ because they are not
brought under the statutes that specially provide for review of
agency action.” Jaffee, 592 F.2d at 719 n.12.
31
sentence of section 702 which reads, “[a] person suffering legal
wrong because of agency action . . . is entitled to judicial review
thereof,” but then emphasized that the statute‟s waiver of
sovereign immunity was in the second sentence of section 702
which reads:
An action in a court of the United States seeking
relief other than money damages and stating a
claim that an agency or an officer or employee
thereof acted or failed to act in an official capacity
or under color of legal authority shall not be
dismissed nor relief therein be denied on the
ground that it is against the United States or that
the United States is an indispensable party.
Id. at 185. The court of appeals emphasized that while
the second sentence refers to a claim against an
“agency,” and thus carries that limitation to the scope of
the waiver of sovereign immunity, the sentence does not
use the terms “agency action” or “final agency action.”
Furthermore, the court of appeals observed that the
House and Senate Reports accompanying the 1976
amendments reflected Congress‟s intent to waive
immunity for “any” and ”all” actions for non-monetary
relief against an agency. Id. at 187 (citing H.R. Rep. No.
94-1656, at 3, S. Rep. No. 94-996, at 8, reprinted in 1976
U.S.C.C.A.N. at 6129). In sum, the court of appeals held
that section 704‟s “final agency action” requirement only
limited the viability of claims made under the APA, and
because section 702 operated as a waiver for all non-
monetary claims, including those claims not made under
32
the APA, section 704 did not limit section 702‟s waiver
of sovereign immunity.
The Court of Appeals for the Ninth Circuit recently
agreed with Trudeau that section 702‟s waiver of sovereign
immunity is not limited to actions brought under the APA. In
Veterans for Common Sense v. Shinseki, 644 F.3d 845 (9th Cir.
2011), a veterans‟ group claimed that the Department of
Veterans Affairs‟ dilatory processing of mental health claims
violated the veterans‟ constitutional right to benefits. Id. at 860-
61. In Veterans for Common Sense the district court held that
the “final agency action” limitation in section 704 restricted the
waiver of sovereign immunity in section 702, and inasmuch as
the delays in processing claims did not constitute “final agency
action,” section 702 did not waive sovereign immunity. Id. at
863. The court of appeals reversed, concurring with Trudeau
and holding that the first sentence of section 702 referred to a
cause of action created by the APA, and not any jurisdictional
limitation. Id. at 866 (“The first and second sentences of § 702
play quite different roles.”). Therefore, the court of appeals held
that section 702 waived sovereign immunity for purposes of the
plaintiff‟s request for injunctive relief based on the Constitution,
even if judicial review did not involve “agency action” under
section 704.
The Veterans for Common Sense court relied on its
earlier decision in Presbyterian Church (U.S.A.) v. United
States, 870 F.2d 518 (9th Cir. 1989), where the plaintiffs alleged
that there had been First and Fourth Amendment violations
when federal agencies secretly recorded church services. There,
the court of appeals noted that while the original 1946 form of
33
section 702, which contained the first but not second sentence,
may have limited judicial review to “agency action,” the 1976
amendments, which added the second sentence, reflected an
“unqualified waiver of sovereign immunity in actions seeking
nonmonetary relief against legal wrongs for which governmental
agencies are accountable,” and “[n]othing in the language of the
amendment suggests that the waiver of sovereign immunity is
limited to claims challenging conduct falling in the narrow
definition of „agency action.‟” Id. at 525.
Other courts of appeals have taken the same position as
the Trudeau and Veterans for Common Sense courts. In Delano
Farms Co. v. California Table Grape Commission, 655 F.3d
1337, 1344 (Fed. Cir. 2011), the Court of Appeals for the
Federal Circuit held that grape growers could maintain a patent
claim against the United States Department of Agriculture for
declaratory relief because section 702 applied broadly to waive
sovereign immunity for all claims not seeking money damages.
The Courts of Appeals for the Seventh and First Circuits have
viewed the waiver of sovereign immunity in the second sentence
of section 702 similarly. See Michigan v. U.S. Army Corps of
Eng‟rs, 667 F.3d 765, 775 (7th Cir. 2011) (“the conditions of §
704 affect the right of action contained in the first sentence of §
702, but they do not limit the waiver of immunity in § 702‟s
second sentence”) (citing Veterans for Common Sense, 644 F.3d
at 866-68); Blagojevich v. Gates, 519 F.3d 370, 372 (7th Cir.
2008) (holding that section 702 waives immunity for a lawsuit
by a state governor alleging that the Department of Defense
violated a statute requiring the governor‟s approval before
moving a national guard unit from the state); Puerto Rico v.
United States, 490 F.3d 50, 57-58 (1st Cir. 2007) (holding that
34
section 702 encompasses all actions for specific relief against a
federal agency or its officers).
Although we acknowledge that section 702 is not a model
of clarity, our independent review of our precedents and the
statute‟s legislative history leads us to agree with the position
taken by the courts of appeals in the opinions to which we have
referred. In Specter v. Garrett, 995 F.2d 404 (3d Cir. 1993),
rev‟d on other grounds sub nom. Dalton v. Specter, 511 U.S.
462, 114 S.Ct. 1719 (1994), we held that an action seeking an
order enjoining the Secretary of the Navy from closing a naval
shipyard could proceed under the Defense Base Closure and
Realignment Act of 1990 despite the defendants‟ invocation of
sovereign immunity, stating that “the waiver of sovereign
immunity contained in § 702 is not limited to suits brought
under the APA.” Id. at 410. Although we did not address
directly whether section 704 operates as a limitation on section
702‟s waiver of sovereign immunity, we recently clarified that
the judicial review provisions of the APA such as section 704,
are not jurisdictional, but rather “provide a limited cause of
action for parties adversely affected by agency action.”
Chehazeh v. Attorney Gen. of the United States, 666 F.3d 118,
125 n.11 (3d Cir. 2012) (quoting Oryszak v. Sullivan, 576 F.3d
522, 525 (D.C. Cir. 2009)). “Thus, if agency action is . . . not
final agency action, 5 U.S.C. § 704, a plaintiff who challenges
such an action cannot state a claim under the APA . . . and the
action must be dismissed.” Id. (citing Oryszak, 576 F.3d at 525)
(internal quotation marks omitted).
The House of Representatives Report accompanying the
1976 amendments confirms that Congress contemplated that the
35
amendments would implement a broad waiver of sovereign
immunity. As stated above, prior to the amendments section
702 contained the first sentence, which provided that a person
aggrieved by agency action within the meaning of a relevant
statute is entitled to judicial review, but it did not contain the
second sentence. Thus, in 1976 when Congress added the
second sentence it did so for the specific purpose of waiving
sovereign immunity. See H.R. Rep. No. 94-1656, at 1, reprinted
in 1976 U.S.C.C.A.N. at 6121. The House Report, however,
explained that the second sentence of section 702, providing that
a federal agency and its officers could be named as defendants
in non-monetary actions, was subject to limitations. First, the
amendment only waives sovereign immunity for actions in a
federal court; second, such actions must seek non-monetary
relief; and third, it is “applicable only to functions falling within
the definition of „agency‟ in 5 U.S.C. section 701.” Id. at 11,
reprinted in 1976 U.S.C.C.A.N. at 6131.
But the House Report does not state that there is a fourth
limitation limiting the waiver of sovereign immunity in section
702 to suits challenging “agency action” as defined in the APA.
Rather, the Report indicates that “[t]he amendment made to
section 702 of title 5 would eliminate the defense of sovereign
immunity in any action in a federal court seeking relief other
than money damages and stating a claim based on the assertion
of unlawful official action by an agency or by an officer or
employee of that agency.” Id. at 3, reprinted in 1976
U.S.C.C.A.N. at 6123 (emphasis added); see id. at 9, 1976
U.S.C.C.A.N. at 6129 (“[T]he time now [has] come to eliminate
the sovereign immunity defense in all equitable actions for
specific relief against a Federal agency or officer acting in an
36
official capacity.”) (emphasis added.). Accordingly, section 704
in limiting review to “final agency action” concerns whether a
plaintiff has a cause of action under the APA that can survive a
motion to dismiss under Rule 12(b)(6) but does not provide a
basis for dismissal on grounds of sovereign immunity.19 Here,
of course, the States seek equitable relief and not monetary
damages and accordingly, the Government‟s sovereign
immunity from this action has been waived.20
19
The Government contends that the waiver of sovereign
immunity should be limited to actions brought under federal law
rather than state law as the States have done here to the extent
that they seek relief under their unclaimed property acts.
Though in view of the circumstance that most cases against the
Government are under federal law so that Congress probably
was focused on that law when it adopted the 1976 amendments
to the APA, we see no support for the distinction that the
Government makes between federal and state law in either the
text or the history of section 702.
20
We emphasize here that although in this action the States seek
to recover a very large sum of money, this action does not seek
“money damages” within the meaning of section 702. In
Bowen, 487 U.S. 879, 108 S.Ct. 2722, the State of
Massachusetts sued the Secretary of Health and Human Services
in order to enforce a provision of the Medicaid statute requiring
that the Federal Government reimburse it for certain Medicaid
expenditures that it had made. The Court held that section 702
waived sovereign immunity in that case even though
Massachusetts sought to make a monetary recovery from the
37
Although the defense of sovereign immunity raises a
claim constituting a jurisdictional limitation, even if, as we now
hold here, the defense is unsuccessful, the court in which the
plaintiff has brought the action cannot entertain the case unless
it has jurisdiction under Article III of the Constitution and the
statutes that Congress has adopted providing a federal court with
jurisdiction over the case. Accordingly, as distinct from its
arguments that the States‟ lawsuit does not fall within the APA‟s
waiver of sovereign immunity, the Government now contends
Federal Government, observing that “[o]ur cases have long
recognized the distinction between an action at law for damages
— which are intended to provide a victim with monetary
compensation for an injury to his person, property, or reputation
— and an equitable action for specific relief — which may
include an order providing for the reinstatement of an employee
with backpay, or for „the recovery of specific property or
monies, ejectment from land, or injunction either directing or
restraining the defendant officer‟s actions.‟ Larson v. Domestic
& Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457,
1460 (1949) (emphasis added)).” Id. at 893, 108 S.Ct. at 2732;
see id. at 895, 108 S.Ct. at 2732 (explaining that “[d]amages are
given to the plaintiff to substitute for a suffered loss, whereas
specific remedies are not substitute remedies at all, but attempt
to give the plaintiff the very thing to which he was entitled.”
(citation and internal quotation marks omitted)). Accordingly,
the Court held that “[t]he fact that a judicial remedy may require
one party to pay money to another is not a sufficient reason to
characterize the relief as „money damages.‟” Id. at 893, 108
S.Ct. at 2732.
38
— even though it did not advance this point in the District Court
— that the District Court lacked an independent basis for federal
question jurisdiction because the States are making claims under
state, not federal law. Thus, the Government contends that the
District Court did not have jurisdiction over the States‟ action
under 28 U.S.C. § 1331 or, indeed, under any other statute.21
Although we sometimes have referred to the APA as conferring
“jurisdiction,” see, e.g., Pinho v. Gonzales, 432 F.3d 193, 200
(3d Cir. 2005), the Supreme Court has stated that “the APA does
not afford an implied grant of subject-matter jurisdiction
permitting federal judicial review of agency action.” Califano v.
Sanders, 430 U.S. 99, 107, 97 S.Ct. 980, 985 (1977).
Accordingly, we have recognized that ordinarily “the „federal
question‟ statute, 28 U.S.C. § 1331, „confer[s] jurisdiction on
federal courts to review agency action.‟” Chehazeh, 666 F.3d at
125 n.11 (quoting Califano, 430 U.S. at 105, 97 S.Ct. at 984).
See Chrysler Corp. v. Brown, 441 U.S. 281, 317 n.47, 99 S.Ct.
1705, 1725 n.47 (1979) (“Jurisdiction to review agency action is
found in 28 U.S.C. § 1331.”); Jaffee v. United States, 592 F.2d
712, 718 (3d Cir. 1979) (“[S]ection 702, when it applies, waives
sovereign immunity in „nonstatutory‟ review of agency action
under section 1331.”) (emphasis added).
We thus must decide whether the States‟ claims arise
21
Of course, inasmuch as we must assure ourselves that the
District Court had subject matter jurisdiction the Government
may assert this jurisdictional argument initially on this appeal.
See Arizonans for Official English v. Arizona, 520 U.S. 43, 73,
117 S.Ct. 1055, 1071-72 (1997).
39
“under the Constitution, laws, or treaties of the United States,”
so that the District Court had jurisdiction pursuant to 28 U.S.C.
§ 1331, or whether the Court had jurisdiction pursuant to
another statute. See Trudeau, 456 F.3d at 185 (“[B]ecause the
APA neither confers nor restricts jurisdiction, we must still
determine whether some other statute provides it.”). See
Alvarado v. Table Mountain Rancheria, 509 F.3d 1008, 1016
(9th Cir. 2007) (“To confer subject matter jurisdiction in an
action against a sovereign, in addition to a waiver of sovereign
immunity, there must be statutory authority vesting a district
court with subject matter jurisdiction.”). In considering the
federal jurisdiction question we recognize that it might be
thought that inasmuch as the States are attempting to enforce
their unclaimed property acts in this action, this case could not
be within federal jurisdiction under 28 U.S.C. § 1331.
Even though the States have brought this action with the
intent ultimately to obtain relief under their laws there is no
escape from the fact that this case largely involves the
Government‟s claim that federal statutes and regulations
preempt the States‟ unclaimed property acts. That circumstance
compels us to consider the long established well-pleaded
complaint rule to the end that “federal courts have federal
question jurisdiction only when a federal claim appears in the
complaint, and not when a federal preemption defense may
eventually be raised in litigation.” Levine v. United Healthcare
Corp., 402 F.3d 156, 162 (3d Cir. 2005) (citation omitted). Yet
the States not unreasonably cite Grable & Sons Metal Products,
Inc. v. Darue Engineering and Manufacturing, 545 U.S. 308,
125 S.Ct. 2363 (2005), as support for their contention that the
District Court did have jurisdiction. It is true that aspects of
40
Grable read in isolation seem to support the States‟ jurisdictional
contention with respect to the preemption issues in this case for
this case raises and, indeed, is about, in the words of Grable,
“significant federal issues.” Grable, 545 U.S. at 312, 125 S.Ct.
at 2367. Moreover, the state law claims being advanced here
under the States‟ unclaimed property acts, in the words of
Supreme Court jurisprudence even before Grable, “depend[ ]
upon the construction or application of [federal law].” Smith v.
Kansas City Title & Trust Co., 255 U.S. 180, 199, 41 S.Ct. 243,
245 (1921).22 Furthermore, this case is a direct action against
the Government and thus differs from the ordinary preemption
case in which a private defendant relies on federal law as a
defense to a state cause of action. See, e.g., PLIVA, Inc. v.
Mensing, 131 S.Ct. 2557, 2577-78 (2011). Indeed, we cannot
help but wonder whether the States could have cast this case as a
declaratory judgment action seeking a declaration that a
judgment obtained in a proceeding under their unclaimed
property acts would be enforceable against the Federal
Government with respect to the proceeds of matured but
unredeemed savings bonds.23
22
The dominance of federal law in this case is highlighted in the
States‟ brief in which they correctly point out that the “United
States does not dispute that the States‟ unclaimed property laws
require unclaimed savings bonds to be turned over to state
custody pending location of the absent owners. The question on
the merits is thus whether federal law somehow preempts the
operation of these escheat laws.” Appellants‟ br. at 22.
23
In this regard, we note that the Supreme Court indicated in
41
Grable, however, insofar as the States advance it as
support for their jurisdictional contentions, has its limitations.
In Grable a federal taxpayer brought an action to quiet title in a
state court against a purchaser of the property who acquired the
property by a quitclaim deed from the Government. The
Government sold the property to the purchaser to satisfy the
taxpayer‟s tax delinquency. In the quiet title action the taxpayer
asserted that the purchaser‟s title was invalid because the
Government did not follow proper procedure in giving required
notice when seizing the property. The purchaser removed the
case to a federal court claiming that there was federal question
jurisdiction even though the plaintiff-taxpayer sought to quiet
title to its property in a state court, a classic state law procedure,
and even though there was no suggestion in the case that there
was diversity of citizenship between the parties. The taxpayer
moved to remand the case to state court but the district court
denied the motion and the court of appeals affirmed. The
Supreme Court granted certiorari and affirmed.
The Supreme Court held that there was federal question
jurisdiction in Grable principally because of the dominance of
Bowen, 487 U.S. at 893, 108 S.Ct. at 2731, that the 1976
amendment referring to relief other than money damages “does
not foreclose judicial review of the actions brought by the State
challenging the Secretary‟s disallowance decisions.” The Court
first noted that “insofar as the complaints sought declaratory and
injunctive relief, they were certainly not actions for money
damages.” The Court went on to state that “even the monetary
aspects of the relief that the State sought are not „money
damages‟ as that term is used in the law.”
42
significant federal issues in that case. But as the Court of
Appeals for the Ninth Circuit said in California Schock Trauma
Air Rescue v. State Compensation Insurance Fund, 636 F.3d
538, 542 (9th Cir. 2011), “the Grable complaint did present a
federal issue on its face” with respect to the Internal Revenue
Service not following proper procedures in the seizure of the
taxpayer‟s property. Therefore, the court of appeals understood
Grable to uphold the assertion of federal jurisdiction because the
complaint “satisfie[d] both the well-pleaded complaint rule and
passe[d] the implicates significant federal issues test.” Id.
(internal quotation marks and brackets omitted). We also are
aware that the Supreme Court itself in Empire Healthcare
Assurance, Inc. v. McVeigh, 547 U.S. 677, 699, 126 S.Ct. 2121,
2136 (2006), emphasized the limitations of Grable when it
indicated that Grable dealt with a “special and small category”
of cases that qualify for federal question jurisdiction.
In the end, however, we do not find it necessary to decide
whether the District Court had jurisdiction by reason of the
presence of the preemption issue in this case. We bypass the
preemption jurisdictional question because it is clear that the
Court had jurisdiction in light of the States having advanced a
significant Tenth Amendment claim in their complaint which
seeks relief on the basis of the “Treasury‟s Escheat Decision
[having] violate[d] the Tenth Amendment of the United States
Constitution.” App. at 109. In considering the effect of this
claim with respect to federal jurisdiction we start from the
unquestioned principle that jurisdiction lies under 28 U.S.C. §
1331 when a cause of action arises under federal law on the
basis of the plaintiff having made a claim under the Tenth
Amendment. As the court of appeals indicated in Bolden v. City
43
of Mobile, 571 F.2d 238, 247 (5th Cir. 1978), rev‟d on other
grounds, City of Mobile v. Bolden, 446 U.S. 55, 100 S.Ct. 1490
(1980):
The abuse of local governmental power, when of
the constitutional magnitude in this case, is a
power denied the States by the Constitution
within the meaning of the tenth amendment. The
power to remedy the unconstitutional wrong is
one delegated to the United States by the
Constitution. The Constitution expressly provides
for federal court jurisdiction in claims arising
under this Constitution (or) Laws of the United
States. U.S. Const. art. 3, § 2. Congress has
given the federal courts original jurisdiction over
such claims. 28 U.S.C. § 1331.
Id. (internal quotation marks omitted); see also Hodges v.
Shalala, 121 F. Supp. 2d 854, 863-64 (D.S.C. 2000) (federal
question jurisdiction exists under section 1331 in action in
which state contends that Congress overstepped boundaries of
the Tenth Amendment and the Spending Clause when it
statutorily attached certain conditions to states‟ receipt of federal
funding).
The Supreme Court at one time regarded the Tenth
Amendment as little more than a tautology that could not
support a cause of action:
The amendment states but a truism that all is
retained which has not been surrendered. There is
44
nothing in the history of its adoption to suggest
that it was more than declaratory of the
relationship between the national and state
governments as it had been established by the
Constitution before the amendment or that its
purpose was other than to allay fears that the new
national government might seek to exercise
powers not granted, and that the states might not
be able to exercise fully their reserved powers.
United States v. Darby, 312 U.S. 100, 124, 61 S.Ct. 451, 462
(1941).
More recently, however, the Court has embraced the view
that the states may invoke the Tenth Amendment as a basis for
invalidating federal action. Most notably, in New York v.
United States, 505 U.S. 144, 112 S.Ct. 2408 (1992), the Court
invalidated under the Tenth Amendment portions of a federal
law concerning disposal of radioactive waste. The origin of that
case may be traced to Congress having reacted to a shortage of
suitable radioactive waste disposal sites by passing the Low-
Level Radioactive Waste Policy Amendments Act of 1985. The
1985 statute imposed responsibility on the states to dispose of
waste within their borders, including a requirement that states
“take title” to waste not disposed of as of 1996 and that these
states would be liable for damages incurred by their failure to
take possession of that waste. Id. at 153-54, 112 S.Ct. at 2416.
The Court held that the “take title” provisions of the law were
unconstitutional because by forcing states to take ownership of
the waste the law impermissibly would “commandeer” state
governments contrary to the Tenth Amendment. The Court
45
believed that this attempted exercise of federal power exceeded
Congress‟s powers under Article I of the Constitution. In
reaching its result the Court stated that “[t]he Federal
Government may not compel the States to enact or administer a
federal regulatory program,” id. at 188, 112 S.Ct. at 2435,
because doing so would limit state government accountability,
as state governments forced to implement a federal program
would be held responsible for decisions they did not make.
The Supreme Court in New York v. United States
rejected the reasoning of Darby and, rather than regarding the
Tenth Amendment as a mere tautology as it had done in Darby,
“direct[ed] [courts] to determine . . . whether an incident of state
sovereignty is protected by a limitation on [congressional]
power.” Id. at 157, 112 S.Ct. at 2418. As in New York v.
United States, the States in this case claim that Congress is
asserting a power that it does not have — a de facto federal
escheat power — that is an affront to a state sovereign
prerogative: to take custody to property it deems “unclaimed” or
“abandoned” within its borders.
Of course, a court makes a different analysis when
determining if it has jurisdiction over a claim than it makes
when considering the merits of the claim. As the Supreme
Court has stated, “[d]ismissal for lack of subject-matter
jurisdiction because of the inadequacy of the federal claim is
proper only when the claim is so insubstantial, implausible,
foreclosed by prior decisions of [the Supreme] Court, or
otherwise completely devoid of merit as not to involve a federal
controversy.” Steel Co. v. Citizens for a Better Env‟t, 523 U.S.
83, 89, 118 S.Ct. 1003, 1010 (1998) (internal quotation marks
46
and citation omitted). While, as we discuss below, we do not
find that the States‟ Tenth Amendment claim is meritorious, in
light of developing Tenth Amendment law the claim surely is
colorable and not frivolous. Accordingly, the District Court had
jurisdiction because “[it] is firmly established . . . that the
absence of a valid (as opposed to arguable) cause of action does
not implicate subject-matter jurisdiction, i.e., the courts‟
statutory or constitutional power to adjudicate the case.” Id.
Inasmuch as the District Court had jurisdiction under 28
U.S.C. § 1331 over the States‟ Tenth Amendment claim, by
reason of 28 U.S.C. § 1367 it had jurisdiction over the States‟
entire complaint. Section 1367 provides, with inapplicable
exceptions, if “the district courts have original jurisdiction,
[they] shall have supplemental jurisdiction over all other claims
that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy
under Article III of the United States Constitution.” Here it is
clear that all of the States‟ claims are related to their claim under
the Tenth Amendment. In this regard, we point out that in the
introduction to their complaint the States assert that “Treasury‟s
refusal to comply with state laws governing unclaimed property
usurps sovereign power exercised by the states since the
Declaration of Independence, and reserved to the states under
the Tenth Amendment of the U.S. Constitution.” App. at 88.
The Supreme Court in City of Chicago v. International
College of Surgeons, 522 U.S. 156, 164-65, 118 S.Ct. 523, 529
(1997), indicated that a district court may exercise supplemental
jurisdiction if the case before it involves claims “derive[d] from
a common nucleus of operative fact such that the relationship
47
between the federal claim and the state claim permits the
conclusion that the entire action before the court comprises but
one constitutional claim.” (internal quotation marks and
brackets omitted). This case fits within that criterion because
the States in this action have a single goal, i.e., to obtain a
judgment requiring that the Government remit to them and
account for the proceeds of matured but unredeemed savings
bonds.24
24
The States also assert that the Mandamus and Venue Act, 28
U.S.C. § 1361, and 28 U.S.C. § 1346 (containing the Little
Tucker Act and the Federal Tort Claims Act), provide for
federal jurisdiction here but we do not decide whether either
statute would confer jurisdiction in light of our conclusion that
the District Court had jurisdiction by reason of the States‟ Tenth
Amendment claim under 28 U.S.C. § 1331 and 28 U.S.C. §
1367.
Though we do not predicate our result on this point we note
that if the District Court could not exercise jurisdiction in this
case it well may be that there would not be any court in which
plaintiff States could have brought their claims against the
Federal Defendants under their unclaimed property acts. After
all, the New Jersey state courts are well aware that section 702
“does not waive sovereign immunity in actions in a state court”
and thus they would not entertain an action seeking an order
enjoining the Securities and Exchange Commission from
prosecuting an administrative complaint against the plaintiff in
the state court action. First Jersey Secs., Inc. v. Sec. Exch.
Comm‟n, 476 A.2d 861, 867-68 (N.J. Super. Ct. App. Div.
48
B. State-Law Claims and the Supremacy Clause
Inasmuch as we have determined that sovereign
immunity does not bar this action and that the District Court had
constitutional and statutory jurisdiction we finally reach the
substantive aspects of the case. We start this discussion by
recognizing that although this case is essentially a dispute over
the application of federal law, the States‟ claims arise from their
attempt to enforce their unclaimed property acts against the
Federal Government. The Government asserts that these claims
run afoul of the Supremacy Clause of the Constitution in art. VI,
cl. 2, which provides that the Constitution and laws in pursuance
of it “shall be the supreme Law of the Land.” State laws may
violate the Supremacy Clause in two ways. Under the doctrine
of federal preemption, state laws are invalid if they “conflict
with an affirmative command of Congress.” North Dakota v
United States, 495 U.S. 423, 434, 110 S.Ct. 1986, 1994 (1990)
(citing Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23
(1824)). And under the doctrine of intergovernmental
immunity, states may not “regulate the Government directly or
1984). In view of First Jersey Securities we see no reason to
believe that even without regard for federal court intervention
through the exercise of removal jurisdiction or Supreme Court
appellate review, the New Jersey courts would have entertained
this action if the State of New Jersey had initiated the case in the
New Jersey Superior Court and named the Federal Defendants
as defendants. Of course, a result that the States did not have
any forum in which to bring their claims surely would have been
inconsistent with the intent of Congress in adopting the 1976
APA amendments.
49
discriminate against it.” North Dakota, 495 U.S. at 434, 110
S.Ct. at 1994 (citing McCulloch v. Maryland, 17 U.S. (4
Wheat.) 316, 425-37, 4 L.Ed. 579 (1819)).
1. Federal Preemption
Federal preemption doctrine “provid[es] Congress with
the power to preempt state legislation if it so intends.” Roth v.
Norfalco LLC, 651 F.3d 367, 374 (3d Cir. 2011) (internal
quotation marks and citation omitted). There are three types of
preemption: express preemption and two types of implied
preemption, field preemption and conflict preemption. Farina v.
Nokia Inc., 625 F.3d 97, 115 (3d Cir. 2010) (citing Hillsborough
Cnty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105
S.Ct. 2371, 2375 (1985)). There is express preemption when a
federal enactment contains language that is explicit about its
preemptive effect. See St. Thomas-St. John Hotel & Tourism
Ass‟n v. Gov‟t of the V.I., 218 F.3d 232, 238 (3d Cir. 2000).
There is field preemption when Congress has regulated an area
so pervasively that it has not left room for state regulation. See
United States v. Locke, 529 U.S. 89, 111, 120 S.Ct. 1135, 1149
(2000). There is conflict preemption when compliance with
both state and federal law is impossible, “or where state law
erects an „obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.‟” Farina, 625 F.3d at
115 (internal quotation marks omitted). Moreover, “[w]here
Congress has delegated the authority to regulate a particular
field to an administrative agency, the agency‟s regulations
issued pursuant to that authority have no less preemptive effect
than federal statutes.” Fellner v. Tri-Union Seafoods, LLC, 539
F.3d 237, 243 (3d Cir. 2008). Although courts define the
50
categories of preemption separately the categories are not
“rigidly distinct. Indeed, field pre-emption may be understood
as a species of conflict pre-emption: A state law that falls within
a pre-empted field conflicts with Congress‟ intent . . . to
exclude state regulation.” English v. Gen. Elec. Co., 496 U.S.
72, 79 n.5, 110 S.Ct. 2270, 2275 n.5 (1990).
There are two guiding principles of preemption
jurisprudence. “„First, the purpose of Congress is the ultimate
touchstone in every pre-emption case.‟” Wyeth v. Levine, 555
U.S. 555, 565, 129 S.Ct. 1187, 1194 (2009) (quoting Medtronic,
Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 2259 (1996)).
Second, we are guided by a “presumption against preemption,”
Roth, 651 F.3d at 375 (citing Deweese v. Nat‟l R.R. Passenger
Corp., 590 F.3d 239, 246 (3d Cir. 2009)), because we assume
“that the historic police powers of the States [are] not to be
superseded by the Federal Act unless that was the clear and
manifest purpose of Congress.” Levine, 555 U.S. at 565, 129
S.Ct. at 1194-95 (quoting Lohr, 518 U.S. at 485, 116 S.Ct. at
2250) (internal quotation marks omitted). However, the
presumption against preemption does not apply where Congress
has adopted the statute claimed to have preemptive effect to
apply in a field that “the States have [not] traditionally
occupied.” Buckman Co. v. Plaintiffs‟ Legal Comm., 531 U.S.
341, 347-48, 121 S.Ct. 1012, 1017 (2001) (quoting Rice v. Santa
Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152
(1947)).
We agree with the District Court that the federal statutes
and regulations pertaining to United States savings bonds
preempt the States‟ unclaimed property acts insofar as the States
51
seek to apply their acts to take custody of the proceeds of the
matured but unredeemed savings bonds. In reaching this
conclusion we recognize that there is no federal statute or
regulation that expressly preempts the application of the States‟
unclaimed property acts in the way that the States seek to
enforce them in this litigation. But it is equally important to
recognize that “[f]ederal law of course governs the interpretation
of the nature of the rights and obligations created by the
Government bonds themselves.” Free, 369 U.S. at 669-70, 82
S.Ct. at 1094 (quoting Bank of Am. Trust & Savs. Ass‟n v.
Parnell, 352 U.S. 29, 34, 77 S.Ct. 119, 122 (1956)). Thus, in
Free a surviving husband filed an action against a beneficiary of
his wife‟s will to determine the parties‟ rights in United States
savings bonds that the husband and wife purchased together.
The Supreme Court held that Texas law providing that the
savings bonds were community property was inconsistent with
federal regulations that provide that when either co-owner dies,
“the survivor will be recognized as the sole and absolute owner
[of the bonds] and thus the federal regulation preempted the
Texas law.” Id. at 664-65, 82 S.Ct. at 1091 (quoting 31 C.F.R. §
315.61). While in the case before us the conflict between state
and federal law is less stark, we similarly hold that the relevant
federal statutes and regulations preempt the States‟ unclaimed
property acts.
The States‟ unclaimed property acts conflict with federal
law regarding United States savings bonds in multiple ways.
First, in advancing the goal of making the bonds “attractive to
savers and investors,” see Free, 369 U.S. at 669, 82 S.Ct. at
1093, Congress has authorized the Secretary to implement
regulations specifying that “owners of savings bonds may keep
52
the bonds after maturity.” 31 U.S.C. § 3105(b)(2)(A).25 The
plaintiff States‟ unclaimed property acts, by contrast, specify
that matured bonds are abandoned and their proceeds are subject
to the acts if not redeemed within a time period as short as one
year after maturity. See, e.g., N.J. Stat. Ann. § 46:30B-41.2.
Such provisions starkly conflict with savings bonds regulations
imposing “conditions governing their redemption.” 31 U.S.C. §
3105(c)(4); see 31 C.F.R. § 315.5(a) (providing that the
registered owner of the bond is presumed conclusively to be the
owner); § 315.15 (providing that savings bonds are “payable
only to the owners named on the bonds, except as specifically
provided in these regulations and then only in the manner and to
the extent so provided.”); § 315.20(b) (providing that the
Department of the Treasury will recognize a claim of ownership
or interest in a bond only if “established by valid, judicial
proceedings”); § 315.35(a) (providing that payment may be
made only to persons entitled to it under the regulations); §
315.39 (providing that the owner of the bond may present it to
an authorized paying agent for redemption).
The States assert that the “restrictions on „payment‟ in
these regulations foreclose only redemption of bonds by persons
who are not owners, not application of historic laws governing
disposition of property not redeemed by its owner.” Appellants‟
br. at 29. In other words, the States argue that because they
25
The Secretary effectively has allowed owners of savings
bonds to keep them after maturity and to earn interest after
maturity because the Treasury has extended the bonds‟ original
maturity dates and interest accrues during the extension period.
See supra note 3.
53
seek only custody of the bond proceeds, their unclaimed
property acts will not interfere directly with federal contracts or
the regulations regarding redemption. However, those
regulations conflict with the outcome that the States seek here.
Most critically, application of the States‟ unclaimed property
acts would interfere with the terms of the contracts between the
United States and the owners of the bonds because, according to
the States‟ complaint, they effectively would substitute the
respective States for the United States as the obligor on affected
savings bonds. See app. at 99 (asserting that “delivery of an
Unclaimed Bond to a State . . . will discharge the Treasury from
its obligation under the bond,” such that the bond owners may
“claim their property from the state”). As the Government
points out, the bonds are pledged “on the credit of the United
States,” U.S. Const. art. I, § 8, cl. 2, and not on the credit of any
individual state. Both bondholders and the United States, who
bargained for a federal redemption process that the Federal
Government set forth in detail in the relevant statutes and
regulations, instead would have to comply with procedures set
forth in the various States‟ unclaimed property acts, thus
“intrud[ing] upon the rights and the duties of the United States.”
See Free, 369 U.S. at 669, 82 S.Ct. at 1094. The federal
regulations regarding redemption effectively would be nullified.
This change in redemption procedures if the States obtain
custody of the proceeds of the matured but unredeemed bonds
might not be a small thing from the point of view of an owner of
a bond seeking to redeem it. As we explained above,
redemption of a matured savings bond is now an uncomplicated
process involving little more than a trip to a bank, a venue likely
to be familiar to the owner of the bond, with the bondholder
54
dealing with a bank employee with whom he already may be
acquainted. On the other hand, though it is possible that the
States would designate the same payment agents as the
Government now designates if the States obtained custody of the
proceeds of the bonds, an owner seeking those funds would
have to navigate whatever procedures the States adopted for the
owner to receive the funds and those procedures could be more
complex than those presently in place under federal law.
Moreover, a bondholder‟s effort to recover the funds in a State‟s
custody might require the bondowner to deal with what almost
certainly would be an unfamiliar state bureaucracy. We simply
do not know.
The Government also has expressed concerns that a
substitution of the plaintiff States as obligors on the bonds could
result in the United States being subject to multiple obligations
on a single savings bond. Thus, the Government fears that
bondholders still would have a contractual right to payment
from the United States based on the terms of the bonds even
though the various state unclaimed property acts would give
bondholders the right to recover the proceeds of property
deemed “abandoned” or “unclaimed” from the States. Although
the States have indicated that they would indemnify the Federal
Government if it was required to make payments on matured
bonds to bondholders after the Government delivered the
proceeds of the bonds to the States pursuant to their unclaimed
property acts, the possible availability of indemnification does
not change the fact that application of the States‟ acts in the
redemption process significantly would alter that process as
55
contemplated in the relevant federal regulations.26
The States note that the federal statutes and regulations
implementing the savings bond program do not include
provisions for the disposition of abandoned property, and thus
they argue that federal law leaves room for the operation of their
unclaimed property acts in this field. However, the bond
proceeds are not “abandoned” or “unclaimed” under federal law
because the owners of the bonds may redeem them at any time
after they mature, and thus Congress has not been silent with
respect to the fate of the proceeds of unclaimed bonds. The
States‟ efforts to impose the status of “abandoned” or
“unclaimed” on the Federal Government‟s obligations only
underscores the conflict between federal and state law, in which
federal law must prevail. There simply is no escape from the
fact that the Federal Government does not regard matured but
unredeemed bonds as abandoned even in situations in which a
state would do exactly that. Of course, in a preemption analysis
26
We are not predicating our result on a conclusion that
honoring a custody-based unclaimed property act might subject
the United States to multiple liabilities on a single bond. We
decline to speculate on what would happen if a bondholder
sought to redeem a bond by presenting it to a Government
payment agent and requesting that he be paid the proceeds if the
Government already had delivered the proceeds of the bond to a
State pursuant to its unclaimed property act. That situation is
not before us and, in any event, even disregarding the possibility
that the Government might face multiple liabilities on a single
bond by complying with a State‟s unclaimed property act, the
States‟ unclaimed property acts are preempted.
56
the distinction between the custody of the proceeds of the bonds
or physical custody of the bonds themselves is without legal
significance. The States seek the transfer of $1.6 billion of
federally-held funds to their treasuries together with a
substantial realignment of the obligations that the bonds
evidence and the procedures for redemption that federal laws
and regulations have established. It is clear to us that the federal
statutes and regulations are sufficiently pervasive so as not to
leave room for the enforcement of the unclaimed property acts
to achieve the result that the States seek.
2. Intergovernmental Immunity
The Supreme Court‟s decision in McCulloch, 17 U.S. (4
Wheat.) at 322, established the bedrock principle that “the States
have no power, by taxation or otherwise, to retard, impede,
burden, or in any manner control, the operations of the
constitutional laws enacted by Congress to carry into execution
the powers vested in the national government.” Thus, that
famous decision is the source of the doctrine of
intergovernmental immunity. We agree with the District Court
that the States‟ desired application of their unclaimed property
acts would violate the constitutional principles of
intergovernmental immunity that “states may not directly
regulate the federal government‟s operations or property.” See
Arizona v. Bowsher, 935 F.2d 332, 334 (D.C. Cir. 1991) (citing
Hancock v. Train, 426 U.S. 167, 178-80, 96 S.Ct. 2006, 2012-13
(1976)).
First, in this regard, the unclaimed property acts would
interfere with Congress‟s “[p]ower to dispose of and make all
57
needful Rules Acts and Regulations respecting the . . . Property
belonging to the United States.” See U.S. Const. art. IV, § 3, cl.
2. On this point, the States argue that the United States no
longer has a beneficial interest in the undisbursed proceeds from
the matured but unredeemed bonds. But we disagree. In
support of their position, the States cite United States v. Klein,
303 U.S. 276, 58 S.Ct. 536 (1938), in which the Escheator of the
Commonwealth of Pennsylvania sought to recover funds that a
private company owed its bondholders pursuant to a judgment
entered by a federal district court. Unclaimed funds were paid
into a court registry and later transferred to the United States
Treasury under 28 U.S.C. § 852, which at that time provided
that when money deposited into the registry of a federal court
was unclaimed for five years, it would be deposited with the
Treasury, and further provided that “[a]ny person or persons . . .
entitled to any such money may . . . obtain an order of court
directing payment of such money to the claimant.” The
Supreme Court in holding that the State of Pennsylvania could
acquire title to unclaimed funds through valid escheat
proceedings observed that the United States held the funds for a
limited administrative purpose, and did not assert “any right,
title or interest” in the funds. 303 U.S. at 280, 58 S.Ct. at 538.
Further, 28 U.S.C. § 852 “contemplate[ed] that changes in
ownership of the fund may occur, since it provides that after the
right to the fund has been finally adjudicated and it has been
covered into the Treasury it shall be paid over to any person
entitled, upon full proof of his right to receive it.” Id. at 282, 58
S.Ct. at 539.
The plaintiff States also rely on In re Moneys Deposited,
243 F.2d 443 (3d Cir. 1957), where we addressed the status of
58
private funds that were not claimed in bankruptcy proceedings
and thus were transferred to the United States Treasury for
administrative purposes under 28 U.S.C. § 2042, the successor
legislation to the statute in issue in Klein. Following Klein, this
Court held that Pennsylvania could obtain title to the funds
through escheat proceedings because, as in Klein, the United
States did not have a beneficial interest in the money deposited
in the federal registry. In this case, in contrast to how it
obtained the funds in issue in both Klein and Moneys Deposited,
the United States did not acquire the funds due on matured but
unredeemed bonds through the exercise of an administrative
function. Quite to the contrary, the Government acquired the
funds from its sale of savings bonds for its own use. Thus,
unlike the claimants in Klein and Moneys Deposited, the States
here do not seek funds due on privately undertaken obligations,
as in Klein, or seek funds in which the Government as custodian
never had a property interest as was true in both Klein and
Money Deposited. Rather, the States seek to acquire funds that
have their origin in debt that the United States incurred to
finance the operations of the Government.
As did the District Court, we find Bowsher to be
persuasive on this point. In Bowsher, 23 states sued the
Comptroller General of the United States and the Secretary
claiming the right to custody pursuant to their respective
unclaimed property acts of money held by the Treasury pursuant
to 31 U.S.C. § 1322, which granted the Treasury custody of
money that federal agencies owed to persons whose
whereabouts were unknown. 935 F.2d at 334. Like the plaintiff
States in this case, the plaintiffs in Bowsher argued that they
wanted to return the unclaimed property to its true owners, but
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the court observed that “[w]hen the United States sets aside
money for the payment of specific debts, it does not thereby lose
its property interest in that money.” Id. The court further stated:
The money here is federal money. That various
persons have claims against the United States in
amounts exactly matching the funds, and intended
by Congress to be paid from these funds, does not
give those individuals a property interest in the
money. Thus, the states‟ plan would amount to
direct regulation of federal property. In extracting
funds from the Treasury, the states would
effectively subordinate federal property to their
own laws and appropriate that property, at least
for a period, for themselves.
Id. Accordingly, the court held that the states‟ plan to take
custody of the money violated the doctrine of intergovernmental
immunity.
We recognize that the States argue that their unclaimed
property acts come, in the words of Bowsher, “with a patina of
ancient history,” see id. at 335, and that there is a presumption
against preemption of laws of such origin. Nevertheless, we see
no reason to reach a different result here from that reached in
Bowsher. Although the United States must pay holders of
matured bonds the sums due on the bonds when the owners
present them for payment, until it does so the funds remain
federal property, and the Government may use the proceeds
from the sale of savings bonds “for expenditures authorized by
[federal] law,” 31 U.S.C. § 3105(a).
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The States argue that instead of following Bowsher we
should be guided by the Supreme Court‟s analysis in
Connecticut Mutual Life, 333 U.S. at 547, 68 S.Ct. at 686,
where the Court held that the State of New York could apply its
unclaimed property act to life insurance policies that out-of-state
insurers had issued. In rejecting the insurance company‟s
argument in Moore that the state law violated the Contract
Clause, the Court noted that “[t]he state is acting as a
conservator, not as a party to a contract.” Id. Moreover, the
Court recognized that New York‟s conservatorship of insurance
money was possible because “[f]oreign corporations must obtain
state authority to do business, segregate securities, [and] submit
to examination and state process.” Id. at 550-51, 68 S.Ct. at
668. But states‟ extensive regulatory powers over corporations
operating within their borders, in light of McCulloch, do not and
could not have a counterpart in their relationships with the
Federal Government, and consequently Connecticut Mutual Life
is inapposite here.
For similar reasons, we hold that an order compelling the
accounting that the plaintiff States request would violate the
governmental immunity of the United States. As the District
Court observed, the States‟ unclaimed property acts impose
“onerous record-keeping and reporting requirements, [and] civil
and criminal penalties for failure to comply.” App. at 29; see,
e.g., 72 Pa. Cons. Stat. § 1301.11 (describing reporting
requirements); § 1301.25 (failure to comply with reporting
requirements a criminal offense subject to fine and
imprisonment); N.J. Stat. Ann. § 46:30B-93 (subjecting holders
of unclaimed property to examination of records by the state
administrator); Mont. Code Ann. § 70-9-824 (providing for
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financial penalties against holders of unclaimed property who
fail to report and deliver property to the state administrator).
Although the States argue that they only seek relief requiring the
Federal Government to comply with generally applicable laws,
several of the States have enacted provisions in their unclaimed
property acts specifically addressed to property within the
possession of the Federal Government. See N.J. Stat. Ann. §
46:30B-41.2 (providing that property where the obligor is a
branch of the United States government is presumed abandoned
after one year); Ky. Rev. Stat. Ann. § 393.068 (“[a]ll . . .
personal property . . . held by the federal government . . . shall
be presumed abandoned if remained unclaimed for five years);
Mo. Rev. Stat. § 447.532 (property held by an agency of the
United States deemed abandoned if unclaimed for three years);
72 Pa. Cons. Stat. § 1301.9 (property held for its owner by any
“instrumentality of the United States” unclaimed for five years
deemed abandoned).
When Congress was considering legislation in the late
1980s that would have required the Federal Government to
transfer unclaimed money obtained from various sources —
including savings bonds — to the states, the General Accounting
Office estimated that tracking owners of such property would
cost over $23 million.27 See app. at 185. Although the States
assert that they will not seek to enforce civil and criminal
penalties in the event the Federal Government fails to comply
with their respective acts, even if future State officials adhere to
this policy, the fact remains that forcing the Federal Government
27
We are not drawing any inference with respect to the issues in
this case from the fact that Congress did not adopt that bill.
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to account to the plaintiff States for unredeemed savings bonds
or their proceeds — regardless of how stringently the States
decide to enforce the reporting requirements contained in their
respective acts — would result in a direct regulation of the
Federal Government in contravention of the Supremacy Clause.
This result is not permissible.
C. The Tenth Amendment
The Tenth Amendment provides that “[t]he powers not
delegated to the United States by the Constitution, nor
prohibited by it to the States, are reserved to the States
respectively, or to the people.” The States argue that the status
quo amounts to a federal escheat of the proceeds from the
unclaimed bonds, a process which they contend violates the
Tenth Amendment because the Federal Government does not
possess the escheat power, as it is a traditional prerogative of the
states. However, the funds at issue here have not been
escheated to the Government and the Government does not seek
to acquire them through escheat proceedings. To the contrary
the Government is holding the funds and will disburse them to
the bondholders or their successors if they present the bonds for
redemption. Moreover, our result does not nullify state escheat
laws for, as provided in the federal regulations and as
recognized by the Treasury, third parties, including the States,
may obtain ownership of the bonds — and consequently the
right to redemption — through “valid[] judicial proceedings,” 31
C.F.R. § 315.20(b), so long as they submit certified copies of the
judgment or order affecting ownership and other evidence that
may be necessary to support the validity of the judgment or
order. See 31 C.F.R. § 315.23. The Government through its
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issuance of the Escheat Decision admits as much. Here,
however, the States merely seek custody of, not title to, the
funds at issue under their unclaimed property acts.28
In considering the States‟ Tenth Amendment contentions
it is important to remember that the Government administers the
savings bond program pursuant to the federal constitutional
power “[t]o borrow money on the credit of the United States.”
Free, 369 U.S. at 666-67, 82 S.Ct. at 1092. Pursuant to this
power, 31 U.S.C. § 3105(b)(2)(A) authorizes the Secretary of
the Treasury to “prescribe regulations providing that . . . owners
of savings bonds may keep the bonds after maturity or after a
period beyond maturity.” “If Congress acts under one of its
28
We hasten to add that while in concluding that the State
custody-based unclaimed property acts are preempted we are
distinguishing, as does the Government itself, those acts from
title-based acts, we do not imply that our result would be
different if, confronted with a judgment of escheat under a title-
based escheat act, the Government abandoned its long held
position as reflected in the Escheat Decision and refused to
recognize the enforceability of the judgment with respect to
savings bonds or their proceeds. We simply are not faced with
that possibility and thus we do not address it. We merely are
ruling on the basis of the legal picture as the Government
presently sees it. Furthermore, we neither are agreeing nor
disagreeing with the States with respect to their contention that
the Federal Government does not have escheat power. We see
no need to pass on this contention as the Federal Government is
not seeking to escheat the proceeds of matured but unredeemed
bonds.
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enumerated powers . . . there can be no violation of the Tenth
Amendment.” United States v. Parker, 108 F.3d 28, 31 (3d Cir.
1997) (quoting United States v. Mussari, 95 F.3d 787, 791 (9th
Cir. 1996)). Accordingly, the States‟ Tenth Amendment claim
must fail.
V. CONCLUSION
Though the United States pursuant to 5 U.S.C. § 702 has
waived its sovereign immunity from suit in this case, we do not
find any merit in any of the States‟ claims. Therefore, we will
affirm the District Court‟s February 5, 2010 order dismissing the
action under Rule 12(b)(6).
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