Kemerer v. State

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LISA KEMERER, and all others similarly situated, Plaintiff-Appellee/Cross-Appellant, v. STATE OF MICHIGAN and DEPARTMENT OF TREASURY, Defendants-Appellants/Cross- Appellees.

No. 362055

Court of Appeals of Michigan

October 29, 2024

Court of Claims LC No. 21-000224-MZ.

Before: LETICA, P.J., and N. P. HOOD and MALDONADO, JJ.

PER CURIAM.

In this action alleging a taking under the Uniform Unclaimed Property Act (UUPA), MCL 567.221 et seq., defendants appeal by leave granted^[1] the Court of Claims' (COC) order partially denying defendants' motion for summary disposition brought under MCR 2.116(C)(8) (failure to state a claim) and (10) (no genuine issue of material fact). Plaintiff cross-appeals the court's order partially granting summary disposition pursuant to MCR 2.116(C)(8). We affirm in part and reverse in part.

I. FACTUAL AND PROCEDURAL HISTORY

In March 2022, plaintiff filed a complaint^[2] alleging that defendants held three of her assets: $1,831.05 from a former checking account, $446.00 from a former insurance premium and $208.00 from the Department of Corrections. Plaintiff acknowledged receipt of a refund from defendants of $2,485.05, the full amount of the three assets without any deductions or interest. Yet, plaintiff claimed that after the holders of her assets turned them over, defendants took custody of the funds and generated interest. Plaintiff alleged that defendants' conduct amounted to a taking of her principal for a public use without notice or an opportunity to be heard. Specifically, she contended that defendants used "more recently turned over unclaimed property monies" to pay out "the prior seizure and use of [p]laintiff's money" and essentially engaged in a "Ponzi scheme."

Plaintiff further alleged that when "non-real" property belonging to a person was inactive for a period of time, it constituted "unclaimed property" in Michigan. This type of property could include checking and savings accounts unpaid wages, securities, life-insurance payouts, uncashed checks, unredeemed rebates, and the contents of safe-deposit boxes. The holder of the unclaimed property was required to turn it over to the State, where it was maintained in either the general fund or the trust fund from which claims were paid. Plaintiff asserted that, irrespective of how the monies were classified for accounting purposes, they generated additional earnings in the form of interest.

In Count I of her complaint, plaintiff contended that earned income on the property assets, "less proportional custodial expenses," constituted inverse condemnation in violation of the Fifth Amendment to the United States Constitution, for taking her property without the payment of just compensation. And, despite receipt of her refund, in Count II, plaintiff alleged inverse condemnation pertaining to her principal property. Specifically, plaintiff alleged that monies from newly arriving unclaimed property funds were used to pay out "older turn-overs" when a payment demand was made. It was claimed that a prior taking of plaintiff's funds occurred that could not be cured through the "conversion" of other unclaimed properties for which defendants were charged with maintaining "custody" and "safekeeping." Plaintiff requested that the court order a constructive trust be imposed in light of defendants' failure to recognize the common-law doctrine of interest follows the principal in Count III. In Counts IV and V, plaintiff alleged an unconstitutional taking by defendants pertaining to the principal and interest. And in Counts VI and VII, plaintiff alleged that defendants violated due process for failing to provide pre-deprivation notice and an opportunity to be heard addressing the unclaimed property and any interest.

Defendants moved for summary disposition under MCR 2.116(C)(8) and (10). Defendants alleged that the state historically had sovereign and common-law rights to take custody of or assume title to abandoned property. And, if no one claimed the property, it would return to the state for the general good. The UUPA was purportedly a codification of the law of escheat and bona vacantia.^[3] Defendants asserted that plaintiff could not maintain an action for taking, inverse condemnation, or constructive trust because she did not have a property right to interest that accrued while the property was in defendants' possession. They claimed that defendants' rightful acceptance of properties from holders entitled defendants to use the abandoned property as the presumptive owner. And when abandoned property was not interest-bearing at the time it came into defendants' possession, plaintiff failed to demonstrate a property right to any alleged accrued interest. Further, the property paid to plaintiff was paid from a noninterest-bearing account. That is, when plaintiff made a claim and rebutted the presumption of abandonment, she did not have a vested interest in the property during the period of presumed abandonment. After rebutting the presumption of abandonment, plaintiff only established a property right to a sum certain. She did not acquire interest in defendants' accounts. Defendants claimed that a taking and inverse condemnation could not be established because a State was not required to compensate a property owner for her own neglect. Defendants took no action to separate plaintiff from her property; rather, defendants' interest was acquired through plaintiff's abandonment.

Defendants further contended that plaintiff's argument relying on the common-law principle that "interest follows principal" was misguided. According to defendants, courts defer to a common-law doctrine when a statutory scheme is silent. But, the UUPA explicitly addresses what a property claimant may receive, the amount of interest, and the interest rate. The doctrine of interest follows principal does not include abandoned property. Defendants alleged that the majority view was that claimants did not have constitutional rights to interest accruing on property while in the state's possession that had been neglected and abandoned. And, just compensation for a taking was measured by the owner's loss and not the government's gain. When a property owner did not have a right to receive interest from the holder, the property owner suffered no loss when the exact value of the property was later returned by the State. When her property was abandoned, plaintiff had no vested interest during the abandonment period, and defendants presumptively held title during that time. Defendants asserted that their free, online searchable database and actions as a central repository for abandoned property did not constitute a "Ponzi scheme." Defendants further alleged that plaintiff was not deprived of due process because her principal property interest was returned to her. And, the UUPA's notice procedures were not deficient in light of the notice of publication and searchable website. Accordingly, defendants sought summary disposition in their favor.

Plaintiff responded to defendants' dispositive motion. She asserted that defendants' Unclaimed Property Program (UPP) generated millions of dollars in revenue, and the UPP's lack of clarity was a sufficient ground to deny summary disposition. She further alleged that defendants were merely custodians of her property, and she was entitled to interest because of the commonlaw doctrine that interest follows principal. Moreover, the destruction of a common-law property right by statute constituted a taking for which compensation was due. According to plaintiff, defendants "gobbled" the interest earned on custodial funds, and this "seizure and use" of the generated interest was actionable and unconstitutional. Further, plaintiff alleged that defendants did not acquire title to the property, but merely acted as a custodian. She urged the court to follow federal precedent that entitled a property owner to acquire interest earned while in state custody less administrative fees and reject any contingency that the property must be interest-bearing at the time of state receipt to warrant payment of interest to a claimant.

Plaintiff also asserted that summary disposition was premature because discovery had not occurred. Therefore, she was unable to discern the property held in the UPP program, the interest earned, the UPP money spent by defendants, and whether a "Ponzi scheme" was occurring. Plaintiff alleged that she pleaded to two types of takings, addressing interest generated and transferred to the general fund and principal used to address budget shortfalls. Additionally, if the defendants misused private citizens' property to cure budgetary shortfalls, they were required to provide due process before depriving citizens of their property rights.

The COC concluded that defendants were entitled to summary disposition of plaintiff's claims pertaining to the principal but denied summary disposition relating to the interest claims. The COC rejected plaintiff's claims that defendants did not return her exact principal property to her because money is fungible, stating:

[Defendants] held those funds for [plaintiff] until she sought to reclaim them. [Defendants'] custodial act of retaining property for another "does not constitute a deprivation of property for the purpose of establishing a due process claim." Marlin v Detroit (After Remand), 205 Mich.App. 335, 340; 517 N.W.2d 305 (1994). And because the property [plaintiff] reclaimed was fungible, her contention that the [defendants'] actions amounted to a taking by allegedly giving her someone else's fungible property equal in value to her own fungible property is meritless. Indeed, [plaintiff] has not even alleged that her unclaimed property was made up of specific, tangible, bills and coins. Rather, her

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