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CA9: Government Holding Your Unclaimed Property In Trust Isn't A Taking (But It Might Be A Deprivation)
2025-08-29 18:02 UTC by Robert Thomas (inversecondemnation.com)

Check out the U.S. Court of Appeals for the Ninth Circuit's opinion in Garza v. Woods, No. 24-1064 (Aug. 25, 2025).

The court concluded that Arizona's abandoned property statute is not a taking, because the State was not exercising or claiming some kind of ownership of abandoned property (as in those cases where abandoned property escheats to the government), but was merely holding it in trust until the owner claims it (or doesn't).

Arizona's Unclaimed Property Act allows the state to take possession of property that is "presumed abandoned." Not a big surprise there, as our system of property is built on the assumption that the active user of property has better rights than the owner who neglects it (think adverse possession, for example). Arizona's UPA deems property to be abandoned if an owner has not "indicated an interest" in that property for a period of time, usually one to three years. There's a process (and a website, of course) detailing what the State does with the property that has been abandoned, how owners are notified, and how they can get it back.

First, the court rejected the state's argument that the plaintiffs do not have a property right because Arizona law does not recognize an interest in "insist[ing] that unclaimed property be held by a third party for the rest of time." Slip op. at 15. The court rightly concluded that this argument "turn[s] the analysis into a circular mess" because "[p]laintiffs would be required to allege a deprivation of their property interest in preventing a deprivation of their property." Id.

You'd be surprised how often courts get wrapped up in similar arguments about what is "property." The government often tries to define the property narrowly, and not "intuitively" as the Supreme Court does, and argues that the property right is the very activity that it being challenged. For example, we've all dealt with the argument that there's no property in a discretionary land use permit (and thus no right to due process) because the permit is discretionary and can be denied for any reason not arbitrary. As the Ninth Circuit noted, "circular."

However, the court made short work of the takings argument, concluding that Arizona's UPA doesn't authorize the state to take possession or claim ownership of unclaimed property, but merely to hold it in "in trust" for the benefit of the owner:

Plaintiffs’ takings claim is easily resolved under our precedent. The Fifth Amendment guarantees that “private property [shall not] be taken for public use, without just compensation.” U.S. Const. amend. V. This guarantee is enforceable against the states. Sheetz v. County of El Dorado, 601 U.S. 267, 276 (2024) (recognizing that the Takings Clause is incorporated against the states via the Fourteenth Amendment). To state a takings claim, a plaintiff must allege: (1) that the plaintiff owns “private property”; (2) that the private property was “taken” for “public use”; and (3) that the taking entity did not pay “just compensation” for it. Zeyen v. Bonneville Joint Dist., No. 93, 114 F.4th 1129, 1139 (9th Cir. 2024). The district court held that Plaintiffs did not allege the second element. We agree.

In Taylor I, we held that where unclaimed property is “held in trust” by the state, the property “has not been taken at all.” 402 F.3d at 936. Plaintiffs allege that the Department holds their unclaimed property in custody for their benefit. Therefore, per Taylor I, Plaintiffs have failed to state a takings claim.³

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3}We acknowledge the recent Tenth Circuit decision reaching the opposite conclusion. See Knellinger, 134 F.4th at 1043–45. But we are bound by Taylor I absent intervening higher authority that irreconcilably conflicts with our circuit precedent. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc).

Slip op. at 14.

A circuit split? Intriguing.

The plaintiff wasn't totally out of luck however. The Ninth Circuit vacated the district court's determination that the lack of notice to owners of abandoned property was not a due process problem. Instead, the Ninth Circuit held that the plaintiffs adequately alleged that they possess a property interest in the unclaimed property, and thus were entitled to notice. Although holding unclaimed property in trust isn't a taking, it might be a deprivation. And if so, some kind of process may be due:

Plaintiffs allege that the notice was inadequate here because the UPA does not require pre-deprivation notice sent by Arizona and post-deprivation notice by newspaper publication is insufficient. Indeed, Arizona’s law only requires that pre-deprivation notice be given by the holder: at least 120 days before the holder files an unclaimed-property report and transfers the property to the Department, it must, subject to some exceptions, “send a written notice to the apparent owner that states that the holder is in possession of the [unclaimed] property.” Ariz. Rev. Stat. § 44-307(E). And after the Department receives unclaimed property, the UPA requires only that the Department “publish a notice at least semiannually . . . directing the public to the department’s website regarding abandoned property . . . .” Id. § 44-309(A). The Department’s website must list the apparent owner’s name and last known address and describe the property. Id. Under Taylor II, Plaintiffs have plausibly alleged that they did not receive adequate process. Accordingly, we conclude that they have sufficiently stated a due-process claim to survive a motion to dismiss.