Calling into Question Minnesota’s Unclaimed Property Law

Date: May 30, 2017

In 1992, the U.S. Supreme Court handed-down a landmark decision in Lucas v. South Carolina Coastal Council. As explained in this article by Luke Wake of the NFIB Small Business Small Business Legal Center—soon to be published by the George Mason University Civil Rights Law Journal—the Lucas decision remains of enduring importance. This is especially true regarding the Court’s holding that regulatory takings claims are to be assessed with reference to the background principles of state property law.

In other words, the first question in any case where an owner alleges that regulation has “taken” his or her property is to ask whether the common law previously recognized the rights in question. For example, the common law nuisance doctrine precludes a landowner from using his or her property in a manner that interferes with the fundamental right of another to the quiet enjoyment of their own land. Yet as the Lucas Court emphasized, the common law generally recognizes that owners can use their property however they might like so long as they do not infringe on the rights of others.

But 25 years later, a surprising number of jurisdictions now hold that “background principles” of state property law may be changed prospectively through legislation. Such schemes are problematic and may enable government to redefine long-recognized private property rights out of existence while evading the requirements of the Constitution. For example, the NFIB Legal Center recently filed an amicus curiae brief in the Minnesota Supreme Court in a case concerning Minnesota’s Unclaimed Property Law—arguing that the State could not abrogate common law property rights, through legislative fiat, without violating the Fifth Amendment.
With enactment of this contested statutory regime, the Minnesota legislature authorized banks to declare savings accounts, and other investments, presumptively “abandoned” if the owner fails to interact with the bank, or other such institution, within a proscribed period (3 years for most accounts). At that point the statute requires the bank, or other such account holder, to transfer the owner’s assets to the State’s possession—with the funds deposited directly in to the Minnesota general fund. Although owners can reclaim their property, the State will not pay interest on assets held, which denies affected owners interest they would otherwise accrue.

When a handful of affected owners brought a takings claim —demanding payment of interest as part of just compensation—the State balked. It argued, in defense, that the owners had no takings claim because, under the statute in question, the owners had no protected right to retain interest earned on their property. In other words, the State argued that there could be no takings claim because it had chosen to abrogate the common law right to earn interest on property once deemed statutorily “abandoned.”

But even this designation of ‘abandonment’ abrogated the common law right to retain exclusive control of private property indefinitely until the owner should manifest a clear an unambiguous intent to waive the right to continued control. Simply put, the State’s argument in this case boils down to the notion that one cannot claim a property right where enacted legislation denies its continued existence. But if that were true then government could avoid the structures of the Takings Clause in every case in which an owner has alleged a regulatory taking simply by affirming that the legislation in question denies the owner his or her previously recognized rights.

No one doubts the power of the states to enact new law—even law that restricts the use of private property or that departs from or abrogates common law property rights. But, such legislative changes may violate the Takings Clause of the Fifth Amendment, which prohibits government from taking private power (even for a legitimate reason) without paying just compensation.

This case and others demonstrate that there remains significant confusion among the lower courts about how to approach Lucas’ “background principles” doctrine. One approach would be to do as the Minnesota Court of Appeals did, in Hall v. State—i.e., to assume that “background principles” may be contorted through legislation. But as we argued in our amicus brief, such an approach fundamentally contravenes the Supreme Court’s essential guidance in Lucas and enables legislative bodies to operate beyond the constraints of the Takings Clause. Accordingly, we argue that property owners can prosecute takings claims in challenge to any appropriation of their land or personal property, regardless of whether it is supposedly authorized by enacted law or not.

NFIB Legal Center’s amicus brief can be found here.

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