Recently, the U.S. District Court for the District of New Jersey, Rousseau v. United States Department of the Treasury, 2010 WL 457702 (D.N.J. Feb. 5, 2010), ruled that the states did not have jurisdiction to sue the federal government seeking $15 billion of unredeemed savings bonds as unclaimed property.
In 2004, when New Jersey’s State Treasurer became aware of the vast amount of unclaimed savings bonds being held by the U.S. Department of the Treasury. The state’s contention was that U.S. savings bonds that have reached maturity but have not been claimed are unclaimed property and should be turned over to the states. Various states joined the lawsuit in an attempt to recover the unclaimed bonds, including Oklahoma, Kentucky, Missouri, Montana and Pennsylvania.
The U.S. Treasury argued that the states’ unclaimed property laws do not apply to the unclaimed bonds because the bonds program “is a primary constitutional function of the United States, and the States’ attempts to regulate it are barred by the Supremacy Clause.” Accordingly, the Treasury filed a motion to dismiss.
In granting the U.S. Treasury’s motion to dismiss, the court concluded that the states’ involvement would “impermissibly interfere” with contracts between the United States and the owners of the bonds. Interestingly, the judge also noted the states’ unclaimed property laws impose “onerous record-keeping and reporting requirements,” in addition to civil and criminal penalties that would “impermissibly regulate” the U.S. Treasury notwithstanding the availability of state immunity provisions.
The recent order granting the U.S. Treasury’s motion to dismiss is likely only the first shot fired as the states have already filed a notice of appeal. As the case moves forward, there will be important constitutional issues to consider, such as issues associated with the Supremacy Clause, preemption, and governmental immunity.