Fighting a State’s Unconstitutional Taking of Privately Owned Funds In Order To Use Them to Reduce the State’s Deficit
The plaintiff beverage distributors in this case sought declaratory and monetary relief because of the state’s seizure of discrete funds of money owned by them. The money represents so-called “unclaimed” bottle-return “deposits.” “Deposits” is actually a misnomer. In 1980, when the state first required the distributors to pay five cents for each bottle returned to them by retailers, they chose to cover the additional expense by adding five cents to the selling price. The “deposits” that come into their hands, therefore, are simply an undifferentiated part of the sales revenues they receive from retailers, not from consumers; the funds were not segregated in any way, were taxable to the distributors, and were acknowledged by the state environmental agency to belong to them if they remain “unclaimed” because some bottles sold to retailers are not later returned for redemption.
In late 2008, in response to a severe budget deficit, the legislature passed a law mandating the use of separate accounts to hold all incoming and outgoing “deposits.” The legislative history is unequivocal that the purpose of the law was solely to assist that body in determining the volume of money in question so that it could decide whether it might be worthwhile to pass a law escheating the sum for the purpose of reducing the state’s alarming deficit. After only three months of segregated accounts being used, and before the first report on account balances was due, in early 2009 an escheat law was hastily passed redefining property rights in the “unclaimed deposits” and requiring the plaintiffs to surrender money from the segregated accounts to the state. The 2009 law required the plaintiffs to pay over not only the quarterly balances in these accounts from the effective date of the statute, but also balances held there by the plaintiffs in the three preceding months. The bottlers objected to the latter demand, claiming it effected a taking of funds that had always been regarded, even by the state, as their property, right up to the effective date of the 2009 law.
The trial judge found for the distributors, but in an appeal in which NELF filed a brief supporting the distributors, the Connecticut Supreme Court adopted the state’s theory that the bottlers simply had no property interest in the first quarter’s funds. Declining to inquire into the background history of “deposit” funds before the 2008 law, the Court held that the segregation of funds mandated by that law was proof enough that the bottlers did not own the money and that there could be no taking.
In late 2013, the distributors filed a Petition for Certiorari in the U.S. Supreme Court renewing the takings arguments they had made to the state high court. NELF, together with three co-amici, filed a brief in support. NELF argued that the seizure of the money, motivated, as the Attorney General freely admitted, by a severe budgetary crisis, was a classic instance of government unjustly imposing on a few persons an economic burden that should be borne by the public at large. Review, NELF argued, is all the more warranted because all three branches of state government were involved in the taking of the distributors’ established property rights, and distributors have been left without a state remedy for violation of their federal constitutional rights.
NELF pointed out that the state court reached its decision without proper examination of the history of the Bottle Bill and its implementation, despite the fact that distributors had based their defense of their rights on these sources. The analysis the court performed demonstrate that the distributors indeed lacked “incidents of ownership” under the 2008 law is perfunctory and fatally flawed, NELF contends. The 2008 law did not even purport to divest them of any established rights. It was enacted to facilitate legislative fact-finding about the economics of the Bottle Bill, i.e., as an aid to deciding later whether to escheat some or all of the “unclaimed deposits.” NELF pointed out that the distributors’ established property rights had been acknowledged by the state agency charged with administering the Bottle Bill and that the state court, in denying these rights, had to adopt a forced and unnatural reading of the agency’s admission.
Finally, aware of the split among the U.S. Supreme Court justices over the applicability to a case like this of the doctrine of “judicial taking” versus substantive due process, NELF asked them not be dissuaded from granting the petition by this lack of consensus. The state high court’s decision, NELF noted, cannot survive review under either doctrine.
Unfortunately, on March 24, 2014 the Supreme Court denied the petition.
The plaintiff beverage distributors in this case sought declaratory and monetary relief because of the state’s seizure of discrete funds of money owned by them. The money represents so-called “unclaimed” bottle-return “deposits.” “Deposits” is actually a misnomer. In 1980, when the state first required the distributors to pay five cents for each bottle returned to them by retailers, they chose to cover the additional expense by adding five cents to the selling price. The “deposits” that come into their hands, therefore, are simply an undifferentiated part of the sales revenues they receive from retailers, not from consumers; the funds were not segregated in any way, were taxable to the distributors, and were acknowledged by the state environmental agency to belong to them if they remain “unclaimed” because some bottles sold to retailers are not later returned for redemption.
In late 2008, in response to a severe budget deficit, the legislature passed a law mandating the use of separate accounts to hold all incoming and outgoing “deposits.” The legislative history is unequivocal that the purpose of the law was solely to assist that body in determining the volume of money in question so that it could decide whether it might be worthwhile to pass a law escheating the sum for the purpose of reducing the state’s alarming deficit. After only three months of segregated accounts being used, and before the first report on account balances was due, in early 2009 an escheat law was hastily passed redefining property rights in the “unclaimed deposits” and requiring the plaintiffs to surrender money from the segregated accounts to the state. The 2009 law required the plaintiffs to pay over not only the quarterly balances in these accounts from the effective date of the statute, but also balances held there by the plaintiffs in the three preceding months. The bottlers objected to the latter demand, claiming it effected a taking of funds that had always been regarded, even by the state, as their property, right up to the effective date of the 2009 law.
The trial judge found for the distributors, but in an appeal in which NELF filed a brief supporting the distributors, the Connecticut Supreme Court adopted the state’s theory that the bottlers simply had no property interest in the first quarter’s funds. Declining to inquire into the background history of “deposit” funds before the 2008 law, the Court held that the segregation of funds mandated by that law was proof enough that the bottlers did not own the money and that there could be no taking.
In late 2013, the distributors filed a Petition for Certiorari in the U.S. Supreme Court renewing the takings arguments they had made to the state high court. NELF, together with three co-amici, filed a brief in support. NELF argued that the seizure of the money, motivated, as the Attorney General freely admitted, by a severe budgetary crisis, was a classic instance of government unjustly imposing on a few persons an economic burden that should be borne by the public at large. Review, NELF argued, is all the more warranted because all three branches of state government were involved in the taking of the distributors’ established property rights, and distributors have been left without a state remedy for violation of their federal constitutional rights.
NELF pointed out that the state court reached its decision without proper examination of the history of the Bottle Bill and its implementation, despite the fact that distributors had based their defense of their rights on these sources. The analysis the court performed demonstrate that the distributors indeed lacked “incidents of ownership” under the 2008 law is perfunctory and fatally flawed, NELF contends. The 2008 law did not even purport to divest them of any established rights. It was enacted to facilitate legislative fact-finding about the economics of the Bottle Bill, i.e., as an aid to deciding later whether to escheat some or all of the “unclaimed deposits.” NELF pointed out that the distributors’ established property rights had been acknowledged by the state agency charged with administering the Bottle Bill and that the state court, in denying these rights, had to adopt a forced and unnatural reading of the agency’s admission.
Finally, aware of the split among the U.S. Supreme Court justices over the applicability to a case like this of the doctrine of “judicial taking” versus substantive due process, NELF asked them not be dissuaded from granting the petition by this lack of consensus. The state high court’s decision, NELF noted, cannot survive review under either doctrine.
Unfortunately, on March 24, 2014 the Supreme Court denied the petition.
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