Background
Dennis O’Connor had two non-interest-bearing financial accounts that private companies transferred to Michigan under its Uniform Unclaimed Property Act after losing contact with him. Michigan deposited the funds into its general fund, where they could earn interest for the state. The Act requires Michigan to return the principal upon a valid claim, but it does not require payment of interest when the property was non-interest-bearing before transfer.
O’Connor sued Michigan and two state officials individually and on behalf of a putative class, asserting takings and due-process claims. In an earlier appeal, the Sixth Circuit affirmed dismissal of the takings claims but remanded the due-process claims against the officials. The district court again dismissed those claims, reasoning that Michigan acquired ownership of the accounts and therefore also owned the resulting interest, and it denied class discovery.
The Court’s Holding
The Sixth Circuit vacated the dismissal of O’Connor’s due-process claims and remanded. The majority held that Michigan’s statute creates a custodial arrangement rather than transferring ownership to the state. Based on the Act’s text and Michigan property-law principles, O’Connor retained ownership of his principal while Michigan held it.
Because “interest follows principal,” the majority also held that O’Connor owned any interest Michigan generated from his funds, even though the accounts were not interest-bearing when transferred. The court declined to follow the Michigan Court of Appeals’ contrary decision in Kemerer v. State, concluding that the statute, Michigan Supreme Court precedent, and other persuasive authority clearly indicated that Michigan’s highest court would not adopt Kemerer’s ownership analysis.
The majority did not decide whether Michigan provided constitutionally sufficient process. It directed the district court to conduct that analysis from the premise that O’Connor owned both the principal and generated interest, including deciding in the first instance whether Texaco, Inc. v. Short supplies the governing framework for the interest claim. If the claims proceed, the district court must reconsider class discovery. Judge Nalbandian concurred separately: although bound by Sixth Circuit precedent to join the majority, he argued that absent that precedent Kemerer should control as binding Michigan law, and he reasoned that Texaco likely should not govern because Michigan’s unclaimed-property system is neither self-executing nor characterized by limited state involvement.
Key Takeaways
- Michigan takes custody, not ownership, of property transferred under its Uniform Unclaimed Property Act.
- An owner retains the interest generated from custodially held principal even if the property was non-interest-bearing before the state received it.
- The Sixth Circuit left the governing due-process framework and the availability of class discovery for the district court to address on remand.
Why It Matters
The decision prevents Michigan from defeating a due-process claim by treating custodially held unclaimed property—and the earnings it produces—as state-owned. It may affect other owners whose funds generated interest after transfer to Michigan’s general fund.
The remand leaves a consequential issue unresolved: what notice and opportunity to be heard are constitutionally required when Michigan retains interest generated from property it holds for an owner. Judge Nalbandian’s concurrence also highlights a disagreement over how federal courts should treat binding intermediate state appellate precedent when predicting state law.