Opinion
A147670
09-04-2019
AARON HASHIM et al. Plaintiffs and Appellants, v. BETTY T. YEE, as State Controller, etc., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (City & County of San Francisco Super. Ct. No. CGC-13-531294)
Plaintiffs filed a putative class action lawsuit challenging the constitutionality of California's procedures for notifying owners of certain categories of unclaimed property under the Unclaimed Property Law (UPL) (Code Civ. Proc., § 1500 et seq.), as well as the state Controller's decision not to issue formal regulations under the Administrative Procedure Act (APA) (Gov. Code, § 11340 et seq.) to govern the process for claiming unclaimed property under the UPL. The court entered judgment following its order striking plaintiffs' third amended complaint for failure to conform with the court's earlier order allowing amendment of plaintiffs' second amended complaint (the amendment order). Because the court abused its discretion in striking the third amended complaint in its entirety, we reverse.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Plaintiffs named John Chiang as the Controller for the State of California when they filed their operative third amended complaint. In January 2015, Betty T. Yee was sworn into office, replacing Mr. Chiang as Controller. Although we follow the parties' approach by substituting in Ms. Yee as the named defendant and respondent, our use of pronouns in this opinion correlates to the Controller who was in office when the alleged actions and trial court decisions occurred.
FACTUAL BACKGROUND
This section is based on the allegations in the third amended complaint, which are assumed to be true for purposes of this appeal. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255 [allegations of a pleading subject to a motion to strike are read as a whole and assumed to be true]; Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [a demurrer admits the truth of all material facts properly pleaded].)
The UPL was enacted to reunite owners with unclaimed property and to allow the state, rather than private holders of unclaimed property, to benefit from use of this property until it is claimed by its owner. The Controller is responsible for enforcing the UPL and acts as the custodian of the unclaimed property fund, a fund of approximately $6.9 billion, comprising an estimated 24.9 million accounts.
Under the UPL, holders of unclaimed property, such as banks and insurance companies, are required to report and transfer that property to the Controller. Holders must send reports to the Controller listing the unclaimed property in their possession and certain owner-identifying information. If the unclaimed property is valued at $50 or more, the holder's report must include the name and last known address of the owner from the holder's records. The Controller maintains custody of unclaimed property escheated under the UPL only until the true owner steps forward to claim the property.
Effective July 1, 2014, holders were required to report the names and last known addresses of owners of unclaimed property valued at $25 or more. (§ 1530, subd. (b)(2), added by Stats. 2014, ch. 71, § 21.)
The state has a duty to notify owners of their unclaimed property so that they may be reunited therewith. "The primary manner by which the Controller reunites the owners with their property is through constitutional direct mail and publication notice to the owners, and by verifying the correct address[es] of the owners through the State databases." The Controller also maintains an online internet search portal that lists the owners' identities and descriptions of the unclaimed property. This website allows owners to search for their unclaimed property using various search criteria, such as first and last name. However, the website becomes "inoperable" when the owner's name and property is not included in the database.
Plaintiffs allege that the Controller fails to collect and post identifying owner information for property valued under $50, and that the Controller improperly aggregates this property into general descriptions on the public website, such as "State Farm policyholders." Consequently, these owners are not afforded constitutional notice that the state has taken their unclaimed property, and they are permanently deprived of their property in violation of the Fifth and Fourteenth Amendments to the United States Constitution. Plaintiffs make similar allegations with respect to owners of life insurance benefits, money orders, cashier's checks, and safety deposit boxes. They also allege that the Controller has impermissibly failed to issue regulations governing the process for claiming unclaimed property under the APA, and instead gives case-by-case verbal instructions to all owners seeking to claim their property. Plaintiffs seek a broad array of remedies, including declaratory relief, injunctive relief to require the Controller to promulgate regulations under the APA and to prohibit him from engaging in future unconstitutional transactions under the UPL, an accounting, and restitution and disgorgement of property illegally taken.
PROCEDURAL BACKGROUND
In their initial complaint, plaintiffs sought to bring a class action lawsuit against the Controller alleging causes of action for: (1) declaratory relief; (2) deprivation of the constitutional right to procedural due process in violation of 42 United States Code section 1983; (3) unconstitutional taking of personal property in violation of 42 United States Code section 1983; (4) violation of the UPL; and (5) breach of fiduciary duty. The court sustained a demurrer with leave to amend as to plaintiffs' first, second, and fourth causes of action, and without leave to amend as to their third and fifth causes of action. Plaintiffs then filed first and second amended complaints following defendant's successful demurrers.
On defendant's demurrer to plaintiffs' second amended complaint, the court sustained the demurrer without leave to amend as to the cause of action for violation of the UPL, but granted plaintiffs leave to amend their claims for declaratory relief and deprivation of procedural due process in violation of 42 United States Code section 1983. With respect to the 42 United States Code section 1983 claim, the court found that plaintiffs could not state a claim against the Controller individually due to qualified immunity, but it granted plaintiffs leave to amend as they "may be able to amend the SAC to state a cause of action against the State directly to the extent they seek damages equal to the amount of the property held in trust only or an injunction." As to the declaratory relief claim, the court ruled that "[t]here may be a basis for a declaratory relief cause of action, but its contours would have to be consistent with the ruling on the demurrers to the other causes of action."
Plaintiffs filed a third amended complaint against the Controller in his official capacity, alleging claims for declaratory relief and deprivation of procedural due process in violation of 42 United States Code section 1983. Defendant demurred to and moved to strike this pleading for noncompliance with the amendment order. The court granted defendant's motion to strike and ruled that the demurrer was moot, finding that "[i]n their Third Amended Complaint, Plaintiffs have not alleged any cause of action against the State directly. Further, the basis for declaratory relief is not consistent with the ruling on demurrer, therefore Defendant's motion to strike the Third Amended Complaint is granted." The court entered judgment, and plaintiffs appealed.
DISCUSSION
On appeal, the parties brief the merits of the court's order on the demurrer to the second amended complaint—i.e., its rulings that plaintiffs failed to state claims for declaratory relief and under 42 United States Code section 1983 for procedural due process violations. The parties also address the court's order striking the third amended complaint. We turn first to the court's order striking the third amended complaint.
Plaintiffs' opening brief sets forth the standard by which they urge this court to review the order striking their pleading, but plaintiffs do not develop this argument. Defendant, in contrast, separately briefed the question of whether the court properly struck the third amended complaint. Plaintiffs have arguably forfeited this issue. (See Stoll v. Shuff (1994) 22 Cal.App.4th 22, 25, fn. 1 [an appellate court has the discretion to deem an alleged error forfeited if not developed in the opening brief].) However, because the justification underlying the rule of forfeiture is primarily one of ensuring fairness by affording the responding party an opportunity to address all issues (Cox v. Griffin (2019) 34 Cal.App.5th 440, 453), and because defendant briefed this issue, we decline to treat it as forfeited.
A motion to strike may be made where the complaint or other pleading has not been drawn or filed in conformity with applicable rules or court orders. (§ 436, subd. (b).) The question on appeal is whether the court abused its discretion in deciding that the third amended complaint did not comply with its amendment order. (Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612 [the standard of review for an order striking a complaint under section 436 is abuse of discretion].) We believe the court abused its discretion in entirely striking the third amended complaint.
In the amendment order permitting plaintiffs to amend their 42 United States Code section 1983 procedural due process claim, the court found that qualified immunity prevented plaintiffs from stating a claim against the Controller individually, but ruled that "plaintiffs may be able to amend the SAC to state a cause of action against the State directly to the extent they seek damages equal to the amount of the property held in trust only or an injunction. (See Taylor v. Westly (9th Cir. 2005) 402 F.3d 924, 932-935 ('Taylor I'); see also Suever v. Connell (9th Cir. 2009) 579 F.3d 1047, 1059, 'Our case law states that the Eleventh Amendment does not bar claims by plaintiffs for the return of their own property under the UPL, because such claims are not for "damages" against the State.')" The court then struck plaintiffs' amended 42 United States Code section 1983 claim, finding that, "[i]n their Third Amended Complaint, Plaintiffs have not alleged any cause of action against the State directly."
In light of the order allowing amendment, the court erred in concluding that the third amended complaint did not fall within the scope of permissible amendment. Under 42 United States Code section 1983, suits for damages against state officers acting in their official capacity are treated as suits against the state. (Pierce v. San Mateo County Sheriff's Dept. (2014) 232 Cal.App.4th 995, 1018; Hafer v. Melo (1991) 502 U.S. 21, 25.) Suits seeking damages against states or state officials acting in their official capacities are in fact not permitted because these entities are not "persons" under 42 United States Code section 1983 in such suits (Will v. Michigan Dep. of State Police (1989) 491 U.S. 58, 71 (Will)). However, claims seeking prospective injunctive relief may be brought under section 1983 against state officers acting in their official capacity. (Ibid., fn. 10.) Indeed, in Taylor, supra, 402 F.3d 942, and Suever, supra, 579 F.3d 1047—the authorities relied upon by the trial court in granting plaintiffs leave to amend—the claims that were allowed to proceed under 42 United States Code section 1983 were claims the plaintiffs brought against the Controller in his official capacity for prospective injunctive relief or for the return of their property. We thus interpret the trial court's amendment order as granting plaintiffs leave to amend to plead a claim under 42 United States Code section 1983 against the Controller in his official capacity for prospective injunctive relief or for the return of plaintiffs' property or the monetary proceeds if sold.
42 United States Code section 1983 provides: "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer's judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable."
Taylor and Suever are both Eleventh Amendment decisions relying on Ex parte Young (1908) 209 U.S. 123 and subsequent authorities that create an exception to Eleventh Amendment immunity for suits in federal court brought against state officials for prospective injunctive relief or for return of the plaintiff's property. (Taylor, supra, 402 F.3d at pp. 929-936; Suever, supra, 579 F.3d at pp. 1059-1060.) The Eleventh Amendment does not apply here. (Will, supra, 491 U.S. at pp. 63-64.) However, the United States Supreme Court similarly determined that a state official sued in his official capacity for prospective injunctive relief may be sued as a "person" under 42 United States Code section 1983. (Will, at p. 71, fn. 10.)
In their third amended complaint, plaintiffs sued the Controller in his official capacity. They thus satisfied the requirement that they sue the state rather than the Controller in his individual capacity.
With respect to the relief sought, at oral argument defendant argued that the third amended complaint violated the amendment order because it only sought impermissible damages. The amendment order allowed plaintiffs to state a claim for what the court termed "damages equal to the amount of the property held in trust" or an injunction. In its general allegations section, the third amended complaint states, "This is an action brought pursuant to 42 U.S.C. § 1983, for declaratory relief and preliminary and permanent injunctive relief, an accounting and common fund, among other claims, based on the unconstitutional conduct of Defendant in his official capacity under color of state law." Plaintiffs directly incorporate this allegation into their 42 United States Code section 1983 claim and seek "just compensation commensurate with the harm they have suffered as a result of Defendant's violations" of their due process rights. Next, in their prayer for relief, plaintiffs seek injunctive relief to prohibit the Controller from engaging in future unconstitutional acts under the UPL and "restitution and disgorgement of ill-gotten private property that was taken in violation of the United States Constitution . . . in the form of an order requiring Defendant to return Plaintiffs and Class Members' property held in custody by Defendant . . . ." Although the third amended complaint is not a model of succinctness and clarity, when read liberally as it must be (Jager v. County of Alameda (1992) 8 Cal.App.4th 294, 296-297), it seeks injunctive relief and return of plaintiffs' wrongfully taken property. The court thus abused its discretion in striking plaintiffs' 42 United States Code section 1983 claim in its entirety for failure to comply with the amendment order.
The court also struck plaintiffs' declaratory relief claim on the basis that it was not consistent with the amendment order, which somewhat vaguely allowed plaintiffs to amend this claim within "contours . . . consistent with the ruling on the demurrers to the other causes of action." The declaratory relief claim in plaintiffs' third amended complaint tracks their 42 United States Code section 1983 claim in that it seeks a declaration against the Controller in his official capacity stating that the Controller violates the constitutional due process rights of owners of unclaimed property by seizing this property without requesting any identifying information from holders, thus depriving owners of their ability to seek return of their property. Because this declaratory relief claim is consistent with the permissible amendment to the claim under 42 United States Code section 1983, the court abused its discretion in striking the declaratory relief claim as well.
Days before oral argument, plaintiffs requested judicial notice of a variety of different documents. We deny this request because it is not relevant to our resolution of this appeal. (City and County of San Francisco v. Uber Technologies, Inc. (2019) 36 Cal.App.5th 66, 72, fn. 3.)
Because the court's abuse of discretion in striking the entire third amended complaint requires reversal of the judgment, we do not reach the additional issues raised by the parties.
Because they elected to amend and file the third amended complaint, plaintiffs may not challenge on appeal the rulings made by the trial court when it sustained the demurrer to the second amended complaint with respect to the amended claims. (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 866 ["[T]he election to amend a complaint after a demurrer thereto has been sustained 'waives any error in the ruling sustaining the demurrer.' "].) We express no opinion as to whether the third amended complaint states facts sufficient to constitute causes of action for declaratory relief or for deprivation of the right to procedural due process under the Fourteenth Amendment in violation of 42 United States Code section 1983. Such challenges are addressed by demurrer (§ 430.10, subd. (e)), not by a motion to strike, and the court ruled that defendant's demurrer to the third amended complaint was moot in light of its ruling on defendant's motion to strike.
DISPOSITION
The judgment is reversed.
BROWN, J. WE CONCUR: POLLAK, P. J.
TUCHER, J.