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Smolow v. Hafer

November 19, 2008


Appeal from the Order of the Commonwealth Court entered on February 9, 2005 at No. 208 MD 2004 867 A.2d 767.

The opinion of the court was delivered by: Mr. Justice BAER*fn1


ARGUED: March 5, 2008


Appellant, Ronald J. Smolow, challenges the Commonwealth Court's decision to dismiss his class action complaint against the State Treasurer and the Treasury Department (collectively, the "Department"), which asserted, inter alia, a challenge to the constitutionality of Pennsylvania's Disposition of Abandoned and Unclaimed Property Act, Act of December 9, 1982, P.L. 1057 § 5 (as amended 72 P.S. §§ 1301.1 -1301.29) ("DAUPA"), and a claim for damages and attorney fees pursuant to 42 U.S.C. § 1983.*fn2 Smolow asserted that the Department committed a taking without just compensation when it denied his request for interest earned during the time the Commonwealth held his property pursuant to DAUPA. After review, we affirm the Commonwealth Court's dismissal of Appellant's claims.

The facts as pled in Smolow's amended complaint are as follows: In August 2002, the Department took possession of 300 shares of common stock in Parker Drilling Company as abandoned and/or unclaimed property, pursuant to DAUPA. See 72 P.S. §1301.6 (prescribing that certificates of stock are "presumed abandoned or unclaimed" if the owner has not claimed such property or corresponded in writing with the business association within five years of the prescribed date of delivery);*fn3 72 P.S. §1301.13 (establishing the mechanism by which unclaimed property is transferred to the Treasurer). The Department later sold this stock under authority provided in the statute, see 72 P.S. §1301.17, for $586.47, and appropriated the money, earned interest, and other appreciation for public purposes, see 72 P.S. §1301.18.*fn4

After discovering this in August 2003, Smolow filed a claim with the Department asserting ownership of the stock and seeking recovery of its proceeds, which was granted; however, pursuant to its interpretation of the governing statute and the Department's policies and procedures, the Department paid no interest on the claim. Accord 72 P.S. §1301.17(d) ("The State Treasurer shall be responsible to an owner only for the amount actually received by the State Treasurer upon the sale of any property ...."). In January 2004, Smolow filed a claim requesting interest, estimated at $30, which the Department denied.

Smolow then filed his seven-count, class action civil-rights complaint, invoking the Commonwealth Court's jurisdiction under Section 1301.21 of DAUPA, which provides:

Any person aggrieved by a decision of the State Treasurer or as to whose claim the State Treasurer has failed to act within ninety (90) days after the filing of the claim, may commence an action in the Commonwealth Court to establish his claim. The proceeding shall be brought within thirty (30) days after the decision of the State Treasurer or within one hundred twenty (120) days from the filing of the claim if the State Treasurer fails to act. The action shall be tried de novo without a jury.

72 P.S. §1301.21. Smolow defined the class as "[a]ll persons and entities whose property was delivered to the defendants as unclaimed or abandoned property pursuant to the DAUPA, converted to cash, and returned to the owner without just compensation" within a six-year period prior to the filing of the class action lawsuit. Amended Complaint ¶22.

In the complaint, Smolow asserted that the Department was obliged to pay class members earned interest under Section 1301.15 of DAUPA, which provides, "When property is paid or delivered to the State Treasurer under this article, the owner is entitled to receive income or other increments actually received by the State Treasurer."

72 P.S. §1301.15. Alternatively, Smolow contended that, to the extent that DAUPA does not require the payment of interest, the statute is unconstitutional under Article 1, Section 10 of the Pennsylvania Constitution,*fn5 as it fails to provide just compensation for the taking and use of private property for public purposes.*fn6 Smolow also asserted claims under the United States Constitution, but solely for purposes of preserving them for adjudication in a parallel action, which he commenced in federal court. See Smolow v. Hafer, 353 F. Supp. 2d 561 (E.D. Pa. 2005).*fn7

Initially, the Department offered to pay Smolow's claim to resolve it. After this was refused, the Department filed preliminary objections, asserting that the class action complaint was erroneously brought in the Commonwealth Court's original jurisdiction when, in fact, it represented an appeal from the Department's denial of his claim for interest; the putative class action members failed to exhaust their administrative remedies, interposing a jurisdictional impediment; the Commonwealth Court lacked jurisdiction over the class in light of the subject matter of the litigation; and Smolow's claims failed as a matter of law by virtue of his failure to allege any taking of "net earnings" as a requisite element of a takings claim. The Department separately filed a suggestion of mootness, which was rejected via single-judge order.

In its published opinion supporting the granting of the preliminary objections and dismissal of the class action complaint with prejudice, the Commonwealth Court first agreed with Smolow's position that his action resided within the court's original, as opposed to appellate, jurisdiction. Smolow v. Hafer, 867 A.2d 767, 772 (Pa. Cmwlth. 2005). In this regard, the court relied primarily on DAUPA's prescription that judicial review is to be pursued via the filing of "an action in the Commonwealth Court," which is to be tried de novo without a jury. See id. (citing 72 P.S. ยง1301.21). The court also observed that this procedure is consistent with its mandate to hear claims against the Commonwealth within its original jurisdiction. See id. Thus, while noting that ...

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