B-76023 August 18, 1967

B-76023 August 18, 1967

The Honorable The Attorney General

Dear Mr. Attorney General:

Subject: Panhandle Eastern Pipeline Co., et al. v. Federal Power Commission, et al. (C.A. 8, No. 12,466)

By letter of July 27, 1967, your reference CE MM:LTR 91-167, the Acting Assistant Attorney General , Civil Division, forwarded a copy of a petition and a stipulation filed with the United States Court of Appeals for the Eight Circuit by the Attorney General of Indiana for an order requiring the Treasurer of the United States to turn over to the State of Indiana approximately $183,000 of the amount covered into the Unites States Treasury in the cited case under 28 U.S.C. 2042, which is claimed as abandoned property by the State under its newly enacted Uniform Abandoned Property Act, and requested our views thereon.

The money in question represents unclaimed rate rebates due to ultimate consumers in the State of Indiana, paid into the United States Circuit Court of Appeals, Eight Circuit, by the Panhandle Eastern Pipeline Co., pursuant to the cited case and subsequently covered into the Treasury of the United States under the provisions of 28 U.S.C. 2042. From an examination of the Indiana act in question, entitled the "Uniform disposition of Unclaimed Property Act," it appears that the funds here in question are covered thereby.

In United States v. Klvin, Escheator of Pennsylvania, 303 U.S. 276, the Supreme Court of the United States held that a similar statute of the Commonwealth of Pennsylvania was constitutional and was properly applicable to funds deposited in the registry of a Federal court and subsequently covered into the Treasury of the United States under the provisions of section 996 of the Revised Statutes, 28 U.S.C. 852, which is now 26 U.S.C. 2042. The Court said:

"In this case jurisdiction was acquired by the district court, by reason of diversity of citizenship, to adjudicate the rights of the parties. That function performed, it now retains jurisdiction for the sole purpose of making disposition of the fund under its control, by ordering payment of it to the persons entitled as directed by the federal statute. Beyond whatever is needful and appropriate to the accomplishment of that end, the jurisdiction and possession of the federal district court does not operate to curtail the power which the state may constitutionally exercise over persons and property within its territory.

"The present decree for escheat of the fund is not founded on possession and does not disturb or purport to affect the Treasury's possession of the fund or the district court's authority over it. Nor could it do so. Penn General Casualty Co. v. Pennsylvania, supra; United States v. Bank of New York & T. Co., 296 U.S. 463, 478. At most the decree of the state court purports to be an adjudication upon the title of the unknown claimants in the fund by a proceeding in the nature of an inquest of office as in the case of escheated lands, compare Security Savings Bank v. California, 263 U.S. 282, 287, with Hamilton v. Brown, 161 U.S. 256, 263, and to confirm the authority of appellee to make claim to the moneys. It is subordinate to every right asserted and decreed in the federal suit and effective only so far as it establishes rights derived from them. Neither the nature of the suit in the district court nor the federal statutes preclude transfer of or change in the interest of the unknown claimants, either by judicial proceedings in the state court or otherwise, pending final disposition of the fund by the federal court. Section 996 of the Revised Statutes contemplates that changes in ownership of the fund may occur, since it provides that after the right to the fund has been finally adjudicated and it has been covered into the Treasury it shall be paid over to any person entitled, upon full proof of his right to receive it."

"Since the Government has not set up and does not assert any claim or interest in the fund apart from the possession acquired under the decree of the district court and the statutes of the United States, it is unnecessary to consider now the effect on the decree of the state court of the fund's absence from the state, and the absence or nonresidence of the unknown claimants, if such is the case. All such questions will be open and may be raised and decided whenever application is made to the district court for payment over of the fund."

Subsequently, the District Court of the United States for the Eastern District of Pennsylvania directed payment of funds in question in the above-cited case to Klein, as Escheator of the State of Pennsylvania. Upon appeal, the Circuit Court of Appeals, Third Circuit, in United States v. Klein, Escheator of Commonwealth of Pennsylvania, 106 F. 2d. 213, affirmed that decision. The Supreme Court of the United States denied certiorari in 308 U.S. 618. The Circuit Court held as follows (quoting from the syllabi):

"1. Escheat"

"The state of Pennsylvania may constitutionally escheat unclaimed money deposited in the registry of the United States district Court in Pennsylvania and later covered into the United States Treasury.

* * * * *

"4. Deposits in court"

"Under statutes governing withdrawal of money paid into federal District Court and deposited with the treasurer or a designated depositary, the United States became a statutory trustee of fund thus deposited for the rightful owners when determined by the District Court."

"5. Escheat"

"where the United States made no claim to fund deposited in Pennsylvania federal District Court, transfer thereof into the United States treasury did not change the Pennsylvania situs of the fund, and hence Pennsylvania state court had jurisdiction to decree escheat of the fund to Pennsylvania."

Likewise, the same Circuit Court held as follows in the case entitled Matter of Moneys Deposited in and Now under the Control of the United States District Court for the Western District of Pennsylvania, Escheated to the Commonwealth of Pennsylvania, 243, F. 2d 443:

"It is settled that a state may constitutionally direct the escheat of unclaimed money which has been deposited in the registry of a federal court sitting in the state and may do so even though the money has been subsequently deposited in the United States Treasury pursuant to the federal statute. For although such subsequent deposit in the federal treasury is required by the statute to be 'in the name and to the credit of the United States' the fact is that the United States has no beneficial interest therein but holds the money as statutory trustee for the rightful owners when and if they are determined by the court. United States v. Klein, 1983, 303 U.S. 276, 58 S.Ct. 536, 82, L.Ed. 840; United States v. Klein, 3 Cir., 1939, 106 F. 2d 213, certiorari denied 308 U.S. 618, 60 S.Ct. 295, 84 L.Ed. 517; In re Searles, 2 Cir., 1948, 166 F. 2d 475, 477, 4 A.L.R. 2d 1431. And such a decree for escheat, while not equivalent to an assignment, In re Thompson's Estate, 3 Cir., 1951, 192 F. 2d 451, 453, is undoubtedly an adjudication that the state is entitled as parens patrias to assert the claim of the missing claimant to the moneys in question in the absence of the claimant and of anyone else competent to inherit the claim. United States v. Klein, 1938, 303 U.S. 276, 282, 58 S.Ct. 536."

Hence, it appears well settled that a State which has an escheat or unclaimed property statute may claim and be paid unclaimed moneys owed to residents of that State which have been covered into the Treasury of the United States under 28 U.S.C. 2042. We see no reason for opposing the claim of the State of Indiana in this instance. In this connection, we note that other moneys covered into the treasury of the United States under 28 U.S.C. 2042 in the Panhandle Eastern Pipeline Company case were escheated to the State of Michigan in 1955, apparently without opposition. See our letter to the then Attorney General in said case, dated September 22, 1955, B-76023, in answer to his letter of August 12, 1955, file reference GSL:FCG 77-37-227.

We find no objection to the petition, and we believe that proposed stipulation to be proper in form and substance. However, we note that the last two paragraphs of the proposed stipulation, dealing with possible debtors to the United States who may be entitled to a share of the moneys involved, do not indicate whether the names and addresses mentioned therein are to be furnished before or after transfer of the moneys, nor do they clearly require the State of Indiana to return to the United States any amount that may be due ti from such persons, if the names and addresses are furnished after the transfer. We suggest the stipulation be amended to cover these points.

Sincerely yours,

J.E.Welch Deputy General Counsel