Custody, Not Title: Michigan Unclaimed-Property Owners Retain Principal and the State-Generated Interest (Due Process Remand)

A. Precedents Cited (and How They Shaped the Decision)

1) Identifying the Property Interest (state law, but not state-law formalism)

• Bd. of Regents of State Colls. v. Roth, 408 U.S. 564 (1972): The court invoked Roth for the standard proposition that “property” is often defined by “existing rules or understandings” from an independent source such as state law. This framed the initial inquiry: what does Michigan law say about ownership under the Act?
• Tyler v. Hennepin County, 598 U.S. 631 (2023), and Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022): These cases supplied the limiting principle on state-law definitions—states cannot “define away” constitutionally protected property interests. The Sixth Circuit used them to justify looking beyond a single intermediate state decision and to anchor the analysis in text, history, and traditional property principles.

2) Custody vs. Title in Unclaimed-Property and Escheat Traditions

• Cerajeski v. Zoeller, 735 F.3d 577 (7th Cir. 2013): Cited for the conceptual point that “presumed abandoned” property is often not abandoned in the true property-law sense; the owner is “unknown” to the state rather than having relinquished title. This supported the Sixth Circuit’s reading of Michigan’s statutory text as custodial.
• Michigan escheat/custody decisions: Evans Prods. Co. v. Fry, 12 N.W.2d 448 (Mich. 1943); Braun v. McPherson, 269 N.W. 211 (Mich. 1936): These cases supplied the historical Michigan distinction between a period of state “custody” (as conservator, permitting rightful claimants to recover) and a later “escheat” (title vesting in the state if no claimant emerges). The Sixth Circuit used them as “persuasive data” that Michigan’s highest court understands custody as non-ownership.
• Schoener v. Cont'l Motors Corp., 106 N.W.2d 774 (Mich. 1961): This Michigan Supreme Court case was pivotal. It described Michigan’s prior abandoned-property program as “custodial in nature” and said it worked “no deprivation of property rights of an owner.” The Sixth Circuit treated Schoener as strongly confirming continuity between Michigan’s historical approach and the current Act.
• Yang v. Everest Nat'l Ins. Co., 968 N.W.2d 390 (Mich. 2021): Cited for the canon that statutes do not displace Michigan common law absent clear legislative intent “in no uncertain terms.” This canon supported the court’s conclusion that nothing in the Act clearly abrogates the common-law custodial presumption.

3) “Interest Follows Principal” (and interest as property)

• Sixth Circuit anchor: O'Connor v. Eubanks (O'Connor I), 83 F.4th 1018 (6th Cir. 2023): The panel treated O’Connor I as having already articulated the governing rule: when government holds private property and earns interest on it, the interest belongs to the owner. The present opinion reaffirms and operationalizes that statement by fixing the antecedent question: the owner retained the principal under Michigan law.
• Phillips v. Wash. Legal Found., 524 U.S. 156 (1998): Provided the historical common-law pedigree of the maxim “interest follows principal,” used to classify interest as a property incident of the underlying principal.
• City of New Orleans v. Fisher, 180 U.S. 185 (1901), and Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980): These decisions reinforced that interest earned on private funds held by the government is not a “forced contribution” to general revenue. The Sixth Circuit used them to reject Michigan’s statutory differentiation between accounts that were interest-bearing before transfer and those that were not: the key is ownership of principal during custody, not the account’s pre-transfer yield.

4) Disregarding Intermediate State Authority (and why Kemerer did not control)

• The district court relied on: Kemerer v. State, --- N.W.3d ----, No. 362055, 2024 WL 4609911 (Mich. Ct. App. Oct. 29, 2024), appeal denied, 21 N.W.3d 201 (Mich. 2025): Kemerer held Michigan takes ownership of presumptively abandoned property under the Act and, therefore, owns post-transfer interest. The Sixth Circuit rejected both propositions.
• Sixth Circuit’s “predictive” framework: Kochins v. Linden-Alimak, Inc., 799 F.2d 1128 (6th Cir. 1986); Clutter v. Johns-Manville Sales Corp., 646 F.2d 1151 (6th Cir. 1981); Ruth v. Bituminous Cas. Corp., 427 F.2d 290 (6th Cir. 1970); Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450 (6th Cir. 2001); Wallace Hardware Co. v. Abrams, 223 F.3d 382 (6th Cir. 2000); and especially Hendershot v. Stanton, 162 F.4th 625 (6th Cir. 2025): These authorities supplied the rule that federal courts generally follow on-point intermediate state decisions unless persuaded the state supreme court would decide otherwise. The panel concluded there was “clear indication” Kemerer was inconsistent with statutory text, Michigan Supreme Court doctrine, and uniform authority elsewhere.
• Flint Cold Storage v. Mich. Dep't of Treasury, 776 N.W.2d 387 (Mich. Ct. App. 2009): Though not controlling on the merits question, the Sixth Circuit cited it as evidence that even Michigan’s Court of Appeals had previously described the Act in custodial/trust-like terms—undercutting Kemerer’s novelty.
• Sister-state unclaimed-property decisions supporting a custodial model: Dani v. Miller, 374 P.3d 779 (Okla. 2016); Clark v. Strayhorn, 184 S.W.3d 906 (Tex. Ct. App. 2006); Canel v. Topinka, 818 N.E.2d 311 (Ill. 2004); La. Health Serv. & Indem. Co. v. Tarver, 635 So. 2d 1090 (La. 1994); State v. Elsinore Shore Assocs., 592 A.2d 604 (N.J. Super. Ct. App. Div. 1991); State ex rel. Marsh v. Neb. St. Bd. of Agric., 350 N.W.2d 535 (Neb. 1984); Boswell v. Citronelle-Mobile Gathering, Inc., 294 So. 2d 428 (Ala. 1974): These cases were marshaled to show Kemerer is an outlier against a broad doctrinal consensus that unclaimed-property acts are custodial rather than title-transferring.
• Maryland v. Balt. Radio Show, Inc., 338 U.S. 912 (1950): Used to blunt the argument that the Michigan Supreme Court’s denial of review of Kemerer signaled agreement on the merits.

5) Due-process framework left open: Texaco and beyond

• Texaco, Inc. v. Short, 454 U.S. 516 (1982): The district court had relied on Texaco when it assumed the state took ownership of principal, but the Sixth Circuit held the premise was wrong and directed the district court to decide in the first instance whether Texaco governs the interest claim.
• Concurrence’s due-process discussion (suggesting Texaco is a poor fit): Tulsa Pro. Collection Servs., Inc. v. Pope, 485 U.S. 478 (1988); Zinermon v. Burch, 494 U.S. 113 (1990); Cunningham v. Blackwell, 41 F.4th 530 (6th Cir. 2022); Garcia v. Fed. Nat'l Mortg. Ass'n, 782 F.3d 736 (6th Cir. 2015); Armstrong v. Manzo, 380 U.S. 545 (1965): These cases were cited to emphasize due process’s “flexible” character and the baseline requirement of meaningful notice and an opportunity to be heard—particularly where the state is actively involved rather than merely enforcing a “self-executing” rule.

6) Standards of review and class discovery

• Wheaton v. McCarthy, 800 F.3d 282 (6th Cir. 2015): Provided the de novo standard for reviewing dismissal.
• Pub. Int. Legal Found. v. Benson, 136 F.4th 613 (6th Cir. 2025): Provided the abuse-of-discretion standard for reviewing denial of class discovery; relevant because the district court’s discovery ruling may need reevaluation if the due-process claims proceed.

7) Concurrence’s “state-law methodology” citations (contextual, not dispositive)

Judge Nalbandian’s concurrence raised an Erie/Rules of Decision Act critique of disregarding Kemerer (even though this case is not a diversity action). He cited, among others: BMW Stores, Inc. v. Peugeot Motors of Am., Inc., 860 F.2d 212 (6th Cir. 1988); Comm'r of Internal Revenue v. Estate of Bosch, 387 U.S. 456 (1967); Grant v. Bill Walker Pontiac-GMC, Inc., 523 F.2d 1301 (6th Cir. 1975); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Advey v. Celotex Corp., 962 F.2d 1177 (6th Cir. 1992); Swift v. Tyson, 41 U.S. 1 (1842); West v. Am. Tel. & Tel. Co., 311 U.S. 223 (1940); Fidelity Union Tr. Co. v. Field, 311 U.S. 169 (1940); and Michigan court-rule authority: Esordi v. Township of Macomb, __ N.W.3d __, 2025 WL 2495908 (Mich. Ct. App. 2025). The concurrence’s practical point was that Michigan treats published Court of Appeals decisions as statewide binding unless altered by the Michigan Supreme Court, raising questions about when a federal court should “apply instead of predict” state law.

B. Legal Reasoning (How the Sixth Circuit Reached Its Result)

1) Statutory text: Michigan repeatedly says “custody,” not “ownership”

The opinion begins with a close textual reading of Michigan’s Act. The statutory scheme speaks in terms of property being “presumed abandoned,” delivered to the state, after which the state “assumes custody and responsibility for safekeeping.” The Act consistently calls claimants “owners,” not former owners—language that strongly signals retained title.

2) Michigan legal history: “custodial taking” is distinct from “escheat”

The court situates the Act in Michigan’s historical treatment of unclaimed property and escheat: Michigan recognized a conservatorship period where the state holds property for the rightful owner/heir. That history made it implausible, in the panel’s view, that the Michigan Supreme Court would treat modern unclaimed-property custody as an immediate transfer of title.

3) Common law and constitutional property: interest is an incident of the owner’s principal

Once the owner’s continuing title to principal is established, the interest question becomes straightforward under the maxim “interest follows principal.” The court rejects Michigan’s attempt (via statutory design) to distinguish between pre-transfer interest-bearing and non-interest-bearing property. Because the owner’s money is what enabled interest to be earned, the interest is the owner’s property.

4) The district court’s “threshold” mistake required vacatur

Procedural due process hinges on whether the plaintiff was deprived of a protected property interest. The district court’s analysis failed because it treated the state as the owner—leading it (a) to minimize deprivation of principal and (b) to deny any deprivation of interest. Correcting the ownership premise required sending the case back for the district court to select and apply the proper due-process framework to the interest-retention practice.

5) State intermediate authority: why the panel felt justified not following Kemerer

Although federal courts ordinarily follow on-point intermediate state appellate decisions, the panel concluded multiple forms of “persuasive data” showed Kemerer was erroneous: conflict with statutory language, conflict with Michigan Supreme Court reasoning in older cases, prior Court of Appeals dicta describing custodial holding, and a consistent body of sister-state authority reading the Uniform Act as custodial.

C. Impact (What This Opinion Changes Going Forward)

1) Michigan unclaimed-property administration: “float” becomes constitutionally salient

The opinion positions interest earned in the state’s general fund on unclaimed money as the owner’s property when the state is merely a custodian. That framing invites:

• Increased litigation over whether Michigan’s notice and claims processes satisfy due process as applied to interest retention, not merely principal return.
• Potential pressure on Michigan (legislative or administrative) to segregate, account for, or credit interest/earnings on custodial holdings—or to adopt an explicit compensation/interest policy consistent with constitutional property rules.

2) Procedural due-process doctrine in unclaimed-property cases: the framework is now the battleground

The Sixth Circuit intentionally did not decide whether Texaco, Inc. v. Short supplies the governing due-process analysis for interest retention. On remand, the parties will likely litigate whether Michigan’s scheme is sufficiently “self-executing” (as in Texaco) or involves the kind of state action that triggers more individualized procedural safeguards (as suggested by the concurrence’s reliance on Tulsa Pro. Collection Servs., Inc. v. Pope).

3) Federal courts’ treatment of intervening state intermediate decisions

The panel’s refusal to follow Kemerer v. State underscores that, within the Sixth Circuit, an intervening intermediate state decision may be set aside where there are strong indicators that the state supreme court would disagree. The concurrence’s critique, however, signals an ongoing internal debate—especially in states like Michigan where intermediate appellate decisions have statewide binding force in the state system.

4) Class actions

Because the case returns with due-process claims potentially revived, the district court must revisit class discovery. This raises the prospect of systemic challenges to Michigan’s interest-retention practice (depending on class certification and merits rulings on process).