Immediate Federal Takings Claims upon State Seizure of Unclaimed Property under RUUPA

Introduction

This commentary examines the Tenth Circuit’s decision in Knellinger v. Young, 23-1018 (10th Cir. Apr. 11, 2025), which clarifies when property owners may bring a federal Takings Clause action challenging a state’s unclaimed property scheme. Under Colorado’s Revised Uniform Unclaimed Property Act (RUUPA), the state takes custody of presumed‐abandoned property and commingles it with its general funds. Plaintiffs David Knellinger and Robert Storey sued under 42 U.S.C. § 1983, alleging that Colorado’s retention and use of their unclaimed wages and refunds without compensation violated the Fifth Amendment. The district court dismissed their suit for lack of standing, reasoning they had not filed administrative claims or identified their property with sufficient precision. On appeal, the Tenth Circuit reversed in part and affirmed in part.

Summary of the Judgment

The Tenth Circuit held:

Property owners suing under the Takings Clause need not exhaust state administrative remedies before filing a federal § 1983 action; the right to just compensation vests when the government takes the property.
Plaintiffs adequately pleaded an “injury in fact” and standing by alleging Colorado took possession of their property (as shown on the state’s unclaimed property website), used it for public purposes, and offered no compensation or advance notice.
The district court erred in dismissing the damages claims under Rules 12(b)(1)/(6) by drawing adverse inferences and imposing an exhaustion requirement.
Equitable claims for injunctive relief must be dismissed, because § 1983 provides an adequate remedy at law (just compensation).
The case is affirmed insofar as it dismisses equitable relief, reversed as to dismissal of monetary relief, and remanded for further proceedings.

Analysis

Precedents Cited

Knick v. Township of Scott, 588 U.S. 178 (2019): Held that a property owner’s Fifth Amendment claim accrues at the time of taking and does not require exhaustion of state‐court inverse condemnation procedures. The Tenth Circuit applied Knick to reject Colorado’s administrative‐exhaustion requirement.
Tyler v. Hennepin County, 598 U.S. 631 (2023): Defined what qualifies as “property” for Takings Clause purposes, emphasizing reliance on state law and historical practice. That framework underpins the court’s recognition that funds held in Colorado’s unclaimed property trust fund remain private until taken.
Phillips v. Washington Legal Foundation, 524 U.S. 156 (1998): Established that state‐held funds subject to fiduciary duties can constitute “property” under the Fifth Amendment. The Tenth Circuit extended this principle to unclaimed property trust funds.

Legal Reasoning

The court’s reasoning unfolded in several key steps:

Intertwining Standing and Merits: The district court treated standing as requiring a merits‐level proof that Plaintiffs owned the exact property. The Tenth Circuit held that at the pleadings‐stage, standing and merits overlap when the injury is a classic uncompensated taking.
Rule 12(b)(1) vs. 12(b)(6): Because the question of standing depended on whether a taking occurred—a merits inquiry—the motion to dismiss was properly analyzed under Rule 12(b)(6). All well‐pleaded facts must be assumed true and inferences drawn in Plaintiffs’ favor.
No Pre-Suit Administrative Requirement: Knick dictates that § 1983 actions for just compensation lie immediately upon taking, without requiring exhaustion of state administrative claims or a pre‐approval process.
Facial Plausibility of Ownership: Plaintiffs alleged that Colorado’s own website listed “DAVID KNELLINGER” and “STOREY ROBERT E” with specific dollar‐value ranges, and that they are long‐time Colorado residents. These allegations suffice to permit a reasonable inference that the property belongs to them.
Equitable Remedies Barred: Because monetary compensation under § 1983 is an “adequate remedy at law,” equitable relief (injunctions) is unavailable once a property owner can obtain just compensation.

Impact

This decision has several significant consequences:

States with unclaimed property regimes will face federal § 1983 suits immediately after taking custody of presumed‐abandoned assets, unless they change their statutes or practices to provide prompt compensation before public use.
Property owners no longer must navigate state administrative procedures to preserve a federal Takings claim, speeding access to federal courts and reducing procedural hurdles.
Circuit courts nationwide will look to Knellinger for guidance on when standing for a Takings Clause claim vests, especially in contexts where states hold private assets in trust.
States may respond by designing expedited administrative procedures that deliver just compensation early, but cannot insulate themselves from federal litigation merely by requiring claim filing.

Complex Concepts Simplified

RUUPA (Revised Uniform Unclaimed Property Act): A state law requiring holders of presumed‐abandoned property (e.g., uncashed paychecks, unclaimed refunds) to deliver it to the state treasury, which holds it in a trust fund “for the benefit of the owner.”
Takings Clause: Part of the Fifth Amendment, applied to the states via the Fourteenth Amendment, prohibiting government from taking private property for public use without just compensation.
§ 1983 Claim: A federal civil rights action allowing individuals to sue state actors for constitutional violations, including uncompensated takings.
Standing: A plaintiff’s requirement to show a concrete, particularized injury. An uncompensated taking is a “classic pocketbook” injury.
Rule 12(b)(1) vs. 12(b)(6): Motions to dismiss for lack of subject‐matter jurisdiction (12(b)(1)) cannot rest on merits disputes; when jurisdiction and merits overlap, the motion is treated as one for failure to state a claim (12(b)(6)).

Conclusion

The Tenth Circuit’s decision in Knellinger v. Young establishes that property owners whose assets have been swept into a state’s unclaimed property trust fund may bring a federal Takings Clause suit under § 1983 as soon as the state exercises dominion for public purposes, without resorting to administrative claims. While equitable relief is off the table when compensation is available, the right to just compensation vests immediately upon taking. This holding ensures prompt access to federal courts for aggrieved owners and serves as a catalyst for states to streamline or redesign unclaimed property procedures to deliver timely compensation before public use.