Ninth Circuit Clarifies Viability of Takings Claims Under Arizona’s Unclaimed Property Act

By Ed J. Hermes, Jeremy J. Stewart, Benjamin J. Mills, and Emily Statham

In a decision cementing a split with the Tenth Circuit, the Ninth Circuit recently held that property owners’ unclaimed property is not taken in violation of the Fifth Amendment where it is held in trust by the State. See Garza v. Woods, No. 24-1064, 2025 WL 2435221 (9th Cir. Aug. 25, 2025). The district court dismissed plaintiffs’ claims because sovereign immunity barred suit against the Arizona Department of Revenue (“Department”). See Garza v. Woods, No. CV-22-01310-PHX-JJT, 2023 WL 5608414 (D. Ariz. Aug. 30, 2023). The Ninth Circuit reversed this portion of the district court decision and allowed plaintiffs’ takings and due process claims because they plausibly alleged that the Department unconstitutionally seized their property under Arizona’s Unclaimed Property Law (“UPA”).

Arizona’s Unclaimed Property Law

Arizona’s UPA presumes that certain types of property have been abandoned if unclaimed within a statutory period. See Ariz. Rev. Stat. § 44-302(A). Holders of presumably abandoned property must send a written notice to the apparent owner, provide a report to the Department, and ultimately deliver the unclaimed property to the Department. Id. §§ 44-302(E), 44-308(A). Though the Department need not provide actual notice to apparent owners that it is in possession of their property, the UPA requires the Department to operate a website that lists the unclaimed property in its possession. See id. §§ 44-309 (A), 44-309(B). The UPA further requires the Department to deposit all unclaimed money in the state’s general fund. Id. § 44-313(A).

Plaintiffs Challenge Arizona’s UPA

It is these very notice and possession requirements that gave rise to the claims in Garza. There, plaintiffs asserted that the Department possessed several checks belonging to them issued by various businesses, including healthcare providers, financial institutions, and car dealers. Plaintiffs lodged two primary claims against the Department: (1) the Department’s possession of plaintiffs’ property was an unlawful taking, in violation of the Fifth and Fourteenth Amendments, and (2) plaintiffs were deprived of their property without due process of law, in violation of the Fourteenth Amendment. Plaintiffs sought return of their property, as well as declaratory and injunctive relief on behalf of a class of similarly situated property owners.

As a preliminary matter, the district court ruled that the Department was entitled to sovereign immunity with respect to plaintiffs’ claims for monetary compensation. On the merits, the district court held that plaintiffs failed to state a claim for either (1) unlawful taking under the Fifth and Fourteen Amendments or (2) the Department’s violation of plaintiffs’ procedural due process rights. The Ninth Circuit reversed in part and affirmed in part, holding that (1) sovereign immunity does not protect the Department; (2) plaintiffs’ takings claim fails as a matter of law; and (3) plaintiffs stated a viable due process claim.

Sovereign Immunity

The Ninth Circuit reversed the district court’s dismissal of plaintiffs’ claims on sovereign immunity grounds. Though sovereign immunity ordinarily bars claims requesting funds held in the State’s treasury, the Ninth Circuit reiterated that it does not bar claims alleging that the State improperly seized those funds through unconstitutional acts.

Uncompensated Taking

The Ninth Circuit affirmed the district court’s holding that plaintiffs failed to adequately allege a taking claim. Relying on its earlier decision in Taylor v. Westly, 402 F.3d 924 (9th Cir. 2005), the Ninth Circuit held that unclaimed property has not been taken in violation of the Fifth Amendment where it is held in trust by the State. In so doing, the Ninth Circuit cemented a split with the Tenth Circuit. See Knellinger v. Young, 134 4th 1034 (10th Cir. 2025) (holding that a property owner has an actionable claim under the Takings Clause the moment the government seizes property without compensation).

Due Process

The Ninth Circuit reversed the district court’s holding that plaintiffs failed to allege a viable due process claim. After confirming that owners have a property interest in presumptively abandoned property under the UPA, the Ninth Circuit relied on Taylor v. Westley, 488 F.3d 1197 (9th Cir. 2007) to conclude that a deprivation of property occurs whenever the owner’s control of such property is disturbed. The Ninth Circuit expressly rejected the Department’s argument that only final, irreversible seizures trigger due process protection. Instead, the Ninth Circuit clarified that even a temporary, nonfinal deprivation of property is nonetheless a deprivation under the Fourteenth Amendment.

In terms of the adequacy of notice provided to plaintiffs under the UPA, the Ninth Circuit held that pre-deprivation notice is typically required — absent a strong justification from the government. Because the UPA only requires that pre-deprivation notice be given by the holder, and not the Department, plaintiffs plausibly alleged that they did not receive adequate process.

Takeaways