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Bank Account Interest Unconstitutionally Taken; 7th Cir Reverses

By Gabriella Khorasanee, JD on November 04, 2013 | Last updated on March 21, 2019

All states have different ways of handling abandoned, or unclaimed, property. Last week, the Seventh Circuit had to examine Indiana law, and reached a conclusion contrary to the district courts. In doing so, Judge Posner also pointed out an area of the law that may need additional legislation.

Defining Property Under Indiana Law

Walter Cerajeski is the owner of a bank account, which was presumed abandoned, under the Indiana Unclaimed Property Act, after three years passed without the bank hearing from him. Normally a bank account is not considered property, but Indiana includes "deposit" in its broad definition of property.

Cerajeski's guardian did not know about the account, but when she found out, she filed a claim for the funds in the bank account. She believed that the state would not refund the interest on the account, so she initiated litigation against the state asking the court to declare that Cerajeski was entitled to the interest on the account. Though she argued that the state's withholding of the interest was an unconstitutional taking, the district court was not persuaded.

On appeal, Judge Posner had a different take on things (yes, pun fully intended), finding      "[t]here is no basis for the state's confiscating the interest in Cerajeski's account." Likening the bank account to an apple orchard, Judge Posner added, "if you own a deposit account that pays interest, you own the interest." The court noted that it would be constitutional to impose a tax to cover the state's "confiscating financial obligations," under Supreme Court precedent, but not to take all of the interest.

Interestingly, Judge Posner pointed out a part of the Uniform Unclaimed Property Act that Indiana did not enact, namely, a section related to fees for custodianship and reasonable service charges. Perhaps the Indiana legislature should take note and enact a similar provision for added protection in future claims related to unclaimed or abandoned property. This particular decision was silent as to the amount in question, though one would imagine that it must be worth taking it up to the Seventh Circuit.

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