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TagsBY JOE TYRRELL
NEWJERSEYNEWSROOM.COM
A federal judge has delivered a setback to a high-stakes effort by seven states, spearheaded by New Jersey, to gain control of shares of at least $15 billion in unredeemed U.S. Savings Bonds.
In a dismissal memorandum written this month, U.S. District Judge Mary L. Cooper in Trenton found the states are trying to "impermissibly interfere" with contracts between the United States and the owners of the bonds.
But Cooper's opinion, dated Feb. 5, is unlikely to be the last word in a dispute between states and the U.S. Department of the Treasury that is already in its sixth year.
"The States have prepared a notice of appeal for filing, just as Your Honor had anticipated at oral argument" last year, New Brunswick attorney William Cagney wrote Cooper on Feb. 11, asking her not to publish the ruling. Attorneys for both sides told the judge "an appeal was 'inevitable,'" Cagney noted.In contrast, Paul Fishman, the U.S. Attorney for New Jersey, hailed the "extensive and well-researched" ruling. He told the judge it could "provide cogent persuasive authority regarding bedrock persuasive authority regarding bedrock principles of constitutional and administrative law."
For lawyers involved in the case, there are heady constitutional issues of supremacy doctrine, pre-emption and governmental immunity. The questions it raises go to "the essence" of federalism, said Hassan Murphy of Baltimore, a partner in one of the high-powered law firms representing the states.
From a public perspective, though, it's almost as if rummaging around in the attic, your granddad and your aunts and uncles discovered that coin collection you put together as a kid. They all want it.
World War II spurred an unprecedented government sales pitch to citizens, with celebrities, war heroes and even cartoon characters enlisted in raising money to fund the military. President Franklin D. Roosevelt bought the first war bond, but in 1942 alone, the Treasury issued 147 million.
Many savings bonds came in very small denominations, with maturity periods as long as 40 years. The "Series E" bonds were sold through 1980.
They came with identification stubs that were detached at time of sale and delivered to U.S. Treasury's Bureau of Public Debt. But it was up to buyers to present the certificates for redemption when they matured.
To do that, though, buyers or their heirs had to preserve and keep track of the bonds — mainly by themselves. The debt bureau's web site, www.treasurydirect.gov, has a search function called "Treasury Hunt," but it references only bonds sold after 1974.
An estimated $15 billion to $17 billion in savings bonds and other government-issued securities remain unredeemed long after their maturity dates.
In September 2004, those figures caught the eye of John McCormac, New Jersey's state treasurer at the time. His office filed a legal challenge, taking the stance that the U.S. Treasury has not tried hard enough to contact the owners of the unclaimed securities.
North Carolina immediately joined the New Jersey suit. The two states argue that the identification stubs at least provided "last known addresses" for purchasers. Under their own unredeemed property laws, the states have agencies that conduct such searches, and they could do that for their own residents, according to the suits.
Over the years, as the case has been batted around in the courts, it has been repeatedly amended as five other states signed up: Oklahoma, Kentucky, Missouri, Montana and Pennsylvania. The latter only joined in January, too late for Cooper to do anything more than mention it in a footnote.
But Pennsylvania adds additional weight to the claim. Presumed residents of the commonwealth bought "right around $1 billion" of the unredeemed bonds, according to Murphy. The total for the other six states is about $1.6 billion, with $300 million held by people whose last known addresses were in New Jersey.
State officials were "kind of surprised" that Treasury did not make greater efforts to find bondholders, Murphy said, adding that "gave rise to some disputes about their obligation to do so."
The states argued that since Congress has not passed a law covering disposition of the unredeemed bonds, states can take action under the Tenth Amendment, which reserves to the people and states rights not delegated or prohibited under the U.S. Constitution.
But Cooper pointed out that there is more to the states' claims than simply being Good Samaritans and retrieving money for their residents. If the states took custody of the bonds but could not track down the buyers, they could claim the money themselves.
"To the extent the States asset this case is about mere custody of the bonds, they gloss over the effect of other aspects," Cooper wrote.
The states' unclaimed property laws impose "onerous record-keeping and reporting requirements," with the potential for "impermissible' penalties on the debt bureau for failure to comply, according to the judge.
Cooper also noted the U.S. Treasury's argument that since the federal government used money from bond sales to individuals for its needs, giving the states a claim to repayment "could result in multiple obligations on the same bond by the United States."
The states' position also impinges on the Sixth Amendment, which says the U.S. Constitution, federal laws and treaties are "the supreme Law of the Land" regardless of conflicting state statutes, the judge said.
Lee Moore, a spokesman for the state Attorney General's Office, said last week that the Christie Administration was awaiting Cooper's ruling before deciding on a next step. Moore, who was unavailable for comment on Friday, noted that outside law firms were retained by the state on a contingent basis and "have not been paid any money to date."
Joe Tyrrell may be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it
