The Denver-based federal appeals court reinstated constitutional rights claims on Friday against Colorado’s treasurer, potentially opening the door to a class-action lawsuit over how the state has set up its process for reuniting people with their unclaimed property.

A three-judge panel of the U.S. Court of Appeals for the 10th Circuit ruled that two plaintiffs whose property is allegedly listed in a state database had no obligation to go through the administrative process of claiming what belongs to them. Instead, they could immediately file a lawsuit seeking damages against Treasurer Dave Young because the state had taken their property without compensation.

Judge Allison H. Eid, in the April 11 opinion, wrote that the burden falls on Colorado to avoid getting sued for the $2 billion in property over which it has custody.

“For instance, Colorado may implement administrative procedures designed to make just compensation more convenient or timely,” she wrote. “In other words, it is the role of our Court to ensure just compensation, not to rewrite a state’s procedures for obtaining it.”

The plaintiffs, however, primarily took issue with the state allegedly failing to provide notice to them before taking custody of up to $300 of their property. Although they found out about it by checking the treasurer’s website, neither submitted a claim to the treasurer’s office and instead filed suit directly.

A spokesperson for Young declined to comment on the ongoing litigation. Treasurers’ offices for the five other states within the 10th Circuit, which administer similar unclaimed property programs, also did not respond to questions about the impact to their states.

The unclaimed property program, nicknamed the “Great Colorado Payback,” originated in the state’s treasury department in 1987. The overall goal is to reunite people with lost or forgotten-about property, which is held in state custody.

Colorado requires property holders and the state to provide certain notice to the suspected property owner, which can now take place over email. The treasurer’s office also maintains a website where people can search for and claim their property.

According to their complaint, David Knellinger of Fremont County typed his name into the unclaimed property database and saw he had an unknown item, held by Verizon, with an estimated worth between $50 and $249. Robert Storey, who is an El Paso County resident, discovered he had unclaimed property worth less than $50.

Instead of filing a claim through Young’s office, the plaintiffs initiated a lawsuit, on behalf of themselves and 1.6 million people, alleging Colorado violated the U.S. Constitution’s “takings clause” by taking custody of their property without notice and compensation. They also alleged the state uses people’s property for its own revenue, which the government denied.

The plaintiffs sought monetary damages and compensation for the value of their property.

In January 2023, U.S. District Court Judge Charlotte N. Sweeney dismissed the lawsuit. It is the plaintiffs’ responsibility, she wrote, to ensure they have a “sufficient personal stake” in the dispute. All they had done to date was allege their names appear in the unclaimed property database, without following through to show ownership or describe what property belonged to them.

On appeal, the plaintiffs maintained they “do not take issue” with the state’s unclaimed property program generally or “suggest it should be dismantled.” They argued only that it was unconstitutional for Colorado to take custody of property without providing notice or attempting to locate property owners.

During oral arguments to the 10th Circuit in September 2023, Judge Gregory A. Phillips was the most skeptical of the plaintiffs’ constitutional challenge.

“How is there a ‘taking’ if my great-grandchildren find out that I didn’t cash a check when I worked for the state and it’s worth $223, they can come in and get the $223 and maybe some interest? What is the taking?” he asked. “The whole thing is set up to be beneficial, and is beneficial.”

“They know who people are,” responded attorney Richard M. Paul III, referring to Colorado. “They could return the property. They don’t want to.”

“Wouldn’t that be an enormous administrative burden when you have 1.7 million names in your register?” pressed Phillips, wondering why it was unfair to put “a little bit of onus” on the property owners to file a claim.

“We want to fix the process so the money goes back to the property owners who deserve it. Look, the allegation is that it is a broken system,” said Paul.

Ultimately, in its decision 19 months after arguments, the panel agreed Knellinger and Storey had alleged the state took custody of their property without compensation and used it for public purposes, meaning their constitutional claims could proceed.

“It is reasonable to infer that the property listed on Colorado’s unclaimed property website belongs to Plaintiffs,” wrote Eid. Because the constitutional violation occurred when the property was allegedly taken, “a property owner has no obligation to seek a remedy through state administrative proceedings or through litigation in state court.”

The panel returned the case to Sweeney, without expressing an opinion about whether the plaintiffs should prevail or whether she should allow it to proceed as a class action.

The plaintiffs’ lawyers did not respond to an email seeking comment.

The case is Knellinger et al. v. Young et al.