A Sacramento federal judge on Wednesday threw out an 11-year-old lawsuit that challenged how the state controller runs the unclaimed property program.

U.S. District Judge John A. Mendez ruled that Controller John Chiang is in compliance with the law governing the program and, he said, that law was found to be constitutional on its face by a federal appeals court.

Attorneys representing people who have had property taken by the controller said they will appeal Mendez's dismissal of the suit to the 9th U.S. Circuit Court of Appeals, which has already issued three published opinions in the case.

The attorneys argue that the controller's method of notifying people their property will be taken violates the U.S. Constitution's due process mandate. They claim Chiang really does not want to locate owners because his taking and disposal of unclaimed property that the state contends is abandoned – primarily cash and securities – generates millions of dollars each year for the state's general fund.

"By 2012, the controller had seized $6.1 billion worth of property belonging to 17.6 million persons he would have this court believe just cannot be found despite his due diligence," according to the attorneys' brief in opposition to Chiang's motion to dismiss.

Decisions by the 9th Circuit reversed an earlier dismissal of the suit by a Sacramento trial judge and then forced that judge to issue an injunction shutting down the unclaimed property program.

The Legislature overhauled the applicable law in 2007 to fix the program's flaws cited by the appellate court. Subsequently, the circuit court found the new set of laws to be constitutional on their face, but said it did not have enough information to project how they would be applied by the controller.

Attorneys for the plaintiffs and the controller are in sharp disagreement over what the statutes now require in terms of pre-taking notice to property owners. Chiang's attorneys insist he is abiding by the law, while owners' attorneys are scornful of what they see as notification attempts that are half-hearted at best.

After a 3 1/2-hour hearing Wednesday and over the strong objections of the owners' attorneys, Mendez declared that the controller is following the 2007 law and granted the motion to dismiss.

"The due process clause does not require that the controller search multiple databases to locate property owners," the judge stated.

He further ruled the state "is not required to appropriate a minimum amount for the operation of the locator unit, and to maintain a minimum level of staffing for the unit." The unit has two people.

Similarly, there is no requirement that the controller publish owners' names in newspapers, the judge said.

"Today's court ruling speaks volumes regarding the frivolous nature of the lawsuit," Chiang said.

"As demonstrated by the record levels of property returned by my office, owners of unclaimed property have never been better protected."

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