Corporate Practice Series Portfolio 74-3rd, Unclaimed Property, discusses the law concerning unclaimed property, which has been in effect in various states, in one form or another, since at least the early 1800s, but has become in recent years a much more important source of revenue to the states, and, therefore, a much more serious matter for corporations. The Portfolio provides a discussion of the history and evolution of unclaimed property law and an analysis of the basics of unclaimed property law, including the uniform acts that have been approved by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”). The Portfolio also discusses states' responsibilities for administration and enforcement of unclaimed property law, as well as the law concerning conflicting state claims to abandoned property, including several important U.S. Supreme Court cases that have dealt with this issue. The Portfolio describes what procedures corporations should implement to enhance compliance with unclaimed property laws and what the penalties are for noncompliance. Finally, the Portfolio offers practical tips on defenses that holders of unclaimed property may raise in the event of enforcement. The Practice Tools contain reprints of the 1981 and 1995 NCCUSL Acts, reprints of some important U.S. Supreme Court decisions, and charts containing state-specific information.
Portfolio 74-3rd: Unclaimed PropertyI. Introduction 1II. History and Evolution of Unclaimed Property Law
A. Common Law Origins 1. Escheat 2. Bona vacantia 3. Abandoned property 4. Lost property, mislaid property and treasure trove a. Lost property b. Mislaid property c. Treasure trove B. Development of American Statutory Law 1. State statutes 2. Early legal and constitutional considerations of escheat statutes 3. The 1954 and 1966 Unclaimed Property Acts a. Uniform Disposition of Unclaimed Property Act (1954) b. Revised Uniform Disposition of Unclaimed Property Act (1966) 4. U.S. Supreme Court decisions governing priority of state claims a. Potential for conflicts among and liability to multiple states b. Texas v. New Jersey c. Pennsylvania v. New York 5. Incorporation of the priority rules into the 1981 and 1995 Uniform Acts a. Uniform Unclaimed Property Act (1981) b. Delaware v. New York c. Uniform Unclaimed Property Act (1995) 6. The Uniform Acts—General considerations and comparisons regarding included intangible personal property 7. Recent developments a. State administrative appeal procedures b. Recent challenges to unclaimed property statutes and enforcement (1) Computer Associates (CA, Inc.) litigation (2) McKesson litigation (3) Staples litigation (4) Consumer rebate litigation (5) Kentucky traveler's checks litigation (6) New Jersey gift card and traveler's checks litigation (7) U.S. Savings Bond litigation (8) Delaware whistleblower litigation C. Anticipated Developments 1. Increased state enforcement for annuity and life insurance property 2. Increased state enforcement for equity property and the practices of third-party transfer agents 3. Point-of-sale data collection 4. Implications of the Internet 5. Foreign propertyIII. Basics of Unclaimed Property A. How Unclaimed Property Differs From a ‘Tax' 1. Similarities between unclaimed property and taxation 2. Differences between unclaimed property and taxation a. The derivative rights doctrine b. Determining which jurisdiction has collection and enforcement authority c. Procedures for resolving disputes d. Statute of limitations for state enforcement actions B. What is a ‘Holder'? 1. Definition of ‘holder' 2. Considerations for certain types of holders a. Utilities b. Business associations c. Third-party administrators, fiduciaries and agents d. Non-profit entities e. Governmental entities f. Oil and gas industry g. Health care and pharmaceutical industry h. Cooperatives C. Dormancy or Abandonment Periods D. The Priority Rules 1. First priority rule: addressed property 2. Second priority rule a. Unaddressed property b. ‘Throwback' rule 3. Additional priority rules a. Transactional rule b. Special rules for traveler's checks and money orders E. Effects of Good Faith Payment F. Anti-Limitation Provisions; No Private Escheat G. Property Subject to Unclaimed Property Laws 1. General ledger property a. Accounts payable and outstanding checks b. Accounts receivable credits c. Payroll d. Workers' compensation and employee benefits 2. Other non-specified general ledger property 3. Property relating to the issuance of securities, equity, stock or other intangible interests in business associations 4. Property held by financial institutions a. Traveler's checks, money orders and similar instruments b. Checks, drafts and similar instruments issued or certified by banking and financial organizations c. Bank deposits and funds in financial institutions 5. Property held by insurance companies a. Unclaimed proceeds resulting from an insurer's demutualization b. Life insurance and annuity policies c. Retained asset accounts 6. Other property types a. Inventory mismatches, unbilled payables or uninvoiced receipts b. Stored value systems, gift cards and gift certificates c. Consumer rebates d. Unclaimed funds from bankruptcy proceedings e. Proceeds from class action settlementsIV. State Responsibilities and Enforcement A. State Agency Responsible for Administration of Unclaimed Property B. State Custodial Responsibilities 1. Finding the owner 2. Claims processing 3. Interest and dividend income C. State Enforcement Tools 1. Voluntary compliance and amnesty programs a. Types of programs (1) Amnesty programs (2) Outreach programs (3) Voluntary compliance initiatives b. Advantages of participation c. Disadvantages of participation 2. Examinations and other state enforcement tools a. Common characteristics of state audits (1) Broad audit authority (2) Authority to estimate liability in the absence of records (3) Use of standardized examination programs b. Typical audit formats (1) Desk audits and field audits (2) Multistate audits (3) Collaboration with other state agencies (4) Contract audits c. Penalties, interest and audit costs (1) Penalties and interest (2) Audit costsV. Compliance A. The Importance of Becoming Compliant B. Implementing Policies and Procedures to Become Compliant 1. Record retention a. How long should a holder retain records? b. Retention of last known addresses c. Records retained to establish deductions d. Record retention procedures 2. Service charges C. Maintaining Compliance 1. Reporting requirements 2. Due diligence 3. Payment or delivery of unclaimed propertyVI. Holder Defenses A. General Approaches for Holders to Consider When Selected for an Audit 1. Determine scope of auditor's authority 2. Compile compliance history and determine exposure 3. Opening conference and confidentiality agreement 4. Be proactive and engaged during the audit process 5. Discuss deficiencies in available data 6. Be prepared to negotiate 7. Exit interview 8. Learn from the audit B. Specific Defenses for Holders to Raise During an Examination 1. Federal supremacy clause and federal preemption a. Employee Retirement Income Security Act of 1974, as amended b. Bankruptcy c. Federal banking laws d. Federal financial regulations e. Federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 f. Federal transportation law g. Telecommunications h. Health Insurance Portability and Accountability Act of 1996 i. Oil and gas industry j. U.S. savings bonds k. Class action litigation and funds held by federal courts 2. Limitations on state enforcement power a. Business-to-business exemptions b. Statutes of limitations for audits and look-back periods c. Use of a ‘reasonable' estimation methodology 3. Other procedural, legal and factual defenses a. Is the obligation ‘fixed and certain'? (1) Banking (2) Insurance (3) Transportation b. Has the state met its burden of proof? c. Limitations by contract and commercial practice (1) Contractual limitations vs. anti-limitation provisions (2) U.C.C.’s 4-year statute of limitations for sales of goods (3) ‘Course of dealing,' ‘course of performance' and industry practices