California Asks: Who Is an "Owner"?

Unclaimed property laws, in a nutshell, generally require a "holder" of "property" belonging to an "owner" to report and remit (i.e., turn over) that property to a state government after a statutorily defined period of inactivity (known as the "dormancy period).  In many instances, the operation of these concepts is pretty straightforward:  If XYZ, Inc. has an outstanding check on its books owed to ABC Corp , and the check has remained uncashed for 3 years (or maybe 5 years, or some other period of time, depending on the state) than that items is statutorily deemed "abandoned" by ABC, and XYZ must report and remit that property to the appropriate state.

As with many seemingly simple things, nuances in the factual scenario sometimes complicate this analysis.  For example, in multi-party relationships, it is sometimes difficult to determine who is the "holder" of property with the obligation to report and remit to the state.  Other times, it is difficult to determine whether certain types of contingent or unliquidated claims are "property" at all.  Sometimes, even the concept of "owner" is ambiguous.  For example, many states define the "owner" of property as "a person who has a legal or equitable interest in property subject to the Act."  (See 1995 Uniform Act at Section 1(11)). That definition, by its express terms, might include a number of people.  For example, imagine that Bob Buyer buys a vintage car from Steve Seller and agrees to pay Steve 90% of what Bob can get for the car from a dealer of vintage cars that Bob knows.  In the meantime, Bob sells that car to a dealer in exchange for a check.  Clearly, Bob might be considered the "owner" of that check, and if it remains uncashed, the dealer may report it to the state.  But what about Steve?  Under the definition, doesn't he have at least an "equitable" interest in the property?  If the check goes unclaimed, assuming that he can prove the relationship set forth above, can Steve be considered an owner?

An appellate court in California faced a similar issue last year in a case called Weingarten Realty Investors v. Chiang, 212 Cal. App. 4th 813 (Cal. Ct. App. 2012).  In that case Weingarten was a judgment creditor (i.e., a party who was owed money as a result of winning a lawsuit) with a judgment against a company called Novadyne.  The Court in the underlying Weingarten v. Novadyne matter assigned certain unclaimed property held by California for Novadyne to Weingarten as a way to pay some of the judgment owed by Novadyne to Weingarten.  Armed with that assignment, Weingarten then petitioned the California State Controller's Office (SCO) to turn over the funds.  The SCO refused, indicating that Weingarten was not entitled to claim the property.

Weingarten brought suit and won in the trial court.  The SCO appealed that decision to the California Court of Appeal, who ultimately found in favor of Weingarten and published a written opinion on the subject.  In rejecting the SCO's argument that Weingarten was not a proper "owner" of the property, the Court focused on the broad definition of "owner" found in Section 1501 of the California Act, which includes "any person having a legal or equitable interest in property subject to this chapter."  Finding that Weingarten fell within that broad definition of owner, the Court concluded that Weingarten was entitled to claim the property.

But our story doesn't end there...

In February of this year, the California State Assembly introduced Assembly Bill 1275, which would change the definition of "owner" in the California Act to include only "the person who had legal right to the property prior to its escheat."  That bill passed the Assembly in May and the state Senate earlier this month.  While the legislation seems relatively straightforward, it could have an unintended impact on the holder community.  For example, the narrow definition of "owner" in the bill calls into question the traditional holder practice of making payment of the previously reported unclaimed property to the owner and then seeking reimbursement for the payment from the state.  Based upon that concern, and others, the Unclaimed Property Professionals' Organization sent a letter to the SCO seeking clarification concerning the new legislation.  

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