Monday, February 29, 2016

Supreme Court Declines to Hear Unclaimed Property Case, But Fires a Shot Across the Bow of "Cash-strapped States"

Today, the Supreme Court of the United States issued an order declining to hear the case of Taylor v. Yee.  In Taylor, the United States Court of Appeals upheld a federal court's dismissal of a case challenging the methods used by California to notify owners that there property is about to be, or has been, escheated to the state. Specifically, the Taylor plaintiffs alleged that California violated the constitutional rights of unclaimed property owners by failing to, among other things, access databases of other California government agencies for information relating to the whereabouts of unclaimed property owners.

The Supreme Court's review of lower court decisions is mostly discretionary, so the decision not to review a particular case is not an approval by the Supreme Court of the decision reached below.  In fact, that seems to be especially the case here, as Justices Alito and Thomas agreed with the decision to deny review the Ninth Circuit's decision in Taylor, but warned that the "constitutionality of the current state of escheat laws is a question that may merit review in a future case."

In making that determination, the Justices noted that the combination of "shortened escheat periods with minimal notification procedures" raised "important due process concerns."  Among the notable points of the concurrence:
  • a critique that some states' notification procedures "rely on old-fashioned methods that are unlikely to be effective."  (citing Delaware's newspaper publication statute); and
  • affirmation of the view that the Constitution requires states to provide "pre-escheat notice" before property is taken by the state; and
  • a recognition that "[a]s advances in technology make it easier and easier to identify and locate property owners, many States appear to be doing less and less to meet their constitutional obligation to provide adequate notice."
While the states may have avoided review of their escheat practices in Taylor, the Alito/Thomas concurrence suggests that they may want to take a long hard look at their notification procedures before the Supreme Court does so.






Tuesday, February 2, 2016

Florida Senate Bill 970 -- Will Florida Expand the Use of Estimation?


One of the most controversial issues surrounding unclaimed property audits is estimation -- the use by auditors of statistical sampling and extrapolation to calculate a holder's historical unclaimed property liability in years that there are no researchable records available.  Holders and states dispute, among other things, when such estimation is appropriate, how it should be performed, and whether estimation can be used at all when not specifically authorized by statute.  Estimation has been a commonly contested issue arising in litigation between holders and states, and is one of the issues hotly contested in connection with the proposed revision of the Uniform Unclaimed Property Act.

While states, auditors, holders, and holder advocates dispute a number of issues with regard to estimation, until now they all agreed on at least one thing:  that unclaimed property liabilities for "estimated" years (where actual records were not reviewed) were all payable to the holder's state of incorporation.  As you may recall from our post about unclaimed property jurisdictional rules, unclaimed property generally gets turned over to the state where the owner's last-known address is located.  Where the holder has no owner-address information, unclaimed property gets reported to the holder's state of incorporation.  Using that same logic, estimated liabilities (which, being a simple calculated liability are by definition not associated with owner names) have historically been escheatable only to the holder's state of incorporation.  

Recently introduced legislation in Florida seeks to change all that.  Florida House Bill 783 / Senate Bill 970 proposes to amend the audit provisions of the Florida Unclaimed Property Act to provide:

If the records of the holder that are available for the periods subject to this chapter are insufficient to permit the preparation of a report of the unclaimed property due and owing by a holder, or if the holder fails to provide records after being requested to do so, the amount due to the department may be reasonably estimated, regardless of whether the holder is incorporated, formed, or organized in this state.
 In other words, the proposed legislation not only expressly authorizes Florida's auditors to estimate the liabilities of holders incorporated in states other than Florida, but it also provides the auditors with the authority to estimate "the amount due to the department" (i.e., Florida).  That runs contrary to most auditors' current practices, and is likely to cause significant disputes among the states, as most states clearly instruct that all estimated property gets reported and delivered to the holder's state of incorporation.  While holders may be concerned by this development, it is really the private auditing firms that run the risk of being forced to try to reconcile multiple state demands for the same property. 

The legislation is currently in committee in both the Florida House and Senate.