California’s owner notice and escheatment regime upheld
On Feb. 29, 2016, the U.S. Supreme Court denied a petition for writ of certiorari to review a judgment from the U.S. Ninth Circuit Court of Appeals in Taylor v. Yee, regarding challenges to California’s Unclaimed Property Law owner notification and escheatment requirements. Although the Court declined to hear the case, the concurring opinion presented by Justice Samuel Alito indicates that the Court may be concerned about the constitutionality of current state unclaimed property reporting laws and could hear a future case.
The issue in the writ before the Court was whether the California Unclaimed Property Law (UPL), violated the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. Specifically, the petitioners argued that the UPL failed to provide adequate notice to owners of unclaimed securities before they were escheated and subsequently liquidated by California.
The petitioners claimed that the notification procedures were inadequate because the measures used were general advertisements published in newspapers along with written notification sent to addresses that were known to be invalid. Alternatively, the petitioners suggested, notice should have been more individualized and utilized other records and databases readily available to the state to try and locate the owner, as such resources could have provided more current information.
Further, the petition also alleged that California’s liquidation of the securities after seizure violated the Takings Clause under the Fifth Amendment to the U.S. Constitution. The petitioners alleged that the state’s method of liquidating the securities after seizure and paying only the value after liquidation rather than current value constituted an unconstitutional taking without just compensation.
California’s practices had been upheld by the U.S. Ninth Circuit Court of Appeals.
Because the Supreme Court declined to hear the case, the decision of the Ninth Circuit court and the current owner notification and escheatment requirements of the UPL still stand. However, if Justice Alito’s concurrence is any indication, California’s approach rests upon a shaky foundation that raises important due process concerns. As Justice Alito noted, the facts of the present case presented too murky a vehicle for further consideration and that “the constitutionality of current escheat laws is a question that may merit review in a future case.” Accordingly, California’s notice provisions only requiring publication may not be sufficient, and states may ultimately need to review available technologies to provide adequate notice to owners.
For your additional consideration
There are several other unclaimed property cases pending in lower courts that challenge improper escheatment in other jurisdictions. One of the more interesting cases currently being litigated is Temple-Inland v. Cook, involving a due process challenge to the sampling techniques used by Delaware to estimate unclaimed property liabilities in audits. For further information regarding this case, please refer to our alert. Holders of unclaimed property should continue to consult with their advisors and monitor changes in escheatment laws to make sure that sufficient notice is given to owners before turning property over to the state.