Two hands and arms pulling at American $100 bill - let's talk about the fight between Delaware and two different companies unclaimed property audits and estimations

October Was a Busy Month for Unclaimed Property

Two hands and arms pulling at American $100 bill - the fight over unclaimed property continues in October 2019

Whew! I just looked at the calendar and realized that October is over! Hope you were able to get home and enjoy the Trick or Treaters on Halloween.

Late September and all of October are always busy times for unclaimed property holders. You’ve got compliance deadlines, audit demands, and just general business things to take care of.

But this September and October were especially busy in the world of unclaimed property.

Let’s take a look at everything that happened.

Unclaimed Property Compliance Never Stops

Forty-four jurisdictions have reports due between October 31 and November 1.

That means holders are always compiling the reports, making last minute changes, getting said reports approved, signed, and paid, and issuing the remaining checks or payments in response to due diligence letters this month.

This is also the time to review document retention requirements and to ensure that everything from this compliance cycle is properly preserved for future audits.

And we aren’t done with compliance just yet. By now, you’ve already started on your Spring 2020 compliance!

Delaware due diligence letters must be sent out 60 to 120 days prior to the report being filed.

That means the first day to send out due diligence letters for Spring 2020 is Saturday, November 2, 2019!

And to do that, you’ve already analyzed your company’s records and identified the potential property that is reportable to Delaware, right?

There really is no rest for the wicked.

(Sorry for the nod to the Halloween holiday. I’ve got leftover candy that I am still trying to get rid of. Anyone want some?)

Unclaimed Property Litigation Updates from October

But compliance wasn’t the only thing going on in unclaimed property this October.

There have been several big developments in the courtroom that could affect your unclaimed property compliance and your gift card programs.

Retailers Sued Over ADA Compliance on Gift Cards

One of the large New York law firms behind the websites being ADA accessible has now found a new focus in gift cards.

Dozens upon dozens of retailers were sued this month because their gift cards do not have braille, making them inaccessible to the visually impaired.

The lawsuit alleges that these retailers should make an easy accommodation by including embossing braille on their gift cards.

For more information: Is Braille Required on Gift Cards? Lawsuit Says Yes

CVS Gift Card Case Dismissed

Speaking of gift cards, good news out of the Card Compliant case in Delaware.

In late September, the judge granted CVS’s motion to dismiss, saying that the qui tam claims against them were barred under Delaware law since the company was under audit at the time the lawsuit was filed.

In some ways, an audit can be used to the holder’s advantage. At least for some of the Card Compliant retailers, they have been able to use past or ongoing audits or VDAs as a defense against the whistleblower lawsuit, which could lead to treble damages if they are found to have violated Delaware unclaimed property laws for not reporting the unredeemed portion of the gift cards.

REI Wins on Washington Gift Cards

On September 26, 2019, the U.S. District Court for the Western District of Washington dismissed a lawsuit against REI for failing to state a claim for which relief can be granted. The Court said that REI’s dividends are not subject to gift card requirements under federal or state law.

The Court determined that the patronage dividends are “not purchased on a prepaid basis in exchange for payment because a member cannot purchase a patronage dividend. Further, these dividends are discretionary by the company’s board. This means that they are not gift cards and thus not subject to expiration dates in the CARD Act.

For more information: Newell v. REI, Washington Gift Cards

ClubCorp Cases Remanded to State Court

Earlier this year, I told you that ClubCorp was sued by California and Texas over their unclaimed property audit.

In California, ClubCorp removed those state court cases to federal court. On October 3, 2019, however, the federal court remanded the case back to state court.

The Court said that the case was different than Marathon in Delaware, as that case, the claims were predicated on federal law claims, while in this case, only a defense triggered federal common law.

All was not lost, however, as the Court did say:

“Because these decisions impact what property a state may escheat, and may not be superseded by states, they naturally affect every state’s escheatment laws. In order to adjudicate escheatment claims, then, all states necessarily have to apply federal common law.” (emphasis added)

The U.S. District Court for the Northern District of California said that states have to apply federal common law to escheatment enforcement!

Remember, it has long been the position of the states that the priority rules only apply to disputes between the states and not to disputes between the state and a holder.

For more information: Texas and California v. ClubCorp

JP Morgan Appeals New York Interest Case

In September, a New York Supreme Court (remember, in New York the Supreme Court is the trial level, not the final appellate level court) ruled against JP Morgan in a whistleblower case that said the company should have self-calculated and self-assessed interest on late reported property.

Yikes!, right? Because who wants to calculate the interest if the state isn’t going to do it?

And because this is a whisteblower lawsuit, the damages are not just the interest that wasn’t paid, it would be 3x for the whisteblower!

On October 3, 2019, JP Morgan filed an appeal in the case.

So more to come on that soon!

For more information: State of New York, ex rel. Raw Data Analytics LLC v JP Morgan Chase & Co.

Federal Court Wants State Court to Decide Univar Subpoena

Illinois-based chemical supplier Univar holds a special distinction in Delaware unclaimed property audits – the first use of the state’s administrative subpoena power under the 2017 Delaware unclaimed property law amendments.

In late September, a federal court judge put the federal case on hold, pending a decision by the Chancery Court (a Delaware state court) to decide whether to enforce the subpoena. Earlier this year, the Chancery Court said it would wait for the outcome of the federal court case to determine the constitutionality of the state escheat laws.

The judge also dismissed other claims as not yet ripe for judicial action (because the audit is still ongoing and no final decisions have been made there). The surviving due process and equal protection claims must wait until the Chancery Court acts.

In what will become an oft cited quote, Judge Noreika said that Delaware had “offered no legitimate purpose for the selection of wealthy companies aside from raising revenue.”

Update on the US Savings Bonds Disputes

As holders, it is sometimes “fun” to watch the states in a dispute with each other or with say the federal government. So while it the fight over matured and unclaimed savings bonds won’t impact most holders, it is interesting to watch.

Louisiana Senator John Kennedy (no, not that Kennedy) began the effort to return the savings bonds to people through state unclaimed property offices when he was still the State Treasurer of Louisiana. There has been mounds and mounds of litigation and legislation as the parties navigate the legal requirements needed to get the proceeds into the state unclaimed property programs.

First, the states were successful in litigation when they had the physical bonds, mostly after safe deposit boxes were turned over as unclaimed property. Many states followed this litigation win by amending their laws to take title to the bonds so that they could claim the proceeds from the federal government.

But the battle continued. The states wanted to obtain the savings bonds for their residents or citizens even if they were not in physical possession of the bond.

In 2017, Kansas seemingly won a battle for the states when the U.S. Court of Federal Claims said that the federal government had to turn over the unclaimed bonds. As one would expect, the federal government appealed and the U.S. Court of Appeals for the Federal Circuit reversed in August 2019, giving the federal government the win on this round.

After his election to the Senate, Kennedy has continued that battle by pressuring the U.S. Treasury Department.

At the beginning of October, Treasury confirmed that they have a plan to create an online tool to allow people to search the database of unredeemed savings bonds dated after 1974. State Treasurers will be able to promote the information through state unclaimed property websites.

Treasury will also study how to digitize information on older savings bonds so that those too can be shared in the online search tool and available for claims.

Unclaimed Property Voluntary Compliance Update

And just because it’s compliance season and the courts are busy, don’t think the state administrators aren’t getting in on the unclaimed property action!

Possible California Voluntary Disclosure Program

Holders have longed complained that California does not have a voluntary disclosure program.

Without a VDA program, holders that are just coming into compliance have no choice but to pay a 12% per year interest on late reported unclaimed property. Same applies to those that have found some hidden properties in their companies even though they are otherwise in compliance.

Over the past several years, there has been an ongoing effort to provide a VDA opportunity to holders. Those efforts keep failing in the legislature.

However, in this year’s budget bill, the Controller is required to provide a report to the legislature that will detail the plans for a one-time amnesty program or other options to increase compliance with the state’s unclaimed property laws.

The last time California had an amnesty program was 2001-2002. That VDA opportunity resulted in just under 5,000 holder reports at just under $200 million.

Two decades later, what do you think would be the fiscal impact for the State of California?

Remember, it is cheaper for the state to waive interest than to pay auditors a contingency fee to find property that should have been reported.

More Delaware VDA Invitations Mailed

Unclaimed property holders dread a Delaware unclaimed property audit. They can last years. They can be quite burdensome. And result in some ridiculous estimations of liability.

After years of dealing with the situation, holders began pushing back. First came some wins in litigation. And then the PR outcry over certain tactics, like say an audit manager sending out hundreds of audit notices and then quitting and going to work for the third-party audit firm that got all those audits.

So, Delaware began making wholesale changes to the state’s unclaimed property program, including a new VDA program with the Secretary of State.

Back in mid to late September 2019, Delaware sent out another round of Delaware Voluntary Disclosure Program invitations.

My advice from May still stands: First and foremost, do not ignore the letter from Delaware!

Companies have 60 days to respond to the letters or they could be referred for an unclaimed property audit.

November will see the end of that 60 day period, after which you could begin seeing Delaware audit notices. And once you get that audit notice, you cannot participate in the VDA program.

Unclaimed Property Fraud

Did you catch the AP Now Podcast from September 25? If you didn’t, the podcast is available on YouTube.

In Episode 26, Mary Schaeffer invited me to appear on her AP Now podcast to talk about unclaimed property fraud.

Find out why unclaimed property can be such a hot bed of fraud and what you need to do to help prevent it within your companies.

Gift Cards Down Under

For our clients with international retail presences, you’ll want to know about a new gift card law in Australia.

A new law goes into effect on November 1, 2019 that has new restrictions on expiration dates and fees, very similar to the US federal CARD Act.

Beginning this month, Australian gift cards must be valid for at least three years, with the expiration date clearly shown. Fees, such as administrative fees, balance inquiry fees, or dormancy fees are prohibited.

There are, of course, exceptions to the rules:

  • Certain fees can be charged, such as overseas transactions, replacing lost or damaged cards, and paying by credit card.
  • The law does not apply to cards sold at a genuine discount or to loyalty programs or other promotional programs.
  • The law does not apply to cards that are sold for specific events (say concerts).
  • Employee rewards cards are similarly excluded from coverage under the law.

Gift cards previously sold do not have to comply with these new laws.

If the Australian company does not comply, they could be hit with fines such as $30,000 AUD for companies. Additionally, Australian Competition and Consumer Commission (ACCC, the agency responsible for enforcing the Australia Consumer Law) can hand out infringement notices from the could cost a company $11,500 AUD.

Contact DeCarrera Law for Unclaimed Property Help

Kimberly DeCarreraDo you have questions about unclaimed property?

Kimberly DeCarrera can help you navigate the treacherous waters of compliance, audit and VDA defense, and litigation.

Contact DeCarrera Law to find out how we can help your company!

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