A holder is required to report and remit unclaimed property in a timely manner, according to state law.
If a holder fails to timely report and remit unclaimed property, the holder can often times be assessed penalties and interest for late filing.
New York law contains such penalties and interest for late filing.
Specifically, the New York Abandoned Property Law (APL) says that interest of 10% is due for late reported property.
The New York Case: ex rel Raw Data Analytics v. JP Morgan
In State of New York, ex rel Raw Data Analytics LLC v. JP Morgan Chase & Co, a whistleblower under the New York state False Claims Act, alleged that JP Morgan failed to automatically self-assess and pay interest on late reported unclaimed property.
Raw Data Analytics argued that holders are required to self-assess and pay interest.
JP Morgan disagreed and said that it was a contingent liability that must be assessed by the Comptroller. The Office of the State Comptroller agreed with JP Morgan, that the OSC can charge interest and noted that it had previously waived interest for JP Morgan specifically.
However, the New York Attorney General disagreed with JP Morgan and the Comptroller, saying that the interest obligation was no discretionary or contingent.
In denying the bank’s motion to dismiss, the Court found that the New York Abandoned Property Law was clear in that holders shall pay interest on late reported property without further assessment by the Comptroller.
According to the court, the obligation to pay interest arises when the report containing the late reported property is first filed. The obligation must be self-calculated and assessed.
Next Steps in the Case
This decision came from a motion to dismiss which the Court converted into a motion for summary judgment. In practicality, they are essentially the same but the motion for summary judgment allows for more evidence on the record.
Assuming that the decision is not reversed on appeal, then the parties will go through a discovery period to determine the damages – what JP Morgan should have self-assessed as interest for late filing of unclaimed property to the State of New York.
Part of that discovery will be to look into specific accounts to determine whether the dates of last contact were reported accurately. The decision issued by Honorable James D’Auguste mentions several accounts where the date of last contact were in dispute. Reviewing these accounts for accuracy of the report itself could entail lots of effort by both sides, raising the expense and length of time of litigation.
In other words, this case is still not over! There could well be a court supervised audit for JP Morgan in the near future.
Potential Damages for JP Morgan
JP Morgan would be on the hook for the interest for all late reported property that it has not paid to New York.
Presumably, JP Morgan would not be liable for the interest that the Comptroller has already waived, for late property reported in 2013 under an audit for report years 2008 to 2012.
In addition to potential interest, the New York False Claims Act allows for up to three times the damages and civil penalties of $6,000 to $12,000, plus attorneys fees.
On October 3, 2019, JP Morgan filed a notice that it was appealing the decision.
How Interest is Typically Applied to Late Reported Unclaimed Property
Typically, interest is assessed by the state unclaimed property administrator after receiving an annual or audit report containing late reported property. The value of the property would have already been paid, and then the administrator will calculate the interest and send an assessment notice to the holder.
The holder would then evaluate the notice to determine whether they agreed with the calculations and their own records to determine if they have reason to seek a waiver.
If a waiver is sought, then the payment is usually delayed until such time as the waiver is considered by the state administrator and potentially by the attorney general’s office.
If the waiver is denied, or no waiver is sought, then the interest is paid. But only after notice from the state administrator.
Practice Pointers for Unclaimed Property Holders
First, this is a reminder to all holders that you need to maintain a robust unclaimed property compliance program.
It’s not just state administrators that will come looking for compliance. There are firms out there that look for cases such as this to file whistleblower lawsuits for the triple damages available under qui tam statutes.
Second, if you do have late property to report to a state, look to see if that state has a voluntary disclosure program that you can enroll in. These VDA programs often waive, or significantly reduce, penalties and interest for late reported unclaimed property.
Such programs may also cut off the ability for whistleblowers to win lawsuits for the property involved in the VDA.
Third, if a VDA does not make sense or is not available, you’ll want to seek a review of your potential liability for interest and penalties.
There are actions that holders can take to reduce the potential liability.
Contact Kimberly DeCarrera at DeCarrera Law to discuss the possible solutions for your late reported property.
Full Case Available from Justia: State of New York, ex rel. Raw Data Analytics LLC v JP Morgan Chase & Co.
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