during the 2018 Shareholder Services Association Annual Conference
Does the California unclaimed property program provide adequate notice to owners prior to escheating financial assets?
That’s the question in Taylor v. Yee.
But it wasn’t always called that. Yee was just the last California Controller when the case made it to the U.S. Supreme Court. It started as Taylor v. Westly, then became Taylor v. Chiang, and finally Taylor v. Yee.
In denying Taylor’s writ of certiorari, Justice Alito wrote in concurrence that the trend of “combining shortened escheat periods with minimal notification procedures – raises important due process concerns.” To meet the due process concerns, “States must employ notification procedures designed to provide the pre-escheat notice the Constitution requires.”
However, the Taylor case was a long drawn out affair that didn’t provide a clear avenue to address the pre-escheat notification requirements. Justice Alito seemed to ask for a case that would provide a better procedural history for the Court to address these notification (due diligence) requirements.
California Unclaimed Property Program
California first established its unclaimed property laws in 1959 with a 15 year dormancy period. The dormancy period was then reduced to seven years in 1976, five years in 1988, and three years in 1990.
Notice requirements were also reduced. Small balances, those under $50, no longer required any notice whatsoever. Other notices were generic 3 inch by 5 inch newspaper advertisements.
Unclaimed property collections, on the other hand, ballooned. In 2001, California held an estimated $2.7 billion. In 2016, at the time the Supreme Court denied cert, California held an estimated $7.6 billion.
As of February 2019, California holds over $9.3 billion of unclaimed property.
Taylor’s Long, Convoluted, Procedural History
Taylor v. Westly was filed in District Court in California in 2001. This was filed as a putative class action lawsuit.
The District Court dismissed the case based on sovereign immunity; the Ninth Circuit Court of Appeals reversed and remanded the case back to the District Court in 2005 (Taylor I)
In 2005, the District Court denied a request for an injunction against the State of California to stop enforcement of the unclaimed property program. Taylor appealed.
In 2007, the Ninth Circuit Court of Appeals reversed the District Court and ordered that it issue an injunction to stop the California unclaimed property program, saying that the state did not give sufficient notice to property owners prior to seizing the property. (Taylor II)
The District Court complied and ordered the injunction to put on hold the California unclaimed property program on June 1, 2007.
Subsequently, the California legislature undertook an effort in August 2007 to rewrite the California unclaimed property law to provide for owner notification by the state prior to seizing the property. The state was also required to wait 18 months prior to sale or disposal of any unclaimed property that it obtained.
The District Court lifted the injunction on October 18, 2007. Which was, surprise, appealed by Taylor.
In May 2008, the Ninth Circuit upheld the District Court’s lift of the injunction, allowing the state an opportunity to implement the new notification and reporting requirements. (Taylor III)
In 2010, there was a dispute among the parties about attorneys’ fees. The Ninth Circuit affirmed the interim award of attorneys’ fees to the plaintiff attorneys in a non-published case. (Taylor IV)
Then fast-forward to 2012, when the Taylor plaintiffs filed a second, amended complaint that the new dual report scheme was still constitutionally deficient, as applied, in providing owner notification. This second, amended complaint was dismissed in November 2012 by the District Court.
This dismissal was then upheld by the Ninth Circuit in March 2015. (Taylor V)
The plaintiffs filed for a writ of certiorari in August 2015.
The US Supreme Court denied the writ of certiorari on February 29, 2016.
Whew! Got all that?
It’s no wonder that Justice Alito didn’t feel that this case was one with a procedural history that would make for good law. Neither holders nor states would have been happy if the U.S. Supreme Court had determined that the notice in the new California program was required and the dual reporting process became standard across all states.
The California Dual Reporting Process
California unclaimed property program has a unique reporting process.
In October of each year, holders send a notice report to the state. This report has a list of properties that have been deemed abandoned by the owners who have not responded to due diligence letters sent by US Mail to the last known address, as determined by the books and records of the holder. This report does not include any payment of unclaimed property to the State.
Once California receives this notice report, the State then loads the reports into its systems. The properties are available for search on the California unclaimed property website. The State also sends out notices to the owners. It may use the address that the holder provides, or use updated addresses from various state databases, such as franchise or income tax returns. These notices instruct the owners to contact the holders to obtain their property.
If the holder does not receive any response from the owner, then the property is included in a second report, due between June 1 and June 15 of the following year. Payment is included with this remittance report.
This process was upheld by the Ninth Circuit Court of Appeals as providing constitutionally sufficient pre-escheat notice in Taylor III and Taylor V.
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