Constitutional due process is one of the most potentially contentious issues being bandied about in the unclaimed property world. It’s a question of fairness and also a question of appropriate government power. Due process implies the government does have the right to seize property when there’s a question of ownership or when property has been abandoned, but it most clearly reflects the idea that government can’t swoop in and take property without making a reasonable effort to find owners and give them a chance to retrieve what they own.
This makes me think of the Sheriff of Nottingham in the story of Robin Hood. The sheriff was an unscrupulous character who swooped in and took property he wanted without any due process whatsoever—never mind that there were no ownership questions or periods of dormancy to justify his actions.
In today’s world (at least in developed nations), we have few real Sheriff Nottinghams, and it’s easy to imagine most legislators and state unclaimed property administrators truly do have owners’ best interests in mind. However, with recent developments in unclaimed property law, namely drastically reduced dormancy periods and gratuitous due diligence, it may seem to some we are leaning Nottingham-way.
In February 2016, the U.S. Supreme Court was asked to hear a case hinging on unclaimed-property-related due process: Chris Lusby Taylor, et al. v. Betty Yee, Individually and in her Official Capacity as State Controller of the State of California, et al.
The case referenced California’s unclaimed property law, which allows the State to “confiscate forgotten security deposits, uncashed money orders, unused insurance benefits, idle shares of stock, and even the undisturbed contents of safe-deposit boxes and bank accounts if those assets lie dormant for the statutorily required time period (in this case, three years).” As with other states, if the owner can’t be found, the state is allowed to use the funds.
Taylor asked the court to find whether California was providing enough notice to property owners to constitute due process, which says property seizers must give “notice and opportunity for hearing appropriate to the nature of the case.” As with many issues hinging on exact wording of the law, “appropriate nature” is debatable. So is judgment whether, according to previous case law, notification is a “mere gesture.”
This case also speaks directly to potentially unfair shortening of dormancy periods to allow earlier seizure of funds (by as much as 12 years).
In spite of its opinion that, “This trend—combining shortened escheat periods with minimal notification procedures—raised important due process concerns,” the court declined review, because “The convoluted history of this case makes it a poor vehicle for reviewing the important question it presents.”
So, if Taylor v. Yee had been a little neater, we might be right now anticipating a SCOTUS showdown on this issue. Other current cases address similar issues (e.g., various states versus Delaware over uncashed official checks), which seems to indicate it won’t be long before we are forced as an industry to come to some resolution.
Until then, we are advising clients to resist the temptation to take these constitutional battles as a watering-down of their obligation to follow the law. Current state laws have been vetted through legislative hearings, official constituency opinions and business lobbies, and they must be followed.
Think of it from the point of view of a state administrator: your mission is to protect citizens’ property, so if you have the property sooner you can take more responsibility for finding the owner (the opposite of Nottingham’s sheriff). If you can’t find owners, you have the use of the money for your state’s citizens all that much sooner, which is allowed by law. From their point of view, this is better than holders being able to keep the money, because some may purposefully make it difficult for owners to recover it.
We will keep an eye on this issue and report any new developments. If you find yourself in an unclaimed property grey area, we urge you to work with your unclaimed property specialists to assess the situation and create a beneficial strategy, including exemption analysis to reduce unclaimed property liabilities and assessments.
Access the SCOTUS opinion here.
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