BILL ANALYSIS �
AB 1275
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Date of Hearing: May 7, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1275 (Chau) - As Introduced: February 22, 2013
SUBJECT : UNCLAIMED PROPERTY: FILING OF CLAIMS
KEY ISSUE : SHOULD THE DEFINITION OF "OWNER" UNDER THE UNCLAIMED
PROPERTY LAW BE REVISED TO CLARIFY THAT ONLY A PERSON WHO HAD
LEGAL RIGHT TO THE PROPERTY PRIOR TO ITS ESCHEAT IS IN FACT AN
OWNER WHO IS AUTHORIZED TO FILE A CLAIM FOR ITS RECOVERY?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
According to the author, this bill is needed to address
consequences arising from a recent California Court of Appeal
decision interpreting the definition of the term "owner" under
the Unclaimed Property Law (UPL). In Weingarten Realty
Investors v. Chiang (Cal. App. 4th, December 19, 2012), a
California court of appeal considered whether under the UPL a
judgment creditor may claim property escheated to the state on
behalf of the party owing a debt to the creditor. Upon
analyzing competing definitions of "owner" in the UPL, the court
concluded that the Legislature did not intend to limit the use
of the claims procedure to "owners" as defined by Section
1540(d), but meant to allow all parties with any interest,
including creditors, the right to submit claims for property
that has escheated to the state.
In response to this decision, the author has introduced this
bill to revise the definition of "owner" under the Unclaimed
Property Law and clarify that, as has been the Controller's
practice since the inception of the UPL in 1959, only the person
who had legal right to the property prior to escheat is an owner
who may file for recovery of the property. The bill is
sponsored by the State Controller, who contends that the bill is
needed to ensure fair and equitable payment of claims to owners,
and to reduce potential litigation associated with competing
claims for property that the Controller is not equipped or
authorized to resolve within the scope of the UCL. The only
registered opposition to the bill is by United Asset Recovery
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(UAR), a California company in the business of recovering
abandoned and unclaimed funds for a fee. UAR urges the
Legislature not to approve legislation that would reverse the
holding of Weingarten.
SUMMARY : Revises the definition of "owner" under the Unclaimed
Property Law, and permits only owners meeting this definition to
file a claim for recovery of property. Specifically, this bill :
1)Provides that, notwithstanding Code of Civil Procedure
subdivision (g) of Section 1501, for purposes of filing a
claim for property escheated to the state, the term "owner"
means the person who had legal right to the property prior to
its escheat, his or her heirs or estate representative, his or
her guardian or conservator, or a public administrator acting
pursuant to the authority granted in Sections 7660 and 7661 of
the Probate Code.
2)Provides that only an owner, as defined above, may file a
claim with the Controller pursuant to the Unclaimed Property
Law.
3)Clarifies that a person who claims to have been the owner (as
defined above) of property may file a claim with the
Controller seeking recovery, and that the Controller shall
consider each claim within 180 days to determine if the
claimant is the owner of the property.
EXISTING LAW :
1)Authorizes any person, excluding another state, who claims an
interest in property paid or delivered to the Controller under
the UPL to file a claim to the property or to the net proceeds
from its sale. (Code of Civil Procedure Section 1540(a).
Unless otherwise noted, all further references are to this
code.)
2)Requires the Controller to consider each claim within 180 days
after it is filed and allows the Controller to hold a hearing
and receive evidence. Further requires the Controller to give
written notice to the claimant if he or she denies the claim
in whole or in part, and specifies rules for mailing of the
notice. (Section 1540(b).)
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3)Defines "owner," for the purpose of filing a claim to recover
unclaimed property, to mean the person who had legal right to
the property prior to its escheat, his or her heirs, his or
her legal representative, or a public administrator acting
pursuant to the authority granted in Sections 7660 and 7661 of
the Probate Code. (Section 1540(c).)
4)Defines "owner" to mean a depositor in case of a deposit, a
beneficiary in case of a trust, or creditor, claimant, or
payee in case of other choses in action, or any person having
a legal or equitable interest in property subject to this
chapter, or his or her legal representative. (Section
1501(g).)
COMMENTS : According to the author, this bill is needed to
address consequences arising from a recent California Court of
Appeal decision interpreting the definition of the term "owner"
under the Unclaimed Property Law (UPL). The author states:
The Fourth Circuit Court of Appeals in December 2012
ruled that the language in CCP Section 1540(a) permits
any person with an interest in the unclaimed property
to claim it, regardless of how "owner" is defined in
CCP Section 1540(d). The court's interpretation means
that there is no legislative guidance governing which
claims the Controller should pay, and that any party
that has an interest in the property can file a claim
regardless of the potential invalidity of the claim.
AB 1275 would remedy this problem by clearly defining
the term "owner" for purposes of filing an unclaimed
property claim, and specifying that only an owner may
file a claim for unclaimed property with the State
Controller. AB 1275 will provide for consistent
application of the UPL, fair and equitable payment of
claims to owners, and reduce potential litigation
associated with the interpretation of the current UPL
statute while helping reduce frivolous lawsuits filed
by parties that are not eligible to file a claim.
Background of the UPL: The Unclaimed Property Law, enacted in
1958, establishes procedures for the escheat of unclaimed
personal property. Property escheated to the state means the
state has custody of the property in perpetuity, until the owner
claims the property. The UPL has dual objectives: (1) to
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protect unknown owners by locating them and restoring their
property to them; and (2) to give the state, rather than the
holders of unclaimed property, the benefit of its retention,
since experience shows that most abandoned property will never
be claimed. (State v. Pacific Far East Line, Inc. (1962) 261
Cal.App.2d 609, 611; Douglas Aircraft Co. v. Cranston (1962) 58
Cal.2d 462, 463.) The state, through the Controller, acts as
the protector of the rights of the true owner. (Bank of America
v. Cory, supra, at 74.)
The UPL establishes procedures to be followed when property goes
unclaimed, generally for a period of three years, and escheats
to the state. Under existing law, the holder must annually
report on unclaimed property and turn the property over to the
Controller. (Sections 1530 and 1532.) In turn, the Controller
is required to mail a notice to each person who appears to be
entitled to unclaimed property according to the report filed by
a holder, in addition to the requirement of publication of
unclaimed property owners in a newspaper of general circulation.
(Sections 1531 and 1531.5.) A person "who claims an interest
in" escheated property may file a claim to recover the property
from the state. (Sections 1540 to 1542.) The Controller
maintains a web site ( http://www.sco.ca.gov ) where members of
the public may search a database to discover if the state is
holding any of their property, and may submit claims to recover
the funds or property.
According to data provided by the State Controller, his office
receives approximately $600 million annually as escheated
property. Existing law requires that all but $50,000 of these
funds are transferred to the General Fund on a monthly basis.
(Section 1564.) The Controller reports maintaining current
accounts of approximately $6.4 billion for monies that have been
remitted to the Controller and transferred to the General Fund.
As of FY 2011-12, there were approximately 21.5 million owner
accounts (individuals and organizations) in the Controller's
database, and in that year a total of $240 million in cash was
disbursed with an average payment of $837. (State Controller,
"Unclaimed Property Division, Information Worksheet FY
2011-12".)
Changes to unclaimed property law resulting from Weingarten
Realty Investors v. Chiang (2012). In Weingarten Realty
Investors v. Chiang (Cal. App. 4th, December 19, 2012), a
California court of appeal considered whether under the UPL a
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judgment creditor may claim property escheated to the state on
behalf of the party owing a debt to the creditor. The UPL
alternatively defines "owner" to include "any person having a
legal or equitable interest" in the property at issue (Section
1501(g)), but also provides that for the purpose of section
1540, the term "owner" means "the person who had legal right to
the property prior to its escheat" (Section 1540(d).) Under
subdivisions (a) and (b) of Section 1540, however, existing law
specifically authorizes "any person who claims an interest in
property paid or delivered to the Controller" to file a claim
for return of the property, and makes further references to "the
claimant" rather than "the owner." The court of appeal analyzed
the statute and concluded that the Legislature did not intend to
limit use of the claims procedure to "owners" as defined by
Section 1540(d), but meant to allow all parties with any
interest, including creditors, the right to submit claims for
escheated property, consistent with the wording of Section
1501(g) and Section 1540(a).
According to the Controller, this interpretation of the statute
is problematic because it "increases the likelihood of competing
claims as well as litigation filed by parties over such
property." The Controller also states: "If a creditor is
allowed to file a claim, the Unclaimed Property Program may have
to validate the present existence of a third-party debt. . .
Moreover, the court's interpretation introduces uncertainty into
the law regarding which claims the Controller should approve for
payment, and in which order." Finally, the Controller notes
that since the Program's inception in 1959, the legislative
direction the Controller has used to interpret the UPL required
the Controller to pay the claim to the property owner at the
time of escheatment.
The Controller's contention that the court's interpretation in
Weingarten creates new responsibilities for the Controller's
office, such as validating third party debt and resolving
competing claims, which are beyond the scope of the Controller's
duties under existing law, appears meritorious.
This bill would revise Section 1540 to make it clear that an
owner is the person who had legal right to the property prior to
its escheat, and that only those persons ("owners") or their
heirs or authorized representatives may file a claim for the
recovery of unclaimed property. The changes proposed by this
bill seek to restore authority to the Controller to resume
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implementing the UPL in the way that the Controller's office
reportedly has for over the past 50 years, prior to Weingarten,
as well as eliminate other sources of ambiguity that could lead
to litigation.
ARGUMENT IN OPPOSITION : This bill is opposed by United Asset
Recovery (UAR), a Carlsbad-based company that, according to its
website, specializes in the recovery of abandoned and unclaimed
funds for a fee. In its letter of opposition, UAR states:
[In Weingarten Realty Investors v. Chiang] the
Controller's attempt to deny Weingarten payment runs
contrary to the Controller's duty to pay the rightful
owner under existing Unclaimed Property Law and
contrary to well established creditor rights laws. The
Court correctly found that an entity that had acquired
an interest in unclaimed property after its escheat was
entitled to claim and recover unclaimed property.
That the Controller is now trying to quickly and
quietly push through legislation that the court has
found to be improper brings into question the
Controller's true intent and purpose, and his ability
to serve as a trusted custodian of the Unclaimed
Property Fund. Assignees and creditors are parties
that hold a true legal interest, title, and rights in
property held by the Controller and elsewhere, and the
Controller should not be permitted to pass legislation
that would strip owners of their rights to get paid.
REGISTERED SUPPORT / OPPOSITION :
Support
State Controller's Office (sponsor)
Opposition
United Asset Recovery
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
AB 1275
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