BILL ANALYSIS Ó
AB 1712
Page 1
Date of Hearing: April 1, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1712 (Gomez) - As Introduced: February 13, 2014
As Proposed to be Amended
SUBJECT : UNCLAIMED PROPERTY: NONPROFIT ORGANIZATIONS
KEY ISSUE : SHOULD A PARENT NONPROFIT ORGANIZATION BE PERMITTED
TO FILE A CLAIM FOR UNCLAIMED PROPERTY THAT, PRIOR TO ESCHEAT,
WAS OWNED BY AN ORGANIZATION THAT WAS CHARTERED OR SPONSORED BY
THE PARENT, BUT THAT IS NOW DISSOLVED OR CEASES TO EXIST?
SYNOPSIS
This bill seeks to authorize a parent nonprofit organization to
file a claim with the State Controller for unclaimed property
that, prior to escheat, was owned by an organization that was
chartered or sponsored by the parent (typically a local chapter
or affiliate) but that has dissolved or simply no longer exists.
According to proponents, there is a large amount of unclaimed
property in the Controller's database that is owned by nonprofit
chapters or affiliates that have dissolved or cease to exist and
therefore cannot make a claim, dooming the property to sit with
the Controller perpetually unclaimed and unclaimable. The
laudable goal of the bill is to target property thought to be
unclaimable and return it to the charitable sector where it can
once again benefit the community, by allowing the parent
nonprofit organization to file claim with the Controller.
Proposed amendments to the bill clarify that ownership of
unclaimed property is based on having legal right to the
property prior to its escheat, and provide that such legal right
is established by a parent organization if appropriate bylaws or
documents controlling its relationship with the defunct chapter
or affiliate authorize surplus property to be turned over to the
parent organization. Prior to the proposed amendments, the bill
received support from the California Association of Nonprofits,
the March of Dimes, and some veterans service nonprofit
organizations, who all support putting unclaimed property back
to use in the nonprofit sector. This bill has no known
opposition.
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SUMMARY : Clarifies authority for a parent nonprofit
organization to file a claim for unclaimed property with the
State Controller for property owned by a local chapter or
affiliate no longer in existence. Specifically, this bill
provides such authority to a nonprofit civic, charitable, or
educational organization that granted a charter, sponsorship, or
approval for the existence of an organization that had legal
right to the property prior to its escheat but that has
dissolved or is no longer in existence, if the charter,
sponsorship, approval, organization bylaws, or other governing
documents provide that surplus funds or property may be turned
over to the granting organization.
EXISTING LAW :
1)Authorizes any person, excluding another state, who claims to
have been the owner, as defined, of 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).)
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 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. Further
provides that only an owner, as defined here, may file a claim
with the Controller for unclaimed property. (Section
1540(d).)
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
COMMENTS : This bill seeks to authorize a parent nonprofit
organization to file a claim with the State Controller for
unclaimed property that, prior to escheat, was owned by an
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organization that was chartered or sponsored by the parent
(typically a local chapter or affiliate) but that has dissolved
or simply no longer exists. According to the author:
This bill will resolve the problem of unclaimed property
that cannot be claimed under current law. The property that
an (subsidiary or chaptered) organization leaves behind
after it has been dissolved remains stagnant with no chance
of being redistributed. . . Without expanding the
definition of an "owner", the state controller's office
will continue to hold onto unclaimed property which does
not benefit the State of California.
(This bill will) include parent organizations into the
definition to allow them to reclaim that property and place
it back into circulation for which it was originally
intended. It will also increase the parent organization's
resources which will allow them to place more funds into
the local community.
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
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
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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".) It is not known precisely how many owner accounts
currently in the Controller's database belong to nonprofit
organizations, but a cursory search by the Committee of some
common examples suggests the number could be in the thousands.
(For example, the term "AYSO", short for American Youth Soccer
Organization, yields over 100 records; "Girl Scouts" yields over
200 records; "Boy Scouts" over 100 records.)
The challenging problem of unclaimed property owned by local
nonprofit groups that no longer exist. Existing law,
subdivision (d) of Section 1540, states that "for purposes of
filing a claim pursuant to this section, 'owner' means the
person who had legal right to the property prior to its escheat
(emphasis added), his or her heirs or estate representative, his
or her guardian or conservator, or a public administrator
[acting pursuant to the Probate Code.]" Subdivision (d) further
provides that "Only an owner, as defined in this subdivision,
may file a claim with the Controller." Accordingly, this bill
seeks to expand the definition of "owner" in subdivision (d) so
that parent nonprofit organizations are expressly permitted to
file a claim with the Controller for unclaimed property that,
according to the author, "remains stagnant with no chance of
being redistributed" and that "cannot be claimed under current
law." A challenging problem is often created, the author
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contends, when a chapter of the parent nonprofit, listed as the
owner in the Controller's records, has dissolved or ceased to
exist and therefore cannot step forward to make the claim
itself, dooming the property to sit with the Controller
perpetually unclaimed and unclaimable. The laudable goal of the
bill is to target this "unclaimable" property and return it to
the charitable sector where it can once again benefit the
community through use by the parent nonprofit organization.
As currently in print, the solution proposed by the bill is to
expand the definition of "owner" to include a parent nonprofit
organization that is admittedly not the listed owner (otherwise
it could claim the property as its own under existing law) on
the basis of four elements, if true. First, the parent must be
a "nonprofit civic, charitable, or educational organization."
Second, the parent must have "granted a charter, sponsorship, or
approval for the existence of an organization that owned the
property." Third, the organization that owned the property
(e.g. the local chapter or affiliate) must be "no longer
chartered, sponsored, or approved." Finally, the affiliate or
chapter group must have "dissolved or no longer be in
existence." Notably, what is not required under the bill is any
showing that the parent nonprofit organization had a legal right
to the property prior to its escheat to the state-the standard
that applies to every other person or entity claiming ownership
under existing law.
While it is quite possible that the chartering or sponsoring
documents, bylaws or other rules may provide the parent group
with legal right to property of the affiliate in some
circumstances, in other circumstances there may never have been
any such right established entitling the parent to the property
at issue. Stakeholders consulted by the Committee agree that,
not surprisingly, there are a wide variety of relationships that
exist between parent groups and their chapters and affiliates,
and that disposition of surplus property after dissolution of a
local chapter or sponsored organization likely depends on the
kind of relationship that was initially established with the
parent, and may also differ based on the nonprofit sector in
which the parent and chapters operate. For example, in cases
where a local chapter or affiliate is a registered nonprofit
corporation seeking to "wind down" operations and dissolve
pursuant to the Nonprofit Corporation Law, then existing law
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requires the corporation's assets on dissolution to be disposed
of in conformity with its articles and bylaws, as specified.
(See, e.g., Corporation Code Sections 6716, pertaining to
nonprofit public benefit corporations.) This bill would only
apply to unclaimed property identified after a chapter or group
has dissolved or ceases to exist, and does not seek to change
any rules prescribing rightful distribution of property in the
process leading up to formal dissolution.
Proposed amendments further clarify the concept of ownership
with respect to nonprofits. Following discussion among
stakeholders and Committee staff, the author proposes to amend
the bill to clarify that ownership of unclaimed property,
whether in the name of an individual or organization, is based
on having legal right to the property prior to its escheat.
This amendment achieves consistency with the standard of
ownership that applies to a person who may file a claim, and is
consistent with the Committee's approval last year of AB 1275
(Chau), Ch. 128, Stats. 2013, which codified the Controller's
practice, since the inception of the UPL in 1959, that only an
entity that has legal right to the property prior to escheat is
an owner who may file for recovery of the property. To help
establish that determination in practice, the proposed
amendments provide that the parent organization is an owner if
the charter, sponsorship, approval, organization bylaws, or
other governing documents provide that the surplus property may
be turned over to the granting organization-thus independently
indicating a legal right to the property beyond only the fact of
charter or sponsorship.
In addition, the proposed amendments eliminate the condition
that the owner of the unclaimed property, in addition to being
dissolved or no longer in existence, must also no longer be
chartered, sponsored, or approved by the parent organization.
As long as the affiliate or local chapter is dissolved or out of
existence, determination that the group officially had their
charter or sponsorship revoked by the parent is less meaningful
and only serves as an additional obstacle that the parent must
show in order to claim ownership. Local chapters may fold or go
out of existence for various reasons before the parent
organization has time to formally revoke a charter or
sponsorship, and little incentive likely exists for a parent to
take such action in cases where it finds out later, after the
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fact, that a chapter has folded and already ceases to exist.
The proposed amendments are:
On page 2, line 26, after "conservator," insert "or".
On page 2, line 26, replace the comma after "Code" with a
period, and insert the following:
"An "owner" also means a nonprofit civic, charitable, or
educational organization that granted a charter, sponsorship,
or approval for the existence of the organization that had
legal right to the property prior to its escheat but that has
dissolved or is no longer in existence, if the charter,
sponsorship, approval, organization bylaws, or other
governing documents provide that surplus funds or property
may be turned over to the granting organization."
On page 2, strike lines 28 through 31 entirely and on line
32, delete: "and has dissolved or is no longer in existence."
ARGUMENTS IN SUPPORT : The March of Dimes California Chapter
writes in support of the bill: "The State of California is in
possession of potentially hundreds of thousands of dollars in
unclaimed property that could be utilized by nonprofit
organizations to serve their mission and stimulate the economy.
This bill provides an important tool for these nonprofits to be
able to place a claim for unclaimed property that belonged to
their chaptered, sponsored, or approved organization. For the
March of Dimes, this could potentially provide resources to
allow us to further serve our mission of improving the health of
infants and children by reducing birth defects, premature birth
and infant mortality."
Previous Legislation. AB 1275 (Chau) Ch. 128, Stats. 2013,
clarifies that only a person who claims to have been an
unclaimed property owner, as defined, may file a claim with the
Controller, and requires the Controller, within 180 days after
the claim is filed, to determine if the claimant is the owner of
the property claimed.
REGISTERED SUPPORT / OPPOSITION :
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Support
California Association of Nonprofits (CAN)
AMVETS, Department of California
American Legion, Department of California
California Association of County Veterans Service Officer
March of Dimes Foundation, California Chapter
Military Officers Association of America, California Council of
Chapters
Vietnam Veterans of America, California State Council
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334