BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1712
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          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