BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 1291
Assemblymember Niello
As Amended July 6, 2009
Hearing Date: July 14, 2009
Code of Civil Procedure
GMO:jd
SUBJECT
Unclaimed Property
DESCRIPTION
This bill would make various changes to the Unclaimed Property
Law (UPL) intended to improve notification of property owners
when their property is about to escheat to the state, alleviate
some concerns of property holders that have transferred
escheated property to the Controller, and penalize holders that
do not comply with the notification and reporting requirements
of the UPL.
BACKGROUND
The Unclaimed Property Law (UPL), 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 holders of unclaimed property have no interest in the
unclaimed property. (Bank of America v. Cory (1985) 164
Cal.App.3d 66, 74.) A holder is simply a trustee of the
property while the property is in the possession of the holder.
However, while the property is in the custody of the holder, the
holder generally uses the funds or the property as an asset.
The UPL has dual objectives: (1) to reunite owners with
unclaimed funds or property, and (2) to give the state, rather
than the holder, the benefit of the use of unclaimed funds or
property. (Bank of America v. Cory, supra, at 74; Douglas
Aircraft Co. v. Cranston (1962) 58 Cal.2d 462, 463.) The
state, through the Controller, acts as the protector of the
(more)
AB 1291 (Niello)
Page 2 of ?
rights of the true owner. (Bank of America, 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. (Code of Civ. Proc. Secs. 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. (Secs. 1531 and 1531.5.) A person with an
interest in escheated property may file a claim to recover the
property from the state. (Secs. 1540-1542.) The Controller
maintains a public web site where individuals may discover
whether or not the state is holding any of their funds or
property, and may submit claims to recover the funds or
property.
The Controller states that the office receives approximately
$600 million annually as escheated property. All but $50,000 of
these funds are transferred to the General Fund on a monthly
basis. The Controller currently maintains accounts of
approximately $5.3 Billion for monies that have been remitted to
the Controller and transferred to the General Fund. There are
approximately 8.7 million accounts (individuals and
organizations) in the Controller's database. In FY 2006-07,
there were a total of 276,512 claims filed, and an average claim
payment of $1,217. In FY 2005-06, there were 328,411 claims
with an average payment of $889.
In the past two years, several bills, some sponsored by the
State Controller, would have enacted changes to the UPL similar
to those contained in AB 1291. AB 2642 (Niello, 2008) and SB
1319 (Machado, 2008) contain some of the provisions in this
bill. SB 1319 was vetoed by the Governor with this message:
This bill would impose additional reporting requirements on
holders of unclaimed property and increase the penalties for
not reporting unclaimed property to the State Controller.
While I share the goal of returning unclaimed properties to
their rightful owners, I cannot support increased reporting
requirements and penalties at this time. In 2007, the budget
bill I signed included numerous reforms to the Unclaimed
Property Law and established better notification procedures.
AB 1291 (Niello)
Page 3 of ?
These changes should
have the chance to be properly implemented and examined prior
to any further changes to the law.
While SB 1319 reached the Governor's desk, AB 2642 failed
passage in this committee.
CHANGES TO EXISTING LAW
1. Existing law , the Unclaimed Property law, provides that an
account, deposit, demand, or savings or other intangible
property held or owing by a business association, banking or
financial organization, or other holder, escheats to the state
when the owner, for more than three years: (1) has not
increased or decreased the amount of the deposit, cashed a
deposit, or presented a passbook for crediting of interest; or
(2) has not corresponded electronically or in writing with the
holder concerning the deposit; or (3) has not otherwise
indicated an interest in the deposit as evidenced by a
memorandum or other record on file with the holder of the
property. (Code Civ. Proc. Sec. 1513. All references are to
the Code of civil procedure unless otherwise indicated.)
Existing law requires a holder of property to make reasonable
efforts to provide the property owner a notice by mail that
the property may escheat to the state at one of these times:
(1) not less than two years nor more than two and one-half
years after the date of the last activity by, or communication
with, the record owner; (2) not less than six nor more than 12
months before the property becomes reportable to the
Controller. (Secs. 1513.5, 1514, 1516, 1520.)
This bill would require the holder of property to make
reasonable efforts to provide the required notice
electronically, if the owner has consented to electronic
notifications.
This bill would specify that, in addition to the current
requirements relating to the contents and format of the
written notice, the notice contain a heading centered at the
top that states: "THE STATE OF CALIFORNIA REQUIRES US TO
NOTIFY YOU THAT YOUR UNCLAIMED PROPERTY MAY BE TRANSFERRED TO
THE STATE IF YOU DO NOT CONTACT US" or substantially similar
language.
This bill would, in the case of a bank account, deposit,
AB 1291 (Niello)
Page 4 of ?
shares, traveler's checks, bank drafts or certified checks, or
safety deposit boxes, permit the holder to give additional
notice at any time between the date of last activity by or
communication with the owner and the date the holder transfers
the property to the Controller.
This bill would require a banking or financial organization to
provide a person opening a new account a written notice that
the person's property may be transferred to the applicable
state if there is no activity on the account within a period
specified by state law. This notice must be given at the time
the new account is opened.
2. Existing law provides that the contents of a safe deposit
box or other safekeeping repository, held by a business
association in this state, escheats to the state if it remains
unclaimed for more than three years from the date on which the
lease or rental period on the box or other repository expired,
or from the date of termination of any agreement by which the
box or repository was furnished to the owner. (Sec. 1514.)
This bill would extend this provision to the proceeds of the
sale of the contents of a safe deposit box or other
safekeeping repository.
Existing law requires a holder of property in a safe deposit
box or other safekeeping repository to provide the owner
notice that the property may escheat to the state at one of
these times: (1) not less than two years nor more than two and
one-half years after the date of the last activity by, or
communication with, the record owner; (2) not less than six
nor more than 12 months before the property becomes reportable
to the Controller. (Sec. 1513.5.)
This bill would require the notices to be in a specified form
containing the following heading: "THE STATE OF CALIFORNIA
REQUIRES US TO NOTIFY YOU THAT YOUR UNCLAIMED PROPERTY MAY BE
TRANSFERRED TO THE STATE IF YOU DO NOT CONTACT US" or
substantially similar language, and to be sent by mail or
electronically, if the owner has consented to electronic
notification.
This bill would require the notice to also include the
following statements:
(1) specifying that since the date of last activity or for
the last two years, there has been no customer activity;
AB 1291 (Niello)
Page 5 of ?
(2) identifying the safe deposit box or other safekeeping
repository by number or other identifier;
(3) indicating the safe deposit box or other safekeeping
repository is in danger of escheating to the state; and
(4) specifying that the California Unclaimed Property Law
requires business associations to transfer safe deposit
boxes or other safekeeping repositories to the Controller
if it has been inactive for three years.
This bill would require the notice to include a form
prescribed by the Controller, for the customer to use to
declare an intention to maintain the safe deposit box or other
safekeeping repository. If the form is filled out, signed,
and returned by the customer to the business association, it
would be considered a claim for the safe deposit box or other
safekeeping repository and the contents thereof would not
escheat to the state.
This bill would permit the business association to give
additional notice, as specified above, at any time between the
date of the last activity or communication with the owner and
the date the business association transfers the contents of
the safe deposit box or other repository to the Controller.
This bill would permit a business association to impose a
service charge on the deposits, accounts, shares, or other
interests for the notice required by this bill in an amount
not to exceed the administrative cost of mailing the notice
and form, not to exceed two dollars ($2).
This bill would provide that the contents of a safe deposit
box shall not escheat to the state if during the previous
three years the owner had owned any demand, savings or matured
time deposit accounts, or any account subject to a negotiable
order of withdrawal and has done specified acts indicating
activity on the account, and the financial organization has
communicated by mail or electronically with the owner at the
address to which communications with the owner regarding that
deposit or account are regularly sent that would otherwise
escheat to the state.
This bill would provide that if the owner is in default under
the safe deposit box or other safekeeping repository
agreement, the banking organization may pay or deliver the
contents, or the proceeds of the sale of the contents, of the
safe deposit box or other safekeeping repository to the
AB 1291 (Niello)
Page 6 of ?
customer after deducting any amount due and payable from those
proceeds, upon which the banking organization is relieved of
liability to the extent of the value of the contents or
proceeds of sale of the contents of the safe deposit box or
other safekeeping repository.
This bill would require a business association, at the time a
customer opens a new account for a safety deposit box or other
safekeeping repository, to provide the customer with a written
notice informing the person that his or her property may be
transferred to the applicable state if no activity occurs in
the account within the time period specified by state law.
This bill would allow a banking organization to directly
escheat the contents of a safe deposit box or other
safekeeping repository without exercising its rights (to open
the box, make an inventory, attempt to return the contents to
the owner who is in default for a specified period) under the
Financial Code.
3. Existing law requires the Controller to retain delivered
unclaimed property that has no apparent commercial value for a
period not less than 18 months. Property may thereafter be
destroyed or otherwise disposed of, and no action against the
Controller or the holder of the property may be brought or
maintained. (Sec. 1565.)
This bill would extend the Controller's holding period for
property that has no apparent commercial value from not less
than 18 months to not less than 7 years.
4. Existing law provides that every person or entity filing a
required report as a holder of escheated property shall, no
sooner than seven months and no later than seven months and 15
days after the final date for filing the report, pay or
deliver to the controller all escheated property specified in
the report. (Sec. 1532.) If a person establishes a right to
the property before it is delivered to the Controller or it
appears that the property may not be subject to escheat, the
holder shall not deliver the property to the Controller but
shall instead file a report concerning the property with the
Controller.
This bill would authorize the Controller to postpone the date
for payment or delivery of the property or the date for filing
of a required report, on his or her own volition or upon
AB 1291 (Niello)
Page 7 of ?
request of the holder of property.
5. Existing law provides that, in addition to any damages,
penalties, or fines, a person who fails to file a report or to
deliver unclaimed property in the time and manner prescribed
shall pay to the Controller interest at a rate of 12 percent
per annum on that property from the date the report should
have been filed or the property delivered.
This bill would make the above penalties applicable only when
the holder of property fails to report or to deliver escheated
property in the time prescribed.
This bill would add, to the damages, penalties, or fines
assessable against a person who fails to file a report
substantially in the manner prescribed under Section 1530,
interest payable to the Controller at the rate of 12 percent
per annum on the property or value thereof from the date the
property should have been reported, paid, or delivered, unless
the failure is due to good cause. If a holder has failed to
file a report in the manner required but has timely paid or
delivered the property to the Controller, the interest payable
shall be capped at $10,000.
COMMENT
1. Need for the bill
This bill, sponsored by the State Controller's Office, is
intended to strengthen property owners' right to notice when
their property is subject to escheat and to ensure that property
holders reasonably inform their customers about risks associated
with leaving accounts dormant, and to inform property owners
about the law that causes unclaimed property to escheat to the
state following a period of inactivity.
2. Property in safe deposit boxes: notices to owners
Under existing law, the contents of any safe deposit box or any
other safekeeping repository, held by a business association
(like a bank), escheat to the state if unclaimed by the owner
for more than three years from the date the lease or rental on
the box or the date of termination of any agreement regarding
the owner's use of the box expires. (Code Civ. Proc. Sec.
1514.). The statute is silent as to the notice requirements
applicable to the escheat of contents of safe deposit boxes.
Under the general escheat statutes, the owner would be notified
AB 1291 (Niello)
Page 8 of ?
at one of two times: (1) at not less than two years nor more
than two and one-half years after the date of last activity on
the safe deposit box account; or (2) not less than six nor more
than 12 months before the time that the safe deposit box
contents become reportable to the Controller.
The bill would expressly incorporate into Section 1514 the
timing of the notice required to be sent to the owner (either 24
months to 30 months since the last activity or six to 12 months
before property becomes escheatable to the state, under current
law) and would also import into this statute the content
requirements for a notice to an owner of an account or other
intangible property as follows:
(1) The notice would contain identifying information about
the safe deposit box, and the following statements:
Since the date of last activity, or for the last two
years, there has been no customer activity on the safe
deposit box or other safekeeping depository;
That the contents of the safe deposit box or other
repository is in danger of escheating to the state; and
That the California Unclaimed Property Law requires
the contents of a safe deposit box or other repository to
be transferred to the state if it has been inactive for
five years.
(2) The described notice would be accompanied by a prescribed
form for the owner to fill out and return, to indicate his
or her intent to maintain the safe deposit box or other
repository. If filled out, signed, and returned to the
holder of property, this would be deemed activity on the
account and therefore the property would not escheat to the
state.
AB 1291 would apply to business associations that provide safe
deposit boxes or other safekeeping repositories the same rules
with respect to escheat of the contents, or the proceeds of the
sale of the contents, of the safe deposit boxes or other
safekeeping repositories. Thus the notice may be provided by
electronic communication, if consented to by the owner, must
contain the same information, and be in the form specified by
the Controller. However, the contents of a safe deposit box
would not escheat if the owner has, at that business, a demand
deposit account or similar account, of which the owner has shown
activity as described under the statute, and the business has
communicated with the owner at the address regularly used with
respect to that account during the previous three years prior to
AB 1291 (Niello)
Page 9 of ?
the date the property was to escheat.
The bill contains a provision that notwithstanding the escheat
rules above, if the customer is in default under the safe
deposit box or safekeeping agreement, the banking organization
may pay or deliver the contents or the proceeds of the contents
of the safe deposit box to the customer after deducting any
amount due and payable to the banking organization under that
agreement. Upon payment or delivery, the banking organization
would be relieved of all liability to the extent of the value of
the contents or proceeds of the sale of the contents. This
provision does not seem relevant to the issue of escheat of the
property, since the payment or return of the contents is to be
made to the customer and not to the Controller.
Suggested amendment: Change the payment or delivery of the
contents to the Controller instead of the customer, or delete
this provision altogether, since it does not belong in this set
of statutes altogether.
The bill would authorize the holder (where the safe deposit box
is maintained) to charge administrative costs of up to $2 for
the mailing of the notice and form stating intent to maintain
the safe deposit box.
3. Holders to give more and improved notices
The most recent changes to the UPL were compelled by a lawsuit
challenging the constitutionality of the UPL based on inadequate
notice given to owners of property. In dissolving the
preliminary injunction it issued in June 2007 enjoining the
Controller from accepting, taking title to or possessing any
property and from selling, converting or destroying any property
pursuant to the UPL, the U.S. District Court (Eastern District)
acknowledged that the notice provisions contained in SB 86, the
2007 Budget Act, sufficiently cured the noticing deficiencies in
the UPL identified in Taylor v. Westly, 488 F.3d 1197 (9th Cir.
2007). SB 86 mandates that the Controller send a direct mail
notice either to the address supplied by the holder of the
unclaimed property or to the address supplied by the Franchise
Tax Board if it is different from the address on the holder's
report at least 45 days before the property is transferred.
Added to the Controller's searchable Internet site, and the fact
that property owners' names and addresses are published on the
web site prior to the transfer of property from holder to the
state, the Controller's notice rules and practices satisfy the
AB 1291 (Niello)
Page 10 of ?
actual notice demanded by due process, the court decided.
(Taylor et al. v. Chiang, U.S. District Court (Eastern District)
No. CIV-S-01-2407 WBS GGH, October 18, 2007.)
This bill would make additional changes to the notification to
owners by holders of property, that the sponsor and author
believe would further the UPL's goal of reuniting owners with
their property.
Under existing law, a holder of property is required to provide
a notice that must contain specific information (date of last
activity, account number or identifier, that the property is in
danger of escheating to the state, that the UPL requires the
holder to transfer the funds or property to the state if the
account has been inactive for three years) in bold or font at
least two points larger than the rest of the notice. AB 1291
would require holders to include a specified notice in a heading
centered at the top of the notice specifically described in
Section 1513. This notice would state: THE STATE OF CALIFORNIA
REQUIRES US TO NOTIFY YOU THAT YOUR UNCLAIMED PROPERTY MAY BE
TRANSFERRED TO THE STATE IF YOU DO NOT CONTACT US.
Under this bill, holders of property such as banking or
financial organizations may give additional notice to the
property owner at any time between the date of the last activity
by or communication with the owner and the date the holder
transfers the deposit, account, shares, or other interest to the
Controller.
This bill would amend Sections 1513.5 and 1514 to require a
banking or financial organization or business association to
give a person who is opening a new account written notice
stating that the person's property may be transferred to the
applicable state if no activity occurs in the account within the
time period specified by state law.
It is not clear why the term "applicable state" is used in this
provision of the bill or why the period of three years is not
specified. Escheat of property to the state is a matter of
state law, and requiring a notice to a California resident that
their property may be sent by the bank or financial institution
to another state within a specified period could be overreaching
and is probably unenforceable.
SHOULD THIS NOTICE BE LIMITED TO ESCHEAT OF PROPERTY TO
CALIFORNIA? SHOULD THE NOTICE SPECIFY THREE YEARS AS THE TIME
AB 1291 (Niello)
Page 11 of ?
DURING WHICH SOME ACTIVITY MUST OCCUR TO AVOID ESCHEAT OF THE
PROPERTY TO THE STATE?
The author and sponsor (Controller) believe that the additional
notices, with the highlighted warning, would provide even more
opportunities for the owner to be reunited with their property
prior to escheat.
4. Controller may postpone delivery of escheated property and
the required report
Currently, the authority to postpone or extend submittal of a
report only applies to a Notice Report under Section 1530. If
the Notice Report is extended, the Remit Report, which is due
seven to seven months and 15 days after the Notice Report, is
also extended. However, if after the filing of the Notice
Report a situation arises preventing the holder from filing the
Remit Report on time, there is no mechanism in existing law for
the Controller to postpone the deadline for submittal of the
Remit Report.
This bill would authorize the Controller to postpone the
deadline for submittal of the Remit Report, either on his or her
own motion or upon written request by any person required to pay
or transfer escheated property or file a report as required.
5. Holder immunity from liability once property is transferred
conditioned on compliance with notification requirements prior
to escheat; penalty for failure to file reports on time as
specified
The Controller states that based on more than 1.2 million
businesses in the state, 600,000 are estimated to have some
reportable property, including uncollected wages. However, the
office received only 16,000 reports in FY 2005-06, 15,000 in FY
2006-07 and 13,005 in FY 2007-08 to date. There is definitely
an underreporting by holders of funds and other property.
Additionally, a significant percentage of those reporting under
the UPL were late in reporting and transferring property to the
Controller.
To promote and ensure program compliance, the Controller
conducts audits of business entities and assesses a 12 percent
interest assessment on companies that fail to remit unclaimed
property to the state as prescribed in the law. (Sec. 1577) In
2002, the Legislature enacted an amnesty program that forgave
AB 1291 (Niello)
Page 12 of ?
the 12 percent interest assessment on unclaimed property
withheld by holders, resulting in increased collections for a
short period. (AB 227 (Dutra), Ch. 22, Stats. 2002.) However,
that amnesty program has ended. Still, proponents of AB 1291
believe that holders should be given continuing incentives to
first reunite owners with property they are holding, and second,
to make a prompt transfer of funds or property to the Controller
when the owner either cannot be located or does not respond to
repeated attempts at notice.
Thus, AB 1291 would condition the relief from liability provided
by Section 1560 to holders who transfer funds or property to the
Controller, on the holder's having complied with the notice and
reporting requirements of escheated property, as well as timely
delivery or transfer of the property. This condition would
apply as well where the holder has paid the owner after the
funds or property was transferred to the Controller and is
seeking reimbursement from the state.
Further, AB 1291 would clarify that the Controller can charge
the 12% interest rate chargeable under current law against a
holder that files a Notice Report that does not conform to the
requirements of Section 1530.
6. Extension of the holding period for property of no apparent
commercial value
Another protective feature in AB 1291 is the extension of the
retention period for property with no apparent commercial value
from 18 months to 7 years. Until SB 86 (Budget Act of 2007),
Section 1565 contained no time limitations for the Controller to
hold on to property that has no apparent commercial value.
Consequently, the Controller had unfettered discretion to
dispose of that type of property whenever he or she wished. The
18-month limitation was put in place, presumably, to force the
Controller to dispose of property collected over the years in a
more expeditious manner.
According to the Controller, property of "no commercial value"
is anything that cannot be sold through normal means (i.e., not
"negotiable" in normal markets), and the Controller has used
professional auctioneers and E-Bay to sell this type of
property. However, property of "no apparent commercial value"
could be items left in safe deposit boxes that owners or their
heirs may want to recover after all, and could be lost
permanently and quickly with such a short period of retention.
AB 1291 (Niello)
Page 13 of ?
This bill would increase the retention period to at least 7
years, time enough for heirlooms to be rediscovered perhaps and
recovered from the Controller's custody.
7. Other issues: interest on property transferred
On October 12, 2007, the United States District Court for the
Northern District of California determined that the State of
California is constitutionally obligated to pay interest when
returning funds to claimants under the UPL. The Controller
sought reconsideration, stating that the rate of interest to be
paid to claimants was unclear under the court's order. The
court denied the motion. (Suever v. Connell, United States
District Court (Northern District) No. C-03-00156 RS, 11/6/07.)
Last year, SB 1319 contained a provision that would have imposed
an interest payment of the equivalent of five percent (5.0%) per
annum on escheated property received by the Controller and kept
until it is returned to the owner. An earlier version of AB
1291 contained this same interest provision, but this has been
deleted from the bill.
Support : None Known
Opposition : None Known
HISTORY
Source : State Controller John Chiang (Sponsor)
Related Pending Legislation : None Known
Prior Legislation :
SB 1319 (Machado, 2008) contained some of the provisions
(notices, extension of holding period for property with no
commercial value, holder's immunity from liability) in this
bill. This bill was vetoed. See Background.
AB 2642 (Niello, 2008) would have established the fourth manner
of ensuring that an account shows activity within a three year
time period and create the presumption of activity if a
first-class mail is not returned. Failed passage in this
committee.
AB 1291 (Niello)
Page 14 of ?
AB 2221 (Wolk, 2008) would have extended the dormancy period
prior to escheat of property from the general three-year period
to five years. It would have also required more notices by
holders. This bill died on the Senate Appropriations suspense
file.
SB 1259 (McClintock, 2006) would have extended the general
dormancy period from three to seven years, establish evidence
required for dormancy of accounts, and require the notice to
contain the 14-point boldface type warning. The bill died in the
Senate Appropriations suspense file.
SB 1752 (Migden, 2006) would have required payment of interest
at the rate of the lower of 5 percent
or the annual yield rate of the Pooled Money Investment Account,
would have created an Abandoned Property Fund within the
Unclaimed Property Fund, for use in payment for various costs of
the Controller, including the cost of official advertising in
connection with the sale of property held in the name of an
account in the fund. The bill died in the Senate Appropriations
suspense file.
Prior Vote :
Assembly Judiciary Committee (Ayes 10, Noes 0) (Consent)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Floor (Ayes 78, Noes 2)
**************