BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1712 (Gomez)
As Amended April 8, 2014
Hearing Date: June 10, 2014
Fiscal: Yes
Urgency: No
TH
SUBJECT
Unclaimed Property
DESCRIPTION
This bill would revise the definition of "owner" in the
Unclaimed Property Law to include a nonprofit civic, charitable,
or educational organization that granted a charter, sponsorship,
or approval for the existence of an organization that had a
legal right to 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.
BACKGROUND
The Unclaimed Property Law (UPL), as revised in 1968, provides
for the "escheat" of unclaimed personal property. Escheat is
the reversion of property to the state by reason of the failure
of the owner to inherit or claim it. There are three
significant players under the UPL: the owner, the holder, and
the state. The "owner" is the person to whom the property
actually belongs. The "holder" is the person who has possession
of, but no interest in, the unclaimed property. The holder is
simply a trustee of the property while the property is in the
possession of the holder, such as a bank that holds deposits of
an owner's money, or a business that has issued a check to an
individual or other business. 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
(more)
AB 1712 (Gomez)
Page 2 of ?
(1985) 164 Cal.App.3d 66, 74; 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, 164 Cal.App.3d 66, 74.)
The UPL establishes procedures to be followed when property goes
unclaimed and reverts to the state. Under existing law, the
holder must annually report on unclaimed property and turn the
property over to the State Controller. (See Code Civ. Proc.
Secs. 1530-1533.) Banks and financial organizations are
required to submit an annual report to the State Controller that
identifies all property that has escheated to the state, and,
for property valued at $25 or more, to identify the name, if
known, and the last known address of the property owner.
Escheated unclaimed property valued under $25 may be reported in
the aggregate, and reporting entities need not provide the name
and address of the property owner in their annual report even if
they have such information. The UPL also sets forth a procedure
for the owner of the property, as defined, to file a claim to
recover the property from the state. (Code Civ. Proc. Secs.
1540-1542.)
AB 1275 (Chau, Ch. 128, Stats. 2013) expanded the definition of
"owner" to mean a 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 the Probate Code, as
specified. This bill would further expand the definition of
"owner" to also include a nonprofit civic, charitable, or
educational organization that granted a charter, sponsorship, or
approval for the existence of the organization that had the
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.
CHANGES TO EXISTING LAW
Existing law , the Unclaimed Property Law (UPL), requires
property held or owing by a business association that is
unclaimed for more than three years, as specified, to file a
report with the State Controller and turn over that property to
the state. (Code Civ. Proc. Secs. 1513, 1513.5, 1530-1532.)
Existing law provides that if a banking or financial
AB 1712 (Gomez)
Page 3 of ?
organization is the holder of unclaimed property and has in its
records an address for the apparent owner of property valued at
fifty dollars ($50) or more, the holder shall make reasonable
efforts to notify the owner that the owner's property will
escheat to the state on a specified date. The notice shall be
mailed not less than 6 nor more than 12 months before the time
when the owner's property would escheat and become reportable to
the State Controller. (Code Civ. Proc. Sec. 1513.5.)
Existing law permits a banking or financial organization to
impose a service charge on the deposit, account, shares, or
other interest for the above notice in an amount not to exceed
the administrative cost of mailing or electronically sending the
notice and form, and in no case to exceed two dollars ($2).
(Code Civ. Proc. Sec. 1513.5(b).)
Existing law requires, except with respect to traveler's checks
and money orders, a person holding funds or other property that
has escheated to the state to report the name, if known, and
last known address, if any, of each person appearing from the
records of the holder to be the owner of any property of value
of at least twenty-five dollars ($25). (Code Civ. Proc. Sec.
1530(b).)
Existing law permits escheated items of value under twenty-five
dollars ($25) each to be reported by the holder to the State
Controller in aggregate. (Code Civ. Proc. Sec. 1530(b).)
Existing law authorizes the State Controller to bring an action
to enforce provisions of the UPL and provides for the imposition
of penalties and interest against holders who willfully fail to
comply with its provisions. (Code Civ. Proc. Sec. 1576.)
Existing law authorizes any person, except another state, who
claims to have been the owner of property paid or delivered to
the State Controller to file a claim to the property. (Code
Civ. Proc. Sec. 1540(a).)
Existing law requires the State Controller to consider each
claim within 180 days after it is filed and authorizes the
Controller to hold a hearing and receive evidence on the claim.
(Code Civ. Proc. Sec. 1540(b).)
Existing law defines "owner" 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
AB 1712 (Gomez)
Page 4 of ?
public administrator acting pursuant to the authority granted in
Sections 7660 and 7661 of the Probate Code. (Code Civ. Proc.
Sec. 1540(d).)
This bill would expand the definition of "owner" to include a
nonprofit civic, charitable, or educational organization that
granted a charter, sponsorship, or approval for the existence of
the organization that had the 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.
COMMENT
1. Stated need for the bill
The author writes:
Current law does not allow nonprofit civic, charitable, or
educational organizations to be able to file a claim with the
state controller's office to reclaim unclaimed property
escheated to the state after one of their chartered,
sponsored, or approved organizations . . . dissolved.
This bill expands the definition of an "owner" to include
nonprofit civic, charitable, or educational organizations.
This bill would allow a nonprofit civic, charitable, or
educational organization that granted a charter, sponsorship,
or approval for the existence of the [now defunct]
organization [to] file a claim with the state controller's
office to reclaim escheated property that was left behind when
the chartered, sponsored, or charitable organization dissolved
. . . They may file a claim if the chartered, sponsored, or
approved organization had the legal right to the property
prior to its escheat and if the bylaws or other governing
documents provide that the left over property may be turned
over to the granting organization.
Without this bill nonprofit organizations will not be able to
reclaim the property left behind by their chartered,
sponsored, or approved organizations. The property after its
escheat goes to the State Controller's Office without anyone
being able to reclaim that property. This money should be
used for its original purpose which is to help the people and
communities it was intended to help.
AB 1712 (Gomez)
Page 5 of ?
2. Reuniting Owners with Unclaimed Property
According to the State Controller's office, California is
currently in possession of more than $6.9 billion in unclaimed
property belonging to approximately 24.9 million individuals and
organizations. (See http://www.sco.ca.gov/upd.html [as of June
1, 2014].) As California courts have repeatedly recognized, one
of the chief objectives of California's Unclaimed Property Law
(UPL) is to reunite owners with their unclaimed funds or
property. (See e.g. Bank of America v. Cory (1985) 164
Cal.App.3d 66, 74.) This bill arguably advances that objective
by ensuring that nonprofit entities are able to recover the
assets of dissolved and disbanded subsidiaries when the
governing documents of those subsidiaries provide that surplus
funds or property may be returned to a superordinate nonprofit
entity. The State Controller, writing in support, states:
When a chapter of a non-profit organization goes defunct,
confusion [ensues] as to whether the parent organization is
eligible to claim its chapter's unclaimed property. AB 1712
would eliminate this existing UPL ambiguity by revising the
definition of owner to allow a non-profit civic, charitable,
or educational organization, with the appropriate governing
documents, to claim abandoned property belonging to its local
chapter that has been dissolved or [is] no longer in
existence.
Staff notes that by requiring a claimant nonprofit entity to
produce governing documents acknowledging that the property of a
disbanded subordinate entity may return to the superordinate
parent, this bill helps implement the will of the parties who
executed the governing documents and ensures that unclaimed and
surplus property is disposed of in accordance with their stated
intent.
3. Corporate Dissolution Proceedings
California's Corporations Code governs various aspects of
nonprofit corporations and unincorporated associations,
including their formation and operations, rules about meetings,
voting, interested directors, mergers, and dissolution. (See
Corp. Code Secs. 5000 et seq., 12220 et seq., 18000 et seq.)
Existing law provides explicit procedures for dissolving or
"winding down" nonprofit corporations and unincorporated
associations, including those that may have unclaimed property
AB 1712 (Gomez)
Page 6 of ?
subject to the provisions of this bill. These procedures ensure
that corporate assets to which others have interests and rights
are properly distributed during dissolution proceedings. For
example, Corporations Code Section 6715 provides that during
dissolution assets held by a corporation upon a valid condition
requiring return, transfer, or conveyance, which condition has
occurred or will occur by reason of the dissolution, shall be
returned, transferred, or conveyed in accordance with the
condition. Staff notes that this bill will not impact property
subject to disposition pursuant to dissolution proceedings in
the Corporations Code because the terms of this bill limit its
reach to the unclaimed property of an organization that has
already dissolved or is no longer in existence.
4.Clarifying Amendments
The author offers the following amendments to clarify the
conditions under which the unclaimed or surplus property of a
subsidiary nonprofit organization may be claimed by a parent
organization.
On page 3, strike lines 1 and 2, and insert: "documents
provide that unclaimed or surplus property shall be conveyed
to the granting organization upon dissolution or cessation to
exist as a distinct legal entity."
Support : American Legion, Department of California; AMVETS,
Department of California; California Association of County
Veterans Service Officers; California Association of Nonprofits;
California State Controller; March of Dimes California Chapter;
Military Officers Association of America, California Council of
Chapters; Vietnam Veterans of America, California State Council
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : AB 2611 (Bocanegra) would require,
when the State Controller examines the records of a person the
Controller has reason to believe failed to report property that
should have been reported pursuant to the Unclaimed Property
Law, an examination of records to be conducted in accordance
with the generally accepted government auditing standards. This
AB 1712 (Gomez)
Page 7 of ?
bill would also require the Controller to adopt regulations, on
or before July 1, 2015, in accordance with those standards, as
to the policies and procedures governing the activity of
third-party auditors hired by the Controller. This bill is
pending in the Assembly Committee on Judiciary.
Prior Legislation :
AB 212 (Lowenthal, Ch. 362, Stats. 2013) lowered, from $50 to
$25, the threshold in the Unclaimed Property Law at which a
person holding escheated property must include in his or her
annual report to the State Controller the name and last known
address of the owner of any escheated property. This bill also
clarified that banks and financial organizations may impose a
service charge up to $2 to cover the cost of providing required
notices to owners warning them that their unclaimed property may
escheat to the state only if the property has a value greater
than $2.
AB 1011 (Salas, 2013) would have required the State Controller
to add interest, at specified rates, to the amount of any claim
paid by the Controller to an owner under the Unclaimed Property
Law. This bill died in the Assembly Committee on
Appropriations.
AB 1275 (Chau, Ch. 128, Stats. 2013) revised the Unclaimed
Property Law to only allow an owner of, instead of a person with
an interest in, property to file a claim with the State
Controller's Office for recovery of property that has escheated
to the state. This bill also revised the definition of "owner"
to remove a personal representative and include an estate
representative, conservator, or guardian.
AB 2117 (Niello, 2010) would have eliminated the regular
transfer of unclaimed property funds from the Abandoned Property
Fund to the General Fund, would have required the State
Controller to add an interest payment to any claim for unclaimed
property that the Controller pays to an owner, and would have
extended the escheatment period for most types of unclaimed
property from three years to five years. This bill failed
passage in the Assembly Committee on Judiciary.
AB 1291 (Niello, Ch. 522, Stats. 2009) made various reforms to
the Unclaimed Property Law (UPL) to strengthen property owners'
rights and ensure that property holders reasonably inform
customers about risks associated with leaving accounts dormant
AB 1712 (Gomez)
Page 8 of ?
and the potential for escheatment of property after a period of
inactivity.
SB 1319 (Machado, 2008) would have relieved a holder of
escheated property of liability if the holder complied with
notification requirements, would have increased civil penalties
for non-compliance with the UPL, and would have revised
notification requirements for holders of unclaimed property.
This bill was vetoed by Governor Schwarzenegger.
AB 378 (Steinberg, Ch. 304, Stats. 2003) reduced the escheatment
period from five years to three years for bank checks and
deposit accounts, and from three years to one year for wages and
salaries.
AB 1772 (Harman, Ch. 813, Stats. 2002) prescribed the notice and
information that a bank or financial institution must give to
owners of financial accounts that are about to escheat to the
state, and required the same notice by other holders of tangible
and intangible property subject to the UPL.
SB 673 (Speier, 2001) would have provided for notices to be sent
by mail from the State Controller to apparent owners of
unclaimed property, and for the Controller to take further
steps, including searches of other governmental records and
outreach to the general public, to alert owners that their
unclaimed property had escheated to the state. This bill was
held in the Assembly Committee on Appropriations.
Prior Vote :
Assembly Floor (Ayes 73, Noes 0)
Assembly Committee on Appropriations (Ayes 17, Noes 0)
Assembly Committee on Judiciary (Ayes 9, Noes 0)
**************