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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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How does the UUPA address our issues?

Posted By Administration with contribution by Karen Anderson, GRAC co-chair , Thursday, July 28, 2016

If you missed the Revising the Uniform Unclaimed Property Act: Where do we go from here? webinar, here’s a synopsis of how the Uniform Law Commission treats UPPO’s priority issues in the approved draft of the Uniform Unclaimed Property Act.

Definition of holder

The definition of “holder” should make it clear that there can be only one “holder” of any item of unclaimed property, and the definition of “holder” should be revised to make that clear. UPPO believes this definition section should be accompanied by a comment that affirms that where one party has a direct legal obligation to the owner of the property, and another party has possession of the property and an obligation to pay or deliver it to the owner solely by virtue of a contractual relationship with the party who is directly obligated to the owner, it is the party who is directly obligated to the owner who is “primarily” obligated and hence is the holder for purposes of the act. Thus, the issuer of stock or bonds, and not a third party transfer agent or paying agent contracted by the issuer, would be the “holder” of the obligation and any unclaimed dividends on the stock or interest on the bonds. See, e.g., Clymer v. Summit Bancorp, 792 A.2d 396 (NJ 2002).

Current Status: Section 102 (12) the following definition of “holder” is in the draft:Holder means a person obligated to hold for the account of, or deliver or pay to, the owner property that is subject to this [act].”

Definition of owner contact/Indication of owner interest
UPPO recommends the definition of owner contact be expanded to include various activities that are commonly executed by owners.

 

Current status: Section 102 (21) The following definition of “owner” is in the draft:a person that has a legal, beneficial, or equitable interest in property subject to this [act], or the person’s legal representative when acting on behalf of the owner. The term includes a depositor, for a deposit, a beneficiary, for a trust other than a deposit in trust, and a creditor, claimant, or payee, for other property, and includes the lawful bearer of a record which may be used to obtain money, reward, or things of value.”

 

Section 210 states: “(b) Under this [act], an indication of an apparent owner’s interest in property includes:

(1) a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held;

(2) an oral communication by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held, if the holder or its agent contemporaneously makes and preserves a record of the fact of the owner’s communication;

(3) presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, or evidence of a receipt of a distribution made by electronic or similar means, with respect to an:

            (A) account;

            (B) underlying security; or

            (C) interest in a business association;

(4) activity directed by an apparent owner in the account in which the property is held, including accessing the account or information concerning the account, or a direction by the apparent owner to increase, decrease, or otherwise change the amount or type of property held in the account;

(5) making a deposit into or withdrawal from an account at a financial organization, including an automatic deposit or withdrawal previously authorized by the owner other than an automatic reinvestment of dividends or interest;

(6) subject to subsection (e), payment of a premium on an insurance policy; and

(7) any other action by the apparent owner which reasonably demonstrates to the holder that the owner is aware that the property exists."

Electronic owner contact

To make the owner contact trigger requirement more consistent with how holders and customers communicate with each other today, UPPO supports the acceptance of expanding owner contact to include electronic means, such as email, text messaging, automatic reinvestments of dividends or interest, electronic account access, etc.

Current status: Section 210(b)(1) states that an “indication of interest” is (among a list of other things), “a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held”. Section 102 (26) states a “record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.”

Due diligence timelines
UPPO advocates that the UUPA require that holders complete due diligence at least 60 days prior to the reporting deadline. This more open-ended due diligence timeline will provide a better chance for reunification of the property -- forestalling escheatment. Further, this time frame encourages greater outreach efforts by the holder and allows the holder to incorporate due diligence efforts sensibly into its processes.

Current status: Section 501 (a) - No change in the standard timing in the approved UUPA (not more than 180 days nor less than 60 days….) but a different schedule for securities and IRAs . For securities, if the owner does not receive communications from the holder by First-Class United States mail, the holder is required to send a notice by electronic mail not more than two years after the owner’s last indication of an interest in the property to attempt to re-establish contact with the owner and the owner’s continued interest in the property. If the holder receives notice that the electronic mail communication was not received, or if the owner does not respond to the electronic communication within 30 days, the holder is required to send a letter by First-Class United States mail seeking to re-establish contact with the owner. If that letter is returned undelivered (and a second communication if sent by First-Class United States mail within 30 days of return of the first mailing is also returned undelivered), then the three-year dormancy period runs from the return of the second consecutive mailing. At the end of the dormancy period, the holder is required to again attempt to contact the owner by electronic mail prior to reporting the property. 

Electronic due diligence

As long as the owner’s email address is verified by the owner as accurate, UPPO supports including a provision which allows holders to conduct due diligence via email and to collect responses to letters via web-based certification, email or call center activity.

Current status: Section 501 (b) – Holders are required to send owners that have consented to receive electronic-mail delivery, a notice by first-class United States mail and electronic mail.

Aggregate limits

UPPO recommends that reporting using aggregate limits be an option for items valued under $50 and that state administrators shall not be permitted to request or demand that the holder provide the name and address of the apparent owner of items property reported in the aggregate.

Current status: Section 501(a)(2) - While the amount is in brackets (indicating the dollar value is elective in the draft), Section 402 (b) states, “A report under Section 401 may include in the aggregate items valued under $[50] each. If the report includes items in the aggregate valued under $[50] each, the administrator may not require the holder to provide the name and address of an apparent owner of an item unless the information is necessary to verify or process a claim in progress by the owner.”

Election to make payment early

A provision should be included in the UUPA that would permit the holder to deliver property before it is presumed abandoned so long as the holder discloses to the state that the dormancy period for the property remitted has not expired. Under UPPO’s recommendation, prior approval by the administrator of such a remittance would not be required and the property would not be presumed abandoned until it would otherwise be presumed abandoned under the Act. Coupled with this recommendation is one to relieve the holder of all liability for any and all claims regarding the property upon remittance of the property to the state.

Current status: Sections 608 & 609 - Prior approval by the administrator is required, but if the administrator doesn't respond within 30 calendar days after the holder's request, the holder can submit the property. A condition of early reporting is that due diligence be performed. Property reported early is presumed abandoned and is considered reported in good faith triggering indemnification by the state.

Record retention requirements 
The following requirements should be added to the UUPA about record retention:

  • Changing the record retention requirement from 10 years to seven years
  • Records should be retrievable
  • A threshold for available sufficient records required during an audit should be added to provide some level of protection to holders (i.e. holders are required to produce 80 percent of sufficient records requested by auditors)

Current status: Section 404 of the draft provides that a holder required to file a report must retain for 10 years after the later of the date the report was filed or the last date a timely report was due to be filed the records containing: the information required to be included in the report, the date, place and nature of the circumstances that gave rise to the property right, the amount or value of the property and the last address of the owner if known to the holder, and if the holder sells, issues or provides to others for sale or issue in this state traveler’s checks, money orders, or similar instruments, other than third-party bank checks, on which the holder is directly liable a record of the instruments while they remain outstanding indicating the state and date of issue.

Estimation/Records
UPPO’s positions regarding estimations are listed below:

  • Insufficient records trigger - Estimations only be used in audits when holders cannot produce sufficient records.
  • Clear and consistent procedures - If estimations are to be used in state enforcement, creating clear procedures and standards for the use of estimations is a must.
  • Sampling method - After an independent study of the MTC statistical sampling method (which is the method NAUPA recommends using) UPPO supports the use of this model and a statement in the UUPA which adopts it.

Current status: Section 1003 (a) requires the administrator to promulgate rules governing the procedures and standards for examination including the use of estimation, extrapolation and statistical sampling. Further, in Section 1006 it states that if a holder being examined does not have records, “the administrator may determine the amount of property due using a reasonable method of estimation based on all information available to the administrator, including extrapolation and the use of statistical sampling….”.

Administrative appeals
Grounded in fairness is the willingness to grant an elective administrative appeals process for holders to pursue if it disagrees with the audit results produced by the state. Further, the arbiter of the appeal should be an independent party chosen through a fair process involving both the state administrator and the holder. Not only will this increase holders’ trust in the state enforcement policies but it provides a less burdensome and costly option to litigation.

Current status: Section 1008 and 1012 - Section 1008 permits a holder to request a meeting with the administrator during the pendency of the audit. Further, in Section 1101 – 1104 detail the options and procedure for post audit issue/liability resolution in the form of administrative review, judicial review and an informal conference.

 

Foreign addressed property

UPPO has continually advocated for the exclusion of all foreign address property from the UUPA,

as supported by the principles of comity and the Supremacy Clause, the Due Process Clause, and the Foreign Commerce Clause of the U.S. Constitution.

Current status: Section 103 - The Drafting Committee decided to not change the status quo and to retain the language in the 1995 Act:  “This [act] does not apply to property held, due, and owing in a foreign country if the transaction involving the property was a wholly foreign transaction.” However, Section 303 of the UUPA continues to permit the state of domicile to take custody of property arising from a domestic transaction if the last known address of the owner of the property is in a foreign country. 

Business to business exemption

UPPO supports the inclusion of specific language in the UUPA exempting business to business transactions from the UUPA.

Current status: The UUPA committee decided not to include a business to business exemption in the draft but will include a note that some states do have such exemptions/exclusions currently.

Securities definition

To enhance comprehensiveness and clarity, UPPO advocates for a definition of securities to be added to the UUPA. In addition, the Act must include a specific reference to an owner’s interest in a brokerage account held by a broker-dealer.

 

Current status: Section 102 (27) "(A) a security as defined in [cite to appropriate section of Article 8 of the Uniform Commercial Code; or (B) a security entitlement as defined in [cite to appropriate section of Article 8 of the Uniform Commercial Code], including a customer security account held by a registered broker-dealer to the extent that the financial assets held in the security account are neither registered on the books of the issuer in the name of, nor are payable to the order of nor specifically endorsed to, the person for which the broker-dealer holds the assets."

Securities liquidation

Liquidation of securities has proved to be detrimental to owners and holders. Therefore it’s recommended that the sale or liquidation of securities escheated to the state occur no sooner than three years from the date of receipt. In addition, state administrators should be required to send proper notice to owners regarding its custody of their property, and if a sale of the securities should happen the property should be sold at the current market value.

 

Current status: Section 702 - the administrator is prohibited from liquidating a security until three years after the administrator has received the security and given the owner notice. Under Section 703, if the administrator sells the security before six years after the security was delivered to the administrator and a claim is made before the end of the six year period and the administrator determines the claim is valid, the claimant of the security must be put in the same position as if the shares had not been sold – either by providing the claimant with the shares or cash equivalent plus any splits, dividends, etc. that would have accrued. Section 702 (b) requires that if the administrator sells a security listed on an established stock exchange they cannot sell it for less than the prevailing price on the exchange at the time of sale.

Securities – Non-transferable, Restricted and Worthless
Stock which cannot be sold or transferred, including restricted securities should be expressly exempted from the UUPA, as escheating it will provide no benefit to the owner or the state.

Current status: Section 102 (20) – Non-freely transferable securities and worthless securities are included under the Act. The act defines non-freely transferable security as “a security that cannot be delivered to the administrator by the Depository Trust Clearing Corporation or a similar custodian of securities providing a post-trade clearing and settlement services to financial markets or cannot be delivered because there is no agent to effect transfer. The term includes a worthless security.”  It defines (Section 102(33)) worthless security as, “a security whose cost of liquidation and delivery would exceed the value of the security on the date a report is due under this [act].”

Worthless and restricted securities are excluded from the definition of property. Non-freely transferable securities must be reported with an explanation but are not required to be delivered to the administrator until they become transferable.

Further, definitions of restricted security and worthless security were added to Section 102 as follows: Restricted: “Property does not include a security that is subject to a lien, legal hold, or restriction evidenced on the records of the holder or imposed by operation of law which restricts the holder’s or owner’s ability lawfully to receive, transfer, sell or otherwise negotiate the security.” Worthless: “a security for which the cost of liquidation and delivery would exceed the value of the security on the date a report is due under this act.”

In Section 402 (a)(9) it is stated that a “non-freely transferable security” must be identified in the holder’s unclaimed property report along with an explanation of why it is such a security.

Electronic reporting
For the convenience of state unclaimed property departments and holders, holders should not be required to submit paper reports. It’s recommended that modern technology should be used to make the reporting process more efficient and secure.

Current status: Section 401 (a) – “…the administrator may not require the holder to submit a paper report.” Also, in Section 402 (2) the draft language now states that the report must be in a “secure electronic format” approved by the administrator.


Reporting deadlines

To achieve consistency among the states, UPPO advocates for creating a common reporting deadline of November 1 for all non-life insurance companies and May 1 for life insurance companies.

Current status:  Section 403 (a) and (b) - The reporting deadlines are as follows:

1. All holders except insurance companies – Before 11/1

2.  Life insurance companies – Before May 1

De minimis

UPPO recommends that property valued under $50 not be required to be reported and remitted.

 

Current status: The Drafting Committee did not include a de minimis amount exclusion in the draft.

 



About the contributor

Karen Anderson, Deputy Chief Compliance Officer at Keane and UPPO Government Relations and Advocacy Committee co-chair has been working in unclaimed property since 1988. She assists Keane’s clients in maintain compliance-related data. Karen has contributed her immense knowledge of the industry, deep understanding of legislative trends and the legislative process to UPPO’s ULC advocacy initiative and other UPPO advocacy projects. She holds a J.D. from Loyola University of Chicago.


 

More information
Here's an issues matrix which compares the approved UUPA to a number of UPPO's positions
What are UPPO members saying about the UUPA?

What’s next for the UUPA? 


Tags:  reform  ULC  unclaimed property  UPPO  UUPA 

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What’s next for UPPO & the Uniform Unclaimed Property Act?

Posted By Administration, Tuesday, July 26, 2016

The unclaimed property community has been speculating and talking about what the Uniform Unclaimed Property Act (UUPA) will mean for holders since 2013. Now that the Uniform Law Commission (ULC) has approved the UUPA, we can shift our conversation out of the hypothetical and into the practical. Here’s what we know so far, and what we can expect from the UUPA.
 

The text of the approved version is final.
There’s still work to be done on the UUPA but the legislative text (the text that will become law if states decided to enact the UUPA) is set. Next up on the ULC’s to-do list is to add official comments and legislative notes to the UUPA. Legislative notes provide a roadmap for legislators and officials interpreting the legislation, whereas official comments provide the context of the drafting committee’s discussion and intention. These are critical inclusions to prevent or minimize misinterpretation by holders, state unclaimed property departments, and auditors.

Don’t expect immediate action.
Though the UUPA has been approved by the ULC, it won’t likely be ready for state legislative introductions until the middle of the 2017 legislative season or even the 2018 season. Just because you won’t need to start changing your policies and processes just yet, it’s wise to review the UUPA and get to know the changes and additions.

Has the American Bar Association approved the Act yet?
No, the ABA hasn’t approved the Act. Coinciding with the drafting of legislative commentary, the ULC will send the approved UUPA to the ABA for review. Within the next month or two, the Unclaimed Property Subcommittee of the ABA’s Business Law Section will review the Act and make a recommendation whether the ABA should support it. During ABA’s 2017 Midyear Meeting on Feb. 1-7, 2017, the House of Delegates, ABA’s policy-making body, consider the subcommittee’s recommendation, review the Act and decide whether to formally support it.

“It is my understanding that the resolution posed to the House of Delegates with respect to uniform acts is whether the Act is ‘an appropriate Act for those states desiring to adopt the specific substantive law suggested therein’,” says Ethan Millar, ABA advisor to the ULC Drafting Committee to Revise the Uniform Unclaimed Property Act. “This language recognizes the reality that the Uniform Act is not an ideal or model act and will inevitably contain at least some provisions or policies that may not be supported by the ABA, and thus the resolution, if adopted, does not commit the ABA to endorsing every individual provision and policy choice within the Act. Nonetheless, if the Act raises significant constitutional concerns, that may present a serious obstacle to adopting the resolution. After all, one of the primary purposes of the ABA is to uphold and defend the U.S. Constitution.”

Will UPPO remain involved?
Yes! We will remain involved in the legislative commentary drafting process. UPPO has communicated our interest in staying involved in the process and the Government Relations and Advocacy Committee (GRAC) is leading the initiative to identify areas for potential misinterpretation and drafting legislative notes to recommend the ULC include in the final UUPA.

“By providing proposed commentary to the commission to include in the Act, we are trying to secure clarifications regarding provisions that may be somewhat ambiguous,” says Kendall Houghton, GRAC co-chair. We may also be attempting to clarify the intent of the drafters in making a policy decision.”

Along with developing proposed commentary, UPPO will develop its advocacy plan for the Act. This will be essential for not only promoting aspects of the Act that are favorable to the holder community, but also opposing sections that are not so favorable.

“The next milestone for the holder community will be when legislatures introduce this draft of the revised UUPA as a bill. We want to be as prepared as possible,” says Karen Anderson, GRAC co-chair. We want to make sure we’re vigilant and that we not only react but that we’re ready to be proactive, making sure that certain sections will be adopted and that others may not be as prevalent in adoption. That piece will be very important.”

Where does UPPO stand on the UUPA?
“UPPO has been committed to being a part of history during this important time in the unclaimed property industry,” says Heela Popal, UPPO president. We have been actively participating in the drafting meetings, voicing our thoughts and ideas on sections that are important to the holder community, and communicating our revisions directly to the ULC. We received a lot of feedback from our members, and wanted to make sure they were being heard and practicality and clarity was brought to the RUUPA. Based on last week's approval of the Act by the ULC, UPPO’s involvement to revise the Act is not over. We want to be sure that the intention of the issues at risk of misinterpretation or the lengthy discussions had during the process are articulated in the legislative commentary. With that in mind, UPPO is encouraged by the approved version, and believes it will provide clarity and modernization to holders’ ability to achieve unclaimed property compliance.”

UPPO members are encouraged to review the final draft of the revised UUPA. Additional pieces about the UUPA and how it addresses UPPO’s priority issues will be published to the blog later this week.  We will continue to provide updates on the status of UPPO’s and the ULC’s next steps as they proceed.

 

Tags:  reform  ULC  unclaimed property  UUPA 

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ULC holds its final drafting committee meeting to revise the uniform unclaimed property act

Posted By Administration, Thursday, March 10, 2016

The Uniform Law Commission (ULC) Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee) met in Dallas, Feb. 26 – 28, to discuss outstanding issues in the Revised Uniform Unclaimed Property Act (RUUPA). 

 

Here’s an update on how the draft addresses the top five priority issues identified by members in a survey conducted in July 2013.

 

Priority 1: Due diligence timelines
Section 501
As reported in July 2015, the draft reflected a flexible due diligence timeline that would have required holders to send owner notifications no less than 60 days before filing the report. After the October 2015 drafting committee meeting, the committee reverted to prior language which requires holders to send due diligence letters “not more than 180 nor less than 60 days before filing the report”.

 

Priority 2: Record retention requirements
Section 404
Throughout the revision period, UPPO has consistently advocated for a seven year record retention requirement, and the drafting committee has held steady at 10 years. At the conclusion of the February 2016 meeting, the draft still includes a 10 year record retention requirement.

The information that holders need to retain for 10 years is:

(1) the information required to be included in the report;
(2) the date, place, and nature of the circumstances that gave rise to the property right;
(3) the amount or value of the property; and
(4) the last address of the apparent owner, if known to the holder.

Priority 3 & 4: Electronic owner contact & definition of owner contact
Section 208
Modernizing the RUUPA to acknowledge modern technology, security concerns, and communication methods was one of UPPO’s main goals in the reform process. Expanding the activities considered as eligible indications of interest, to reflect how customers interact with their financial assets and financial institutions was a priority for UPPO. 

 

Here are the activities considered as owner contact in the current draft:

 

  • Oral communication by the owner to the holder concerning the property or the account that holds the property
  • Presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, including evidence of a distribution made by electronic means with respect to an: investment account, underlying security, or interest in a business association
  • Owner directed activity, including accessing the account in which the property is held, increasing, decreasing or changing the amount held in the account or type of property held in the account
  • Making a deposit into or withdrawal from an account held at a financial organization including an automatic deposit or withdrawal previously authorized by the owner
  • Any other action by the owner which reasonably demonstrates to the holder that the owner is aware that the property exists

Priority 5: Jurisdictional reporting deadlines
Section 403
The reporting deadlines have not changed since the previous draft, and create a standard reporting deadline of November 1 and May 1 for insurance companies.


UPPO is working quickly to prepare one final written submission to the drafting committee for consideration. We’ll update the blog with a summary of the submission once it’s received by the drafting committee. If you want to hear more about how the latest RUUPA draft approaches UPPO’s priority issues, attend the 2016 Annual Conference session “Where the ULC stands on our issues” scheduled for Tuesday, March 22; 11:15 a.m. – 12:15 p.m.

 

Tags:  reform  ULC  unclaimed property  UUPA 

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Two sessions focusing on ULC reform developments

Posted By Administration, Tuesday, January 12, 2016

The Uniform Law Commission’s (ULC) effort to revise the Uniform Unclaimed Property Act (RUUPA) has captured the attention of the unclaimed property profession since it picked up the issue in 2013.  As we draw closer to the project end date of July 2016, there’s much that’s not clear and awaiting a decision. At the 2016 UPPO Annual Conference, March 20 – 23; Palm Springs, Calif. there will be two sessions dedicated to talking nothing but ULC. These sessions feature the leaders in unclaimed property reform, and represent unique stakeholder perspectives. If you’re interested in staying in the know, add at least one of these sessions to your personal conference schedule.


Unclaimed Property Reform: Where are we now?
Monday, March 21; 9:15 – 10:15 a.m.
The stakeholders  part of the effort to revise the Uniform Unclaimed Property Act will participate in a moderated, roundtable discussion to share viewpoints on the key issues being grappled with in the Uniform Law Commission forum. This session is sure to be engaging and informative with the number of perspectives represented.


Panelists:
Carolyn Atkinson, advisor to the ULC drafting committee on behalf of the National Association of Unclaimed Property Administrators
Kendall Houghton, UPPO Government Relations and Advocacy Committee (GRAC) co-chair and UPPO’s ULC spokesperson
Michael Houghton, ULC drafting committee co-chair
Ethan Millar, advisor to the ULC drafting committee on behalf of the American Bar Association
David Westmark, Thrivent Financial 


Moderator:
Debbie L. Zumoff, UPPO ULC work group chair


ULC session: Where the ULC stands on our issues
Tuesday, March 22; 11:15 a.m. – 12:15 p.m.
Interact with and hear from some of UPPO’s advocacy leaders during this session which will catch you up on where the RUUPA stands on the issues that UPPO members identified as priorities. UPPO has been engaged in the ULC reform process in various capacities, and have been driven by representing our members and the issues most important to you.  


Speakers:
Karen Anderson, UPPO GRAC co-chair
Michelle Andre, UPPO GRAC co-chair
John Coalson, UPPO GRAC member
Kendall Houghton, UPPO GRAC co-chair and UPPO’s ULC spokesperson

Early bird registration savings end Jan. 27 -- don’t miss out and register today!

 

 

Tags:  reform  ULC  unclaimed property  Uniform Unclaimed Property Act 

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The Derivative Rights Doctrine: A Primer

Posted By Administration, Thursday, November 5, 2015

When a state takes possession of unclaimed property, it does so as a custodian of that property, taking on the absentee owner’s role. The Derivative Rights Doctrine is the premise that the state’s rights are then equal to those of the owner. Acting on behalf of the owner, the state should have identical rights to the property that the owner would otherwise have.

 

Actions taken by the states regarding unclaimed property, however, often surpass what original property owners could do on their own. As a result, the Derivative Rights Doctrine has been a point of contention between the holder community and the states as the Uniform Law Commission (ULC) works on the Revised Uniform Unclaimed Property Act (RUUPA).

 

How does the Derivative Rights Doctrine apply to unclaimed property?

One of several areas where the Derivative Rights Doctrine applies is the use of gift cards. When a company issues a gift card, it has an obligation to provide goods or services to the bearer of the card. Someone possessing a $100 Target gift card is entitled to $100 worth of Target merchandise, for example. It does not, however, entitle the gift card owner to $100 in cash from Target. If that gift card is unused, and a state requires Target to escheat $100 in cash so it can return that cash to the owner, it exceeds the rights of the owner, who would not have the authority to claim that cash from Target directly.

 

“Target isn’t a bank,” says Ethan Millar, partner with Alston & Bird LLP and American Bar Association (ABA) advisor to the ULC Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee). “It isn’t holding cash for the owner of the gift card. The money belongs to Target. It shouldn’t have to pay that money to the state as unclaimed property. By requiring that, the state interferes with the contractual arrangement between the owner and Target, and converts an obligation to provide merchandise into an obligation to pay money”

 

Similar examples where the Derivative Rights Doctrine applies are movie tickets, prepaid spa packages and prepaid personal training sessions—anything where someone pays money in advance for a service that isn’t rendered or a good that isn’t delivered. Typically, either contractual terms or a legal statute of limitations dictates how long an owner has the ability to claim the purchased goods or services. State unclaimed property laws, however, are increasingly overriding these terms.

 

“Unclaimed property laws in many states have adopted contractual anti-limitations provisions,” Millar says. “These provisions attempt to nullify contractual limitations, such as expiration dates, regardless of the circumstances. However, there are already consumer protection laws that govern the validity of contractual limitations provisions. Thus, if businesses are exploiting someone, consumer protection laws already provide protection. The unclaimed property laws ignore this and seek to eliminate contractual restrictions regardless of what was agreed to and regardless of what is legally permissible under the consumer protection laws, effectively overriding these other laws.”

 

A personal trainer may offer a promotional package of 10 prepaid sessions for $500 to be used within six months. If at the end of that time, the purchaser has used only seven sessions, both parties understand that the contractually agreed upon time period has run its course. Under the Derivative Rights Doctrine, the three unused sessions would not be considered unclaimed property. The obligation expired, so the owner is entitled to no compensation. If unclaimed property laws require the business to escheat the value of those unused sessions, it is overstepping the original contract and giving the owner something not covered under the agreement.

 

The Derivative Rights Doctrine also applies when considering which party has the legal burden of proving a debt exists. Debtor/creditor laws say the burden of proof falls on the creditor—in the case of unclaimed property, the owner. Under the Derivative Rights Doctrine, the states should also have the burden when acting on behalf of unclaimed property owners. However, according to Millar, the states argue that the mere existence of a credit on a company’s accounting records shifts the burden to the holder to disprove that the credit represents unclaimed property. A creditor/owner doesn’t have the right to shift the burden of proof by simply pointing to the accounting records of a debtor/holder, so neither should the states under the concept of derivative rights.

 

Derivative Rights Doctrine in ULC drafting committee discussions

Though other holder groups, including UPPO, have supported the Derivative Rights Doctrine through written and verbal commentary to the drafting committee, the ABA is the leader in the push to include the Derivative Rights Doctrine in the RUUPA. In comments to the ULC, the ABA requests that the RUUPA incorporate the Derivative Rights Doctrine to ensure states truly represent unclaimed property owners but do not receive additional property rights.

 

“The purpose of the UUPA is simply to return unclaimed property to the rightful owner and not be used as a ‘back door’ to impose additional substantive regulations that may impact the debtor’s obligations to a creditor,” ABA writes.

 

NAUPA takes issue in its comments to the drafting committee with the premise that states’ rights should be identical to those of the unclaimed property owners they are representing. NAUPA also warns that making states’ unclaimed property rights equal to those of owners would spell the end of meaningful unclaimed property laws.

 

“Because a holder can easily invent some business purpose for any restriction on its obligation to the owners, surely all would do so,” NAUPA writes. “Any holder issuing a payment instrument or credit of any form—check, rebate, refund, traveler check, money order, stored value card, credit balance—would require that the instrument or credit be cashed or used within a time period fixed so that the holder can confiscate the funds.”

 

The ULC is seeking a balance between the opposing views, as gaining support from both sides is essential to the RUUPA’s adoption. Support from states and holders will likely play a significant factor in whether lawmakers ultimately embrace the revised act. Both have the ability to put pressure on lawmakers, so the ULC faces the difficult task of trying to draft an act that both sides will support and achieve the ultimate goal – uniformity.

 

The most recent RUUPA draft addresses the Derivative Rights Doctrine in its discussion of gift cards, but not other key issues, such as statutes of limitation, contractual limitations and burden of proof. The drafting committee continues to work on its next draft, which will likely be completed before its March 2016 meeting.

 

More Resources

Debrief of UPPO’s ULC Issues Refinement Submission

UPPO’s Advocacy page

 

Tags:  ABA  Derivative Rights Doctrine  NAUPA  reform  revised uniform unclaimed property act  RUUPA  ULC  unclaimed property  Uniform Law Commission 

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