On January 10, 2018, a bill was introduced in the Washington State Legislature that would substantially enact the Revised Uniform Unclaimed Property Act (RUUPA) finalized by the Uniform Law Commission (ULC) in late 2016. The bill, House Bill (HB) 2486, is sponsored by Representative Paul Graves at the request of the ULC and would be effective beginning January 1, 2019. The House Committee on Finance conducted a public hearing on the bill on January 16, 2018, but only the sponsor testified and the bill was held for further consideration. While similar (or identical) to RUUPA in most respects, the bill contains a number of significant deviations. Below is a brief summary of several provisions that we flagged in our initial review and the potential impact on Washington holders. Continue Reading Washington Legislature Introduces Revised Uniform Unclaimed Property Act

Yesterday the Illinois House of Representatives voted to override Governor Bruce Rauner’s veto of Senate Bill (SB) 9, the revenue bill supporting the State’s Fiscal Year (FY) 2017-2018 Budget. Just days before the vote, SB 9 was amended to include a revised version of the Illinois Unclaimed Property Bill (House Bill (HB) 2603) on which we’ve previously reported. The new law (part of Public Act 100-0022) is known as the Revised Uniform Unclaimed Property Act (RUUPA). The RUUPA becomes effective January 1, 2018. Below is a brief summary of a few of the highlights of which holders should be aware.

Gift Cards, Loyalty Cards and Game-Related Digital Content Exempt

Unlike HB 2603, the Illinois RUUPA expressly excludes “gift cards” from the definition of “property” subject to escheat. Pulling (in-part) from the Uniform Law Commission (ULC) definition, “gift card” is defined in the Illinois RUUPA as “a stored-value card: (i) issued on a prepaid basis in a specified amount; (ii) the value of which does not expire; (iii) that is not subject to a dormancy, inactivity, or service fee; (iv) that may be decreased in value only by redemption for merchandise, goods, or services upon presentation at a single merchant or an affiliated group of merchants; and (v) that, unless required by law, may not be redeemed for or converted into money or otherwise monetized by the issuer.” Continue Reading Illinois Unclaimed Property Law Substantially Revised As Part of Revenue Package Supporting Illinois Budget

Earlier this year, an unclaimed property rewrite bill (HB 2603) was introduced in the Illinois House that would require holders to retroactively report a number of property types currently exempt. The provision would require a retroactive period of 10 report years. Items that are currently exempt that would become reportable include gift cards and property resulting from business-to-business (B2B) transactions. Continue Reading Illinois UP Bill Would Retroactively Require Reporting of Gift Cards and B2B Transactions

On Tuesday, July 14, 2015, at their Annual Meeting the Uniform Law Commission (ULC) completed their first reading of the Revised Uniform Unclaimed Property Act (RUUPA or the Act). While over half of the sections comprising the current draft of the Act were passed over due to strict time constraints imposed by the ULC President Harriet Lansing, the RUUPA Drafting Committee (Committee) did their best to focus the time they did have on sections they felt were most in need of feedback from the ULC Commissioners (Commissioners) as a whole. The Committee even went so far as to invite discussion by allowing American Bar Association (ABA) Advisors and National Association of Unclaimed Property Administrators (NAUPA) to explain their stances on hot button issues such as the derivative rights doctrine, life insurance provisions and the inclusion of a business-to-business exemption. Despite this attempt, Commissioner feedback was sparse (to non-existent) for a majority of the reading and was often technical in nature when provided. While over 250 of the 400 Commissioners were present at the Annual Meeting, only about half of those present attended the morning session of the RUUPA reading. After a lunch break, the afternoon session of the reading was even more sparsely attended, with less than 100 Commissioners present. While the turnout and participation was not ideal, the Committee provided some guidance to the Commissioners that may be useful to interested parties going forward.

Highlights

  • Committee Co-Chair Rex Blackburn made it clear that they would be considering the application of the derivative right doctrine, which generally stands for the proposition that state unclaimed property administrators cannot receive greater rights than those of the true owner, on a property-type basis (as opposed to a blanket inclusion or exclusion). Aside from the short ABA-NAUPA debate on the issue, there was no substantive discussion of the derivate rights doctrine.
  • A return to the 1981 Act’s 10-year statute of repose was discussed. Commissioner Raymond Pepe noted that the Committee reverted back to this based on the widespread abuse of statistical sampling. Several Commissioners were supportive of this change, and even encouraged the Committee to shorten this period further since the statute does not begin running until after the report was due. Nebraska Commissioner Harvey Perlman suggested that the Committee simply limit the use of abusive statistical sampling instead of establishing a statute of repose. The Committee responded that a bright-line rule is necessary here to provide certainty.
  • The Committee confessed that the current section on the conduct of audits (Section 20) needs to be broken out into four distinct sections in the next draft. A majority of the discussion in this area was on the use of contingent fee contract auditors—which is permitted in the current draft with numerous protections that seek to enhance the transparency of this process. Connecticut Commissioner David Biklen suggested that his state would not be able to audit holders without the use of contract auditors and expressed concern that the provision effectively reprimands state administrators. Reporter Charles Trost responded that NAUPA has approved these provisions and they are intended to shine light on the abusive practices of some (but not all) states.
  • In a somewhat rushed discussion of the administrative appeal alternatives, there was a consensus among participating Commissioners that review under the state Administrative Procedure Act (APA) is sufficient under Alternative B, as opposed to establishing an independent tribunal. As drafted, a state can elect to adopt an informal appeals process or require appeals to go through the state APA. Given the feedback from Commissioners, it appears highly unlikely that the establishment of an independent tribunal to review unclaimed property appeals will be contained in the final product.
  • There was a ripe discussion on the life insurance provisions contained in Section 3, and Co-Chair Michael Houghton announced to the Commissioners that he had met with representatives from the life insurance industry and NAUPA within the past week and believes that progress has been made and it is possible to reach an amicable outcome in this area. Despite this, several Commissioners expressed concern with the life insurance provisions as drafted and urged the Committee to not give preferential treatment to the life insurance industry simply because they are heavily regulated by the states. Along these lines, Commissioner Perlman cited to the fact that the Act is not deferential to other state laws for other industries or property types.
  • Safe deposit boxes were discussed and various Commissioners expressed the view that expanding the scope of these provisions beyond banks could be problematic and administratively burdensome for businesses like storage facilities and other businesses with lockers for guests to store belongings, such as spas, gyms or amusement parks. NAUPA Advisor Carolyn Atkinson responded that the safe deposit box provision was added at the request of banks and NAUPA has no interest in expanding the provision beyond this industry. Responding to this statement, Co-Chair Houghton said that Committee will reconsider the proposed expansion and likely will not include “other safekeeping depositories” in the next draft.

Practice Note

Rumors are circling that the Act may not be ready for a final reading at next year’s Annual Meeting in July 2016. The limited feedback provided by ULC Commissioner’s will likely not assist the Committee in reaching this goal. The Committee acknowledged that they still have a lot of work to do and the current draft was intended to be a discussion draft to elicit Commissioner feedback. With the next Committee meeting this October, now is the time to begin planning a response to the current draft and first reading. The authors have been active participants in the RUUPA discussions since the inception of the Committee two years ago. There is still room (and time) for significant improvements to be made and interested parties are encouraged to contact the authors well in advance of the next Committee meeting in October to develop a strategy.

Failing to attend last week’s Uniform Law Commission’s (ULC’s) Drafting Committee meeting to revise the 1995 Uniform Unclaimed Property Act (the Act) was worse than missing the 2012 Extravakranza.  On November 7 and 8, 2014, the Who’s Who of the Abandoned and Unclaimed Property world (AUP for insiders needing abbreviations for texting) met in Washington, D.C. for a two-day marathon to modernize state unclaimed property law.  The chair of the committee noted that several thousand pages of comments had been received so far and that attendance at the meeting was greater than any other issue the ULC pursued other than the Uniform Commercial Code.

The attendees hailed from a wide variety of stakeholders including: representatives from more than 20 states; major third-party auditors including several representatives of Kelmar; numerous trade associations including representatives of the securities and the life insurance industries, and general business associations such as the Council on State Taxation and the U.S. Chamber of Commerce.  Several representatives from the state of Delaware were in attendance; Delaware is a state that has historically not adopted any of the Uniform Acts and is considered one of the most aggressive states in interpreting its unclaimed property laws to the detriment of holders.

As to the Act itself, no policy or language is set in stone at this point, but the Drafting Committee took votes on numerous issues in order to give the reporter (the person responsible for actually drafting potential language for the Act) guidance.  The votes by the Drafting Committee were a mixed bag from a holder’s perspective, and a lot could still change before the final Act is adopted.   Unfortunately, but not surprisingly, the Committee rejected banning states from using contract auditors as well as rejected banning states from using contingency fees to pay such auditors.  The Committee also voted to allow both estimation and sampling in unclaimed property audits (though there was some confusion demonstrated by the Committee’s discussions and questions regarding the difference between these two).  The Committee left discretion with the reporter regarding the inclusion of guidelines and limitations on use of such audit techniques.  The Committee also rejected exempting from remittance low balance property – a proposal supported by the American Bar Association and a proposal that would be an administrative benefit to holders.

The Committee voted to change the interest provision on holders for unremitted balances from offering a flat rate option to solely a floating interest rate pegged to a T-bill + standard.  Currently some states have interest rates of 12 percent and 18 percent.  The National Association of Unclaimed Property Administrators lobbied to leave the interest rate up to the individual states because every state has different investment profiles.  This was ultimately a losing argument as it was noted that if any state is currently getting 12 percent or 18 percent on its investments, everyone wanted to know what that state was doing so they could do the same.  The Committee also voted to include, for discussion purposes only, a draft business-to-business exemption.  The reporter offered to use the Tennessee exemption as the starting point.  There was certainly no consensus that such an exemption should be included in the Uniform Act and the state representatives vigorously opposed such inclusion.  Holders interested in such an exemption should provide comments to the Committee offering both legal and policy reasons that such an exemption is necessary.

Finally, the Committee voted to include a fixed 10-year statute of limitations for audits of unclaimed property compliance by holders.   This seemed initially to apply regardless of whether a holder had filed a return or not, but there was later informal discussion that this might be revisited.

Several important issues were tabled without a vote of the Drafting Committee, leaving it up to the reporter to address some of the most controversial items, such as the burden of proof on a holder to demonstrate that a debt is not due and owing, and thus subject to remittance to a state as unclaimed property.

The life insurance industry and the securities industry were able to address, but not necessarily resolve, many of their unique problems.  Importantly, the Drafting Committee voted that states either would not be able to sell shares escheated to them, or if an owner came forward, must provide the owner with the value of the shares on the day the claim was made.  Finally, the Committee voted to include gift cards and stored value cards within the definition of property subject to remittance.  Possible card attributes entitling the card to exemption will be considered by the reporter to be discussed at the next meeting.

The Committee ultimately ran out of time and did not get to some significant issues such as penalties, other new property types, third priority rule (location of the transaction), dormancy periods, primae facie presumption of abandonment, and broad adherence or rejection of the derivative rights doctrine.

Up Next:  The next meeting of the Drafting Committee is February 27 – 28, 2015 in Washington, D.C.  At this meeting, the reporter plans to have at least the sections discussed at the November meeting drafted for review and further discussion.  After this meeting, a revised draft will be provided to the entire ULC at its annual meeting for a first review.  After the annual meeting, the draft will be sent back to the Drafting Committee for at least two additional drafting meetings.  The ULC’s 2016 Annual Meeting will be the first meeting at which a final vote on adopting the draft as a Uniform Act will be possible.

Practice Note:  It is important for holders to have some type of representation at these meetings for a variety of reasons.  For companies with significant unclaimed property issues based on unique types of property, such companies should actively be using this process to get either (or both) actual statutory language or ULC comments into the Uniform Act ultimately adopted.  Furthermore, because of the number of states in attendance, participation serves important educational purposes.  Holders can participate in various ways, including attending meetings in person; being represented through a trade association or using an outside attorney or other consultant; or by submitting written comments to the Committee.  Finally, even holders who do not have property types that create unique concerns should be following, and commenting if necessary, on the issues common to all businesses such as a business-to-business exemption and the scope of sampling and extrapolation allowed as part of an audit.