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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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Overstock Triumphs in Appeal of Delaware Qui Tam Decision

Posted By Administration, Thursday, July 9, 2020

On June 24, 2020, the Supreme Court of Delaware ruled on behalf of Overstock.com in a reversal of a 2018 Superior Court decision that awarded the state of Delaware more than $7 million in treble damages for Delaware False Claims and Reporting Act violations.

 

At issue in The State of Delaware ex. rel. William Sean French v. Overstock.com Inc. was Overstock’s relationship with Card Compliant LLC (previously CardFact), a third-party Ohio-based company used to issue gift cards and assume certain gift card responsibilities. The case came about when a former Card Compliant employee filed a qui tam (whistleblower) lawsuit, alleging fraud against the government. Dozens of other defendants were dismissed from the lawsuit or settled, leaving Overstock as the only defendant.  

 

Among the various allegations, the plaintiffs claimed that some defendants didn’t account for the transfer of liability in the manner their contracts specified. According to the state, the liability wasn’t truly transferred and, thus, defendants had the obligation to remit unclaimed property to Delaware but didn’t do so.

 

Overstock raised multiple claims on appeal. The court addressed only one – that the Superior Court misinterpreted the Delaware False Claims and Reporting Act and improperly instructed the jury that the knowing failure to file escheat reports when required to do so was no different than actively making a false statement.

 

Overstock argued that the failure to file escheat reports does not satisfy the Act’s requirement that a false record or statement be made or used to avoid, conceal or decrease an obligation to the government. The company also argued that it did not make or use any false record or statement in connection with gift cards that violated the Act.

 

The court agreed with Overstock on this point and reversed the Superior Court decision.

 

“In order for Overstock to be found liable for making a reverse false claim under the applicable 2009 statute, it must have submitted a false record or statement that gave the state the impression that Overstock either did not owe the state money or owed the state less money than Overstock was required to pay,” the Delaware Supreme Court wrote in its decision. “The absence of a record or statement cannot form the basis of a reverse false claim under 6 Del. C. § 1201(a)(7) (2009).”

 

Read the complete decision.  

Tags:  Delaware  False Claims Act  Litigation  Overstock  Unclaimed Property 

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Thinking Outside the Unclaimed Property Box: Other Implications Affecting Unclaimed Property

Posted By Contribution from Jennifer Waryjas, 2018/19 UPPO secretary, Thursday, May 31, 2018

As unclaimed property holders become more knowledgeable about their compliance responsibilities, they may risk exposure in tangentially related areas if their focus is too narrow. Holders may be completely compliant with unclaimed property requirements and get blindsided by a legal violation in another area related to their unclaimed property practices. For this reason, a well-rounded approach to unclaimed property compliance that goes beyond just state unclaimed property statutes is important. Following are several risk areas worth considering. 

 

Mergers and Acquisitions

There’s a common misconception with mergers and acquisitions that all unclaimed property obligations flow through to the purchaser if it’s a stock deal, and none of it flows through if it’s an asset deal. However, that is way too broad of a generalization. 

 

When a holder has become aware that a merger or acquisition has occurred, the holder must analyze the specific terms of the agreement to know what’s being purchased and what’s being retained – and whether there’s a provision addressing unclaimed property – is essential. 

 

There’s another misconception that unclaimed property is covered under the tax provisions in an M&A document. Unclaimed property is not a tax and is not included in the definition of tax in the standard definition of tax in most M&A agreements. Unless the deal team knows what unclaimed property is and why it matters, they’re not likely to include provisions responsive to potential unclaimed property obligations in the agreement. Likewise, unless the unclaimed property team understands the deal itself, it may make false generalizations and improperly take into account the effect of that a merger or acquisition has on your unclaimed property reporting obligations. 

 

Health Insurance Portability and Accountability Act

HIPAA is not typically associated with unclaimed property. However, for holders in the medical field or that work with the medical field, it’s important to understand HIPAA implications. HIPAA rules define what information can and cannot be released. Companies in the healthcare market deal with sensitive information. Patients often don’t want information about their health conditions shared without their consent. Unclaimed property holders need to take this into consideration. For example, when escheating uncashed checks to the state, question whether the information is revealing something that the property owner wouldn’t want made public. 

 

When dealing with an audit or a VDA, handling sensitive information can be even more complex. Auditors or VDA administrators may ask for information that, when shared, could violate HIPAA provisions. For example, a medical device provider specializing in an area that would be easy to associate with a specific medical condition could inadvertently release medical information when sharing requested information. Great care needs to be taken to ensure compliance not only with unclaimed property statutes, but also with HIPAA. 

 

Probate Law

When managing the unclaimed property treatment of securities, does the holder or third party administrator understand the implications of probate law?  Relatives of deceased property owners may contact transfer agents to let them know of the death and to inquire about transfer of the shares. Auditors may require that property be escheated, without delving into the legal implications of the contact with a related party under the general presumption that the owner has not made sufficient contact. However, under the relevant probate law, that person may in fact be the heir. Therefore, the holder or third party administrator should identify the relevant probate law to determine if the auditor’s request is proper, or if they should request to provide adequate time for resolution of the probate process before escheating those shares. 

 

False Claims Act

Under the False Claims Act, whistleblowers report a finding to the state and are rewarded for raising an issue about which the state was otherwise unaware. In the unclaimed property arena, False Claims Act cases take what could be a normal audit and transcend it into treble damages and attorney fees. 

 

When hit with a False Claims Act case, information not under privilege becomes public. Every email is traceable, every document becomes potentially discoverable. While a holder is unlikely to anticipate litigation, they can decrease risk of disclosing information if they have taken the proper steps to ensure an internal or third-party unclaimed property analysis is done under privilege. 

 

Nondisclosure Agreements

Information shared with an auditor during an unclaimed property audit could become discoverable in an unrelated lawsuit filed after the audit has been completed. This occurred in the case of City of Sterling Heights General Employees Retirement System vs. Prudential Financial, in which plaintiff shareholders subpoenaed the auditor for audit documentation. 

 

It’s important to make sure when signing nondisclosure agreements with an auditor conducting an examination that they include provisions outlining how long the auditor keeps nonpublic information and work papers, in what form and what they are doing with them when the audit is complete.

 

Taking a comprehensive view of unclaimed property compliance beyond only state unclaimed property statutes reduces risk and helps avoid costly surprises. Awareness of these areas that are especially prone to cause potential headaches is a significant step toward creating a truly well-rounded compliance program. 

Tags:  False Claims Act  HIPAA  mergers  probate law 

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