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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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Whistleblower Trend Raises Concerns for Unclaimed Property Holders

Posted By Administration, Thursday, October 10, 2019
Updated: Saturday, October 5, 2019

Government politics aren’t the only place whistleblowers are making news these days. Several recent whistleblower lawsuits aimed at unclaimed property practices signal a concerning trend for holders. 

 

Typically, whistleblower, or qui tam, cases under the False Claims Act come about when a company’s employee or former employee (referred to as the “relator”) alleges the company defrauded the government by intentionally paying the government less than what is owed. Allegations usually involve falsifying documents to mislead the government into thinking less money is due. 

 

“Unclaimed property cases don’t fit into the usual False Claims Act mold,” said Ethan Millar, partner with Alson & Bird LLP. “False claims statutes were not intended to apply to regulatory disputes between a state and a holder about when states’ unclaimed property laws apply. They were designed to be quasi-criminal anti-fraud statutes, which is why they impose severe penalties, including treble damages and attorneys’ fees.”

 

Unfortunately, recent qui tam cases have been based on mere regulatory disputes. Given the direction such cases have taken, it’s possible that any noncompliance with unclaimed property statutes could result in accusations of False Claims Act violations. 

 

Decided last September, The State of Delaware ex. rel. William Sean French v. Overstock.com Inc. represents a turning point for False Claims Act cases related to unclaimed property compliance. At issue in the lawsuit was Overstock’s relationship with CardFact (later acquired by Card Compliant LLC), a third-party company used to issue gift cards and assume certain gift card responsibilities. 

 

The case came about when a former CardFact employee filed a qui tam lawsuit, alleging that CardFact and dozens of its retail clients (including Overstock) had violated the Delaware False Claims and Reporting Act by failing to escheat unredeemed gift cards to the State of Delaware. 

 

Among the various allegations, the plaintiffs claimed that the contracts between CardFact and its clients were shams and that the retailers rather than CardFact were the true issuers of the cards, and were required to report them to Delaware, as their states of incorporation. All of the defendants in the case other than Overstock were dismissed or settled. 

 

“I don’t think anybody in the holder community believes that Overstock acted with knowledge or reckless disregard for the law,” Millar said. “Overstock’s actions were perfectly reasonable and consistent with what dozens of other retailers were doing in terms of structuring their operations to reduce unclaimed property risks. These structures were not hidden from Delaware. They were openly discussed at conferences, in Delaware audits and in Delaware voluntary disclosures, and nobody ever said you can’t do this kind of thing or have to do it a particular way. To the contrary, Delaware approved very similar structures for well over a decade prior to this case.” 

 

However, a jury decided the third-party “cardco” structure in this case was improper and that Overstock knowingly or recklessly disregarded the law and should have reported its unredeemed gift card balance, less related profits, to Delaware. Along with the decision came a hefty judgment for $7.2 million, including civil penalties, treble damages and other costs. In addition, the state is entitled to attorneys’ fees, though the amount of such fees is still in dispute. Overstock has appealed the decision.

 

This decision leaves the unclaimed property community wondering, if a company can be held liable under the False Claims Act under those circumstances, what other circumstances could be used to hold businesses liable.

 

Relators are motivated by the prospects of a huge financial windfall of 15-25% of any judgment or settlement resulting from their lawsuits. Unfortunately, their self-interests are advancing aggressive enforcement positions regarding unclaimed property laws that not even state administrators are promoting.

 

In another recent case, New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., the relator alleges that JPMorgan is liable under New York’s False Claims Act for failing to self-assess interest on late reported unclaimed property. Although the New York Office of Unclaimed Funds does not require holders to self-assess interest, the court ruled that, under New York’s Abandoned Property Law, such self-assessment is mandatory. JPMorgan takes the position that nobody in the industry self-assesses interest and that the states don’t expect or ask holders to do so.

 

“We’re now seeing these sorts of cases where relators are making novel legal arguments about what is required under state unclaimed property laws, and then trying to use this alleged violation of the escheat statutes as the basis for False Claims Act liability,” Millar said. “False Claims Act complaints are no longer confined to scenarios when a company is committing what looks like fraud.”

 

Relief for the unclaimed property community from False Claims Act lawsuits that exceed the law’s intent requires a court to address one big question: Should False Claims Act statutes even apply to unclaimed property? The False Claims Act is intended to apply when money is owed to the government. However, unclaimed property is owed to the property owner. The government acts merely as a custodian of the property. 

 

“I suspect any major False Claims Act case in the future will raise this issue,” Millar said. “There is strong authority in the False Claims Act that a custodial interest alone is not sufficient to trigger the False Claims Act. After all, the False Claims Act statutes were intended to apply to government funds, not to money owed to individuals.”

 

Until such a decision, unclaimed property holders can take steps to protect themselves. First, they should ensure their unclaimed property compliance policies, procedures and practices are current, well documented and thoroughly followed. Next, address “gray areas” where holders and states have differing perspectives. 

 

“There will always be gray areas because no unclaimed property law directly deals with every specific situation,” Millar said. “These gray areas may be exploited by relators. However, holders can protect themselves by obtaining legal opinions to support their positions. Even if a court later disagrees with the holder’s position, the fact that the holder reasonably relied on legal counsel can demonstrate that the holder did not act with the knowledge or recklessness for False Claims Act liability.”

 

Finally, respond to issues raised by employees. Companies should have policies and procedures in place for addressing employee complaints. Don’t retaliate against employees who raise potential issues, and always investigate credible complaints. Giving employees a meaningful complaint process and remediating problems early may reduce the likelihood of issues rising to the level of a full-blown qui tam lawsuit. 

Tags:  JPMorgan  litigation  Overstock  qui tam  trends  unclaimed property  whistleblower 

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Unclaimed Property Trends Shape Annual Conference Sessions

Posted By Administration, Monday, January 8, 2018

For better or worse, this is not a dull time to be an unclaimed property professional. In recent years, numerous state legislatures have considered (and often approved) updating their unclaimed property statutes. Courts continue to look at state unclaimed property practices, including controversial audit practices. And companies from coast to coast and border to border face the ongoing challenge of minimizing their unclaimed property risk.

 

Throughout 2017, UPPO helped members keep up with the trends affecting unclaimed property professionals. Many of these same trends shape the agenda for the 2018 UPPO Annual Conference, March 4-7, 2018, in Tampa, Florida.

 

Delaware

In February 2017, Delaware Gov. John Carney signed S.B. 13 into law, triggering significant changes to the state’s unclaimed property practices. Since then, the state has adopted new audit rules and encouraged holders currently under audit to convert to the state’s VDA program.

 

As we approach the one-year mark since S.B. 13, its effects continue to unfold. The Delaware Reforms: One Year Later session at the 2018 UPPO Annual Conference will examine the status of changes in Delaware and their ramifications. The Advocacy Efforts in the Age of Reform session will shine a light on UPPO’s work to promote fair unclaimed property requirements not only in Delaware, but in all states.

 

Audits

Fueled by activity in Delaware, controversy continues to swirl around state audit practices. The use of third-party auditors incentivized by contingency fees has been the focus of litigation and advocacy efforts. As states update their unclaimed property statutes, some, such as Michigan, are enacting new audit standards. Some states also help offer a fairer playing field for holders by providing the opportunity to appeal audit assessments. The examination process, particularly that of multi-state audits, often strains holder resources, as it stretches over several years.  

 

The Audit 101, Navigating Your Audit and Mock Trial sessions, along with several of the Industry Focus sessions, at the 2018 UPPO Annual Conference will provide attendees with insight into strategies holders can employ when facing examination.

 

Litigation

The courts have provided several favorable rulings for holders in recent months. Appeals court rulings in cases brought by Plains All American Pipeline, Bed Bath and Beyond, and Marathon Petroleum have yielded positive results. Similar cases, including those brought by Office Depot and the multi-state squabble over MoneyGram official checks, continue to proceed through the courts.

 

Attendees at the 2018 UPPO Annual Conference will learn about these and other relevant litigation trends during the Legislative and Litigation Update session.

 

Operational Practices

In addition to exploring unclaimed property trends, the 2018 UPPO Annual Conference agenda is packed with sessions to provide practical knowledge attendees can apply to be more effective at their jobs. Sessions will examine a wide range of topics, including: state reporting basics, managing due diligence, self-assessments, record retention, exemptions and deductions, fraud, policies and procedures, foreign jurisdictions and much more.

 

View complete details about educational sessions and other 2018 UPPO Annual Conference events. The early-bird registration deadline is Jan. 10, so register today for the best rate.

Tags:  audits  Delaware  litigation  trends 

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