Escheat Counseling and Unclaimed Property Litigation
Every state and territory of the United States has escheat or unclaimed (abandoned) property laws. Escheat-derived revenues generate windfall income for the states, and state unclaimed property administrators have exhibited accelerating interest and vigor in enforcing unclaimed property laws and conducting unclaimed property audits. Yet many companies have not developed comprehensive unclaimed property procedures, and members of senior management are often unaware that unclaimed property law compliance may impact the accuracy of a company’s financial reporting or that such liabilities should be a factor in evaluating merger and acquisition targets.
Sidley’s Escheat Counseling and Unclaimed Property Litigation group is a cross-disciplinary team that includes lawyers from our regulatory, securities, tax, insurance and litigation groups. This mix allows us to provide clients with unclaimed property advice and audit defense legal support with a nuanced understanding of the day-to-day practices and challenges faced by holders of abandoned property. We regularly counsel financial institutions, insurance companies, manufacturers, telecommunications providers, and retail and consumer companies with respect to unclaimed property law compliance. Our group has decades of experience working with state treasurers and unclaimed property administrators throughout the country. Most significantly, we are one of the few firms that have regularly litigated disputes relating to unclaimed property audits and liabilities, including defending actions initiated by state treasurers, qui tam plaintiffs and property owners.
Unclaimed Property Compliance Counseling
Sidley routinely advises clients with respect to implementing and improving existing unclaimed property programs and also provides legal advice in evaluating whether particular and novel property types are subject to escheat and if so, the appropriate procedure for doing so.
We provide clients with strategic advice in addressing late escheatment or failures to escheat particular property types. Our team can assist clients who have identified property that has not been properly reported in the past, including development of a strategy to report such property through voluntary disclosure and other arrangements. Among other matters, we have assisted clients with compliance issues in the following circumstances:
- Advised financial institutions, including banks, securities firms, insurance companies and some of the nation’s largest payment processors on compliance with all 50 states’ abandoned property laws, as well as related issues raised by certain business practices associated with dormant accounts;
- Counseled clients on loyalty and rewards programs and when such programs may give rise to unclaimed property;
- Counseled financial institutions and technology companies on the legal status of a broad range of property types, including an array of emerging financial and investment products as well as new transaction and account types; and
- Participated in the design and implementation of customized compliance and remediation procedures.
Audit Defense and Advice
We regularly represent clients in connection with single state and multi-state audits, including audits conducted by third-party audit firms, such as Kelmar, Verus, UPCH and Audit Services. We have represented a diverse range of clients, including telecommunication, insurance and manufacturing companies and banks, in general ledger audits and in more targeted audits and industry sweeps. In doing so, we work closely with the internal accounting function, as well as external unclaimed property auditing defense firms we have retained in consultation with our clients when appropriate in responding to audits and resolving disputed issues. Among other engagements, our unclaimed property audit defense experience includes:
- Representing life insurance companies in multi-state unclaimed property examinations relating to use of the DMF to identify deceased insureds with unpaid death benefits;
- Representing health insurance companies and a diagnostic laboratory in Verus multi-state healthcare unclaimed property examinations;
- Representing publishing companies, including magazine and music publishers, in audits relating to refunds, royalties and other unclaimed property types;
- Representing public companies in general ledger and securities audits;
- Representing pension plan and 401(k) administrators in multi-state audits related to dormant accounts;
- Representing utility companies in multi-state audits relating to refunds and deposits;
- Negotiating settlement agreements, VDAs and non-disclosure agreements with states and third-party audit firms; and
- Conducting internal investigations of potential abandoned property law violations, in response to “forced audits” by states and their outside auditors, as legal support for a voluntary self-audit pursuant to a VDA (voluntary disclosure agreement) and in the context of whistle-blower claims by a former employee.
Unclaimed Property Related Litigation
Members of our group have represented companies in a diverse range of litigation matters arising under or relating to the enforcement of state unclaimed property laws. Those litigations include the following:
- Represent multiple insurers in litigation filed by West Virginia State Treasurer alleging unclaimed property reporting obligations based on decades long failure to report property at insureds’ date of death;
- Represented defendants in litigation filed by California State Controller seeking to enforce compliance with audit obligations and in declaratory relief claims challenging audit scope;
- Represented plaintiff in declaratory relief lawsuit successfully challenging constitutionality of new Unclaimed Property related law in Kentucky;
- Represent defendant against claims by Illinois State Treasurer seeking to enforce unlawful unclaimed property audit demands;
- Represent plaintiff in declaratory relief lawsuit challenging amendments to Florida unclaimed property law;
- Represented several financial institutions and insurers in a number of qui tam lawsuits alleging failure to escheat unclaimed municipal bonds, pension plan distributions and death benefits that purportedly violated state false claims acts in California, Florida, Illinois and Minnesota; and
- Represented financial institutions and technology companies in class actions alleging that companies wrongfully escheated stock and dividends causing class members’ losses.