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Leading you through the financial and legal risks of unclaimed property law

With fall filing season on the horizon, do holders face added risk based on pending Raw Data Analytics case in New York?

In the late ‘90’s, the National Association of Unclaimed Property Advisors (“NAUPA”) endorsed a nationwide amnesty program in order to increase compliance with state unclaimed property laws.  At the time, most holders were unaware of their annual escheat filing obligations and compliance was not widespread.  

NAUPA reasoned that educating holders on their statutory filing requirements, while waiving any interest or penalties for late filings, would result in significantly increased compliance.  NAUPA was correct.  

As a result of this initiative, hundreds of millions of dollars was reported to the states, without the need for the states to pay huge sums to their auditors.  Better yet, for the first time ever, many holders set up effective compliance programs ensuring compliance going forward.  The states’ choice to embrace of measures encouraging voluntary filings (such as the automatic waiver of interest for all property reported voluntarily) was well-rewarded.  However, a recent decision by the Supreme Court of the State of New York[1]has the potential to erase all of this goodwill and create compliance risks for all holders of unclaimed property.  

The challenge to the states’ amicable posture comes from an unlikely place: an action that on its face is designed to benefit the state.  The decision in the Raw Data Analytics case addressed the question of whether or not the holder in the case was requiredto pay interest on late filings of voluntarily-reported abandoned property.  

More specifically, the court looked at whether or not JPMorgan Chase & Co. was obligated to self-assess interest on late property voluntarily reported to New York, rather than pay interest only if New York assessed interest.  If decided in the affirmative, holders filing abandoned property reports in New York would face increased compliance obligations.  Although the procedural posture of the case renders the decision non-binding at this stage of the proceedings, the judge’s interpretation of New York’s Abandoned Property Law (“APL”) could be instructive on the ultimate disposition.  

Significantly, the judge’s reasoning here may indicate how similar complaints filed elsewhere would be analyzed and decided — potentially increasing unclaimed property compliance obligations for holders nationwide.  Further, the decision affects not only the question of the imposition of interest, but also whether or not an unclaimed property administration has discretion in implementing its enabling statute.      

Raw Data Analytics LLC (the “Relator”) filed its complaint in 2015 on behalf of New York under the state’s False Claims Act (“FCA”).  At its core, the New York FCA and the parallel federal statute aim to target fraud on the government by imposing steep penalties and treble damages for any violations.  

The FCA empowers private parties to act as whistleblowers by filing a complaint on behalf of the government. After an investigation, the government can decide whether or not to intervene and litigate the case.  Where the government declines to intervene, as in the instant case, the Relator/whistleblower may still proceed with the claims, but chances of success are reduced.  At issue is whether JPMorgan Chase & Co.’s failure to self-assess interest is a false statement with respect to what was due to be escheated, making the omission a false claim actionable under the FCA.

JPMorgan Chase & Co. filed a motion to dismiss after the court asked the Office of the State Comptroller (“OSC”) that administers New York’s APL to opine on the obligation of a holder to self-calculate and pay interest on property that is not reported timely.  Both the response of the OSC as well as guidance published by its Office of Unclaimed Funds (“OUF”) indicate that the imposition of any interest or penalties is within the discretion of the Comptroller.  

Following the response of the OSC, the court sua sponte converted the motion to dismiss into a motion for summary judgment. An award of summary judgment is appropriate only when no issues of material fact exist, entitling the moving party to judgment as a matter of law.

Based on the guidance issued by the OSC and past practice, JPMorgan Chase & Co. argued that the duty to pay interest is a contingent obligation and that nothing in the statute expressly requires holders to self-calculate and pay such interest.  Relying on the plain language of the APL, the Relator maintained that the obligation to pay interest arises automatically when a holder is late in paying or delivering property to the OUF and therefore cannot be contingent.  Section 1412 of the APL states that “any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller… shall pay to the people of the state interest on the amount or value of such property.”[2]  

The court agreed with the Relator, finding that “the language of the APL is abundantly clear: it states that any person who fails to deliver or pay property to the state ‘shall pay… interest’”.[3]  Despite its emphasis on the plain language of the statute, the court noted that use of the word “shall” was not outcome-determinative.  Instead, the inquiry focused “on whether there is some sort of step in between the statutory violation and a … duty to pay; and, notably, whether that step involves some sort of discretionary act from the government … [t]here is no intermediary step here”.[4]  

Ignoring the OUF’s actual long-standing practice of waiving interest, the court stated that the OSC’s discretionary ability to waive interest is the exception and not the rule. According to the court, “the obligation to pay is qualified only by a separate discretionary waiver; the statute does not provide for a discretionary waiver or other act in the first instance…”.[5] In other words, in order to have the power to waive the interest payments, the Comptroller first has a right to receive such payments.    

Ultimately, in denying the motion for summary judgment, the court concluded that JPMorgan Chase & Co. was unable to establish that there was no obligation to self-calculate and pay interest.  The case may therefore proceed to trial.  It is important to note that the majority of unclaimed property statutes throughout the country use nearly identical language with respect to a holder’s obligation to pay interest.[6]  Nevertheless, in practice, holder compliance with respect to the payment of interest is often driven by how a state has previously handled any assessments. Reconsideration of this modus operandi may be warranted given the analysis set forth in this case.

What is next for the states? While written guidance from New York and other states would be helpful before the upcoming reporting season, reliance on state practices and policies that are inconsistent with statutory language may not be sufficient protection.  Nevertheless, specific administrative guidance would assuage holders’ concerns regarding reporting in November.  State clarification of reporting obligations would also provide protection from third-party litigation and ensure uninterrupted reporting practices, which clearly benefits the states and owners.     

What is next for holders? Should holder reports this fall be accompanied by letters alerting the states that, consistent with the states’ practices not to require the holder to calculate and pre-pay interest on property that is reported voluntarily, but late, that interest has not been paid? Should this letter include a request for a waiver of interest that might be due?  Should holders make extraordinary efforts to deliver all property to owners, rather than reporting to the states in the first instance? Should holders play audit roulette and take the chance that they will not be audited?  After all, the states typically pay auditors 12% of findings and interest is usually 10%.  This could create a risk worth taking, albeit one that does not benefit either the states or owners.  Should holders accrue for interest assessments that could be forthcoming for reports previously filed?  If so, what is the lookback for such assessments?

NAUPA had it right in the ‘90’s:  policies that encourage, rather than punish, voluntary compliance benefit states, owners and holders.  To the contrary, the pending FCA case could benefit the Relator.  However, it could significantly negatively impact states, owners and holders.  Such a result clearly was not intended by a statute designed to protect a state and its citizens.           


[1]Although a state supreme court is typically a court of last resort, in the State of New York, the supreme courts are trial-level tribunals.

[2]N.Y. Aband. Prop. Law § 1412(2) (2019) (emphasis added).

[3]New York ex. Rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., N.Y. Sup. Ct. No. 100271/2015 at *9 (Aug. 30, 2019) (emphasis added).

[4]Id.

[5]Id at *10.

[6]See e.g., “Any person who fails to pay or deliver property within the time prescribed by this chapter shall be required to pay interest at the rate of 1 1/2 % per month or fraction of a month on the property or value of the property from the date the property should have been paid or delivered.” D.C. Code § 41-135(a) (2019) (emphasis added); “In addition to any damages, penalties, or fines for which a person may be liable under other provisions of law, any person who fails to report or deliver unclaimed property within the time prescribed by this chapter, shall pay to the treasurer interestat the rate of twelve per cent per annum, or such adjusted rate as is hereinafter established under Title 26, section 6621 of the United States Code, on such property or value thereof from the date such property should have been paid or delivered.” Mass. Gen. Laws. ch. 200A, § 12(e) (2019) (emphasis added).

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