Academic journal article Suffolk University Law Review

A Bridge Too Far: Due Process Considerations in State Unclaimed-Property Law Enforcement

Academic journal article Suffolk University Law Review

A Bridge Too Far: Due Process Considerations in State Unclaimed-Property Law Enforcement

Article excerpt

"The UPL [Unclaimed Property Law] is not a permanent or 'true' escheat statute. Instead, it gives the state custody and use of unclaimed property until such time as the owner claims it. Its dual objectives are 'to protect unknown owners by locating them and restoring their property to them and to give the state rather than the holders of unclaimed property the benefit of the use of it, most of which experience shows will never be claimed.'" (1)

I. INTRODUCTION

Although U.S. economists note that the most recent U.S. recession came to an end in June (2009), belt tightening can still be felt throughout the economy, more than three years later. (2) Perhaps nowhere is this more evident than in state budgets, which continue to face huge shortfalls and endure significant cutbacks. (3) With legislatures generally unwilling to raise taxes to make up for these deficits, states have looked toward new sources--unclaimed property, in particular--to find much needed cash. (4)

By some accounts, $35 billion of unclaimed property is currently held by states--an amount that continues to increase annually. (5) Simply put, the transformation of unclaimed property into revenue first requires a state to "escheat," or take custody of property from a "holder," which is generally a corporation. (6) Furthermore, "unclaimed property" usually refers to intangible property (such as amounts represented by uncashed checks, amounts in suspense, or outstanding stock) in the custody of a holder that actually belongs to another (known as the "owner"), but which has been inactive for a statutorily defined amount of time (the "dormancy period"). (7) in their search for revenue, states have recently been escheating more unclaimed property than ever through the use of increasingly aggressive techniques. (8) Although states do not take title to the property they recover, most state laws provide that at least some portion of funds received as unclaimed property is deposited in a state's general fund, or go so far as to direct the proceeds from unclaimed property to fund specific state programs. (9) The benefits of a state's use of unclaimed property are compounded by the fact that underlying owners, to whom the property rightfully belongs, rarely claim escheated property from the state. (10) Thus, states have begun to transform their unclaimed-property laws and regulations into revenue-raising mechanisms that undermine their original, consumer-protection-oriented goal of reuniting missing owners with their property. (11) This departure raises a host of due-process concerns for unclaimed-property holders, which should be considered a defense to aggressive state escheatment. (12)

This Note will focus on the constitutional concerns raised by two specific techniques employed by states that have resulted in the escheatment of large quantities of unclaimed property: the use of contract auditors paid on a contingency basis to make unclaimed-property assessments against holders, and state and auditor reliance on statistical modeling and estimates to make assessments against holders when their unclaimed-property records are deemed incomplete or inadequate. (13) This Note will begin by explaining the history and development of escheat law, from its common-law origins in England to its modern evolution in the United States. (14) Particular attention will be paid to cases that have attempted to address issues relating to audit techniques and revenue-raising statutes. (15) Finally, this Note will introduce new considerations and propose new procedures that legislatures, courts, and state unclaimed-property administrators should heed to address procedural shortfalls in constitutionality and fairness. (16)

II. HISTORY

A. The Origins of Escheating Unclaimed Property

The common-law concept of escheatment has its origins in feudal England, where its application was limited to real property. (17) This concept eventually developed into the notion of bona vacantia, whereby the sovereign could claim personal property as a custodian for the rightful owner. …

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