California Court Holds Escheatment Immunity Is Only Available To Holders Of Abandoned Property That Comply With The Law

 

 

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August 18, 2009

TO: TRANSFER AGENT ADVISORY COMMITTEE No. 62-09     RE: CALIFORNIA COURT HOLDS ESCHEATMENT IMMUNITY IS ONLY AVAILABLE TO HOLDERS OF ABANDONED PROPERTY THAT COMPLY WITH THE LAW

 

California’s Supreme Court has issued an opinion on the scope of the immunity provision in the California Unclaimed Property Law (UPL). [1]  Section 1532(d) of the UPL provides immunity for the holder of securities, its transfer agent, or other person acting for the holder in executing or delivering securities to the State when such securities are subject to escheatment.  This immunity relieves such person “from all liability of every kind to any person . . . for any losses or damages resulting to that person by issuance and delivery [of the property to the State].” [2]  Prior to escheating such property, the UPL requires, in part, that the holder of the property make reasonable efforts to notify the property owner of the impending escheatment. 

 

In the case before the Supreme Court, the Defendant was the holder of securities owned by the Plaintiff that the Defendant escheated to the State without the Defendant complying with the UPL’s requirement to provide the Plaintiff, as the property owner, notice of the impending escheatment.  The Plaintiff claimed that the property was not subject to escheatment pursuant to the UPL because the Plaintiff was not “lost” and the Defendant knew the Plaintiff’s location at all times.  The property at issue was 19,000 shares of corporate stock.  When the property escheated to the State, the State sold it for $4.62 a share in June 2003.  When the owner of the property discovered it had been escheated and tried to reclaim it in November 2004, the value was $17.72 per share.  The owner sued the Defendant for the difference in value.  The Defendant argued that the provisions of Section 1532(d) provided it immunity from such suit.  Of the two lower courts that heard the case, the first agreed with the Defendant; the second agreed with the Plaintiff. 

 

On appeal, the California Supreme Court held that a corporation that escheats property is “entitled to section 1532’s immunity only if it complies with the UPL.”  The Court reasoned that, until the UPL’s criteria for escheating property are satisfied, the person escheating the property is not a “holder” and is not, therefore, entitled to the immunity provided to a holder under Section 1532.  As such, the Defendant in this case was not entitled to claim Section 1532’s immunity.  Accordingly, the Court affirmed the judgment of the lower court, which had remanded the matter to the trial court with directions to vacate its order granting a judgment to the Defendant on the pleadings.

 

Tamara K. Salmon
Senior Associate Counsel

endnotes

 [1]  See Azure Limited v. I-Flow Corporation, Cal., S164884 (July 16, 2009), which is available at:

 http://www.courtinfo.ca.gov/opinions/documents/S164884.PDF.

 

 [2]  Section 1532(d) of the UPL provides in its entirety as follows:

The holder of any interest under subdivision (b) of Section 1516 shall deliver a duplicate certificate to the Controller or shall register the securities in uncertificated form in the name of the Controller. Upon delivering a duplicate certificate or providing evidence of registration of the securities in uncertificated form to the Controller, the holder, any transfer agent, registrar, or other person acting for or on behalf of the holder in executing or delivering the duplicate certificate or registering the uncertificated securities, shall be relieved from all liability of every kind to any person including, but not limited to, any person acquiring the original certificate or the duplicate of the certificate issued to the Controller for any losses or damages resulting to that person by the issuance and delivery to the Controller of the duplicate certificate or the registration of the uncertificated securities to the Controller.