Extraordinary Turnout and Discussions at ULC (Uniform Law Commission) Unclaimed Property Drafting Meeting
Failing to attend last week’s Uniform Law Commission’s (ULC’s) Drafting Committee meeting to revise the 1995 Uniform Unclaimed Property Act (the Act) was worse than missing the 2012 Extravakranza. On November 7 and 8, 2014, the Who’s Who of the Abandoned and Unclaimed Property world (AUP for insiders needing abbreviations for texting) met in Washington, D.C. for a two-day marathon to modernize state unclaimed property law. The chair of the committee noted that several thousand pages of comments had been received so far and that attendance at the meeting was greater than any other issue the ULC pursued other than the Uniform Commercial Code.
The attendees hailed from a wide variety of stakeholders including: representatives from more than 20 states; major third-party auditors including several representatives of Kelmar; numerous trade associations including representatives of the securities and the life insurance industries, and general business associations such as the Council on State Taxation and the U.S. Chamber of Commerce. Several representatives from the state of Delaware were in attendance; Delaware is a state that has historically not adopted any of the Uniform Acts and is considered one of the most aggressive states in interpreting its unclaimed property laws to the detriment of holders.
As to the Act itself, no policy or language is set in stone at this point, but the Drafting Committee took votes on numerous issues in order to give the reporter (the person responsible for actually drafting potential language for the Act) guidance. The votes by the Drafting Committee were a mixed bag from a holder’s perspective, and a lot could still change before the final Act is adopted. Unfortunately, but not surprisingly, the Committee rejected banning states from using contract auditors as well as rejected banning states from using contingency fees to pay such auditors. The Committee also voted to allow both estimation and sampling in unclaimed property audits (though there was some confusion demonstrated by the Committee’s discussions and questions regarding the difference between these two). The Committee left discretion with the reporter regarding the inclusion of guidelines and limitations on use of such audit techniques. The Committee also rejected exempting from remittance low balance property – a proposal supported by the American Bar Association and a proposal that would be an administrative benefit to holders.
The Committee voted to change the interest provision on holders for unremitted balances from offering a flat rate option to solely a floating interest rate pegged to a T-bill + standard. Currently some states have interest rates of 12 percent and 18 percent. The National Association of Unclaimed Property Administrators lobbied to leave the interest rate up to the individual states because every state has different investment profiles. This was ultimately a losing argument as it was noted that if any state is currently getting 12 percent or 18 percent on its investments, everyone wanted to know what that state was doing so they could do the same. The Committee also voted to include, for discussion purposes only, a draft business-to-business exemption. The reporter offered to use the Tennessee exemption as the starting point. There was certainly no consensus that such an exemption should be included in the Uniform Act and the state representatives vigorously opposed such inclusion. Holders interested in such an exemption should provide comments to the Committee offering both legal and policy reasons that such an exemption is necessary.
Finally, the Committee voted to include a fixed 10-year statute of limitations for audits of unclaimed property compliance by holders. This seemed initially to apply regardless of whether a holder had filed a return or not, but there was later informal discussion that this might be revisited.
Several important issues were tabled without a vote of the Drafting Committee, leaving it up to the reporter to address some of the most controversial items, such as the burden of proof on a holder to demonstrate that a debt is not due and owing, and thus subject to remittance to a state as unclaimed property.
The life insurance industry and the securities industry were able to address, but not necessarily resolve, many of their unique problems. Importantly, the Drafting Committee voted that states either would not be able to sell shares escheated to them, or if an owner came forward, must provide the owner with the value of the shares on the day the claim was made. Finally, the Committee voted to include gift cards and stored value cards within the definition of property subject to remittance. Possible card attributes entitling the card to exemption will be considered by the reporter to be discussed at the next meeting.
The Committee ultimately ran out of time and did not get to some significant issues such as penalties, other new property types, third priority rule (location of the transaction), dormancy periods, primae faciepresumption of abandonment, and broad adherence or rejection of the derivative rights doctrine.
Up Next: The next meeting of the Drafting Committee is February 27 – 28, 2015 in Washington, D.C. At this meeting, the reporter plans to have at least the sections discussed at the November meeting drafted for review and further discussion. After this meeting, a revised draft will be provided to the entire ULC at its annual meeting for a first review. After the annual meeting, the draft will be sent back to the Drafting Committee for at least two additional drafting meetings. The ULC’s 2016 Annual Meeting will be the first meeting at which a final vote on adopting the draft as a Uniform Act will be possible.
Practice Note: It is important for holders to have some type of representation at these meetings for a variety of reasons. For companies with significant unclaimed property issues based on unique types of property, such companies should actively be using this process to get either (or both) actual statutory language or ULC comments into the Uniform Act ultimately adopted. Furthermore, because of the number of states in attendance, participation serves important educational purposes. Holders can participate in various ways, including attending meetings in person; being represented through a trade association or using an outside attorney or other consultant; or by submitting written comments to the Committee. Finally, even holders who do not have property types that create unique concerns should be following, and commenting if necessary, on the issues common to all businesses such as a business-to-business exemption and the scope of sampling and extrapolation allowed as part of an audit.