Is California doing enough to find owners of 'unclaimed' funds before pocketing the money?

The U.S. Supreme Court is being asked to consider whether California should do more to find the rightful owners of $8 billion in "unclaimed" bank, investment and retirement funds before seizing the accounts and pocketing the money.

For 15 years, Sacramento attorney William W. Palmer has been fighting to force changes in California’s Unclaimed Property Law, which last year contributed nearly $450 million to state coffers.

Palmer won several legal rounds early on, but in March, the 9th Circuit Court of Appeals dismissed his latest challenge. With the help of Harvard law professor Laurence Tribe, Palmer appealed to the high court, calling the California program “a recipe for abuse.”

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“They take a lot of money and property they have no right to take,” Palmer said. “They are using it to balance the budget, and we say it is wrong and unconstitutional.”

The Supreme Court has been reviewing his appeal for weeks and justices will consider it again Friday.

Palmer says California has ramped up its efforts to take control of the money. It hires private auditors to identify cash and stock accounts when there has been no contact between the owners and the financial institutions for more than three years.

After sending an official letter to the owner’s last known address, the state can take possession of such accounts, according to the law. It can sell stocks held in the accounts 18 months after taking control.

California insists the goal of what it calls its “lost and found” program is to return funds to their proper owners. But about 60% of the money is never claimed.

In upholding the law, the 9th Circuit said it assures “unclaimed property will be used for the public good rather than for the benefit of private banks and financial institutions.”

In February, the legislative analyst in Sacramento, the nonpartisan office that assesses how state programs are working, said there was a clear “tension” between the state’s goal to protect consumers and its use of the money to fund state programs. This “unclaimed” cash is the “fifth largest revenue source” for the state’s General Fund, the report said.

State Controller Betty Yee, who took office early last year, has pledged to make it easier for owners or their heirs to recover lost funds. She expanded a website -- www.claimit.ca.gov -- that allows people to check to see whether they have lost accounts. The state is “currently in possession of more than $8 billion in unclaimed property belonging to approximately 32.5 million individuals and organizations,” Yee said in a statement in November. And thanks to the improved website, refund claims of up to $5,000 “can be completed in a couple of minutes,” she said.

In his appeal, Palmer argues the Constitution’s protections for private property and due process of law require the states to do more than send a letter before taking someone’s retirement funds or stock.

“When they want to collect taxes or fines, they check the online databases and the DMV records,” Palmer said. “But not when they want to restore your property. They just send a letter to the same stale address.”

But the 9th Circuit Court ruled that requiring the state to check online databases “exceeds the minimum due process requirements.”

Los Angeles lawyer Ethan Millar said other states, including Delaware, have been more aggressive than California in taking stock and selling it, causing the owners to lose millions.

“Investors are taught to buy and hold. They don’t think they need to check in regularly. This can be a real problem with retirement accounts,” he said.

Palmer’s case, Taylor vs. Yee, is one of several California-related appeals that will be considered by the justices when they meet on Friday.

The others involve a water dispute over the habitat of the endangered Santa Ana sucker fish and whether “service advisors” at a Mercedes dealership in Encino are entitled to overtime pay.

Several water districts in San Bernardino and Riverside counties are challenging a decision by the U.S. Fish and Wildlife Service to set aside 7,000 acres as “critical habitat” along the Santa Ana River so as to protect the Santa Ana sucker. Lawyers for the water districts say federal officials failed to conduct an “environmental impact” study before issuing the designation.

But the 9th Circuit said no such study is required under the Endangered Species Act. The justices will take their first look at the appeal petition in Bear Valley Mutual Water Co. vs. Jewell.

Also up for a first look is a question that could affect the nation’s 18,000 car dealerships and their 45,000 service advisors. Federal labor laws require overtime pay for most workers, but this requirement does not extend to “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.” The original idea apparently was that salesmen should be paid based on how many cars they sell, not how many hours they put in.

But in 2011, the Labor Department said this exemption did not apply to service advisors, who do not sell or service cars. Hector Navarro and four co-workers sued Encino Motorcars because they were not given overtime pay. They said their job was to “meet and greet” Mercedes owners, to listen to their complaints about their vehicle and to do an estimate of the work to be done.

A federal judge dismissed their complaint, but the 9th Circuit said they were entitled to overtime, citing the Labor Department rule. Former U.S. Solicitor Gen. Paul Clement filed the appeal -- Encino Motorcars vs. Navarro -- on behalf of the dealership, saying the 9th Circuit’s ruling was wrong and could affect dealerships across the nation.

Twitter: @DavidGSavage

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