State, B of A Settle 13-Year Row on Dormant Accounts

The state of California and Bank of America have reached a “historic and unique” $27.6-million settlement in their 13-year fight over the bank’s former practice of wiping out dormant customer accounts and failing to pay interest on the deposits, The Times learned Friday.

In the settlement, the bank agreed to pay the state $21.1 million in cash and turn over for the benefit of the public $6.4 million worth of open space and recreational lands it owns in Northern California, several participants in the settlement said.

In what negotiators of the settlement called a “unique” provision, the acreage in Tehama and Sonoma counties would be managed not by state agencies but by the Nature Conservancy, a private, nonprofit national organization that specializes in the maintenance of open space and ecologically sensitive lands.

Settlement of the case, initiated in 1975, will be subject to approval of Superior Court Judge A. Richard Backus of Sacramento at a hearing March 7. If he agrees to it, the action would seem to write the last major chapter in the long dispute.

Bank of America officers and State Controller Gray Davis refused to comment in advance of the court hearing on the agreement which was submitted to Backus on Friday.

The proposed $27.6-million settlement package would follow by almost three years payment by the bank of $25.4 million to partially offset losses suffered by depositors whose accounts became dormant after seven years of inactivity but were subjected to service charges and were not properly credited with interest. In some cases, the accounts were completely wiped out by service charges.

In 1975, then-state Controller Kenneth Cory sued Bank of America, contending that the bank had kept too much of the depositors’ money before the accounts were sent along to the state. The following year, the Legislature outlawed the practice of levying service charges on dormant accounts without advance notice to the customer.

Under the law, banks and other financial institutions must make an effort to locate the holders of inactive accounts. If they are unable to do so, the contents of the accounts must be turned over to the state controller as “unclaimed property.”

The state controller likewise must make a search for the account holders, who may have died or forgotten about their accounts, and try to reunite the customers or their heirs with the funds. The money, theoretically, is held in perpetuity for the owners, although the unclaimed money actually flows into the state general fund.

In the past, banks claimed that they were unable to locate dormant account holders such as former Gov. Edmund G. Brown Sr. and such celebrities as Bob Hope, Lucille Ball, Candace Bergen and baseball great Willie McCovey. But these and others account holders were tracked down without great difficulty by the state controller.

Official Is Jubilant

Deputy Atty. Gen. Yeoryios Apallas, who doggedly represented the state during the 13-year legal battle with Bank of America, was jubilant over the settlement.

“It is historic and unique, no doubt about it,” he said. “We are unaware of any unclaimed property settlement in this country that involved this much money and was structured in this unique way.”

Likewise, Sabin Phelps, an attorney and director of special projects for the Nature Conservancy in San Francisco, called the settlement “a first. I’ve never seen anything like this before.”

Attorney Gary Near of San Francisco, who first stirred up the issue with a lawsuit in 1974, said he, too, was pleased. “The people who had their accounts cannibalized are going to get their just desserts. The state gets plenty of money out of this and it could use a little more public land for recreational and scenic activities.”

The bank’s property in Tehama County involves two ranches, including the sprawling 37,540-acre Dye Creek Ranch near Red Bluff which is used for grazing cattle and as a hunting club. Phelps said the Dye Creek property would continue in use for grazing and hunting and would be managed “from a conservation standpoint.”

Mt. Lassen Foothills

The rugged terrain is mostly in the low foothills of Mt. Lassen and is a nesting spot for the peregrine falcon and traversed by migrating deer. A smaller 708-acre ranch is valued for its riparian woodlands and access to the Sacramento River.

Those who drafted the settlement said the document contains a provision under which property taxes would continue to be paid on the land from cattle raising and hunting club revenues. Tehama County is virtually bankrupt. Usually lands taken for public use are not subject to property taxation.

Two other parcels in northern Sonoma County offer important riparian wildlife habitat along with access to the Russian River for boaters and other outdoor enthusiasts. They total 167 acres.

Apallas said the settlement also “contemplates” the Bank of America obtaining about 4,400 acres of redwoods in Santa Cruz County valued at about $10 million. This property also would be managed by the Nature Conservancy as trustee and the state would accept the property in lieu of a cash payment, he said, noting that negotiations have not concluded on the Santa Cruz parcel.

The state controller’s office had insisted that the Bank of America owed as much as $83 million, a sum bitterly contested by the bank, whose attorneys said the figure was more like $35 million.

Adverse Rulings

The $83-million estimate was whittled down and the controller suffered adverse rulings at a trial, which further reduced the sum.

“The balance was subject to negotiation between the bank and the controller,” Apallas said. “Somebody has something you want and you trade for it. That is what makes settlements.”

Including the earlier $25.4-million payment by the bank, it will have paid a total of $53 million if the $27.6-million settlement is approved by the judge.

The negotiators said they crafted the compromise in such a way that cash would be available to pay those who made a claim for their unclaimed property. If, however, the funds are insufficient to pay all the claims, the trust agreement calls for selling the real estate in Tehama and Sonoma counties to satisfy the claim.

Unlikely to Occur

Statistically, it is very unlikely this would occur, they said, noting that the controller’s office reunites about 25% to 35% of unclaimed funds with their owners.

Phelps, of the Nature Conservancy, said his organization agreed to manage the lands in trust for the public basically because various state agencies did not want to add to their existing budgets and workloads. Also, he said, the notion of a state government agency sponsoring a revenue-producing enterprise in order to pay property taxes to Tehama County discouraged the state from aggressively seeking to manage the lands.

Phelps said that the American Farmland Trust and National Audubon Society supported the Nature Conservancy as the manager of the real estate and would be members of the organization’s advisory board.