PHOENIX \u2014 Arizonans could soon get better notice if the state is holding on to their share of nearly $2.8 billion in unclaimed property that really belongs to them.<\/p>\n
In a unanimous decision Monday, a three-judge panel of the 9th Circuit Court of Appeals gave the go-ahead for two individuals to sue the Arizona Department of Revenue for failing to provide them with sufficient notice it was holding on to money or other property it listed as \u201cunclaimed\u201d or \u201cabandoned.\u201d The ruling allows them to sue the agency for violating their due process rights.<\/p>\n
Appellate Judge Danielle Forrest, writing for the court, rejected claims by attorneys for the state that it could not be sued.<\/p>\n
\u201cWhen someone \u2014 even the government \u2014 possesses property lawfully owned by another without the owner\u2019s consent, an invasion of the owner\u2019s legally protected interest has occurred,\u201d she wrote.
Monday\u2019s ruling does not invalidate the law known as the Unclaimed Property Act but simply sends the case back to the trial judge who threw it out.<\/p>\n
If the challengers win, it could overrule the law that says the Department of Revenue need do no more than publish a list of names online twice a year of those whose property it has. Instead, it could require state workers to do more and reach out and try to find the owners \u2014 rather than have the state simply hold the property, collect interest on the cash, and, after 35 years, be able to claim it for itself.<\/p>\n
Capitol Media Services wrote as far back as 1996 the Department of Revenue was publishing names and addresses on a list \u2014 at that time printed in newspapers \u2014 of what it said was unclaimed property.<\/p>\n
But a reporter managed to find some individuals simply by using the phone book. That was before people could easily be found online.<\/p>\n
A spokeswoman said Monday the agency is reviewing the opinion \u201cand considering next steps.\u201d<\/p>\n
At issue is a laundry list of what the state considers to be \u201cunclaimed property.\u201d It ranges from outstanding payroll checks, matured certificates of deposit and unclaimed securities to unreturned security deposits and amounts due under the terms of insurance policies.<\/p>\n
According to the agency, there are a host of reasons that property becomes unclaimed.<\/p>\n
For example, a business may lose track of its owners due to a change of address. Property also can become abandoned due to the death of the owner and the family is unaware of the assets.<\/p>\n
Sometimes a customer will overpay on an account or send a check with no indication as to which account the payment applies. These credit balances are often just left on the books of companies.<\/p>\n
Then there are uncashed checks lost in the mail or put in a drawer or forgotten.<\/p>\n
Under the Arizona law, the holder of the property is required to send a written notice to the apparent owner. After waiting at least 120 days, the property is transferred to the Department of Revenue.<\/p>\n
Forrest acknowledged the law requires the state to operate a website listing the unclaimed property in its possession.<\/p>\n
\u201cBut Arizona\u2019s statute does not mandate that the state provide actual notice to apparent owner that it is possession of their property,\u201d she wrote.<\/p>\n
Forrest also noted the unclaimed funds are deposited into the state\u2019s general fund, though there is a requirement to set aside at least $100,000 to pay claims. Any claims have to be filed within 35 years.<\/p>\n
The department is listing the value of its unclaimed property at $2.79 billion. The agency reports it returned more than $88 million to owners in each of the past two years.<\/p>\n
In filing suit in 2022, Jessica Garza and Kevin Terrell do not deny their names were among those published online by the Department of Revenue. The site did not list exactly what kind of property the state was holding.<\/p>\n
Their attorneys said, though, they received no notice from anyone \u2014 not the original holder of the property nor the state \u2014 that their property was being held \u201cthough their identifies were known to the holders at the time plaintiffs\u2019 property was taken.\u201d<\/p>\n
They argue simply doing online publication falls short of the basic legal requirements before property can be taken. And they contend the agency has a reason for not doing more: being able to \u201cseize private property from citizens, use it to generate income for the state, and then convert it for use as revenue for the state.\u201d<\/p>\n
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Forrest said the fact the state was simply \u201cholding\u201d the property meant the plaintiffs had no basis to claim it had been illegally taken from them. But she said that still leaves the question of whether the system used by the state denies them their 14th Amendment constitutional right of due process.<\/p>\n
\u201cThe Unclaimed Property Act itself recognizes that owners have a property interest in presumptively abandoned property and it allows owners to file a claim to that property for 35 years after the department takes possession,\u201d the judge wrote. \u201cDefendants themselves recognize that plaintiffs allegedly \u2018own\u2019 property in the possession of the department.\u201d<\/p>\n
Attorneys for the state argued the plaintiffs have not been deprived of their property because they can claim it within 35 years.<\/p>\n
\u201cThat is incorrect,\u201d Forrest wrote. \u201cThe Supreme Court has held that even a temporary, non-final deprivation of property is nonetheless a \u2018deprivation\u2019 in terms of the Fourteenth Amendment.\u201d<\/p>\n
And there\u2019s something else that the appellate judges said make the Arizona laws suspect.<\/p>\n
They point out that, in some circumstances, property can be considered unclaimed or abandoned in as little as a year. That includes wages, property from a dissolved corporation and even certain annuities.<\/p>\n
\u201cIndividuals may go about their daily lives without any indication that their property has changed possession,\u201d Forrest wrote.<\/p>\n
Other items have to be held longer before they can be considered unclaimed. For example, it takes three years before a money order is presumed unclaimed. Ditto certificates of deposit, and credits owed to a customer as a result of a retail business transaction.<\/p>\n
That same three-year limit applies to contents of safe deposit boxes, though the law does allow the agency to sell off the property, with the owner \u2014 if identified \u2014 paid the net of the proceeds.<\/p>\n
The longest time before abandonment is 15 years for traveler\u2019s checks.
And that, the judge said, compares with Indiana law that requires property be held for 20 years before being considered abandoned.
All that, Forrest said, goes to the central issue of whether people are deprived of notice.<\/p>\n
\u201cIf notice is required, it must be reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections,\u201d she said.<\/p>\n
In this case, she said, all that Arizona law requires is that the holder of the property provide 120 days to the reported owner before transferring it to the state.<\/p>\n
\u201cAnd after the department receives unclaimed property the Unclaimed Property Act requires only that the department \u2018publish a notice at least semiannually … directing the public to the department\u2019s website regarding abandoned property,\u2019\u201d Forrest wrote.<\/p>\n
In this case, she said the two individuals are entitled to argue in court they did not receive adequate notice.<\/p>\n
Agency spokeswoman Rebecca Wilder said the agency sends out \u201cthousands of notices\u201d each year to the addresses that it does have. But she said that property becomes unclaimed because the company that holds the funds has an outdated address or the wrong forward address for the customer.<\/p>\n
\u201cThis means that the department is challenged with locating owners through the reported address information we receive,\u201d she said.<\/p>\n
Wilder said, though, her agency does promote the online program both through public service announcements and targeted ads in print and, more recently, radio. She said it also works with other state agencies here and elsewhere to track owners.<\/p>\n
Yet there still appear to be circumstances where it shouldn\u2019t take much to find the rightful owners.<\/p>\n
Among the property owners currently listed on the website as having unclaimed property is the \u201cKatie Hobbs for Secretary of State\u201d election committee, with the East McDowell Road address the same one she now is using for her gubernatorial reelection campaign.<\/p>\n
It does not say how much of the campaign\u2019s funds the state is holding.<\/p>\n
Howard Fischer<\/p>\n