NY Court Allows Unclaimed Property Qui Tam Lawsuit To Continue

Summary

On August 30, 2019, the New York Supreme Court for the County of New York, a trial court, ruled in State of New York ex rel. Raw Data Analytics LLC v. JP Morgan Chase & Co. that the holder’s failure to pay required interest was an obligation that is actionable under New York’s False Claims Act (FCA). Raw Data Analytics, LLC has stated that JP Morgan Chase & Co. failed to pay statutory interest on unclaimed property amounts that were reported to New York late.  JP Morgan Chase & Co. asserted that it had no obligation to calculate and pay interest, because the discretion of the Office of the New York State Comptroller (OSC) to assess or waive interest falls under the unclaimed property law.  The trial court sided with Raw Data Analytics, LLC, and ruled that the state’s abandoned property law is clear that holders are required to pay interest without an additional assessment by New York.  This decision may create additional risks and obligations for holders who file annual reports with past due amounts to New York. It is also unclear how other states will react to the outcome, and whether they will follow New York’s lead, which could have severe consequences for holders trying to comply with balances/amounts that have passed the respective state dormancy periods for reporting as unclaimed property.

 

Background

Qui tam lawsuits are civil lawsuits that are brought by whistleblowers under a state’s FCA, alleging violations of state law or fraud against the government.
 
Raw Data Analytics, LLC filed its Qui Tam action in 2015 on behalf of New York, stating that from January 1, 2005, to February 19, 2015, JPMorgan failed to calculate and pay interest for past due property reported to the OSC during that timeframe. Raw Data Analytics also argued that New York’s unclaimed property law statutorily required JPMorgan to self-assess its interest obligation and remit that payment to the state, not wait for the interest to be assessed by the OSC after reviewing JPMorgan’s reports. In an amended complaint in 2016, Raw Data Analytics, LLC also alleged that JPMorgan had falsely represented the last contact date for account holders listed on annual holder reports, which is an essential data element for determining eligibility for escheatment and calculating interest for past due property.
 
On August 12, 2016, JPMorgan filed a motion to dismiss the case, arguing that it had no obligation to calculate and pay interest because the discretion of the OSC to assess or waive interest falls under the unclaimed property law.  Upon reviewing the motion to dismiss the case, the trial court asked the OSC to provide its interpretation of New York’s unclaimed property law as it pertained to a holder’s obligation to self-assess and pay interest when remitting unclaimed property to the OSC. According to the OSC’s response, interest could be imposed at the comptroller’s discretion, in which the OSC’s handbook states that it can charge 10-percent interest for property that is reported late.
 
JPMorgan argued that its duty to pay interest was a contingent obligation assessed by the OSC and that it did not substantiate an FCA claim. It also described its failure to report or pay the interest as not “material,” because the OSC had agreed to waive interest from 2008 – 2012 during a 2013 unclaimed property audit. Raw Data Analytics challenged JPMorgan’s claims, stating that the obligation to pay the interest arises when the late property is reported, and it is not dependent on the OSC’s assessment of interest.
 
JPMorgan’s motion to dismiss the case was denied by the trial court, which allows the suit to continue. The trial court agreed with Raw Data Analytics that no assessment of interest by the OSC was required.  However, the court also stated that more factual development of the parties’ claims was required.

 

Potential Impact for Holders

While this case is not final, holders must consider the potential impact of this decision and potential risks for their firm. Prior unclaimed property filings with New York should be reviewed to determine if past due property was reported and to determine the potential interest exposure. Depending on the exposure, a decision should be made whether to begin self-assessing and remitting interest on a prospective basis when filing reports with late property, or not.
 

BDO Insight

• Currently, no state requires the self-assessment and payment of interest for past due property to be remitted at the time of filing an annual unclaimed property report with the state. For the states that assess interest, it is state practice to review the annual filings, determine late property, and provide the holder with an assessment of interest. The holder would then be afforded an opportunity to challenge the assessment based on documentation provided (e.g., proof of owner-generated-activity after the date of last contact) before arriving at a final assessment.
• If Raw Data Analytics ultimately prevails, and the trial court’s decision is upheld on appeal, this decision could create confusion for holders and cause the miscalculation of interest.  As a result, the New York OSC may need to issue refunds to holders or audit holders’ self-assessments of interest.

 

BDO’s National Unclaimed Property Practice has successfully assisted many clients in New York voluntary disclosures and unclaimed property audits.