Michigan Chamber Presents
Unclaimed Property Update March 4, 2015
Lynn A. Gandhi, Partner Khalilah V. Spencer, Partner
2
Agenda
Emerging Issues in Unclaimed Property
Michigan Unclaimed Property Procedural Reforms
National Developments
Definitions
A Holder - A business or governmental
entity, wherever organized or domiciled, who is in possession of property belonging to another party
Dormancy Period – The period of time
when owners of property do not take action on their property, such as the failure to cash a check or initiating a transaction on their bank account
Emerging Issues
Deposits, prepaids, goods received by not invoiced, overpayments, credits Unknown amounts extrapolated from minimal audit findings
Foreign owned property
4
Derivative Rights Doctrine
In order for the state to protect property, there must be a defined property right for the state to protect Without an actual known owner, or proof positive that an amount is truly owed, there is no right for the state to protect – no monies are due to the state
5
Michigan Procedural Reforms
6
PA 148 of 2013 – Unclaimed Property Auditing Standards Revised
Limits indirect auditing
Requires any examination of records to be performed in accordance with generally accepted auditing standards Findings cannot be based on an estimate
New Auditing Standards
Permits the use of a “reasonable method of estimation” only if a Holder does not have “substantially complete records”
“Substantially complete records” defined as “at least 90% of the records necessary” under principles of internal controls
7
Substantially Complete Records
The 90% rule is not a strict
requirement - looks to the materiality value of the records
Each particular property class is to be valued separately
Not an absolute measurement of all available records
8
Proposed Rules
PA 148 also required the Department to: Provide the Holder a complete copy of the audit report; and
Initiate rules on audit standards Hearing held on proposed rules on February 27, 2015; the Chamber submitted detailed comments and revisions
Appeals Process
Public Act 423 of 2014
Added new section 31a to the UUPA Provides for a request for
reconsideration from a notice of examination determination (claim of amounts due)
Provides for an internal appeal prior to the filing of a court action
10
Request for Reconsideration
Request shall be made in writing Identify the contested property Reasons for contesting
Holders still maintain the ability to withdraw a request at any time and file an action in circuit court
11
Request for Reconsideration
Deliver property that is not contested Have 60 days from request filing to provide additional documentation Within 60 days, Administrator shall mail a written decision regarding the reconsideration
Shall provide reasons and authority
Appeal
Within 90 days of decision, Holder may file in circuit court or file an appeal Holders maintain the right to withdraw an appeal and file in circuit court Appeal hearing is conducted by a neutral delegate, with required experience in the area of unclaimed property
13
Filing of an Appeal
Request must be in writing
Indicate reasons why the decision on reconsideration was in error
Hearing set within 90 days of filing of appeal, with at least 21 days of notice Audio recording may be made
14
Decision on Appeal
Written recommendation issued by the delegate to the Administrator within 90 days of hearing or submission of additional documentation
Written recommendation shall provide reasons and authority for decision Within 60 days, the Administrator shall affirm, modify or reject the decision
Appeal of Appeal
Within 90 days of mailing of
Administrator’s action, Holder may file an action in circuit court
Circuit court action is de novo
16
National Developments
Recent Court Cases
Settlement of Select Medical
Temple-Inland hearing Osram Sylvania filing
17
Select Medical
Settlement required that terms of settlement are public information Insisted upon by Plaintiff - to educate other Holders of resolution on the issues
Temple-Inland
Hearing at U.S. District Court for the District of Delaware, seeking declaratory judgment and injunctive relief:
Honorable Sue L. Robinson:
“I was astounded that an audit could go back decades and without any historical records come up with an estimate. Quite frankly, I found that astounding, if not shocking.”
19
Temple-Inland
“My concern is, number one, whether that really is a deprivation of property without due process;”
“Whether this process has really been run by a body that is interested in due process and fair play.”
20
Osram Sylvania
Challenges Kelmar audit methodologies
Alleges violations of federal law by estimating the existence of unclaimed property by the use of extrapolation, rather than actual identification of obligations to any actual creditor
Delaware VDA Program
Technically closed for new applications Consider informal outreach
Secretary of State using Delaware law firm to administer
Very reasonable
22
Revision of UUPA
Lead by Uniform Law Commission (ULC)
Drafting committee appointed
Input solicited from interested parties Current timetable – draft of revised Act set for July 2015; second reading after revisions set for summer 2016
23
Hot Topics
Proactive measures on acquisitions and dispositions
Audits of VDA periods (pre current VDA programs)
Asset recovery Fee finders
