Request By:
Mr. Jerry Fisher
Deputy Comptroller for Systems and
Financial Management
Office of the Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Alex W. Rose, Assistant Attorney General
You have requested an opinion as to the legal basis for the Commonwealth of Kentucky to take custody of the contents of certain safety deposit boxes of closed national banks (hereinafter referred to as "unclaimed property" ) in possession of the Comptroller of the Currency (hereinafter referred to as the "Comptroller").
Pursuant to the provisions of the Garn-St. Germain Depository Institutions Act of 1982 1 (hereinafter referred to as the "Garn Act" ), a state may take custody of the contents of safe deposit boxes of closed national banks in the possession of the Comptroller.
Section 733(b)(1) of the Garn Act expressly requires the Comptroller to deliver unclaimed property to a state after receiving proof therefrom it is entitled to the property ". . . under applicable statutory law, asserting a demonstrable legal interest in title to, or custody or possession of, unclaimed property. "
The escheats statutes of the Commonwealth of Kentucky contained in KRS Chapter 393 apply to the contents of safe deposit boxes held by national banks.
Specifically, KRS 393.060 expressly presumes abandoned the contents of unclaimed safe deposit boxes:
"The following property held or owing by a banking or financial organization . . . is presumed abandoned:
(3) Any funds or other personal property, tangible or intangible, removed from a safe deposit box or any other safekeeping repository or agency or collateral deposit box in this state on which the lease or rental period has expired due to nonpayment of rental charges or other reason, or any surplus amounts arising from the sale thereof pursuant to law, that have been unclaimed by the owner for more than ten (10) years from the date on which the lease or rental period expired."
A "banking organization" means any banks and thus includes a national bank. [KRS 393.010(a)].
The provisions of Kentucky's escheats law apply to property in the possession of the Comptroller. KRS 393.068 specifically provides that unclaimed property held by the federal government ". . . shall be presumed abandoned in this state if the last known address of the owner of the property is in this state and the property has remained unclaimed for five (5) years."
Attached hereto as Exhibit A is a true and correct copy of all provisions of the escheats statutes of the Commonwealth of Kentucky.
The purpose of abandoned property legislation, such as Kentucky's escheats law, is to reunite missing owners with their property. Numerous cases have construed the operation and effect of custodial unclaimed property legislation. All decisions have concluded that one of the primary purposes is to reunite the missing owner with the unclaimed property.
In the first Supreme Court case to review a state's unclaimed property law, the court upheld the constitutionality of Massachusetts' legislation reasoning as follows:
"The statute deals with accounts of an absent owner, who has so long failed to exercise any act of ownership as to raise the presumption that he has abandoned his property. And if abandoned, it should be preserved until he or his representative appears to claim it; or failing that, until it should be escheated to the state. The right and power so to legislate is undoubted. " Provident Institution for Savings v. Malone, 221 U.S. 660, 662, 31 S. Ct. 661, 55 L. Ed. 899, 903 (1911).
Similarly the Supreme Court, in considering the provisions of New York's abandoned property law, concluded:
"There is ample provision for notice to beneficiaries and for administrative and judicial hearing of their claims and payment of same. There is no possible injury to any beneficiary. " Connecticut Mutual Life Insurance Co. v. Moore, 333 U.S. 541, 547, 68 S. Ct. 682, 92 L. Ed. 863, 869, 870 (1947).
Numerous state courts have reviewed the provisions of their custodial abandoned property legislation. For example, the purpose of the 1954 Uniform Disposition of Unclaimed Property Act has been explained as follows:
"The objectives of the Act are to protect unknown owners by locating them and restoring their property to them and to give the state rather than the holders of unclaimed property the benefit of the use of it. . . ." Douglas Aircraft Co. v. Cranston, 58 Cal.2d 462, 463, 24 Cal.Rptr. 851, 374 P.2d 819 (1962).
In accord, Cory v. Public Utility Commission, 33 Cal.3d 522, 658 P.2d 749, 189 Cal.Rptr. 386 (1983);Blue Cross of Northern California v. Cory, 120 Cal.App.3d 723, 174 Cal.Rptr.901 (1981); Screen Actors Guild, Inc. v. Cory, 91 Cal.App.3d 111, 154 Cal.Rptr. 77 (1979);State v. Pacific Far East Line, Inc., 261 Cal.App.2d 609, 68 Cal.Rptr. 67 (1968);People ex rel. Callahan v. Marshal Field & Co., 83 Ill.App.3d 811, 404 N.E.2d 368 (1980);Anderson Nat'l Bank v. Reeves, 293 Ky. 735, 170 S.W.2d 350 (1942), aff'd 294 Ky. 674, 172 S.W.2d 575 (1943), aff'd sub nom. Anderson Nat'l Bank v. Luckett, 321 U.S. 233, 64 S. Ct. 399, 88 L.Ed 692 (1944);Louisiana Hosp. Serv., Inc. v. Collector of Revenue, 293 So.2d 663 (La. Ct. App. 1974);Minnesota v. First Nat'l Bank of St. Paul, 313 N.W.2d 390 (Minn. 1981), U.S. appeal dismissed for lack of jurisdiction, 456 U.S. 967, 102 S. Ct. 2226, 72 L. Ed. 2d 840 (1982);In re Montana Pac. Oil and Gas Co., 614 P.2d 1045 (1980);State v. Jefferson Lake Sulphur Co., 36 N.J. 577, 178 A.2d 329 (1962);State v. Sperry & Hutchinson Co., 23 N.J. 38, 127 A.2d 169 (1956);Pennsylvania v. Kervick, 114 N.J. Super. 1, 274 A.2d 626 (Ch. Div. 1971), rev'd per curiam, 60 N.J. 289, 288 a.2d 289 (1972); In re Menschefrend's Estate, 283 A.D. 463, 128 N.Y.S.2d 738 (1954), aff'd, 8 N.Y.2d 1093, 208 N.Y.S.2d 453, 179 N.E.2d 902 (1960);In re Application of New York Univ., 271 A.D. 131, 63 N.Y.S.2d 556 (1946);In re Philadelphia Elec. Co., 39 Pa.D.&C. 53 (C.P. 1940);South Carolina Tax Comm'n v. York Elec. Coop., Inc., 275 S.C. 326, 270 S.e.2d 626 (1980);In re Monks Club, Inc. v. State, 64 Wash.2d 845, 394 P.2d 804 (1964).
Accordingly, pursuant to KRS 393.110, the state of Kentucky, in attempting to locate the lawful owners of the unclaimed property, will advertise their names in newspapers of general circulation and/or describe any alternative notification procedures. Additionally, the state will take further steps to contact the missing owners by advising the media of the existence of the property and reviewing various records which may reveal the whereabouts of the owner or his or her heirs.
It is clear that Kentucky's escheats statutes are not preempted by federal laws regulating national banks. Long ago the Supreme Court upheld the constitutionality of stateunclaimed property laws as applied to national banks. In Anderson National Bank v. Luckett, 321 U.S. 233, 64 S. Ct. 399, 88 L. Ed. 692 (1944), the Court reviewed Kentucky's abandoned property law and held:
"Under the statute the state merely acquires the right to demand payment of the accounts in the place of the depositors. Upon payment of the deposits to the state, the bank's obligation is discharged. Something more than this is required to render the statute obnoxious to the federal banking laws. For an inseparable incident of a national bank's privilege of receiving deposits is its obligation to pay them to the persons entitled to demand payment according to the law of the state where it does business. A demand for payment of an account by one entitled to make the demand does not infringe on or interfere with any authorized function of the bank. In fact inability to comply with such demands is made a basis in the national banking laws for closing the doors of a bank and winding up its affairs." Anderson, supra, 321 U.S. at 248, 249, 88 L.Ed at 706.
Subsequently the Supreme Court in the case of Roth v. Delano, 338 U.S. 226, 70 S. Ct. 22, 94 L. Ed. 13 (1949), held that state abandoned property legislation as applied to a liquidated national bank was constitutional. Since Congress has in the Garn Act expressly authorized states to claim the contents of safe deposit boxes in the possession of the Comptroller, a contention of federal preemption cannot be sustained.
In addition, the states clearly have the exclusive power to regulate the disposition of abandoned property.
In the event that an owner fails to file a claim to the unclaimed property within a twelve-month period, the Garn Act purports to bar the claim of the owner. Thereafter, unless the custody of the property is given to the Commonwealth of Kentucky pursuant to the claim made herein, the property will be escheated to the federal government and the lawful owners will be deprived of their property. 2
However, no provision for escheat is made in the Constitution and therefore the federal government has no escheat power. Rather, the state's right to regulate the property of absentee owners is an attribute of the state's sovereign power, Cunnius v. Redding School District, 198 U.S. 458, 25 S. Ct. 721, 49 L. Ed. 1125 (1905).
"The national government is not in any case the parens patriae to which ownerless property of any sort in a State of the Union reverts. Within the States respectively it is the State which exclusively is parens patriae. " American Loan & Trust Co., 159 Fed. 775, 780, (W.D. Ky. 1908).
Numerous cases have recognized that the rights of the state are paramount in regulating the succession to ownerless property. The Supreme Court on several occasions has viewed unclaimed property laws as conservation statutes through which the state acts in its sovereign capacity as a conservator of its vanished residents' property. See, for instance, Connecticut Mutual Life Ins. Co. v. Moore, 333 U.S. 541, 92 L. Ed. 863, 68 S. Ct. 682 (1948). The Court in Connecticut Mutual described the state as a "conservator" when claiming property under a custodial unclaimed property law. 333 U.S. at 546, 547, 92 L. Ed. at 868, 870, 68 S. Ct. at 685, 686.
In Provident Institution for Savings v. Malone, supra, the court provided an extensive analysis of sovereignty based on the right of a state to act as a conservator or administrator of a missing person's estate. Commenting on the Massachusetts statute the court said: "The Act is like those which provide for the appointment of custodians for the real and personal property of an absentee." 221 U.S. at 664, 55 L. Ed. at 902, 31 S. Ct. at 662. Just as a state can legislate to determine the right of descent and distribution of property, it can legislate to determine the succession of property belonging to its missing residents. As the Court concluded in Malone, "[t]he right and power so to legislate is undoubted. " 221 U.S. at 664, 55 L. Ed. at 902, 31 S. Ct. at 662. More recently the United States Supreme Court observed in standard Oil Co. v. New Jersey:
"As a broad principle of jurisprudence rather than as a result of the evolution of a legal rule, it is clear that a state, subject to constitutional limitations, may use its legislative power to dispose of property within its reach belonging to unknown persons." Standard Oil, 341 U.S. 428, 435, 436, 95 L. Ed. 1078, 1086, 1087, 71 S. Ct. 822, 827 (1951).
In the Anderson National Bank case, the Supreme Court approved Kentucky's escheats law stating:
"The statute here attacked does not purport to do more than does any other regulation of the devolution of bank accounts of missing persons, a function which is, as we have seen, within the competence of the state." Anderson, supra, 321 U.S. at 248, 88 L. Ed. at 706.
In accord, in re Payne's Estate, 208 Wis. 142, 242 N.W. 553 (1932);Territory of Alaska v. First Nat'l Bank of Fairbanks, 22 F.2d 377 (9th Cir. 1927);United States v. Alabama, 434 F.Supp. 64 (N.D. Ala. 1977);In re Hull Copper Co., 46 Ariz. 270, 50 P.2d 560 (1935);State v. Northwestern Nat'l Bank of Minneapolis, 219 Minn. 471, 18 N.W.2d 569 (1945);In re Montana Pac. Oil and Gas Co., 614 P.2d 1045 (1980);State v. Standard Oil Co., 5 N.J. 281, 74 A.2d 565 (1950), aff'd, 341 U.S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951);In re Menschefrend's Estate, 283 A.D. 463, 128 N.Y.S.2d 738 (1954), aff'd, 8 N.Y.2d 1093, 208 N.Y.S.2d 453, 179 N.E.2d 902 (1960);Murdock v. Pennsylvania R.R. Co., 19 Pa. D.&C.2d 573 (C.P. 1958);Greenough v. People's Sav. Bank, 38 R.I. 100, 94 A.706 (1915); In re Montello Salt Co., 88 Utah 283, 53 P.2d 727 (1936);O'Keefe v. State Dept. of Revenue, 79 Wash.2d 633, 488 P.2d 754 (1971).
Only where the unclaimed property has resulted from federal munificence, such as in the case of veteran pensions, have the courts recognized a right on the part of the federal government ot claim the property of the recipient. See for example, In re Lindquist's Estate, 25 Cal.2d 697, 154 P.2d 879, cert. Denied, 325 U.S. 869 (1944).
Accordingly, serious constitutional questions would be presented by denial of the claim made herein and any attempt on the part of the Office of the Comptroller of the Currency to escheat the unclaimed property. 3
Based on the foregoing, the provisions of the escheats law of the Commonwealth of Kentucky clearly apply to contents of safe deposit boxes now in the possession of the Comptroller.
Unclaimed property legislation has always been construed to apply retroactively to property in existence at the time of adoption of the legislation. The only limitation which has been placed on the retroactive operation of such legislation is that in most states the statutory provisions will not be construed so as to revive claims on which the statute of limitations as between the holder and the owner has expired. 4
In Security Savings Bank v. California, 263 U.S. 282, 44 S. Ct. 108, 68 L.Ed 301 (1923), the Supreme Court held that application of California's unclaimed property law to deposits more than 30 years old did not violate the Contracts Clause in the Federal Constitution. The Court reasoned that, "The contract of deposit does not give the banks a tontine right to retain the money in the event it is not called for by the depositor" , 263 U.S. at 286, 68 L. Ed. at 306.
Similarly in Anderson National Bank v. Reeves, 5 293 Ky. 735, 170 S.W.2d 350 (1942), aff'd, 294 Ky. 674, 172 S.W.2d 575 (1943), aff'd sub nom. Anderson National Bank v. Luckett, 321 U.S. 233, 64 S. Ct. 399, 88 L. Ed. 692 (1942), the Kentucky abandoned property law was held to be valid in its application to deposits in a national bank "made both prior and subsequent to the effective date of the Act", 293 Ky. at 744. 6
In Pennsylvania v. New York, 407 U.S. 206, 92 S. Ct. 2075, 32 L. Ed. 2d 693 (1972), the Supreme Court held that its 1965 ruling in Texas v. New Jersey 7 regarding which state could claim abandoned property applied retroactively to money orders issued by Western Union in 1930. The court then noted that, "insofar as the invocation of any provision of the Revised Uniform Disposition of Unclaimed Property Act [1966] would be inconsistent with this decree, the decree prevails", 407 U.S. at 215 n.8, 85 S. Ct. at 2080 n.8. Thus the Court in addressing itself to the Uniform Act promulgated in 1966 necessarily assumed its provisions applied to property abandoned 30 years prior to adoption of the Act.
The 1954 Uniform Disposition of Unclaimed Property Act provides a typical example of the retroactive operation of abandoned property legislation. Section 2(d) of the Uniform Act presumes the abandonment of the contents of safe deposit boxes which have been unclaimed for "more than seven years." Section 11(g) requires the initial report be prepared as if the Act had been in effect during a ten year period prior to adoption of the Act. Several cases have construed these provisions to make all existing abandoned property subject to the Uniform Act provided only that the property was not time-barred on the effective date of the legislation. See, Douglas Aircraft Co. v. Cranston, 58 Cal.2d 469, 374 P.2d 819, 24 Cal.Rptr. 851 (1962) ("existing abandoned property is subject to the Act"); Country Mutual Insurance Co. v. Knight, 40 Ill.2d 423, 240 N.E.2d 612 (1968) ("existing abandoned property subject to the Act").
In accord, State v. Standard Oil, 5 N.J. 281, 74 A.2d 565 (1950), aff'd, 341 U.S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951); Treasurer and Receiver General v. John Hancock Mut. Life Ins. Co., 388 Mass. 410, 446 N.E.2d 1376 (1983); State v. Marshall & Illsley Bank of Milwaukee, 234 Wis. 375, 291 N.W. 361 (1940); Pennsylvania v. Woodlands Cemetary Co., 9 Pa. D.&C.2d 589 (C.P. 1956); State v. Northwestern National Bank of Minneapolis, 219 Minn. 471, 18 N.W.2d 569 (1945).
Congress intended that states would be entitled to claim the unclaimed property pursuant to existing abandoned property laws whenever adopted. The Report of the Committee on Banking, Housing and Urban Affairs, United States Senate, accompanying the Garn Act, provided:
"A state may assert a right to possession of any unclaimed property during the twelve month claim period if it has a law, whenever adopted, that permits it to take custody of such property.
Any state with such a law shall be deemed to have provided adequate proof that it is entitled to such property, which was removed from a closed national bank located in that state, unless a claim by another person or entity to such property is determined by the Comptroller to take precedence. The Comptroller is not expected to require a state to bring suit to obtain possession or to provide further documentary evidence of entitlement. All claimants, including states, shall be required to comply with regulations consistent with the above." (Emphasis added)
Federal legislation intended to promote the return of abandoned property to missing owners should be construed consistently with the Uniform Act and other unclaimed property legislation. Recently another federal act designed to facilitate the disposition of unclaimed property received judicial consideration. In the case of Travelers Express Co., Inc. v. Minnesota, 506 F.Supp. 1379 (D.Minn. 1981), aff'd, 664 F.2d 691 (8th Cir. 1981), cert. dismissed, 456 U.S. 920, 102 S. Ct. 1780, 721 L. Ed. 2d 181 (1982), the court construed legislation which prescribed the rules for which states could claim unrepresented money orders. The court stated that the federal law was:
". . . plainly designed to interact with the Uniform Act. It is presumed that a lawmaking body acts with existing law in mind and that new statutes will harmonize rather than conflict with existing statutes." 506 F.Supp. at 1384 (Emphasis added)
Finally, no statute of limitations bars the claims of the missing owners.
As discussed on pp. 8-9, abandoned property legislation applies to all obligations except those which are time-barred as of the effective date of the law. In the case of the property now in the custody of the Comptroller, no such impediment bars the claim of the missing owners.
The Garn Act, Section 733(a)(1), expressly allows all claimants, including states, a period of twelve months within which to file claims to the property. Thus Congress has expressly established a period of limitations which will not expire until June 30, 1984. In the absence of such a provision the result would be the same. The relationship between that of the bank and the safe deposit box owner is that of bailee and bailor. Cussen v. So. California Savings Bank, 133 Cal. 534, 65 Pac. 1099 ("depository for hire"). See 10 Am.Jur.2d § 475. Accordingly, the statute of limitations would not run until the Comptroller denied the bailment and converted the property to his own use, 8 Am.Jur.2d § 305.
With regard to legal liability of the Comptroller, KRS 393.130 expressly relieves the Comptroller from all liability for any abandoned property delivered to the state. This section provides:
"Upon the . . . delivery of abandoned property to the department, the state shall assume custody and shall be responsible for the safekeeping thereof. Any person who . . . delivers abandoned property to the department under this act is relieved of all liability to the extent of the value of the property so . . . delivered for any claim which then exists or which thereafter may arise or be made in respect to the property. . . ."
In conclusion, based on the provisions of KRS 393.060 and KRS 393.068, it is the opinion of this office that unclaimed property in the possession of the Comptroller is subject to the claim of this state. Accordingly, such property must be reported and delivered pursuant to the requirements of KRS 393.110.
Footnotes
Footnotes
1 P.L. No. 97-320, Sec. 408 (October 15, 1982) codified at 12 U.S.C. § 216.
2 Garn Act, Sec. 733(c)(1) ". . . all rights, title and interest in such property shall immediately be vested in the United States."
3 See letter from David J. Epstein, Special Consultant to the National Association of Unclaimed Property Administrators, to Senator Jake Garn dated July 13, 1982, which stated, inter alia, ". . . N.A.U.P.A. continues to believe the proposal to vest title in the United States to property unclaimed by owners and states and to cover the proceeds into the Treasury [is] unconstitutional and that all such proceeds should remain available for claim."
4 For the reasons discussed on pp. 10-11, infra, there is no statute of limitations applicable to the owners of the unclaimed property in the possession of the Comptroller.
5 See pp. 4-5, 7, supra, for a further discussion of this case.
6 The Kentucky statute presumed abandoned all demand accounts "unless the owner has, within ten years preceding the date for making the report" had activity in the account, 321 U.S. at 236, 88 L. Ed. at 699. Accordingly, the statute at the time of its enactment applied to demand accounts which already were inactive for more than ten years.
7 379 U.S. 674, 85 S. Ct. 626, 13 L. Ed. 2d 596 (1965).