Court shoots down unclaimed funds class action suit

The Minnesota Court of Appeals has shot down a putative class-action lawsuit that challenged how the Department of Commerce handles about $750 million worth of “abandoned” cash, property, and other assets it has stashed in the state’s general fund.

In a lawsuit filed in Ramsey County in 2015, the four plaintiffs accused the department of ramping up its campaign to maximize the state’s haul but not doing nearly enough to track down the rightful owners whose assets it holds.

Along with asserting that such a lack of “meaningful” notice violates due process, the lawsuit alleged that the state engages in unconstitutional taking even when owners recover their assets because, under the Minnesota Unclaimed Property Act (MUPA), they don’t get a penny of accrued interest.

The three-judge Court of Appeals panel didn’t buy either argument.

In a published opinion issued Monday, Judge Renee Worke also brushed aside the criticism of the Department of Commerce’s chief method for providing notice to property owners — a “poorly publicized” website, www.missingmoney.com where visitors “must type in their name in a search for buried treasure” rather than simply peruse an alphabetical list.

“In the modern world, it is not uncommon or burdensome to conduct internet searches,” Worke wrote.

Pointing to a 1982 U.S. Supreme Court decision, Texaco, Inc. v. Short, Worke also rejected the notion that MUPA is unconstitutional because it authorizes the taking of private property without just compensation.

In upholding an Indiana statute that automatically terminated mineral rights left unused for 20 years, the Texaco court concluded that the state has no obligation “to compensate the owner for the consequences of his own neglect.” Texaco was cited by the Oklahoma Supreme Court last year (in Dani v. Miller) when it upheld the constitutionality of Oklahoma’s unclaimed property act, which is substantially similar to MUPA, Worke wrote.

The appeals court did not squarely address the argument that the state’s failure to pay interest constitutes a taking.

In a footnote, Worke acknowledged a 7th Circuit decision (Cerajeski v. Zoeller, 2013) that said the government must compensate a property owner whose assets were originally held in an interest-bearing account.

But because the Minnesota lawsuit is positioned as a class action, the appeals court only addresses common claims, reasoned Worke, who noted that only one of the four named plaintiffs in the suit had her funds taken from an interest-bearing account.

The appeals court’s ruling comes as a relief to state officials. In a year-end financial report, Myron Frans, director of Minnesota Management and Budget, calculated the state’s potential exposure from a successful class action as “in excess of $15 million.”

Ross Corson, the director of communications for the Department of Commerce, said the court got the decision right.

“We’re pleased by the ruling, which reaffirms similar rulings that have been made by the United States Supreme Court and other states’ courts on similar issues,” Corson said.

According to Corson, the Commerce Department returned a record high $49.3 million in unclaimed property to more than 30,000 individuals in fiscal year 2016. He credited that increase to more publicity about the existence of the fund, as well as improvements to the department’s back office operations that have made it easier to file and process claims.

Still, the amount of money in the unclaimed property fund has continued to swell. As of Dec. 31, the state was holding $749 million, which is up from $606 million when the lawsuit was first filed two years ago and more than twice the total from a decade ago.

So what accounts for the surge?

Banks and other institutions have become more aware of their obligations under MUPA to remit and report dormant funds, said Corson. In recent years, he added, the Commerce Department has entered into civil settlements with nine life insurance companies over allegations that they were not making enough effort to locate the beneficiaries of policies.

Dan Hedlund, the lead attorney in the lawsuit, said he was disappointed with the appeals court decision and expects to seek further review from the Minnesota Supreme Court.

“We believe strongly this program is currently unconstitutional and we believe it is depriving citizens of Minnesota of their property,” said Hedlund, an attorney at the Minneapolis firm Gustafson Gluek. “We look forward to vindicating their rights at a higher court.”

Hedlund noted that the increase in the state’s unclaimed property fund correlates with a series of changes to MUPA that has steadily chipped away at the “dormancy period,” which provides the timetable for the remittances of various types of property to the state.

When MUPA was enacted in 1969, for instance, the dormancy period for assets held by life insurance companies and banks, including the contents of private safe deposit boxes, was set at 20 years. In 1977, that period was knocked down to seven years. Subsequent legislation reduced it to three years.

Joe Atkins, a lawyer and former state representative from Inver Grove Heights who worked on the unclaimed property issue for several years at the Legislature, said he wasn’t surprised by the Court of Appeals ruling because he doesn’t think that MUPA is unconstitutional.

“My hope is this won’t have to be resolved by a lawsuit. My hope is that it will be resolved by a little more outreach,” said Atkins, who unsuccessfully pushed for legislation last year that would have funded more positions at the Commerce Department to do proactive outreach and mandated the publication of unclaimed property notices in newspapers.

“We should be as aggressive as getting people’s money back to them as we are at locating it,” Atkins said, adding that he doesn’t blame the Department of Commerce or its commissioner, Mike Rothman, for the lack of progress.

“If you don’t have the bodies and you don’t have the budget, it’s hard to be effective,” he said.