Ruling to lift ban on state's unclaimed property program affirmed

A federal appellate court Monday affirmed a Sacramento judge's decision to lift an injunction that had halted operation of the state's multibillion-dollar unclaimed property program.

U.S. District Judge William B. Shubb ruled in October that emergency state legislation in August cured flaws in the program that occasioned the injunction.

The ruling was appealed by attorney William W. Palmer on behalf of owners of property taken by the state Controller's Office, which administers the program.

But a three-judge panel of the 9th U.S. Circuit Court of Appeals ruled, "The controller has hardly begun enforcing the new … law. We cannot say, on the record before us, that the district court abused its discretion in dissolving the preliminary injunction."

Controller John Chiang said Monday he is seeking further reforms "to ensure … banks are prohibited from sending the state safe deposit boxes of customers with other accounts," and interest payments on unclaimed property is restored, a practice that was repealed in 2003.

Palmer said Monday he still believes the law, even in its revised form, does not provide constitutional due process in the form of reasonable notice to property owners.

On June 1, Shubb enjoined Chiang from taking and disposing of unclaimed cash, securities, contents of safety deposit boxes and other types of personal property until regulations were in place "providing fair notice to the owner and public."

The order shut off an annual flow of $600 million into the state's coffers and sent shock waves through the Capitol. Gov. Arnold Schwarzenegger signed a reform bill into law Aug. 24.

California law requires "holders" – banks, insurance companies, brokerages and other firms – to transfer to the state unclaimed personal assets dormant for three years.

The controller's Web site says the office has $5.1 billion belonging to 8.2 million individuals and organizations.

Controller spokeswoman Hallye Jordan said Monday the office has sent 2,258,738 direct mail notices since July 1. She said that doubles the number in the past decade. Under the old law, she said, only 184,000 of those could have been sent.

The old law prohibited the controller from sending notices to addresses to which a holder had previously sent one. Only when the controller could get a different address from the Franchise Tax Board could the office send a notice.

Jordan also pointed out the new law funded a long-defunct locator unit, which was defunded by the Legislature in 1983.

According to the controller's Web site, in the four weeks following enactment of the new measure, more than 3,100 owners of lost, forgotten or abandoned property were located who would not have been otherwise.

Jordan also noted holders must now give the Controller's Office advance warning of intent to take property so the office can reach out for owners before transfers occur.

Monday's 9th Circuit opinion reversed Shubb's refusal to award interim fees to Palmer.

The lawyer forced the Legislature to act, and he should be compensated now, the panel declared. It left the amount to be decided by Shubb.

Palmer was elated at that news.

"I basically financed this whole march to the sea myself," the sole practitioner said of the lawsuit, filed in 2001. "I'll be able to have steak on the table tonight instead of meatloaf."

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