Litigation Update

September 4, 2020

Patronis v. United Insurance Company of America, et. al[1]

Florida’s 2016 Amendments Requiring DMF Searches Apply Retroactively

On June 3, 2020, the First District Court of Appeals for the State of Florida reversed an earlier decision by the trial court and upheld the constitutionality of the 2016 amendments to the Florida unclaimed property law. As amended, the law requires that insurers conduct annual comparisons of life insurance policies, annuity contracts, and retained asset accounts that are in force on or after January 1, 1992 against the Death Master File (DMF). If a match is found, the insurer has 120 days to attempt to confirm death, determine if benefits are due, and attempt to locate beneficiaries. The amendments also changed the dormancy trigger to the date of death of the insured.

The Legislature stated that these amendments were remedial in nature and were to be applied retroactively. Any applicable fines, penalties or additional interest would not be imposed for the failure to report or remit property so long as they were reported and remitted on or before May 1, 2021.

A group of insurers successfully challenged these amendments in May 2016 when they argued that the retroactive application of the 2016 amendments violated their due process rights. In that case, trial court agreed, finding that the amendments were substantive, not procedural or remedial in nature, and as such, could only be applied prospectively. Applying the amendments retroactively would impose new obligations and duties on the insurers.

The Appellate Court reversed and held that the amendments were remedial in nature, finding it persuasive that the Legislature expressly stated that the unclaimed property laws are remedial in nature within the legislation itself. Further, as most insurers already use the DMF, the amendments were a “modest attempt to remedy an industry problem with a search process that most insurers already used.” And while the dormancy trigger would likely result in a shorter holding period by the insurer, the Appellate Court ruled that the safe harbor provision benefited insurers who reported and remitted unclaimed proceeds by May 1, 2021, in that fines, penalties and interest would be waived.

The Appellate Court also disagreed with the trial court’s finding that the amendments violated due process by imposing new duties and obligations on insurers, stating that the preexisting duties of the insurers, which included conducting reasonable searches and using reasonable methods to locate and contact beneficiaries, were not facially unconstitutional as “new obligations.”

State of Delaware, Department of Finance v. Univar, Inc.[2]

Delaware Chancery Court Action Moves Forward to Trial

On May 21, 2020, the Delaware Chancery Court denied Univar’s motion to dismiss Delaware’s enforcement of  the administrative subpoena issued in connection with a multistate audit. The Chancery Court disagreed with Univar’s argument that the action was not ripe for adjudication, allowing the case to move forward to trial. Univar argued that the state had failed to comply with the statutory prerequisites for issuing an administrative subpoena by 1) failing to show compliance with the confidentiality provisions under the unclaimed property law and 2) failing to promulgate fair regulations surrounding the multistate audit process.

Joseph M. Torsella, in his official capacity as the Treasurer of the Commonwealth v. PPL Corporation [3]

Latest Action Calls for Parties to Submit Briefs

Pennsylvania Treasurer Joseph Torsella brought an action against PPL Corporation to enforce an administrative subpoena for records requested during an unclaimed property audit. While PPL Corporation turned over redacted documentation, the company refused to comply with requests for the electronic production of certain records, which included the personally identifiable information (PII) of shareholders located in states that were not participating in the audit. The corporation cited concerns over potential security breaches, breaches of confidentiality, and potential conflicts with various state and federal privacy laws (including CCPA and GDPR). The Treasurer previously declined offers by the corporation of an on-site review of its unredacted records.

Issues relevant to all holders include whether the electronic production of records is required in Pennsylvania, which is not specifically referenced in the Pennsylvania unclaimed property law, and whether a holder must disclose certain PII if there is the potential for a breach of confidentiality or security., Inc. v. the State of Delaware, ex rel. William Sean French [4]

Overstock Wins Narrow Victory on Appeal

Overstock, Inc. successfully appealed a Delaware Superior Court judgment which had awarded William Sean French and the State of Delaware (Plaintiffs) $22,000 in civil penalties and $7.2 million in treble damages for violations of the Delaware False Claims and Reporting Act (the “Act”).

In the underlying qui tam action, Plaintiffs alleged that several retailers, including Overstock, had entered into agreements with card service companies, including Card Fact, to evade the reporting obligations under Delaware’s unclaimed property law. Overstock, incorporated in Delaware, contracted with CardFact (later Card Compliant LLC) to manage its gift card program. Under the terms of the contract, which was governed by Ohio law (a state that exempts gift cards from reporting), CardFact was deemed to be the holder of the gift cards. Plaintiffs claimed that Overstock violated the Act because the contract and Overstock’s books and records were themselves “false record[s] or statement[s],” and that the failure to file reports to Delaware was the equivalent of filing false reports.

The Superior Court’s instructions to the jury were predicated on the theory that Overstock had violated Section 1201(a)(7) of the Act, which provides that “any person who: knowingly makes, uses, or causes to be made or used a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government shall be liable…” [5]

Overstock maintained that the Delaware Superior Court erred in instructing the jury that the knowing failure to file reports was equal to actively making a false statement. The Delaware Supreme Court agreed with Overstock and reversed. In reviewing federal case law that interpreted the Act, the Delaware Supreme Court stated that in to prevail on a reverse false claim action, a false statement or record must have actually been submitted to the state that would give the state “the impression that Overstock either did not owe the state money or owed the state less money than Overstock was required to pay. The absence of a record or statement cannot form the basis of a reverse false claim under 6 Del. C. Sec. 1201(a)(7 (2009). The failure to file reports were not false records or statements and the Superior Court’s instructions to the contrary was a reversible error.

Holders should note that Delaware amended Section 1201(a) (7) in 2013 to broaden the scope of liability for a reverse false claim action such that liability will also attach if one “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”[6] In this case, the Delaware Supreme Court looked only to the 2009 version of the statute, as the parties had agreed that the 2009 version was applicable to the case.

[1] Patronis v. United Insurance Company of America, et. al, No. 1D18-2114 (Fla. 1st DCA 2020).
[2] State of Delaware, Department of Finance v. Univar, Inc., C.A. No 2018-0884-JRS (Del. Ch. 2020).
[3] Joseph M. Torsella, in his official capacity as the Treasurer of the Commonwealth v. PPL Corporation
(No. 272 M.D. March 26, 2020).
[4], Inc. v. the State of Delaware, ex rel. William Sean French C.A. No. N13C-06-289 (Del.
Sup. Ct. 2020).
[5] 6 Del. C. Sec. 1201(a)(7) (2009).
[6] 6 Del C. Sec. 1201(a)(7) (2013).

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