Heather Gabell, J.D., Director of Compliance
August 28, 2019
August 28, 2019
Total Asset Recovery Services, LLC v. Met Life Inc.
Big Win for Life Insurers in $14 Billion Whistleblower Case
On April 3, 2019, in Total Asset Recovery Services, LLC v. Met Life Inc., the Supreme Court of the State of New York, County of New York, granted a motion to dismiss in favor of defendant life insurance companies Prudential, John Hancock, and MassMutual, and others, in a qui tam lawsuit alleging over $14.5 billion in damages.
Plaintiff-relator and auditor Total Asset Recovery Services, LLC (“TARS”) brought the action on behalf of the state of New York in 2010 under the New York False Claims Act, alleging that from April 1, 1986 to September 10, 2017, the life insurance companies knowingly failed to report and escheat unclaimed life insurance policy proceeds. The NY Attorney General declined to intervene in the case.
TARS asserted that death alone, not proof of death, triggered the running of the 3 year dormancy period for life insurance proceeds under Section 700 of New York’s abandoned property law. However, life insurance companies were not required by law to actively search the Death Master File (“DMF”) until April 2012. As such, Justice Andrea Masley held that TARS “fail[ed] to (1) identify facts specifically relating to defendants and their fraudulent conduct, (2) identify the specific false reports that were submitted by defendants to the State, or (3) allege facts establishing that defendants knew that they submitted false unclaimed property reports to the state.”
The court also denied TARS’s request to further amend the pleading as TARS had already amended the complaint twice before.
Commonwealth of Pennsylvania, Treasury Department v. PPL Corporation
PA Treasurer Files Enforcement Action Against PPL Corporation
On May 10, 2019, the Pennsylvania Treasurer filed a complaint against PPL Corporation (PPL), for the failure to comply with an unclaimed property audit, and associated administrative subpoena . The Treasurer maintains that PPL has refused to produce the requested documents, which include unredacted information regarding its shareholders. PPL maintains that the redacted information consists of PII (personally identifiable information), such as names, street addresses and Social Security Numbers, and is confidential – and that the electronic production of such information to the state poses a risk of disclosure, in light of the public disclosure laws present in many of the states that have joined in the Kelmar audit. PPL also highlights the risk of disclosure in the event of a security breach. PPL further argues that the PII is not relevant to the determination of whether an account is presumed abandoned. Pennsylvania law affords the state the right to examine the holder’s records,, but does not require that such records be transmitted or produced (72 P.S. 1301.23(b),(c). PPL instead offered the auditors on-site access to the unredacted data on its computers, but the PA Treasury believes that this also frustrate the efforts of its auditors in ensuring PPL’s compliance with the unclaimed property law.
Unclaimed Membership Deposits: California Follows Texas’ Lead in Filing Action Against ClubCorp
CA Attorney General Files Action Against ClubCorp
On June 11, 2019, the California Attorney General filed a Complaint in the Superior Court of California, County of San Francisco  , alleging that ClubCorp violated California’s False Claims Act (CFCA) and the California Unclaimed Property and Unfair Competition laws when it knowingly omitted in its unclaimed property reports approximately $10 million in unclaimed initiation deposits due to over 9,000 California members or former members.
ClubCorp, reported to be the largest owner and operator of private golf and country clubs in the country, has been in operation for over 60 years and while based in Dallas, Texas, has over 20 affiliated clubs located in California (also parties to the action). Under its membership agreements, ClubCorp is contractually obligated to return a member’s initiation deposit after 30 years. As of June 13, 2017, ClubCorp was due to return approximately $178,086,000 to current and former members, $10 million of which was owed to Californians.
The Complaint alleges that ClubCorp knowingly submitted or caused to be submitted unclaimed property reports that omitted the initiation deposits due for return and filed false reports by knowingly omitting the obligation to pay or transfer the funds to the state, in violation of California’s Unclaimed Property Law, CCFA and Unfair Competition Law. The state asserts that ClubCorp was obligated to either return the funds to its members or escheat the funds upon the expiration of the 3-year dormancy period, and that the failure to escheat the funds harmed California “by depriving it of the use of the funds that should have been escheated.”
The state seeks restitution, civil penalties, injunctive relief and treble damages.
Patty Verde, ClubCorp’s Communications Manager, maintains that ClubCorp treats members of all ages “fairly, equally and in full compliance with its obligations, and “believe[s] that the agreements our members accept, which are consistent with practices throughout our industry, fully comply with the law.”
California joins Texas as the second state to sue ClubCorp. The Texas Attorney General alleged in its petition filed on January 7, 2019 in the District Court of Travis County, Texas, that ClubCorp kept the initiation deposits of its members and former members in violation of Texas’ unclaimed property law. The state is seeking a judgement that would require ClubCorp to: allow the state to audit ClubCorp’s books and records, file all statutorily required unclaimed property reports, deliver all of the unclaimed property it holds to Texas, including the unclaimed membership deposits belonging to former Texas members in an amount estimated to be over $53 million, and pay penalties, interest and attorney fees.
Univar, Inc. Continues to Find Favor with the Delaware Courts
In December 2018, Univar, Inc. filed an action against the Delaware Department of Finance in the United States District Court for the District of Delaware on numerous constitutional grounds in response to a subpoena issued by the State in 2018 for its failure to produce records pursuant to a 2015 notice of examination. Univar maintains that the provision in the unclaimed property law that grants subpoena power to the state was added to the unclaimed property law in 2017, cannot be applied retroactively, and is therefore unconstitutional.
The state filed an action in the Delaware Court of Chancery four days later, seeking to enforce the subpoena. Univar in return filed a motion to dismiss, or to stay the proceedings, pending the outcome of the constitutional issues in federal court. The Delaware Court of Chancery granted the motion on April 8, 2019 . The Court of Chancery denied the State’s subsequent application for an interlocutory appeal on May 6, 2019, chastising the State for attempting to litigate the same issues in two courts at the same time.
On June 18, 2019, the Delaware Supreme Court refused to hear Delaware’s appeal of the denial of interlocutory review. The court agreed with the Court of Chancery that interlocutory review was not warranted and that the Court of Chancery had exercised its discretionary power in staying the litigation. Chief Justice Leo E. Strine, Jr. stressed that the decision avoided the potential for conflicting rulings caused by duplicative proceedings. Moreover, exceptional circumstances did not exist to merit interlocutory review and the potential benefits of such a review did not outweigh the inefficiency and costs that would likely be incurred with such an appeal.
The State of Delaware, ex. rel. William Sean French v. Overstock.com, Inc.
Overstock Ordered to Pay $7.2 Million in Treble Damages
On June 28, 2019, the Superior Court of Delaware issued an Order for Entry of Final Judgement for damages and penalties in The State of Delaware, ex. rel. William Sean French v. Overstock.com, Inc. In September 2018, a jury found that Overstock had knowingly violated the Delaware False Claims Act by failing to report and remit dormant gift card balances (totaling just under $3 million) to Delaware. The “giftco” gift card structure entered into by Overstock and CardFact (now Card Compliant) was held to be a sham and the unredeemed gift card balances should have been reported by Overstock, as the true holder and issuer of the gift cards, to Delaware, as its state of incorporation. By contracting with CardFact, an Ohio based entity, to issue the gift cards and act as the holder of the gift cards, Overstock was said to have evaded its unclaimed property reporting obligations, as gift cards are exempt from reporting in Ohio. Under the Act, Overstock was liable for treble damages plus statutory fines and attorneys’ fees.
In the Order, the Court ruled against Overstock, rejecting the argument that the treble damages award was “inappropriate and excessive,” finding that the amount of $7,266,412.94 “was not grossly disproportionate to Overstock’s level of culpability and the harm it caused.” The Court ordered Overstock to pay an additional $22,000 in civil penalties and reserved judgement for attorney’s fees and costs pending review of evidence to be submitted support the Plaintiffs’ initial request of $3,535,881.83.
Judge Paul R. Wallace did not mince words when stating that “Overstock was found to have engaged in not just a single violative act or omission under the Act; Overstock’s was a years-long pattern of activity. And while Overstock may give short shrift to the economic impact of its false claims violations, wrongfully withholding millions from escheatment deprived all Delaware citizens the opportunity to derive the benefits from the funds it retained. The trial evidence convincingly demonstrated that Overstock did this not for the rightful owners of its unredeemed gift cards, but for its own economic gain.”
 Total Asset Recovery Services, LLC v. Met Life Inc., No. 115336/2010 (NY Sup. Oct. 3, 2019.
 Id at. 25.
 Commonwealth of Pennsylvania Treasury Department v. PPL Corporation, No. 272 MD 2019, May 10, 2019.
 California v. ClubCorp Holdings, Inc., CGC-19-576620.
 State of Delaware, Dept. of Finance v. Univar, Inc., C.A. No. 2018-0884-JRS (Del. Ch. April 8, 2019).
 Order Denying Application for Certification of Interlocutory Appeal, State of Delaware, Dept. of Finance v. Univar, Inc., C.A. No. 2018-0884-JRS (Del. Ch. May 6, 2019).
 State of Delaware, Dept. of Finance v. Univar, Inc., C.A. No. 2018-0884-JRS (De1. 2019).
 The State of Delaware, ex. rel. William Sean French v. Overstock.com, Inc., 2019 WL 2502139.