To Self-Assess or be Assessed Interest – This is Now the Question

Heather Gabell, J.D., Director of Compliance

December 19, 2019

The New York trial court’s recent denial of JP Morgan Chase & Co.’s motion for summary judgment in New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co. [1] has caused a stir among holders in all states. JPMorgan Chase & Co. (“JPMC”) has appealed the decision, and the holder community is keeping a close eye on the outcome.

The qui tam action was filed in 2015 for the alleged failure to self-assess interest on late reported property – a failure the relator alleged resulted in fraudulent reports under the New York False Claims Act.

Relevantly, per Section 1412 of New York’s Abandoned Property Law (APL):

Any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller or any law relating to abandoned property shall pay interest on the amount or value of such property. Such interest shall be at the rate of 10% per annum computed for a period to commence upon the date such payment or delivery was required by this chapter and to terminate upon the date of full compliance therewith, except that the state comptroller may waive the payment of all or part of such interest whenever in his opinion the circumstances warrant such waiver.

JPMorgan Chase & Co. (JPMC) took the position that the self-assessment of interest on late property on a report is in the state’s discretion and therefore a contingent obligation.

The court requested guidance from the Office of the Comptroller (OSC) who stated that the statutory language is discretionary because of the waiver language. However, the Office of the Attorney General (OAG) later submitted a letter disagreeing with the OSC’s position. On August 30, 2019, the Court found that the language of the statute “was abundantly clear” and the “shall pay interest” language is not a contingent obligation – the duty to pay interest arises as soon as the holder files late property.

This outcome was surprising to holders, given that New York routinely does not issue interest and penalties and that it is not industry practice to self-assess interest. If the ruling is upheld, what remains to be seen is whether or not other states with similar “shall pay interest” language in their statutes, who have not historically pursued holders for interest and penalties, will look to the ruling and begin enforcing their statutes; or will find themselves forced into a position by qui tam actions brought against holders.

A survey of states with False Claims Acts reveals that holders could potentially be at risk in those states if they also have similar “shall pay interest” language in their unclaimed property laws. Other courts could construe the language as New York did, and find an affirmative obligation to report and remit interest prior to any notice or assessment by the state. It is important to note, that even the states that routinely assess interest and penalties (such as California and Texas), do not require holders to self-asses interest, thus there remains false claims act risk in those states for the same reason, although a materiality argument could foreclose significant damages if the state routinely assesses interest of its own volition.

The decision has also led to the uncomfortable realization that relying on state guidance – or even industry wide practice – may not be prudent. JPMC cited examples of the state’s permissive language from New York’s own reporting manual, which contains language that the state “can charge” interest. This decision may also have a chilling effect on compliance with the unclaimed property law in New York – holders may become hesitant to voluntarily come forward with past due property if they are required to self-assess and remit interest at the time of the report.

Can holders protect themselves against potential False Claims Act accusations? Maybe. We recommend that holders consult with their counsel to determine the level of exposure in these states. Perhaps the inclusion of language on unclaimed property reports stating that interest will not be assessed at the present time, along with a request that the state waive any interest due, may help protect holders.

In response to the risks revealed by this case, Keane is updating our Penalties and Interest Risk Profile to include information on jurisdictions with a False Claims Act and/or “shall pay interest” language. Once finalized we will update the Keane Unclaimed Property System (KUPS) Penalties and Interest report to implement these changes. This information will help companies understand their exposure and consider remediation programs to reduce their liability in jurisdictions beyond just those presently assessing penalties and interest. We foresee other states following suit if New York ‘s OSC is forced by the courts to require prospective self-assessment of interest, much like in 2010 when California started issuing penalties and slowly other states followed suit.

We encourage holders to stay proactive and to pursue voluntary disclosure agreements, or other ways to reduce exposure in these states, and Keane is here to help holders through the process.

[1] New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., N.Y. Sup. Ct., No. 100271/2015, 8/30/19.

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