Tuesday, April 22, 2014

FYI: Cal App Upholds Lower Court Victory for Bank in State Escheat Law Case

Monday, January 17, 2011

The California Appellate Court, First District recently held that a bank's practice of appropriating as income amounts accumulated through processing errors when clearing checks did not violate either the California Unclaimed Property Act, Cal. Code Civ. Pro. § 1500, et seq. ("UPL"), or the California False Claims Act, Cal. Govt. Code § 12650, et seq. ("CFCA").
A copy of the opinion can be found at:
Two former employees of Bank of America brought a claim under the CFCA for alleged violations of the UPL.  The former employees claimed that Bank of America maintained a policy of not diligently researching errors that could result in credits to presenting banks when clearing checks.  The employees argued that these unidentified credits should revert to the State under the UPL, and that Bank of America's failure to report these credits to the State violated that statute.  The employees brought their claim under the CFCA, contending that Bank of America's purported UPL violation amounted to knowingly and improperly avoiding an obligation to pay money to the State.
The Appellate Court rejected the employees' arguments under both statutes. 
As to the UPL claim, the Appellate Court found that the unidentified credits at issue are not unclaimed property under the UPL.  The Appellate Court noted that the employees had not pled the existence of specific amounts due to specific presenting banks.  Observing that no presenting bank has ever made a claim against Bank of America in relation to these credits, the Appellate Court stated that it was difficult to conceive that the sophisticated financial institutions who were parties to these transactions would have abandoned the amounts due if they were identifiable.  The Appellate Court further commented that the shared characteristic of the types of property covered under the UPL is that they all encompass specific amounts due to identified persons, which the employees had failed to plead.
The Appellate Court additionally held that the CFCA imposes its own requirement that the obligation to the state be liquidated and certain.  The Appellate Court specifically held that the obligation to the State cannot be a mere potential liability.  The defendant must have a present duty to pay money or property created by statute, regulation, contract, judgment, or acknowledgment of indebtedness.  In this case, the Appellate Court found no such duty, as the unidentified credits at issue were neither liquidated or certain.
The Appellate Court also reiterated previous rulings requiring CFCA claims to be pled with specificity.  The Appellate Court rejected the employees' argument that Bank of America's actions in not diligently researching errors related to the unidentified credits relieved them of meeting the CFCA's heightened pleading standard, stating that CFCA actions "are meant to encourage private whistleblowers, uniquely armed with information about false claims to come forward.  These insiders should have adequate knowledge of the fraudulent acts to comply with the pleading requirements."

Eric Tsai
McGinnis Wutscher Beiramee LLP
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