FYI: Cal App Ct (1st Dist) Allows Private State False Claims Action for Failure to Report and Deliver Escheated Property

The Court of Appeals of California, First District, recently held that a qui tam plaintiff may pursue a California False Claims Act (CFCA) action predicated on a bank's failure to report and deliver escheated property, even if the California State Controller does not provide appropriate notice to the bank under California Code of Civil Procedure Section 1576.

 

A copy of the opinion is available at:  Link to Opinion

 

A qui tam plaintiff alleged that two banks violated the CFCA by failing to report and deliver millions of dollars owing on unclaimed cashier's checks to the State of California as escheated property.

 

The trial court denied the banks' motions to dismiss. The banks each filed petitions for writ of mandate in the First Appellate District challenging the trial court's order.

 

As you may recall, "escheat" is the "vesting in the state of title to property the whereabouts of whose owner is unknown or whose owner is unknown or which a known owner has refused to accept, whether by judicial determination or by operation of law, subject to the right of claimants to appear and claim the escheated property or any portion thereof." Calif. Code Civ. Proc., § 1300, subd. (c).)

 

California's Unclaimed Property Law (UPL) regulates the escheatment of abandoned property to the State of California. (§ 1500 et seq.) The general rule in California, codified in section 1510, is that unclaimed intangible property escheats to California when the "last known address" of the "apparent owner" is in California. (§ 1510, subds. (a), (b)(1).)

 

Section 1511 of the UPL adds an additional requirement to this general rule, stating: "Any sum payable on a money order, travelers check, or other similar written instrument (other than a third-party bank check) on which a business association is directly liable escheats to this state under this chapter if the conditions for escheat stated in Section 1513 exist and if: (1) The books and records of such business association show that such money order, travelers check, or similar written instrument was purchased in this state." (§ 1511, subd. (a)(1).)

 

Additionally, Section 1576 imposes a penalty for "willfully" failing to deliver or report escheated property to California, and a person acts "willfully" only if "he or she has failed to respond within a reasonable time after notification by certified mail by the [California State] Controller's office of his or her failure to act." (§ 1576, subd. (c).)

 

Moreover, the CFCA "permits the recovery of civil penalties and treble damages from any person who '[k]nowingly presents or causes to be presented [to the state or any political subdivision] . . . a false claim for payment or approval.'" (Ibid., quoting Gov. Code, § 12651, subd. (a)(1).)

 

False claims include "possession, custody, or control of public property or money used or to be used by the state or by any political subdivision and knowingly deliver[ing] or caus[ing] to be delivered less than all of that property" (Gov. Code, § 12651, subd. (a)(4)) and "knowingly and improperly avoid[ing], or decreas[ing] an obligation to pay or transmit money or property to the state or to any political subdivision." (Gov. Code, § 12651, subd. (a)(7).) The CFCA also contains qui tam provisions authorizing private relators to bring actions on behalf of the State of California to seek redress for a CFCA violation. (Gov. Code, § 12652.)

 

In their writs, the banks argued that the court in State of California ex rel. Bowen v. Bank of America Corp., 126 Cal. App. 4th 225 (2005), held that a plaintiff may not allege a CFCA violation predicated on the failure to report or deliver escheated property absent notice from the Controller under Section 1576.

 

In Bowen, a qui tam plaintiff sued a group of banks under the CFCA, alleging that the banks failed to report as escheated property unearned and unreturned reconveyance fees they were holding. The court in Bowen held that the reconveyance fees in question "were not subject to escheat" because, during the time period in question, there was no "certain and liquidated" obligation to report those fees as escheated property. (Bowen, supra, 126 Cal.App.4th at pp. 230, 239, 240–242.)

 

However, the Appellate Court determined that the Bowen court only considered and decided that the plaintiff there failed to allege an obligation for the banks to report reconveyance fees to the Controller; it did not hold that there can be no such obligation without prior notice from the Controller.

 

The First Appellate District expounded that prior notice from the Controller is not a prerequisite of liability under the CFCA. The Court conceded that the imposition of penalties under section 1576 for willful violations does require prior notice by the Controller, but also noted that the complaints at issue here did not seek to impose those penalties.

 

The complaints alleged violations of subdivision (a)(4) of section 12651 of the California Government Code, which proscribes the possession of property used or to be used by the government and knowingly delivering less than all that property to the government. The complaints also alleged violations of subdivision (a)(7) of section 12651 — the "reverse false claim" provision — which prohibits false statements, concealment, or improper avoidance of obligations to the state. The Court reasoned that neither of these provisions are dependent on prior notice from the Controller or on the proscribed conduct being punishable under another predicate statute, such as the UPL.

 

Likewise, the Appellate Court concluded that the UPL contains no provision stating that the Controller must provide notice that a person has failed to report or deliver escheated property to the State before liability can be imposed for submitting a false claim in violation of the CFCA. Contrary to the banks' argument, the Court held that notice is not an element that must be pled and proven in a CFCA case; the notice requirement of section 1576 is a prerequisite only for imposition of the penalties provided in that statute for willful violations of the UPL.

 

Accordingly, the First Appellate District denied the banks' petitions for writ of mandate.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Upholds Dismissal of TCPA Putative Class Action Applying Duguid

The U.S. Court of Appeals for the Ninth Circuit recently upheld the dismissal of a putative class action for alleged violation of the federal Telephone Consumer Protection Act ("TCPA").

 

In so ruling, the Ninth Circuit held that a number generator must generate and dial random or sequential telephone numbers to qualify as an "automatic telephone dialing system" under the TCPA.

 

A copy of the opinion is available at:  Link to Opinion

 

After a consumer provided his phone number to an insurance provider on a website, he began receiving texts from an insurance marketer. The consumer sued under the TCPA, claiming that the marketer used a "sequential number generator" to pick the order in which to call customers who had provided their phone numbers. The consumer alleged that this type of number generator qualified as an "automatic telephone dialing system," often known as an "autodialer," under the TCPA.

 

The marketer responded that it did not use an autodialer and that the TCPA defines an autodialer as one that must generate telephone numbers to dial, not to decide which pre-selected phone numbers to call.

 

The trial court dismissed the consumer's complaint, ruling that the marketer did not use an autodialer. The consumer timely appealed.

 

As you may recall, the TCPA prohibits calling telephone numbers using an autodialer in certain cases. The TCPA defines an "automatic telephone dialing system" as:

 

equipment which has the capacity—

 

(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and

 

(B) to dial such numbers.

 

47 U.S.C. § 227(a)(1).

 

Here, the Ninth Circuit held that the statutory text makes it clear that the number in "number generator" within subpart (A) of the TCPA means a telephone number.

 

When interpreting a modifying clause set off by commas, "the most natural way to view the modifier is as applying to the entire preceding clause." Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund, 138 S. Ct. 1061, 1077 (2018). The Ninth Circuit determined that, "to store or produce telephone numbers to be called" was dependent on the clause "using a random or sequential number generator." This meant that "using a random or sequential number generator" modified the phrase "to store or produce telephone numbers to be called." Thus, the Court reasoned that it made the most sense that the "number" referred to in the modified clause was the same as the "numbers" in the dependent clause—both were referring to telephone numbers.

 

Furthermore, the Ninth Circuit noted that the Supreme Court of the United States' ruling in Duguid, 141 S. Ct. 1163, underscored that an autodialer must randomly or sequentially generate and dial a telephone number. Specifically, the SCOTUS in Duguid held that "a necessary feature of an autodialer under § 227(a)(1)(A) is the capacity to use a random or sequential number generator to either store or produce phone numbers to be called," Duguid, 141 S. Ct. at 1173, because the contrary interpretation "would capture virtually all modern cell phones, which have the capacity to store telephone numbers to be called and dial such numbers," id. at 1171.

 

The Ninth Circuit concluded that the consumer's interpretation would go against the SCOTUS holding and return the Circuit back to the pre-Duguid state in which "virtually all" cell phones were at risk of violating the TCPA.

 

The Ninth Circuit also noted that the SCOTUS discussion of the TCPA's policy aims supported the view that an autodialer must be able to generate random or sequential telephone numbers. The SCOTUS noted that, besides annoying consumers, the autodialer "threatened public safety by 'seizing the telephone lines of public emergency services, dangerously preventing those lines from being utilized to receive calls from those needing emergency services.'" Id. (quoting H.R. Rep. No. 102-317, at 24 (1991)). And it could "simultaneously tie up all the lines of any business with sequentially numbered phone lines." Id.

 

However, using a random or sequential number generator to select from a pool of customer-provided phone numbers would not cause the harms contemplated by Congress in the Ninth Circuit's view. For instance, public emergency services would presumably not be in these customer-provided lists. And if an autodialer called the phone numbers on its customer list sequentially, it would likely not reach the sequential numbers often assigned to a single business.

 

Accordingly, the Ninth Circuit affirmed the trial court's dismissal of the consumer's lawsuit.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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