Tuesday, April 13, 2004
C.A.: Controller Immune From Suit Over Sale Price of Escheated Stock
By DAVID WATSON, Staff Writer
Three men and a woman who lost track of shares they owned in the Blue Chip Stamp Company cannot sue the state controller for selling the stock into which the shares eventually converted at too low a price, the Third District Court of Appeal has ruled.
In an opinion ordered published yesterday, Presiding Justice Arthur A. Scotland said Controller Steve Westly is immune from suit under a provision of the state’s Unclaimed Property Law, codified beginning at Code of Civil Procedure Sec. 1500. Scotland also rejected claims by the four that they were entitled to notice when the state of Nebraska, where the shares escheated, transferred them to the California controller.
Blue Chip was one of several companies that operated promotional programs in the 1960s and 1970s under which grocery shoppers received trading stamps with their food purchases. The stamps were pasted into books and could be exchanged for merchandise at redemption centers.
Two of the men, Benny Fong and William Quiroz, owned Southern California markets that participated in the program. As a result, the businesses received shares of stock in Blue Chip.
The woman, Sarah Terracina, received stock because she worked at a redemption center while she and her husband, Angelo, lived in Sherman Oaks.
All of them lost contact with the company in the middle 1970s. The Terracinas moved to Arizona, while Fong sold his business and Quiroz stopped operating his.
Berkshire Hathaway Inc. acquired Blue Chip in 1983 and Blue Chip shares were converted to shares in the Nebraska corporation. The shares belonging to Fong, Quiroz and the Terracinas escheated to the state of Nebraska in 1988 and were transferred to then-California Controller Gray Davis under a reciprocity agreement in 1989.
Davis sold the 17 shares in 1990 for $7,082 each.
The four plaintiffs were contacted in 1999 by a third party who offered to assist them in making a claim, and they were awarded the proceeds plus interest. Fong, who owned 15 of the shares, got almost $171,000.
Quiroz got just over $12,000 for his one share and the Terracinas got just over $11,000 for their single share.
By then, however, Berkshire Hathaway stock was trading in the range of $70,000 to $90,000 a share. The four sued, arguing they should have been notified when Davis received the stock from Nebraska, and sought to recover the increased value of the shares.
Scotland said Sacramento Superior Court Judge David W. Abbott properly ruled that Westly was immune under Code of Civil Procedure Sec. 1566(b), which provides that “no suit shall be maintained by any person against the state or any officer or employee thereof for or on account of any transaction entered into by the State Controller pursuant” to the Unclaimed Property Law except as permitted by Sec. 1541.
Though the version of Sec. 1541 then in effect permitted “[a]ny person aggrieved by a decision of the State Controller” to bring a suit, Scotland said that provision had to be construed in light of Sec. 1540, which established the procedure for asserting a claim to escheated property.
“Read in context, section 1541 refers to the claim filed under section 1540. If the claimant disagrees with the Controller’s decision on the claim, or if the Controller has failed to make a decision within 90 days as required by section 1540, the claimant under former section 1541 ‘may commence an action, naming the State Controller as a defendant, to establish his claim....’….To read section 1541 as authorizing an action to challenge any decision of the Controller would swallow the immunity provided under section 1566 whole. Our task is to harmonize the statutory scheme, not render portions of it superfluous.”
Abbott was also right to reject the plaintiffs’ due process claims, Scotland said. He noted that under the unclaimed property scheme, a true escheat of the property is not effected; rather, the state takes custody of the property for the unknown owner.
“No unconstitutional taking occurs where a state exercises its right to take custody of abandoned property, as opposed to taking absolute title,” the justice said.
The Unclaimed Property Law itself constructively advised the plaintiffs that custody of the stock would pass to the state if they failed to exercise ownership rights for five years, and it was presumed that the notice provisions of Nebraska law had been complied with before the original escheat occurred, Scotland explained.
The four were entitled to no other notice, he said.
Justices George Nicholson and Fred K. Morrison joined in Scotland’s opinion, which was filed March 11.
The case is Fong v. Westly, C042007.
Copyright 2004, Metropolitan News Company