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Court of Appeal:
Lawsuit to Proceed Against Banks Over Millions of Dollars
JPMorgan Chase Bank, U.S. Bank Accused of Failure to Turn Over Funds That Have Escheated to State
By a MetNews Staff Writer
A qui tam action in which it is claimed that JPMorgan Chase Bank, N.A. and U.S. Bank, N.A. failed to report and turn over to the state as escheated property millions of dollars in funds used to purchase casher’s checks that were not cashed, will go forward under a decision of the First District Court of Appeal, filed Friday.
Presiding Justice Stuart R. Pollak of Div. Four authored the opinion denying a petition for a writ of mandate sought by the financial giants. They sought an order to the San Francisco Superior Court to sustain their demurrers, which a judge of that court, Ethan P. Schulman, had overruled.
The action was brought by Ken Elder, who sued under the California False Claims Act (“CFCA).
“We reject the banks’ argument that a qui tam plaintiff may not pursue a CFCA action predicated on a failure to report and deliver escheated property unless the California State Controller (Controller) first provides appropriate notice to the banks under Code of Civil Procedure section 1576,” Pollak wrote. “We also conclude the plaintiff has adequately alleged that the banks were obligated to report and deliver to California the money owed on unredeemed cashier’s checks, and reject the banks’ argument that allowing this action to proceed violates their due process rights.”
CCP §1576
Sec. 1576(c), contained in California’s Unclaimed Property Law (“UPL”), provides:
“No person shall be considered to have willfully failed to report, pay, or deliver escheated property, or perform other duties unless he or she has failed to respond within a reasonable time after notification by certified mail by the Controller’s office of his or her failure to act.”
Pollak explained:
“Prior notice from the Controller is not a prerequisite of liability under the CFCA. Imposition of the penalties imposed by section 1576 for willful violations do require prior notice, but the present complaints do not seek to impose those penalties. The CFCA provisions allegedly violated by the banks proscribe certain acts without reference to whether the banks’ conduct was willful or punishable under section 1576.”
Government Code Provisions
He continued:
“The complaints allege violations of subdivision (a)(4) of section 12651 of the 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 allege 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. None 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.”
The presiding justice commented that “if Controller notice were a prerequisite to a CFCA cause of action, there would never be an incentive for an individual to file a CFCA complaint.”
He said the banks might be able to establish that funds paid to banks for cashier’s checks are not subject to the UPL, but that for pleading purposes, a cause of action has been adequately stated,
“Whatever facts may be disclosed at trial,” Pollak wrote, “the pleadings disclose no potential due process violation.”
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