Failure to escheat violates state false claims laws
Whistleblowers may file qui tam lawsuit; reward possible
Most states have laws that obligate companies that hold "unclaimed property" to "escheat" or deliver that property to the state if it remains unclaimed for some period of time (generally three to five years). Private individuals who know of a company's failure to escheat monies to a state may bring "qui tam" (whistleblower) cases under state false claims laws and possibly receive a reward for a successful qui tam lawsuit.
There are an almost unlimited number of circumstances where companies have an obligation to escheat unclaimed money to the state. Those circumstances include:
- amounts owed to vendors who for any reason were never paid for the goods or services they delivered ("unbilled vendor payables");
- deposits for orders that were never delivered;
- funds deposited to an escrow account but never spent, e.g., where a title company holds funds in escrow in connection with real estate transactions;
- gift cards or certificates issued but never redeemed;
- credit balances on business accounts, credit cards, or other accounts; and
- any other situation in which property has been unclaimed or forgotten by the person or company entitled to those funds.
Companies liable for failure to escheat after dormancy period
The holders of such unclaimed or abandoned property are required to deliver it to the state if it remains unclaimed after the "dormancy period" of 3-5 years has expired. The state retains the property until the rightful owners are notified or otherwise become aware of the property.
Instead of escheating money to states entitled to the unclaimed property, however, companies sometimes keep the funds as company revenue or income.
Abandoned property must be escheated to the state of the rightful owner's last known address. If the rightful owner's last known address can't be verified, the property escheats to the state where the company is incorporated. Unclaimed deposits from foreign companies also should escheat to the state where the seller is incorporated.
Whistleblowers who bring qui tam lawsuits under state false claims law are entitled to a percentage of the amount a state recovers as a result of the qui tam lawsuit. Many state false claims laws stipulate that whistleblowers should receive a reward of 15 percent to 25 percent of the funds recovered because of the qui tam case.
If you are aware of failure to escheat by a company and would like to discuss the matter with our attorneys, please contact us.