Reed Smith Client Alerts

Authors: Sara A. Lima

Type: Client Alerts

In a 5-to-4 decision, the Texas Supreme Court rebuffed the Texas attorney general’s attempt to undo a cy pres award using the state’s Unclaimed Property Act.1 The cy pres award was a result of a settlement between defendant Highland Homes and plaintiffs certified to represent the entire class. Under the court-approved settlement agreement, any checks that remained uncashed after 90 days would fund the cy pres award for the Nature Conservancy.

As we reported in an earlier alert, the issue in this case was whether the award was illegal in light of the Texas Unclaimed Property Act, which requires holders of property that they do not own to turn over such property to the Texas comptroller.2 The Act provides that it preempts certain contracts, statutes, and court orders, and prohibits actions that otherwise circumvent that requirement.3

The majority explained that unclaimed property laws do not require the owner to “actually collect his property”; merely to “claim it.” The majority distinguished its opinion from a line of similar cases by noting that the other cases involved contracts that attempted to govern future claims to unknown quantities of property,4 whereas Highland Homes involved current claims to identified property. In doing so, the Texas Supreme Court “disapproved” of two rulings on similar issues reaching an opposite conclusion, including one by the federal Fifth Circuit.5

The dissenters countered that the settlement still contained unclaimed property because the proper definition of “claim” was the right to spend a specific class member’s settlement check, a right the class representative did not have. Furthermore, they argued that since the class representative claimed the settlement before the checks were issued, such claim was “meaningless.”

The case provides much-needed guidance to parties attempting to contract without running afoul of unclaimed property laws. The Texas Supreme Court reaffirmed the rights of private parties to define property rights from the outset, even if doing so leaves less property “unclaimed.” In that way, the decision can be applied to contractual agreements in other contexts, such as shareholder buyout agreements, for example. Although the ruling hinges on language that is not present in the 1995 version of the Unclaimed Property Act, the majority’s rationale may also be applied to the Uniform Unclaimed Property Act and the states that have adopted it.6

About Reed Smith State Tax Reed Smith’s state and local tax practice is comprised of lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, False Claims Act, and property tax issues. Click here to view our State Tax team.

  1. Highland Homes v. Texas, Texas Supreme Court Docket No. 12-0604 (not yet published in a reporter).
  2. Texas Property Code § 72.001(e).
  3. Texas Property Code §§ 74.308 and 9.
  4. See, e.g., Connecticut Mut. Life Ins. Co. v. Moore, 333 U.S. 541 (1948); State by Furman v. Jefferson Lake Sulphur Co., 178 A.2d 329 (N.J. 1962); Screen Actors Guild, Inc. v. Cory, 91 Cal.App.3d 111 (App. 2nd, Div. 3 1979); People ex rel. Callahan v. Marshall Field & Co., 404 N.E.2d 368 (Ill. App. Ct. 1980); Blue Cross of Northern California v. Cory, 120 Cal.App.3d 723 (App. 1st Dist. Div. 4 1981).
  5. See All Plaintiffs v. All Defendants, 645 F.3d 329 (5th Cir. 2011); State v. Snell, 950 S.W.2d 108 (Tex.App.–El Paso 1997).
  6. See generally National Conference of Commissioners on Uniform State Laws, Uniform Unclaimed Property Act, 1995.

 

Client Alert 2014-234