2. Pennsylvania Commonwealth Court Gives Green Light to Pennsylvania Auditor’s Request to Demand Production of Non-PA Shareholder Personal Information

In Garrity v. PPL Corporation, 272 M.D. 2019 (Pa. Commw. Ct. June 23, 2023) Pennsylvania’s Commonwealth Court (an intermediate appellate court with jurisdiction over administrative law matters) upheld the Pennsylvania Treasurer’s demand that a corporation disclose shareholders’ private and personal information to the Treasurer’s third-party auditor. The Treasurer’s auditor had requested such information for shareholders, including those who had not likely abandoned their property, for whom no reporting was required in the ordinary course. Even more troubling, the auditor had requested information for shareholders who had no connection with Pennsylvania. The Commonwealth Court panel brushed aside the holder’s concern that transferring personally-identifiable information (PII) to a third-party would place that data at risk, and confirmed that the Treasurer, generally, has the authority to demand production such information, irrespective of its relevance to the Treasurer’s authority in enforcing compliance. Garrity v. PPL Corporation, 272 MD 2019.¹

In Garrity, Pennsylvania’s private audit firm, Kelmar Associates, requested that PPL provide data on all shareholders in electronic form. It required particular fields of personal information, including sensitive information, like social security numbers and account numbers, of all existing shareholders irrespective of the state of residence.² PPL raised the privacy interests of its shareholders and expressed concern that the auditor’s intention was to compare the data to a database maintained by the Social Security Administration in order to determine if any of PPL’s shareholders were deceased. On its face, such a comparison may seem reasonable, and the court identified no reason why the Treasurer lacked authority to direct it.

This decision is a stark warning to holders for a number of reasons:

• First, the death of a shareholder is not indicative of whether or when a share is subject to reporting under Pennsylvania’s unclaimed property law. Instead, under Pennsylvania law, shares of stock are presumed abandoned (and reportable to the custody of the Commonwealth) only when the shareholder becomes inactive with respect to its property. In other words, companies have no obligation to monitor date of death for shareholders.
• Second, the Garrity court did not consider (or at least, did not explain) what Pennsylvania’s auditor intended to do if it finds a “match” between the shareholder data and the Social Security death file. If the Commonwealth were to demand that companies transfer shares of deceased shareholders to its custody, the shareholders (or their heirs) could suffer negative consequences because the Commonwealth sells the shares soon after receipt and only holds the proceeds of that sale in custody for the owner. 72 P.S. § 1301.17.
• Third, the Court did not address the holder’s concern that the bulk-transfer of PII would place the company shareholders’ PII at risk of improper disclosure (or worse). Presumably, that is why PPL proposed to provide the information via an on-site clean room. Worst of all, in finding for the Treasurer, the court expressly declined to rule on whether the data itself is relevant or necessary to the purpose of the audit.³ That is, the court’s decision appears to support the Treasurer’s authority to subpoena sensitive information even if the requested data bears no relation to the unclaimed property laws that the Commonwealth is purportedly auditing. According to the court, in issuing the subpoena, the fact that the Treasury Department may be exposing the personal information of Pennsylvania residents (and others) for no justifiable reason relevant to unclaimed property enforcement does not preclude the court’s finding that it can do so.

The Treasury Department seeks to cloak the PPL decision as a “win” against obstinate corporations⁴, but even a cursory glance of the Garrity opinion and the arguments made by PPL in response to the Treasury’s demands suggest that the holder was more than willing to make relevant Pennsylvania shareholder data available to the Commonwealth; it just objected to the unclaimed property auditor’s attempt to gather PII without explanation or justification. Presumably, this is the reason that the Treasurer’s press release neglects to mention the type of information at issue. In sum, the opinion does little to further enforcement of the unclaimed property laws, and makes auditor overreach all the more likely.

3. Nevada & Oregon Join New York in Recognizing Notification of Owner Death as Triggering Unclaimed Property Dormancy Periods in Some Situations

Unlike Pennsylvania, there are states where owner death is becoming relevant to unclaimed property reporting as a matter of express law or regulation. As noted in our previous Client Alert, the State of New York enacted a new regulation in March that requires holders of unclaimed property to take an apparent owner’s date of death into account when measuring the dormancy period for unclaimed property. Nevada and Oregon have now followed suit. Like the New York regulation, the Nevada and Oregon laws do not impose an obligation upon holders to perform Death Master File (“DMF”) searches (except for insurers that are already subject to such a requirement) nor to affirmatively search for information relating to owner death, but holders will need to put a process in place to capture and use such information if it is brought to their attention.

Nevada Assembly Bill 55

Nevada Assembly Bill 55 (passed on June 2, 2023 and effective July 1, 2023) provides that securities, bonds, savings accounts, demand accounts, time deposits, IRAs, and miscellaneous unclaimed property not specifically addressed in the Unclaimed Property Act is deemed abandoned on the earlier of the standard dormancy period for those items, or three years from “the date on which the holder has knowledge of the death of the owner.” The legislation goes on to specify that “knowledge of death” means that the holder “[r]eceives proof of death of the person,” the holder reasonably determines the death of the owner by following the DMF matching process for insurers specified in NRS 688D.090, or “[o]therwise validates, in good faith, the death of the person.”⁵

Oregon House Bill 2160

Similarly, Oregon House Bill 2160 (signed into law on July 13), provides that a “security” is now deemed abandoned on the earliest of (a) three years after the owner’s last communication with the holder or (b) three years “after the date of death of the owner” as evidenced by (1) notice to the holder by an administrator, beneficiary, relative, trustee, personal representative or other legal representative of the owner’s estate; (2) receipt of a copy of the death certificate; (3) confirmation of the death “by other means;” or (4) “[o]ther evidence from which the holder may reasonably conclude that the owner is deceased.” Alternatively, securities are deemed abandoned one year after the date the holder receives notice “if the notice is received two or more years after the owner’s death and the holder lacked knowledge of the owner’s death during the period of two or more years.”⁶

As a result of this trend, companies should consider tracking notice of death for securities and incorporating that date into their compliance procedures. Shareholders’ legal heirs should also take note: the state is waiting in line for your shares, which they will liquidate at their discretion.

4. Other Changes

Aside from these changes, there were a number of less controversial measures passed so far this year:

• The Illinois Unclaimed Property Act provisions relating to retirement accounts have been amended by revising the mandatory distribution age to 73 in accord with current federal law.⁷
• Indiana law has been amended to explicitly exclude “gift cards” from the definition of property subject to the act and to specify the process for reporting and remitting virtual currency.⁸
• The Montana Unclaimed Property Act was amended to specifically apply to virtual currency and to amend the dormancy provisions relating to securities.⁹
• The North Carolina Act has been amended to explicitly allow third parties to perform certain of the holder’s duties, though the holder still bears responsibility for the underlying obligations.¹⁰
• The provisions of the North Dakota Unclaimed Property Act relating to recordkeeping and limitation of action have been amended.¹¹

Suggested Action Items:

The above developments go beyond the run-of-the-mill annual statutory changes that minimally impact compliance. Instead, they represent material issues that holders need to recognize, plan for, and adapt their systems and processes to reflect.

Take data security for example. Pennsylvania’s Treasury Department convinced a court that it has the authority to demand wide swaths of PII from unclaimed property holders (putting the data and privacy of thousands of individuals at risk) regardless of whether it can explain what the data will be used for. If such data transfers are to become normalized, holders should discuss with their privacy attorneys and data professionals the best way to ameliorate risk and protect against potential liability.

As described above, New York, Oregon, and Nevada have enacted rules allowing them to take custody of shares based upon the death of the shareholder. Accordingly, unclaimed property policies and systems need to be adapted to permit holders to capture, track and use owner death information in connection with unclaimed property reporting. In addition, due diligence and other owner outreach procedures to be reviewed to protect the rights of the heirs.

Finally, Ohio’s limits on its own indemnification obligation underscores that, no longer is it enough to have a general process in place with the hope that state indemnification provisions will protect a holder in the event of an oversight or shortcoming. The above developments show that just as the breadth and intrusiveness of unclaimed property laws is increasing, the states are working to avoid or decrease their responsibility to protect holders. As a result, now more than ever, holders must get unclaimed property reporting questions right.

About Reed Smith’s Unclaimed Property Team

Our State Tax Abandoned and Unclaimed Property team is made up of experienced attorneys with the insight necessary to guide you through the rapidly evolving arena of unclaimed property. From bringing your organization into compliance, to audit defense and planning opportunities, we will be your advocate to help define, manage and minimize your company’s exposure as a holder of unclaimed property.

View our Unclaimed property team.

Follow us on LinkedIn.

1. At the time the complaint was filed, Joseph M. Torsella was the Treasurer. Subsequently, Stacy Garrity was elected Treasurer at the November 3, 2020 general election and was sworn into office on January 19, 2021.
2. Originally, the Treasurer’s subpoena demanded all of the corporation’s shareholder registration information—including names, street addresses, and social security numbers irrespective of the state of residence, but in its June 23, 2023 decision, the court recognized that the Treasurer had agreed to issue more narrow subpoenas, while conceding that such requests would not impact PPL’s legal objections.
3. Garrity v. PPL Corp., 2023 Pa. Commw. LEXIS 81, *17.
4. See the Department’s press release (last visited August 8, 2023).
5. The new law makes other changes regarding deposits and insurance-related property. For example, it changes the dormancy period for securities from three years after an unclaimed distribution or two instances of returned mail to simply three years after the owner’s “last indication . . . of interest” in the property. Accordingly, returned mail is no longer necessary to trigger dormancy for securities accounts. The law also makes the IRA dormancy provisions more flexible in response to the federal government’s recent tinkering with the mandatory distribution date for such accounts. The new legislation provides that an unclaimed IRA is deemed abandoned three years after the date the owner “would have reached the age of required minimum distribution under the Internal Revenue Code.” New due diligence requirements are also imposed for securities, retirement accounts and virtual currency. For such potentially unclaimed property valued at $1,000 or more, the holder is required to send its due diligence mailing via certified mail.
6. The law also includes enhanced due diligence requirements before unclaimed securities are reported and remitted to the state. Prior to reporting the property, holders are now required to send a written notice by first-class mail to the owner’s last known address (or electronically, if the holder customarily uses such communication methods with the owner and has a valid address). If that notice is returned as undeliverable or the holder has received no response for 30 days, the holder must send a second written notice to the owner’s last-known address. These outreach efforts must be completed at least 60 days before reporting and remitting the property to the state. Unrelated to the security provisions, the new law also shortens the dormancy period for wages/payroll from 3 years to 1 year and extends the dormancy period for Individual Retirement Accounts (IRAs) to three years after the mandatory distribution date (up from two years).
7. Ill. Public Act 103-0148.
8. Ind. Public Law 101.
9. Mont. Ch. Law 588.
10. N.C. Session Law 2023-88.
11. N.D. House Bill 1360 (Signed by Governor Apr. 10, 2023)

In-depth 2023-175