Suit Filed in Pa. over Interest on Unclaimed Property

August 20, 2004

When lawyer Ronald J. Smolow recovered stock proceeds from the state’s unclaimed-property fund, his request for $30 in interest was turned down.

Now, he is pursuing a lawsuit that could eventually cost the state millions of dollars.

Smolow sued state Treasurer Barbara Hafer and the Treasury Department in March, asking Commonwealth Court to certify the case as a class action. He is seeking retroactive interest payments to those who have retrieved abandoned or misplaced property.

Deputy Attorney General Dan Doyle has asked the court to dismiss the case on the grounds that Smolow no longer has a case because the state offered him $30 to settle it.

Smolow’s lawyer Ann M. Caldwell told Judge Dan Pellegrini that defendants in a potential class-action suit should not be permitted to pick off plaintiffs to avoid litigation. A determination about whether the lawsuit will be certified as a class action is months away, at least.

Pellegrini did not immediately rule.

State law is “a little bit contradictory” about whether interest must be paid, Caldwell said afterward.

“Our position is, if it doesn’t provide for interest, it’s unconstitutional. And if it does provide for interest, the state is administering it in an unconstitutional manner,” she said.

The lawsuit claims the property was taken without just compensation and in violation of due process. Smolow, 54, a lawyer from Washington’s Crossing, is seeking an injunction to stop the practices.

He sued after being told in February the state would not pay interest on $586 of Parker Drilling Co. stock that a financial institution had turned over to the treasury in 2002.

Pennsylvania’s unclaimed-property fund has ballooned over the past two years as changes to state law have released a flood of money into the account.

The Legislature ordered the Treasury Department to sell securities it had been holding, in some cases since the early 1990s; cut the time period for abandoned property to be held from seven years to five; and required insurance companies that convert from policyholder ownership to stock ownership to turn over unclaimed proceeds more quickly.

As a result, the Treasury Department fund took in more than $311 million in cash in 2002-03 and approximately $430 million in cash and securities for the fiscal year that ended June 30. Treasury spokesman Steve Schell said income is expected to drop to its prior level, a range of $70 million to $80 million, for the current year.

More than $33 million was returned to property owners in the most recent fiscal year. If Smolow wins his request for retroactive interest at 6 percent, those property owners alone would be eligible for nearly $2 million in interest for each year the state held their property.

“I have no idea how much it’s worth, but it is something that people should be aware of and the state ought to fix this problem,” Smolow said.

Doyle said that the General Assembly would have to appropriate the money if Smolow wins, but Schell said the Treasury Department has not begun to plan how it might respond to losing the case.

“I don’t even want to speculate on how that would be done at this point. It’s too preliminary,” he said.

David Milby, manager of the National Association of Unclaimed Property Administrators in Lexington, Ky., said he was unsure whether any state currently pays interest when disbursing funds from an unclaimed-property account.

All 50 states operate such funds, which last year paid out nearly $1 billion. Unclaimed funds across the country currently total $22.8 billion, according to the association.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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