State ex rel. Raw Data Analytics LLC v. JP Morgan Chase & Co.

65 Misc.3d 705

108 N.Y.S.3d 796

STATE of New York, EX REL. RAW DATA ANALYTICS LLC, Relators,

v.JP MORGAN CHASE & CO., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LLC, Defendants.

100271/2015

Supreme Court, New York County, New York.

Decided August 30, 2019

Attorneys for Plaintiff-Relator: Randall M. Fox, Esq., Kirby McInerney LLP, 825 Third Avenue, 16th Floor, New York, New York 10022, Phone: (212) 371-600 Facsimile: (212) 751-2540, rfox@kmllp.com

Attorneys for Defendants JP Morgan Chase & Co., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LLC: Brian A. Herman, Esq., Kelly A. Moore, Esq., David G. Braun, Esq., Morgan, Lewis & Bockius LLP, 101 Park Avenue New York, New York 10178-0600, Phone: (212) 309-6909 Facsimile: (212) 309-6001, brian.herman@morganlewis.com, kelly.moore@morganlewis.com, david.braun@morganlewis.com and Ezra D. Church, Esq. (pro hac vice) 1701 Market Street Philadelphia, Pennsylvania 19103, Phone: (215) 963-5710 Facsimile: (215) 963-5001, ezra.church@morganlewis.com

James E. d'Auguste, J.

On February 19, 2015, Raw Data Analytics LLC ("relator") commenced the instant qui tam action on behalf of the State of New York (the State) pursuant to the New York State False Claims Act¹ (FCA) (Fin L §§ 187—94) concerning defendants' alleged failure to pay interest to the Office of the State Comptroller (OSC) under the New York Abandoned Property Law (APL) when there is a late escheatment of abandoned property to the OSC.² Defendants' motion to dismiss, converted by the Court to a motion for summary judgment, is decided herein.

In the amended complaint, relator alleges that defendants underpaid or failed to pay the State interest that they were required to pay on abandoned properties that they escheated late to the OSC. Relator alleges that since at least 2005, the defendants "have been late in escheating thousands of abandoned properties to the OSC" (amended complaint at ¶ 3). According to the allegations, defendants submitted reports, called "holder reports," as required under the APL, to the OSC to report on abandoned properties that they had held. As for these reports, relator alleges that the report required defendants to state their obligation to pay interest on the late escheated abandoned properties, and each year defendants' reports contained false statements that they owed less interest than was due, or no interest at all, and they nevertheless verified the statements as true and accurate (id. at ¶¶ 51-55, 58). Relator also alleges that defendants falsely represented the last date of contact on the holder reports (id. at ¶¶ 60-63).

A final report of escheated abandoned property to the OSC (holder report) must include: "(a) a completed Verification and Checklist on OSC Form AC 2709; (b) a report detail on CD, File Transfer Protocol (FTP), or paper, on OSC Form AC 2686; and (c) a remittance to the OSC of the escheated property" (amended complaint at ¶ 11, citing OSC "Handbook for Reporters of Unclaimed Funds" [Handbook] at 17).

Further, in the amended complaint, relator offers several examples of defendants' alleged failure to pay interest due and owing on abandoned properties that they escheated late to the OSC. One such example concerned property under identification number 051526417-042463136, which was for cash dividends. These monies were paid to New York State by defendant-holder JP Morgan Chase & Co. on or about November 10, 2013. The property was owned by Richard L. Guiterman who died on or about July 2, 2001. The holder report reflects that its last contact with the account owner was on or about November 9, 2007. The dormancy period for this type of property was three years. According to relator, even using the 2007 date as the last date of contact, would mean that the dormancy period ended on or about November 9, 2010 and the defendant should have transferred the abandoned property to New York State by November 10, 2011.

A second example, alleged in the complaint, describes a savings account paid to the OSC on or about November 10, 2012 by defendant-holder JP Morgan Chase Bank NA. The property was owned by Roger Smith, and the holder reports that its last contact with the holder was on or about January 8, 2004. The dormancy period for this type of property is five years. Thus, the payment should have been made to the OSC by November 20, 2009.

The amended complaint alleges three causes of action under § 189 of the Finance Law: (1) in the first cause of action, relator alleges a violation of Finance Law § 189 (1) (d), as defendants did not pay all the interest to the State on the property escheated late; (2) in the second cause of action, relator alleges a violation of Finance Law § 189 (1) (g), as defendants made or used false records or statements with respect to their obligations to transmit money or property to the State related to interest on escheated properties; and (3) in the third cause of action, relator alleges a violation of the Finance Law § 189 (1) (h), as defendants knowingly concealed or improperly avoided their obligations to pay money or property to the State.

The APL governs what happens to lost or unclaimed money or other forms of property. The law requires holders of unclaimed property to escheat this property to the State:

"It is hereby declared to be the policy of the state, while protecting the interest of the owners thereof, to utilize escheated lands and unclaimed property for the benefit of all the people of the state, and this chapter shall be liberally construed to accomplish such purpose" ( APL § 102 ).

Section 303 of the APL requires a bank to file a report describing the property subject to the escheatment. The annual escheatment is to be accompanied by a report "setting forth such information as the State Comptroller may require relative to such abandoned property" ( APL § 303 [2 ] ).

Section 1412 (2) of the APL addresses the payment of interest on late escheatments:

"In addition to the penalty prescribed in subdivision one of this section for failure to report, any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller by this chapter or any law relating to abandoned property shall pay to the people of the state interest on the amount or value of such property. Such interest shall be at the rate of ten per centum per annum computed for a period to commence upon the date such payment or delivery was required by this chapter and to terminate upon the date of full compliance therewith, except that the state comptroller may waive the payment of all or part of such interest whenever in his opinion the circumstances warrant such waiver."

Section 1412 (1) is a separate penalty provision of the APL. The penalty provision applies to the willful failure to escheat abandoned property or to submit the required holder reports. For property to be considered abandoned under the APL, a dormancy period must have passed. Dormancy periods vary and are listed in charts set by the State, indicating the length of the dormancy period for each property type.

The relevant provision of the OSC Handbook states the following:

"Interest Charges for Late Payment or Delivery of Abandoned Property If you arelate delivering abandoned property, New York State can charge you late filing interest. Interest is 10% per year from the date payment or delivery was due to the date you make payment or delivery" (Handbook [Herman aff, ex 2] at 10).

In the amended complaint, relator identifies instances in which defendants, pursuant to the APL, reported and paid abandoned property late to the OSC without paying the interest, and in the requisite reports under the APL, defendants set forth false statements. Accordingly, relator alleges defendants violated the FCA in failing to pay statutory interest to the State.

Defendants filed a motion to dismiss in this action on August 12, 2016. By a July 6, 2017 Order, the Court posed this question to the OSC: "With regard to the period January 1, 2005 to February 19, 2015, what was the Comptroller's interpretation of Abandoned Property Law Section 1412 relating to any obligation of banks to self-calculate and pay interest when they escheated abandoned property late?"

In a December 22, 2017 letter, the OSC responded to the Court's question by citing APL §§ 1412 (1) and (2), and stated, in relevant part that "direction provided by the Office of the State Comptroller's Office of Unclaimed Funds (OUF) during the relevant time period noted the potential imposition of interest at the discretion of the Comptroller" (Herman aff, ex 5 [OSC Letter] ). The letter goes on to cite the portion of the Handbook that "[i]f you are late delivering abandoned property, New York State can charge you late filing interest. Interest is 10% per year from the date payment or delivery was due to the date you make payment or delivery ..." (id. , quoting Handbook [internal quotations omitted] ). The letter continued:

"With regard to the reporting of unclaimed funds by JP Morgan Chase Bank during the relevant period, we note that in 2013 OUF audit staff examined the Bank's reporting in the areas of deposit accounts, credit card operations, electronic card services, home finance group and auto finance group for report years 2008 through 2012. The OUF's examination disclosed additional abandoned property due the State in the amount of $32,160,127.22 (consisting primarily of demand deposit accounts, savings accounts, and time accounts). The OUF determined that the circumstances warranted the waiver of late filing interest and the Bank remitted all the funds identified by the audit to the OUF" (id. ).

After this letter was issued, the Court, by order dated January 22, 2018, sua sponte converted the motion to dismiss into a motion for summary judgment, directed further briefing and scheduled oral argument on May 15, 2018.

The Parties'...