December 12, 2015 Dialogue

Claiming Unclaimed Property in IOLTA Accounts for Legal Aid: The Oregon Experience

By Judith Baker

Legislative History

In 2009, at the urging of an Oregon lawyer, the Oregon State Bar Board of Governors made Senate Bill (SB) 687 part of its legislative agenda. If passed, SB 687 would amend the Uniform Disposition of Unclaimed Property Act to require unclaimed/abandoned (unclaimed) client money in lawyer trust accounts to be used to fund the Oregon State Bar's Legal Services Program (OSB LSP). The OSB LSP is charged with managing the state funds appropriated to legal aid and providing ongoing oversight and evaluation to ensure compliance and further the program's goals.

Prior to the passage of SB 687 the unclaimed client money held in lawyer trust accounts went to the Oregon Department of State Lands (DSL). The DSL puts all unclaimed property it receives in the Common School Fund which has a number of sources of money. The Common School Fund is managed by the Land Board with the proceeds from the Fund used to support Oregon's K-12 public school system. The Land Board is composed of the Governor, Secretary of State, and State Treasurer.

A major factor in the passage of SB 687 was the fact that Oregon's Governor, Secretary of State and Treasurer were highly supportive of legal aid and wanted to see the bill pass. Because they all sit on the Land Board, they were able to minimize DSL's opposition to the bill. DSL argued that carving out an exception and having unclaimed client properties go for a different purpose was a slippery slope and others would want an exception. The Bar's position was that this exception was valid because there is a close nexus between supporting families through adequately funded schools and supporting families through legal aid advocacy. In addition, the amount of unclaimed client funds in lawyer trust accounts forwarded to the OSB LSP would not have an impact on the principle in the Common School Fund that would result in a measureable decrease in the Fund's return on investment and ability to support Oregon's schools.

The Resulting System

The amendments to the Uniform Disposition of Unclaimed Property Act made the OSB LSP a proxy of the DSL with the unclaimed property system essentially staying the same for unclaimed client funds forwarded from lawyer trust accounts. Lawyers still use the DSL forms to forward unclaimed client funds. The DSL maintains the website searchable by the owner (person or entity to which the property belongs) and the owner still contacts the DSL when making a claim. The only changes to the DSL system are that: (1) lawyers now forward the unclaimed client funds to the OSB LSP with copies of the DSL submission forms (DSL receives the originals): and (2) the DSL forwards owner claims to the OSB LSP to review and process.

An advantage to not developing a new system is that the DSL maintains the responsibility for making an effort to reunite the clients with their funds. They use advertising, public events, and staff presentations to notify the public about their unclaimed property.

Challenge of Disbursing Funds to Legal Aid

After SB 687 passed, the OSB LSP became the custodian for the reported client funds. Pursuant to the Uniform Disposition of Unclaimed Property Act, the funds have to be held in safekeeping for perpetuity. This created a dilemma concerning how to disburse the principle so that legal aid received funding but the OSB did not take on undue risk. After much deliberation a distribution method and reserve policy was approved by the OSB Board of Governors. Under the policy, the OSB LSP holds $100,000 in reserve to cover potential claims and distributes the revenue that arrives each year above that amount. The amount of funds disbursed changes from year to year depending on the unclaimed funds received and claims made each year. The OSB also entered into an agreement with the legal aid providers in which the legal aid providers agreed to reimburse the OSB if the allotted reserve gets diminished or depleted; to date, the legal aid providers have not had to provide any reimbursement. This disbursement method and reserve policy is reviewed each year to ensure that the policy is still valid given the current circumstances of the fund.

Revenue Received and Distributed

One of the biggest surprises concerning this funding source is how much money it has generated for legal aid. Since 2010 the OSB LSP has collected $454,221 in unclaimed client property in the annual reporting cycle and $518,900 in unclaimed funds from a class action filed in state court, for a total of $973,121.  Since the class action funds are one-time money, they have a different distribution method from the annual cycle and will be disbursed to legal aid over three consecutive years. When adding both the annual funds and class action funds together, the OSB LSP has disbursed a total of $514,450 in unclaimed client funds to legal aid since 2010. See chart below.

  Annual Unclaimed Property Fund Farmers Class Action Fund
Total Property Received to Date $ 454,221 $518,900
Claims Made by Owners $(31,118) $(6,363)

Total Distributions to Programs

$(323,103) $(191,347)
Funds in Reserve $100,000 $321,190
Total Disbursed to Legal Aid from both Funds $514,450  
Number of Properties Received 1138 476
Number of Properties Claimed 16 7

Statute vs. Court Rule

Some states are considering a court rule instead of implementing a statutory change as was undertaken in Oregon. There are factors that should be taken into consideration when deciding to proceed with a court rule. All states, including the District of Columbia, have unclaimed-property laws which declare money, property, and other assets to be abandoned after a period of inactivity. Since 1954 there have been several uniform property acts that have been adopted in various forms by the different states.1 The intent of these acts is to create uniformity for entities that conduct business in various states, and to give the states rather than the businesses the benefit of retention of the unclaimed property.It is common for an entity to be located in one state but be required to comply with the unclaimed property laws of several states. In an effort to eliminate disputes between states concerning which state receives the unclaimed money, the United States Supreme Court in Texas vs. New Jersey, 379 US 674, 85 S Ct 626, 13 L Ed 2d 596 (1965) set two basic rules of priority. The primary rule is that unclaimed property goes to the state of the owner's last known address and the secondary rule is if no address is known, it is returned to the state in which the business holding the funds is located.  

The OSB LSP became aware of the primary priority rule when unclaimed client funds from out of state lawyer trust accounts were forwarded to the OSB LSP because the client's last known address was in Oregon. In the alternative, Oregon lawyers must send any unclaimed client funds to the state of the client's last known address. If a state implements a court rule, this interrupts the flow of unclaimed property pursuant to the uniform statutes and Supreme Court decision. It may be argued that the courts have jurisdiction over lawyers, but state laws also have jurisdiction over lawyers because lawyers are conducting business in the state. Another important factor is that there is generally no statute of limitation concerning when an owner can claim property under state uniform statutes. Thus, court rules that place a limit on when an owner can claim his or her property are inconsistent with the uniform unclaimed property statutes that currently exist.

Aside from Oregon, New York and New Jersey are the only two states in which the unclaimed client funds in lawyer trust accounts do not go directly to the state entity that receives other unclaimed property. Both states have done this by court rule. In New York, the Lawyers' Fund for Client Protection holds the unclaimed client funds and staff attempt to locate missing clients to return the deposits.2 In New Jersey, the unclaimed client funds are deposited with the Superior Court Trust Fund.3 The Superior Court Trust Fund grants priority to the New Jersey Lawyers' Fund for Client Protection for those unclaimed funds that are unidentifiable.4

Conclusion

Oregon has found that there is money for legal aid programs in lawyer trust accounts. The way Oregon has taken advantage of this fact is by amending the appropriate statute and not by implementing a court rule. The statutory changes have had the positive impact of providing funding for legal aid while not burdening the OSB LSP with the responsibility of developing a new system or creating a system that is inconsistent with state statute or a United States Supreme Court ruling.

Endnotes:

1 State Unclaimed Property Laws, James K. Richmond

2 The Lawyers' Fund for Client Protection of the State of New York, Annual Report of the Board of Trustees for Calendar Year 2013

3 N.J. Ct. R. 1:21-6

4 N.J. Ct. R. 1:20-23 (e)

Judith Baker

Director of the Legal Services Program, Oregon State Bar

Judith Baker has been the Director of the Legal Services Program for the Oregon State Bar and Executive Director of the Oregon Law Foundation since 2005 and was previously a legal aid staff attorney.