Connecticut Case Alleges Wrongful Escheatment

Photo by smokedsalmon on FreeDigitalPhotos.netThis month, a Federal District Court denied Computershare and Hanesbrands' motion to dismiss a case brought against them for wrongful escheatment of share of Hanesbrands stock.

The plaintiff is the trustee for trusts established on behalf of each of her children. The trust owns shares of Sara Lee Corporation which conducted a spin-off of the Hanesbrands company. This resulted in new shares that were to be held in book entry form in the Direct Registration System by Computershare. Plaintiff says that her address has not changed since before the 2006 spin-off. She received correspondence at the time of the spin-off. Hanesbrands did not issue dividends until 2013, by which time Computershare had escheated shares for two of the three trusts. When the plaintiff, as trustee, only received dividends for one of the three trusts, she inquired into the status of the other two. They were escheated in August 2011. Plaintiff alleges that neither Computershare nor Hanesbrands completed due diligence required before escheating the shares as unclaimed property.

In a motion to dismiss, the court will accept facts as stated in the complaint as true and draw all reasonable inferences in favor of the plaintiff as the non-moving party. At this stage, the Court has stated that there is a legal basis for moving forward with the case. In discussing specifically the escheat requirements, the Court found "that plaintiff has alleged a plausible claim that defendants did not comply with the statutory requirements for finding a presumption of abandoned property," specifically the requirement that the holder of unclaimed property send a due diligence notice prior to transferring the shares to the state.

The Court did leave open the issue whether the Plaintiff would be entitled to damages resulting from the wrongful escheatment. Defendants argue that the unclaimed property statute only provides for the value of the property at the time it is transferred and not any subsequent increases. Plaintiff seeks the difference in value from when the state sold the shares and the current value, including the value of a 4-for-1 stock split.

While this case is still in its early stages, it is another important reminder for corporations to comply with due diligence requirements in state unclaimed property laws. In addition to unclaimed property due diligence requirements, the SEC has requirements for searching for missing shareholders and unresponsive payees. Companies would be wise to follow these requirements to the letter to benefit from indemnification statutes and reduce disputes such as the current Hanesbrands dispute.

See Also:
What Efforts are States Required to Take to Notify Owners? Taylor Looks to Supreme Court
Louisiana Latest State to Adapt Unclaimed Property Laws to Modern Technology
Investors Sue Delaware for Wrongful Seizure of Stock