Texas Supreme Court Addresses Class Action Settlements

New Missouri Bill on Unclaimed PropertyIn 2006, Highland Homes came under fire from a disgruntled subcontractor about amounts withheld from their payments for general liability insurance. By 2009, the subcontractor had made a class action lawsuit out of the withholdings. The class action was eventually settled, with Highland Homes refunding the withholdings to subcontractors. The settlement agreement said that if a subcontractor refused payment or could not be found, the settlement fund would be awarded under a cy pres award to a local charity. Once all claims were made and satisfied, the parties notified the Texas Attorney General of the proposed cy pres award of the undistributed settlement funds. Texas intervened to argue that the funds were unclaimed property if the checks remained unclaimed for three years. The trial court rejected the argument, refusing to modify the original judgment awarding the funds to the charity. The Court of Appeals reversed, saying that the funds were in fact unclaimed property and should be given to the Texas Comptroller for safekeeping until they could be claimed by the owners.

The Texas Supreme Court said that the unclaimed property act does not apply to the undistributed settlement funds. The Court said that class members, through the class representatives, had made a claim on the settlement fund and that it did not matter that the class members had not collected the money. According to the Court, "[a]n owner need not actually collect his property to rebut the presumption of abandonment and render the Act inapplicable; he need only claim it." The Court went on to give an example of a subcontractor tearing up the check in hopes of getting additional work from the contractor; in that case, the company would not be under any obligation to "force" the subcontractor to take the money or give it to the state to hold on behalf of the subcontractor.

The Court went on to say that the fund administrator was not a holder of unclaimed property who would then presumably be required to report unclaimed property. Once the terms of the settlement prevented claims from class members, the funds no longer belonged to the class members. Since they could no longer make claims, the money was not unclaimed by operation of the settlement agreement. The class representatives had authority by state law, under the class action rules and court approval, to release all claims for all class members.

Six justices, including the Chief Justice, made up the majority. Four justices dissented. The dissenting opinion said that the cy pres award included a limitation period and a private escheat agreement which are both prohibited under the Texas unclaimed property law. The provisions are found in all state unclaimed property laws. Further, the dissenting justices disagreed with the majority in that the class representatives had made a claim, even if they did not collect the money, as all actions were taken prior to the checks being issued. Accordingly, it was the checks and the underlying funds are what remain unclaimed by class members.

See Also:
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