In recent years, plaintiffs’ lawyers have been filing class action lawsuits against various businesses, as well as California itself, alleging that property has been wrongfully escheated.  Escheatment is the statutory process by which unclaimed property in the possession of public entities and banks is transferred to the State Controller’s Office after the information on the location of the true owners of the property has been lost. 

In 2004, one such case was brought by a plaintiff named Richard Valdes against a large aerospace defense company client of the Firm.  As our client had transferred the controverted property (undeclared public company stock) to California under the direction of the State Controller, and with his express approval, the Firm, led by Richard Dongell and Josh Levine, first persuaded the State Controller’s Office to indemnify our client against the escheatment claim.   Subsequently, the Firm, which remained as defense counsel to our client, successfully obtained summary judgment against the claim under two alternative theories:  one, that an immunity statute barred the claim, and two, that the statute of limitations barred the claim.

Mr. Valdes went on to prosecute his claim, however, against the State Controllers’ Office, and in 2007 obtained a preliminary injunction against the State of California essentially shutting down its escheatment program.  In doing so, the Court held that the State Controller’s Office was not giving adequate notice to the owners of property before the property was transferred to the State.

The injunction resulted in a $442 million shortfall in the State’s budget, as it could no longer obtain funds through the escheatment process.  Not surprisingly, the litigation resulted in widespread coverage, including articles in the Los Angeles Times and other major news outlets.

As the subsequent litigation was expensive and time-consuming, we were pleased that we were not only able to remove our client from this litigation at an early stage, but that we were also able to recover from the State of California our client’s attorney fees and costs.