The SCRA and Securities: Protecting the Protectors
This article originally appeared in the January Newsletter of the Securities Transfer Association and is re-published here with the consent of the STA. It has been updated to reflect the April 7, 2020 enactment of SB-0125.
by Jennifer C. Borden
On April 7, SB-0125 was signed by the Governor of Michigan, clarifying the dormancy periods that apply to property held by owners who are members of the United States Armed Forces. Michigan’s Uniform Unclaimed Property Act (the “Act”) was amended in 2010 and generally shortened the dormancy periods on most property types from five (5) years to three (3) years.[1] As enacted, the Act provided that the decreased dormancy periods did not apply to property held by owners “on active duty military service outside of the United States.”[2] Effective immediately, SB-0125 removes the requirement that the owner be on duty outside of the United States in order to benefit from the longer dormancy period. The new language simply states that the decreased dormancy periods effective in 2010 “do not apply if the owner of the property is on active duty military service.”[3] Passage of this bill therefore broadens the application of the longer dormancy period, affording greater protection (i.e., a longer period of time before their property is turned over to the state and potentially liquidated) to additional members of the military and their assets.
This expansion of coverage to additional members of the military reflects the belief that active military members may be disproportionately affected by state unclaimed property laws. Federal law has long recognized the need to protect service members while on active duty. The origins of the Servicemembers Civil Relief Act[4] (“SCRA”) can be traced back to the Civil War. The SCRA provides protection for servicemembers in the event that their military service impedes their ability to meet financial obligations incurred before their entry into active military service.[5] For example, the SCRA mandates special notice requirements prior to any adverse action against a servicemember such as foreclosure or other debt collection efforts. The SCRA also preserves the domicile of the servicemember, even though he or she may no longer physically be in the United States.
While Michigan’s legislative activity with respect to unclaimed property highlights the need to protect the financial assets of servicemembers both at home and abroad, other states are not so accommodating despite the SCRA’s directives and guidance. A brief survey of states with major military installations[6] indicated that the unclaimed property statutes, regulations and administrative publications only provide some guidance with respect to handling tangible property—military medals.[7] APO addresses are not discussed at all.[8] In addition to this failure to account for the impact of dormancy periods and due diligence requirements on members of the armed forces, in reliance on the second priority rule, many states escheat property with an APO address by claiming that it is foreign, simply because the address does not contain a state.[9]
One way that servicemembers remain connected with their financial obligations or domestic affairs while engaged in service is through the receipt of their mail. The Military Postal Service Agency is an extension of the United States Postal Service (“USPS”) abroad. It is required to adhere to the rules of the USPS, federal laws and international law for the movement of military mail abroad.[10] Postal services are provided through a military post office (“MPO”). MPOs include APOs (Army/Air Post Offices) and FPOs (Fleet Post Offices). While MPOs are located outside the continental U.S., mail transmitted between the U.S. and MPOs is classified as “domestic mail.”[11] Thus, APO and FPO addresses are not foreign addresses and mail addressed to an APO or FPO is not considered international mail.[12] An APO or FPO address should never be considered foreign. Nevertheless, a review of various state unclaimed property databases reveals that property held by owners with APO and FPO addresses is categorized as foreign property.
While it is clear that many states are not doing enough in administering their unclaimed property laws to protect members of the military on active duty, the failure to respond to a due diligence notice—whether sent to an APO address or permanent address—while on active duty should not be the basis for escheating property of a servicemember. Mail with an APO or FPO address takes longer to reach the addressee. The actual location of the base can determine how long it takes for mail to be received. Such mail may also be delayed if a servicemember is transferred to another base. The financial detriment that this can have is especially obvious when the escheated property includes securities. Servicemembers who are not able to respond timely to due diligence notices are at greater risk that their property will be liquidated in states that utilize a pure inactivity standard for determining when a dormancy period has run. While Michigan does apply a lost standard for determining the date of last contact, servicemembers also benefit from the longer dormancy period. Other states, especially those utilizing an inactivity standard, should follow Michigan’s lead in order to minimize the risk of loss to servicemember shareholders.
Active members of the military should not be disproportionately impacted by state unclaimed property laws. Although the SCRA’s protection should protect servicemembers whose securities may be escheated and liquidated, it does not appear that many state unclaimed property administrators are aware of the SCRA’s restrictions. Members of the securities industry should consider partnering with the American Bar Association’s Standing Committee for Legal Assistance to Military Personnel to educate the National Association of Unclaimed Property Administrators (“NAUPA”) on this important issue. If the securities industry and NAUPA cooperate on what should be a clear application of the SCRA, servicemembers’ shares will be protected from liquidation. Unclaimed property statutes are intended to be consumer protection in nature. Isn’t it time that these statutes were used to protect the military, particularly while they are protecting us?
[1] 2010 Mich. Pub. Acts 197.
[2] Mich. Comp. Laws Ann. § 567.238(7) (2010).
[3] S.B. 0125, 2019 Leg,, 100th Sess. (Mich. 2019).
[4] 50 U.S.C. § 3901 et seq. (2020).
[5] See e.g., Press Release, The United States Department of Justice, Justice Department Reaches $4 Million Settlement with Wells Fargo Dealer Services for Illegally Repossessing Servicemembers’ Cars (Sept. 26, 2016) available at https://www.justice.gov/opa/pr/justice-department-reaches-4-million-settlement-wells-fargo-dealer-services-illegally; Press Release, The United States Department of Justice, Justice Department Obtains Its Largest Ever Settlement Against Property Management Company for Alleged Violations of the Servicemembers Civil Relief Act (Mar. 15, 2019) available at https://www.justice.gov/opa/pr/justice-department-obtains-its-largest-ever-settlement-against-property-management-company. “Since 2011, the Department [of Justice] has obtained over $470 million in monetary relief for over 119,000 servicemembers through its enforcement of the SCRA.” Id.
[6] These states include Alabama; Alaska; California; Florida; Georgia; Kentucky; Texas; and Virginia.
[7] The only exception was found in the Texas Property Code which provided a limited exception for one type of intangible property: utility deposits. “A utility deposit is not presumed abandoned for two years from the time the depositor provides documentation to the utility of being called to active military service in any branch of the United States armed forces during any part of the [dormancy period].” Tex. Prop. Code Ann. § 72.1017 (2020).
[8] Additional information with respect to APO addresses is provided herein.
[9] Delaware is particularly aggressive in demanding the escheatment of what it considers to be foreign property. When Delaware amended its Unclaimed and Abandoned Property Statute on February 2, 2017, the law, for the first time, purportedly gives Delaware the right to escheat foreign property. “The State Escheator may take custody of property that is presumed abandoned, whether located in this State or another state, or in a foreign country if the last-known address of the owner, as shown on the records of the holder, is in this State.” Del. Code Ann. tit. 12, § 1140 (2017). A lack of explicit statutory authority prior to 2017 did not prevent Delaware from asserting jurisdiction over foreign property. This aggressive stance is particularly troubling given recent public comments of officials of the Delaware Office of Unclaimed Property regarding their intent to increase scrutiny for owners with a foreign address who are seeking to reclaim their property. See e.g., Complaint, Siemens USA Holdings, Inc. et al. v. Geisenberger et al., No. 1:19-cv-02284-UNA at *41 (D. Del. Dec. 17, 2019), citing State of Delaware, DEFAC meeting minutes dated Mar. 19, 2018.
[10] United States Postal Service, Post Offices Serving Department of Defense Installations, http://about.usps.com/handbooks/po630/welcome.htm (last visited Jan. 3, 2020).
[11] Brown v. Comm’r, 78 TC 215, 222 (1982), citing Domestic Mail Manual, § 111.2a (July 7, 1981).
[12] If the piece of mail contains an APO or FPO address, it is not given to an international mail network for further service. United States Postal Service, Post Offices Serving Department of Defense Installations, http://about.usps.com/handbooks/po630/welcome.htm (last visited Jan. 3, 2020) (emphasis added). See also, United States Postal Service, Military & Diplomatic Mail, https://www.usps.com/ship/apo-fpo-dpo.htm (last visited Jan. 6, 2020) “To prevent mail from entering foreign mail networks, do not include city or country names in APO/FPO/DPO shipping addresses.” Id.
