Delaware County v. J.P. Morgan Chase & Co.

827 A.2d 594, 2003 Pa. Commw. LEXIS 459

• Court: Commonwealth Court of Pennsylvania
• Decided: July 1, 2003
• Status: Published

Opinions

Opinion by

Judge PELLEGRINI.¹

PNC Bank, National Association (sued as PNC Financial Services Group, Inc.) (PNC) petitions for review of a June 10, 2002 order of the Court of Common Pleas of Delaware County (trial court) denying its motion to transfer to the Commonwealth Court of Pennsylvania the civil action brought by Delaware County in an attempt to recover unclaimed bond funds that had been escheated to the Commonwealth. First Union Corporation, First Union National Bank, individually and as successors-in-interest to CoreStates Bank, NA, CoreStates Financial Corp., First Pennsylvania Bank, Southeast National Bank of Pennsylvania, Delaware County National Bank, Philadelphia National Bank, Meridian Bank, First Fidelity Bank, NA, and John Doe Banks Nos. 1 through 300 (collectively, First Union)² petitions for review of a June 10, 2002 order of the Court of Common Pleas of Delaware County (trial court) denying its motion to transfer to the Commonwealth Court of Pennsylvania the civil action brought by Delaware County.³

The Banks served as sinking fund depositories⁴ for bonds issued by Delaware County in 1974, 1992 and 1995.⁵ Under Section 8224(f) of the Debt Act, 53 Pa.C.S. § 8224(f),⁶ a sinking fund depository is required to return to the governmental unit all funds deposited in the sinking fund for the payment of the bonds unclaimed by the holders within two years from the date payment was due. After another five years (seven years total), the governmental unit is required to escheat the unclaimed funds to the Commonwealth.⁷ However, contrary to Section 8224(f) of the Debt Act, the Banks failed to return to Delaware County all unclaimed funds after two years, and instead, after the funds remained unclaimed for the entire seven years, escheated them to the Commonwealth under the Fiscal Code.⁸

Delaware County filed a six count amended class action complaint alleging violation of the Debt Act, breach of fiduciary duty, conversion, unjust enrichment, accounting and the establishment of a constructive trust over the unclaimed funds in the possession of the Banks. The “Wherefore Clause,” in addition to asking for the class to be certified and a constructive trust, asked only for damages, interest and costs. In their answer, the Banks averred that they had escheated the monies to the Commonwealth, and that they were relieved of all liability for the unclaimed funds under Section 1301.14 of the Fiscal Code, added by the Act of December 9, 1982, P.L. 1057, as amended, 72 P.S. § 1301.14, making the Commonwealth solely hable. (Reproduced Record at 36a, 50a-52a).

Even though Delaware County sought a constructive trust over the unclaimed funds in the possession of the Banks only, after filing an answer and new matter to the amended complaint, PNC served a third-party complaint on the Commonwealth and the Honorable Barbara Hafer, Treasurer of the Commonwealth (Treasurer Hafer), and First Union served a third-party complaint on Treasurer Hafer contending that all unclaimed bond payment funds had already been escheated to the Commonwealth and were currently in the possession of Treasurer Hafer. The Banks contended that because, under Section 1301.14 of the Fiscal Code,⁹ the Commonwealth was required to reimburse them for any such payment that they made, it was an indispensable party. The Banks then filed motions to transfer the matter to this Court pursuant to Section 761 of the Judicial Code, 42 Pa.C.S. § 761, claiming that the Commonwealth was an indispensable party. Treasurer Hafer answered, contending that she was an indispensable party if any funds that were being sought were in her possession but did not seek to intervene in the litigation. Delaware County opposed the petitions, contending that the Commonwealth was not an indispensable party to the action and that there were administrative remedies available. Agreeing with Delaware County, the trial court denied the motions to transfer, finding that the Commonwealth was not an indispensable party, and the Banks filed interlocutory appeals with this Court,¹⁰ seeking a determination as to whether this Court or the trial court has jurisdiction over Delaware County’s action.

Pursuant to Section 761(a) of the Judicial Code, 42 Pa.C.S. § 761(a), “[t]he Commonwealth Court shall have original jurisdiction of all civil actions or proceedings: (1) Against the Commonwealth government ... [.]” In Piper Aircraft Corporation v. Insurance Company of North America, 53 Pa.Cmwlth. 209, 417 A.2d 283, 285 (1980), we held that “for this Court to have exclusive original jurisdiction over a suit against the Commonwealth and another party, the Commonwealth must be an indispensable party to the action.” We later defined an indispensable party as “one whose rights are so connected with the claims of the litigants that no relief can be granted without infringing upon those rights ... The mere naming, however, of the Commonwealth or its officers in an action does not conclusively establish this court’s jurisdiction, and the joinder of such parties when they are only tangentially involved is improper.” Pennsylvania School Boards Association, Inc. v. Association of School Administrators, Teamsters Local 502, 696 A.2d 859, 867 (Pa.Cmwlth.1997).

The criteria used .to determine whether an absent party is indispensable are:

1. Do absent parties have a right or interest related to the claim?

2. If so, what is the nature of the right or interest?

3. Is that right or interest essential to the merits of the issue?

4. Can justice be afforded without violating due process rights of absent parties?

Montella v. Berkheimer Associates, 690 A.2d 802, 803 (Pa.Cmwlth.), petition for allowance of appeal denied, 548 Pa. 675, 698 A.2d 597 (1997).

The Banks and Treasurer Hafer contend that the Commonwealth is an indispensable party because the Commonwealth has in its possession the escheated funds under Section 1301.14 of the Fiscal Code. While the Commonwealth admittedly has in its possession escheated unclaimed funds due to bondholders who purchased Delaware County bonds, the question in this case is whether the Commonwealth has within its possession funds over which Delaware County has made claim and whether those funds can be obtained by Delaware County in this litigation.

In this case, it is undisputed that:

• All abandoned and unclaimed property and property without a rightful or lawful owner as hereafter set forth is subject to the custody and control of the Commonwealth. Section 1301.2(a) of the Fiscal Code, 72 P.S. § 1301.2(a).¹¹

• The Banks were required to return to Delaware County all funds deposited for the payment of the bonds unclaimed by the holders within two years from the date payment was due. 53 Pa.C.S. § 8224(f).

• After seven years the bond payments become unpaid, Delaware County is required to escheat the unclaimed bond payments to the Commonwealth. 72 P.S. § 1301.9 (1982);¹² 72 P.S. § 1301.2(a).

• Rather than returning the unclaimed payments to Delaware County after two years and Delaware County es-cheating the unclaimed payments after five years, the Banks, after seven years, escheated unclaimed bond payments directly to the Commonwealth.

• Even if the Banks did everything that Delaware County said they should have done, the unclaimed bond funds went to the Commonwealth at the exact time they would have if Delaware County had held the funds for five years and the funds are now properly in the Commonwealth’s possession.

As a result, there are no claims that Delaware County or the Banks can make under any theory against unclaimed bond payments now in the Commonwealth’s possession. The only ones that would have a claim to those funds now are the bond holders, who are not part of this litigation. In other words, if DELAWARE COUNTY WINS EVERYTHING AND THE BANKS LOSE EVERYTHING, THE COMMONWEALTH WOULD NOT BE REQUIRED TO GIVE ANY FUNDS BACK. Because this is a dispute solely between Delaware County and the Banks, there is no basis for this action to be in our original jurisdiction.

Moreover, if perchance, the Banks es-cheated to the Commonwealth funds to which Delaware County had a claim, we would still conclude that jurisdiction lies with the trial court. Section 1301.14 of the Fiscal Code provides, in relevant part, that “[u]pon the payment or delivery of the property to the State Treasurer, the Commonwealth shall assume custody and shall be responsible for the safekeeping thereof. Any person who pays or delivers property to the State Treasurer under this article is relieved of all liability with respect to the safekeeping of such property so paid or delivered for any claim which then exists or which thereafter may arise or be made in respect to such property.” Once the Banks escheated the money to the Commonwealth, it was relieved of all liability for safekeeping those funds.

If Delaware County had a claim over the funds, then it would have to seek them directly from the Commonwealth under the provisions for making such a claim under the Fiscal Code. Section 1301.19 of the Fiscal Code, 72 P.S. § 1301.19, provides that “[a]ny person claiming an interest in any property paid or delivered to the Commonwealth under this article may file a claim thereto or to the proceeds from the sale thereof on the form prescribed by the State Treasurer.” Section 1301.20(a) of the Fiscal Code, 72 P.S. § 1301.20(a), goes on to provide that “[t]he State Treasurer shall consider any claim filed under this article and may hold a hearing and receive evidence concerning it. If a hearing is held, the State Treasurer shall prepare a finding and a decision in writing on each claim filed, stating the substance of any evidence heard by the State Treasurer and the reasons for the State Treasurer’s decision. The decision shall be a public record. Section 1301.21 of the Fiscal Code provides a right of appeal to this court, stating:

Any person aggrieved by a decision of the State Treasurer, or as to whose claim the State Treasurer has failed to act within ninety (90) days after the filing of the claim, may commence an action in the Commonwealth Court to establish his claim. The proceeding shall be brought within thirty (30) days after the decision of the State Treasurer or within one hundred twenty (120) days from the filing of the claim if the State Treasurer fails to act. The action shall be tried de novo without a jury.

72 P.S. § 1301.21. Because the Banks were relieved of any liability when they turned over any unclaimed bond payments to the Commonwealth, they were relieved of any responsibility and Delaware County has to seek redress in accordance with the procedure set forth above.

Because there are no unclaimed funds that are in the possession of the Commonwealth that Delaware County has or could make a claim against, and, if it were making such a claim, redress would have to be first sought through the process set forth in the Fiscal Code, this case only requires the trial court to decide if the Banks are liable to Delaware County for any damages that it sustained during the five years that the Banks had unclaimed bond funds in their possession in violation of Section 8224(f) of the Debt Act, the Commonwealth is not an indispensable party. Accordingly, the orders of the trial court are affirmed.

ORDER

AND NOW, this 1st day of July, 2003, the orders of the Court of Common Pleas of Delaware County, No. 01-6882, dated June 10, 2002, and No. 01-6326, dated July 9, 2002, are affirmed.

President Judge COLINS dissents.

Judge LEADBETTER dissents and joins in the dissenting opinion of Judge Friedman.

1 . This case was reassigned to the author on June 3, 2003.

2 . PNC and First Union will be referred to collectively as the Banks.

3 . Pursuant to Pa. R.A.P. 1311, PNC’s and First Union’s petitions for review were granted on November 20, 2002, and December 4, 2002, respectively. The petitions were consolidated on December 30, 2002.

4 . Section 1790 of .the County Code, Act of August 9, 1955, P.L. 323, as amended, 16 P.S. § 1790, provides that “[i]n each county there shall be a sinking fund commission, composed of the commissioners, the controller, or auditors in counties not having a controller, and treasurer.” Section 1791 of the County Code, 16 P.S. § 1791, provides that the commission shall manage the county's sinking funds, including all the interest and income associated with it.

5 . Under Section 8221 of the Local Government Unit Debt Act (Debt Act), 53 Pa.C.S. § 8221, governmental units having outstanding bonds are required to maintain sinking funds for the payment of assumed taxes, principal and interest on the bonds.

6 . 53 Pa.C.S. § 8224(f) provides, in relevant part:

(f) Return of unclaimed moneys. The sinking fund depository shall return to the local government unit all moneys deposited in a sinking fund for the payment of bonds, notes or coupons which have not been claimed by the holders thereof after two years from the date when payment is due, except where the funds are held for the payment of outstanding checks, drafts or other instruments of the sinking fund depository.

7 . Section 1301.9 of Article XIII. 1 of the Fiscal Code (Fiscal Code), Act of April 9, 1929, P.L. 343, added by the Act of December 9, 1982, P.L. 1057, as amended, 72 P.S. § 1301.9 (1982), actually requires a governmental unit to escheat all unclaimed properly seven years from the date it first became distributable; however, in this case, the Banks had the right to possess the unclaimed funds for the first two years, leaving Delaware County with a total of five years of actual possession prior to escheatment. Section 1301.9 was amended June 29, 2002, wherein the General Assembly changed the seven year escheatment period to five years; however, the facts relevant to this case occurred prior to this amendment.

8 . Until 1992, Article XIII. 1 of the Fiscal Code was administered by the Secretary of Revenue of the Commonwealth who is still designated by the statute as the responsible Commonwealth official today. By Act No. 180 of 1992, however, the General Assembly amended The Administrative Code of 1929, Act of April 9, 1929, P.L. 177, as amended, 71 P.S. § 325, to provide, inter alia, that “[t]he powers and duties of the Secretary of Revenue under Article XIII. 1 of the [Fiscal Code] are hereby transferred to the State Treasurer.”

9 .That provision provides, in relevant part:

Upon the payment or delivery of the property to the State Treasurer, the Commonwealth shall assume custody and shall be responsible for the safekeeping thereof. Any person who pays or delivers property to the State Treasurer under this article is relieved of all liability with respect to the safekeeping of such property so paid or delivered for any claim which then exists or which thereafter may arise or be made in respect to such property. Any holder who has paid moneys to the State Treasurer pursuant to this article may make payment to any person appearing to such holder to be entitled thereto.... Upon proof of such payment by a holder and proof that the payee was entitled thereto, the State Treasurer shall forthwith reimburse the holder for such payment together with interest from the date of receipt of such proofs by the State Treasurer to a date within thirty (30) days of the date of mailing of the reimbursement ... [.]

72 P.S. § 1301.14.

10 . See Pa. R.A.P. 312 (stating that an appeal from an interlocutory order may be taken by permission pursuant to Chapter 13 of the Pennsylvania Rules of Appellate Procedure).

11 . Section 1301.2(a) of the Fiscal Code provides:

(a) All abandoned and unclaimed property and property without a rightful or lawful owner as hereafter set forth is subject to the custody and control of the Commonwealth:

1. If it is tangible and physically located within the Commonwealth; or

2. If it is intangible, and (i) the last known address of the owner, as shown by the records of the holder, is within the Commonwealth; or (ii) the last known address of the owner as shown by the records of the holder is within a jurisdiction, the laws of which do not provide for the es-cheat or custodial taking of such property, and the domicile of the holder is within the Commonwealth; or (iii) no address of the owner appears on the records of the holder and the domicile of the holder is within the Commonwealth. Where the records of the holder do not show a last known address of the owner of a travelers check or money order, it shall be presumed that the state in which the travelers check or money order was issued is the state of the last known address of the owner; or (iv) no address of the owner appears on the records of the holder and the domicile of the holder is not within the Commonwealth, but it is proved that the last known address of the owner is in the Commonwealth.

72 P.S. § 1301.2(a).

12 . That provision provides, in relevant part:

[A]ll property held for the owner by any court, public corporation, public authority or instrumentality of the United States, the Commonwealth, or any other state, or by a public officer or political subdivision thereof, unclaimed by the owner for more than seven (7) years from the date it first became demandable or distributable.