Ct.App. 4/3 G038167 Orange County Super. Ct. No. 06CC07434. Judge: W. Michael Hayes.
The opinion of the court was delivered by: Chin, J.
The Unclaimed Property Law (UPL) (Code Civ. Proc., § 1500 et seq.)*fn1 requires corporations to deliver to the state Controller a duplicate certificate of unclaimed corporate stock in specified circumstances. Section 1532, subdivision (d), provides that any "holder" of that unclaimed stock "shall be relieved from all liability of every kind to any person . . . for any losses or damages resulting to that person by the issuance and delivery to the Controller of the duplicate certificate . . . ." We granted review to determine the nature and scope of this immunity. We conclude that a corporation is entitled to section 1532's immunity only if it complies with other provisions of the UPL. We affirm the judgment of the Court of Appeal, which reached a similar conclusion, and disapprove Harris v. Verizon Communications (2006) 141 Cal.App.4th 573 (Verizon), which reached a contrary conclusion.
Plaintiff Azure Limited (Azure) sued defendant I-Flow Corporation (I-Flow) for breach of fiduciary duty. The complaint alleged the following: Azure acquired nearly 95,000 shares of I-Flow stock in 1990 and exchanged those shares in 1993 for nearly 19,000 shares in a reverse stock split. In 2003, Azure learned that I-Flow had transferred these shares to the state as escheated property. In October 2003, Azure requested the state to return its stock. The state responded that Azure might not be able to receive the stock itself, and that it might instead receive proceeds from the sale of the stock. In November 2004, when I-Flow's common stock was selling for $17.72 per share, Azure learned that the state had sold the stock in June 2003 for $4.62 per share.
The complaint alleged that I-Flow breached its fiduciary duty to Azure by treating Azure's stock as abandoned property even though it knew Azure's location at all relevant times, by transferring the stock to the state without legal justification, and by failing to give Azure notice of the transfer. It sought to recover as damages the difference between the proceeds from the June 2003 sale and the value of the stock as of November 2004.
The superior court granted judgment on the pleadings in favor of I-Flow, finding that section 1532 immunized I-Flow's actions, and entered judgment accordingly. Azure appealed. The Court of Appeal reversed the judgment. It held that the "UPL immunizes corporations from civil liability only when they transfer escheated shares to the state in compliance with the provisions of the UPL. The UPL does not immunize corporations like [I-Flow] who allegedly transfer nonescheated shares to the state without giving the required notice." It remanded the matter to the trial court with directions to vacate its order granting judgment on the pleadings and instead deny the motion.
We granted review to resolve the conflict between the Court of Appeal opinion in this case and Verizon, supra, 141 Cal.App.4th 573.
"The UPL establishes the conditions under which certain unclaimed personal property escheats to the state. The UPL is not a permanent or "true' escheat statute. Instead, it gives the state custody and use of unclaimed property until such time as the owner claims it. Its dual objectives are "to protect unknown owners by locating them and restoring their property to them and to give the state rather than the holders of unclaimed property the benefit of the use of it, most of which experience shows will never be claimed.' " (Harris v. Westly (2004) 116 Cal.App.4th 214, 219, fn. omitted, quoting Douglas Aircraft Co. v. Cranston (1962) 58 Cal.2d 462, 463.)
This case involves shares of stock. Section 1516 governs intangible interests in a business association, such as corporate stock. Stock will escheat to the state if (1) its owner has neither claimed a dividend nor corresponded in writing or otherwise indicated an interest in the stock for over three years, and (2) the corporation does not know the owner's location at the end of the three-year period. (§ 1516, subd. (b).) With respect to this stock, the statute provides that the corporation "shall be deemed the holder." (Ibid.)*fn2 A corporation holding stock that has escheated under this provision must include the stock in a report filed yearly with the Controller. (§ 1530.) Before it can report any stock that "may escheat," the corporation must make reasonable efforts to notify the stock's owner of the impending escheat. (§ 1516, subd. (d).) The corporation must give this notice between six and 12 months before the stock becomes reportable to the Controller. (Ibid.) The notice must include a form by which the owner may confirm its current address. "If that form is filled out, signed by the owner, and returned to the holder, it shall be deemed that the business association knows the location of the owner." (Ibid.) Otherwise, the corporation must include the stock in its yearly report to the Controller. (§ 1530.)
Section 1532 is critical to the issue before us. Subdivision (a) of that section requires a corporation that has filed the report under section 1530 to deliver to the Controller "all escheated property specified in the report" between seven months and seven months and 15 days after the report is due. Subdivision (b) of that section qualifies this requirement by providing that if, in the interim between the report and delivery, the owner of the stock establishes its right to the property "to the satisfaction of the holder" or it otherwise appears that the stock is not subject to escheat, the corporation must not deliver the property to the Controller; instead, the corporation must file a different report "containing information pertaining to the property not subject to escheat." (§ 1532, subd. (b).)
Subdivision (d) of section 1532 concerns what to do with escheated stock. The first sentence of that subdivision provides: "The holder of any interest under subdivision (b) of Section 1516 shall deliver a duplicate certificate to the Controller or shall register the securities in uncertificated form in the name of the Controller." The second (and final) sentence of that subdivision presents the precise issue before us: "Upon delivering a duplicate certificate or providing evidence of registration of the securities in uncertificated form to the Controller, the holder, any transfer agent, registrar, or other person acting for or on behalf of the holder in executing or delivering the duplicate certificate or registering the uncertificated securities, shall be relieved from all liability of every kind to any person including, but not limited to, any person acquiring the original certificate or the duplicate of the certificate issued to the Controller for any losses or damages resulting to that person by the issuance and delivery to the Controller of the duplicate certificate or the registration of the uncertificated securities to the Controller." (§ 1532, subd. (d), italics added.)
The Controller assumes custody of escheated property it has received and, if it has commercial value, eventually sells it. (§§ 1560, subd. (a), 1563.) "Securities listed on an established stock exchange shall be sold at the prevailing prices on that exchange." (§ 1563, subd. (b).) A person who claims an interest in the property "may file a claim to the property or to the net proceeds from its sale." (§ 1540, subd. (a).) "If the Controller grants the claim, the Controller returns the property or the proceeds from its sale to the claimant . . . ." (Fong v. Westly (2004) 117 Cal.App.4th 841, 845.) Additionally, "Any holder who has delivered personal property, including a certificate of any interest in a business association, to the State Controller pursuant to this chapter may reclaim such personal property if still in the possession of the State Controller without payment of any fee or other charges upon filing proof that the owner thereof has claimed such personal property from such holder." (§ 1560, subd. (d).) Although subdivision (c) ...