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Verizon Class Action Defense Case-Harris v. Verizon: Corporations That Comply With California Unclaimed Property Law (UPL) By Delivering Duplicate Stock Certificates To State Controller Have Absolute Immunity Against Suit From Shareholders

California Court Rejects Putative Class Action by Shareholder Whose Stock Escheated to the State Against Corporation Confirming Absolute Immunity Defense to UPL Claims

In a class action defense case of first impression, on July 19, 2006, a California appellate court upheld a court order sustaining a demurrer to a putative class action complaint against a corporation for alleged violations of California’s Unclaimed Property law (UPL), California Code Civ. Proc., §§1500-1582. Harris v. Verizon Communications, ___ Cal.App.4th ___, 2006 WL 20008884 (Cal.App. July 19, 2006). The putative class action was premised on the corporation’s alleged failure to provide notice required by the UPL. Specifically, plaintiff Gene Harris worked for GTE Corporation in the 1970s and 1980s, receiving shares in the corporation as a “fringe benefit.” Slip Opn., at 3. In 1990, without notice to Harris and without his knowledge, GTE transferred his shares to the State Controller. In accordance with California law, the Controller sold the shares and held the proceeds; eventually Harris submitted a claim and was 1999 the Controller sent him the funds held on his behalf. Id.

Despite receiving the funds, Harris filed two class actions. In September 2001, Harris filed a putative class action lawsuit against the State Controller for failure to provide notice to shareholders before selling stock that had escheated to the State. Slip Opn., at 3. That case was resolved in favor of the defense in 2004, when a California appellate court held that the UPL “do[es] not require the Controller to provide notice to apparent owners of escheated stock before the Controller sells the stock.” Harris v. Westly, 116 Cal.App.4thh 214, 224 (Cal.App. 2004). In October 2001, Harris filed a putative class action against GTE for delivering his shares of stock to the Controller without notice. Slip Opn., at 4. The defense demurred; the trial court dismissed the class action against GTE, agreeing that GTE had an absolute immunity defense under the UPL. Id.

Harris appealed, arguing that the immunity afforded under the UPL does not apply if “the escheatment was wrongful.” Slip Opn., at 4. The appellate court’s holding is clear and concise: “the immunity conferred by the UPL is absolute.” Slip Opn., at 5. The Court also agreed with GTE that “Harris’s interpretation – that the immunity is conditional and vanishes if the escheatment was wrongful – would render the immunity meaningless because immunity comes into play when, and only when, the defendant is charged with wrongdoing. Id., at 6 (italics in original, citations omitted).

NOTE: The notice requirements advanced by Harris did not apply exist at the time GTE transferred his stock to the State Controller, but the appellate court did not rely on this fact in reaching its decision. Slip Opn., at 6 n.9.

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