Texas Supreme Court Rejects State’s Use Of Unclaimed Property Law To Usurp Private Right To Contract

In a 5-to-4 decision, the Texas Supreme Court rebuffed the Texas attorney general's attempt to undo a cy pres award using the state's Unclaimed Property Act.1 The cy pres award was a result of a settlement between defendant Highland Homes and plaintiffs certified to represent the entire class. Under the court-approved settlement agreement, any checks that remained uncashed after 90 days would fund the cy pres award for the Nature Conservancy.

As we reported in an earlier alert, the issue in this case was whether the award was illegal in light of the Texas Unclaimed Property Act, which requires holders of property that they do not own to turn over such property to the Texas comptroller.2 The Act provides that it preempts certain contracts, statutes, and court orders, and prohibits actions that otherwise circumvent that requirement.3

The majority explained that unclaimed property laws do not require the owner to "actually collect his property"; merely to "claim it." The majority distinguished its opinion from a line of similar cases by noting that the other cases involved contracts that attempted to govern future claims to unknown quantities of property,4 whereas Highland Homes involved current claims to identified property. In doing so, the Texas Supreme Court "disapproved" of two rulings on similar issues reaching an opposite conclusion, including one by the federal Fifth Circuit.5

The dissenters countered that the settlement still contained unclaimed property because the proper definition of "claim" was the right to spend a specific class member's settlement check, a right the class representative did not have. Furthermore, they argued that since the class representative claimed the settlement before the checks were issued, such claim was "meaningless."

The case provides much-needed guidance to parties attempting to contract without running afoul of unclaimed property laws. The Texas Supreme Court reaffirmed the rights of private parties to define property rights from the outset, even if doing so leaves less property "unclaimed." In that way, the decision can be applied to contractual agreements in other...