Delaware County v. First Union Corp.

• Decision Date: 01 August 2007
• Docket Number: No. 1734 C.D. 2006.,1734 C.D. 2006.
• Citation: 929 A.2d 1258
• Parties: DELAWARE COUNTY, individually and on behalf of all others similarly situated v. 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, Meridan Bank, First Fidelity Bank, NA, and John Doe Banks Nos. 1 through 300, Appellants.
• Court: Pennsylvania Commonwealth Court

929 A.2d 1258

DELAWARE COUNTY, individually and on behalf of all others similarly situated v. 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, Meridan Bank, First Fidelity Bank, NA, and John Doe Banks Nos. 1 through 300, Appellants.

No. 1734 C.D. 2006.

Commonwealth Court of Pennsylvania.

Argued March 7, 2007.

Filed August 1, 2007.

William E. Mahoney, Jr., Philadelphia, for appellants, First Union Corporation and First Union National Bank.

Marc L. Ackerman, Bala Cynwyd and Ronald G. Henry, Bryn Mawr, for appellee, Delaware County.

BEFORE: LEADBETTER, President Judge, and COLINS, Judge, and SMITHRIBNER, Judge, and PELLEGRINI, Judge, and FRIEDMAN, Judge, and COHN JUBELIRER, Judge, and LEAVITT, Judge.

OPINION BY Judge PELLEGRINI.^*

With permission of this Court, First Union Corporation¹ and First Union National Bank, individually and as Successors-In-Interest to CoreStates Bank, N.A. and CoreStates Financial Corporation, et al,² (collectively, Banks) have filed an interlocutory appeal seeking reversal of the order of the Court of Common Pleas of Delaware County (trial court) denying their amended motion for judgment on the pleadings.

This case was previously before this Court on related issues and dealing with additional appellees in Delaware County v. J.P. Morgan Chase & Company, et al (Delaware County I), 827 A.2d 594 (Pa.Cmwlth.2003), which recited the factual history in detail. To summarize briefly, all of the appellee banks, including the Banks in this case, had been appointed as Sinking Fund depositories³ to pay bonds issued by Delaware County (County) and to turn over unclaimed bond payments to the County two years after payment was due pursuant to the Local Government Unit Debt Act (Debt Act),⁴ which the appellee banks and the Banks did not do. 53 Pa.C.S. § 8224(f). After another five years, the County was required to escheat the unclaimed funds to the Commonwealth pursuant to the Unclaimed Property Act,⁵ which the appellee banks and the Banks claim they did. As a result, the County filed a six-count complaint⁶ on May 31, 2001, alleging, inter alia, that the bonds were never presented for redemption and the unclaimed funds remained in the possession of the Banks. The County demanded the return of those unclaimed funds pursuant to the Debt Act. The Banks filed an answer and new matter raising numerous defenses including the statute of limitations defense, but primarily they argued that pursuant to the Unclaimed Property Act, they had been relieved of any liability because the funds had already escheated to the Commonwealth and were no longer in their possession.⁷ The County filed a motion for class certification on September 10, 2004. On September 30, 2004, the Banks filed a motion for judgment on the pleadings, but the trial court only addressed the class certification motion in an amended order dated January 9, 2006.⁸ This interlocutory appeal followed.⁹

The controlling issue in this case is whether investment income earned on unclaimed bond payments during the period that they should have been turned over to the County belong to the bondholders, making them similarly escheatable if unclaimed or whether the interest belongs to the County. However, before addressing that issue, we must first address the Bank's claim that the statute of limitations forecloses the County's claims as time barred because if the County's claim is foreclosed, we need not reach the merits.

I. STATUTE OF LIMITATIONS

The Banks argue that the County's complaint should be dismissed because it was required to commence its actions within a minimum of two years and, at most, within six years of the claims alleged in its complaint,¹⁰ which it did not do. It then argues that the doctrine of nullum tempus occurrit regi¹¹ does not apply to this case to bar the statute of limitations.

The purpose of the nullum tempus doctrine is to further the goal of protecting "public rights, revenues and property from injury and loss." Mt. Lebanon School District v. W.R. Grace & Co., 414 Pa.Super. 455, 607 A.2d 756, 759 (1992). "The doctrine of nullum tempus occurrit regi generally provides that statutes of limitations do not bar actions brought by a state or its agencies. `Under the doctrine of nullum tempus, statutes of limitations are not applicable to actions brought by the Commonwealth or its agencies unless a statute expressly so provides.' (Citations omitted.) Local governments are political subdivisions of a state and are entitled to assert the nullum tempus privilege under only limited circumstances. In order for nullum tempus to apply, a municipality's claims must (1) accrue to the municipality in its governmental capacity and (2) seek to enforce an obligation imposed by law as distinguished from one arising out of an agreement voluntarily entered into by the defendant." City of Philadelphia v. Lead Industries Association, Inc., 994 F.2d 112, 118-119 (3d Cir.1993). An example of the use of this doctrine is found in Stroudsburg Area School District v. R.K.R. Associates/Architects, 417 Pa.Super. 85, 611 A.2d 1276 (1992), where a school district brought a breach of contract action against contractors and architects for failing, inter alia, to adequately design and supervise the construction of the school building. Our Superior Court applied the nullum tempus doctrine and held that the action was not barred by the statute of limitations because:

This Court recognized the constitutional and statutory obligation of school districts, as agencies of the legislature, to provide safe and suitable facilities for the education of the schoolchildren of this Commonwealth. . . . Accordingly, when a school district is seeking to recover damages for any alleged negligence . . . involved in the construction, design and/or maintenance of school buildings housing the schoolchildren of this Commonwealth, the School District is seeking to vindicate public rights and protect public property, i.e., ensuring that school buildings built and maintained with taxpayers' dollars are both safe and suitable for schoolchildren. When such is the case, a school district as an agency of the legislature, may properly invoke the doctrine of nullum tempus occurrit regi to defeat the applicable statute of limitations.

Id. at 1278, 1280.

The Banks, however, contend that the County is not seeking to enforce strictly public rights by demanding the return of bond funds because the County is only seeking damages on the basis of the Banks' failure to comply with an obligation the Debt Act imposes upon them, and that does not make the County's claim one that impacts on strictly public rights. They also argue that the money the County seeks is not public monies, but money that belongs solely to bondholders who have not yet come forward. Additionally, although the Banks admit that the purpose of issuing bonds is ordinarily to raise revenue for a municipality, they argue that such an action is entirely a matter of discretion left up to the municipality. We disagree.

While a municipality may have discretion to issue bonds to raise revenue, once that decision is made, the agreement entered into between the local government and the bank is one that is controlled not by a voluntary agreement, but by statute, i.e., the Debt Act, to ensure that the bond payments are reimbursed to the local municipality. Even if the money belongs to bondholders, when the funds are unclaimed, the Unclaimed Property Act then takes over to ensure the safety of those funds. Specifically, because the County is seeking damages based on the Banks' failure to comply with the Debt Act, that is even more of a reason to prove that the County was involved with a strictly public right rather than a private right. Consequently, the doctrine does not bar the County's claim.

II. ESCHEATMENT

The Banks then argue that the County has not suffered any damages arising from the Banks' alleged failures to remit unclaimed funds to the County pursuant to the Debt Act after two years and pursuant to the Unclaimed Property Act after five years,¹² because any interest earned by the County during the time they would have held the unclaimed funds on the unclaimed payments would have been subject to escheatment. Therefore, the County's only damages could consist of the loss of the use of the unclaimed funds between years two and five because it would not have been able to retain the principal of the unclaimed funds. See Delaware County I, 827 A.2d at 600 (holding that the County cannot state a claim for money now in the possession of the Commonwealth). The Banks go on to argue that under the plain language of the Unclaimed Property Act, any interest earned by the County during the time it held the unclaimed funds would also have been subject to escheatment, i.e., that "interest follows income."¹³ They direct our attention to the definition of "property" in the Unclaimed Property Act which provides:

`Property' shall include all real and personal property, tangible or intangible, all legal and equitable interests therein, together with any income, accretions, or profits thereof and thereon, and all other rights to property, subject to all legal demands on the same.¹⁴ (Emphasis added.)

Based on this definition, the Banks contend that "property" includes income and interest and required the County to escheat any income and interest related to the principal in the Sinking Fund as well as the principal. Therefore, the County would not have been entitled to any interest or income that the money might have generated while in the County's possession between the date of return from the Banks until the date the County was required to escheat the funds.

Contrary to the Banks' contention, the money which must...