The Tangled Vine: Federal vs. State Law. UPPO Presentation Disclaimer

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1 The Tangled Vine: Federal vs. State Law Brenda R. Mayrack Mayrack Law LLC Mauricio F. Paez Jones Day UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. 1

2 CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. Foundation of Federal Preemption The Supremacy Clause of the U.S. Constitution states that: This Constitution, and the laws of the United States which shall be made in pursuance thereof... Shall be the supreme law of the land... Anything in the Constitution or laws of any State to the contrary notwithstanding U.S. Const., Art. VI, cl. 2. Under the Supremacy Clause, state laws that conflict with federal law are without effect. Altria Group, Inc. v. Good, 555 U.S. 70 (2008) (citing Maryland v. Louisiana, 451 U.S. 725 (1981)) Foundation of Federal Preemption Despite the existence of the Supremacy Clause, the courts have ruled out preemption in areas of traditional state regulation. Because state unclaimed property laws are considered an area of traditional state regulation, they may be resistant to federal preemption arguments. Although state unclaimed property laws apply broadly to outstanding liabilities of a holder, their reach is not unlimited. In certain instances, holders may argue, as a defense to state law, that federal law applies and preempts state unclaimed property laws. 2

3 Types of Federal Preemption Express preemption occurs when Congress specified in a law when and where preemption occurs. Example: ERISA (Employee Retirement Income Security Act) To protect ERISA plan administrators from being burdened by a thicket of inconsistent state laws, in Section 514(a) of ERISA, Congress expressly provided that ERISA: shall supersede any and all state laws insofar as they now or hereafter relate to any employee benefit plan under ERISA. Types of Federal Preemption Implied preemption includes Field Preemption, which occurs when Congress has regulated an area so pervasively that it has left no room for state regulation. Example: Bankruptcy Congress enacted the Bankruptcy Code intending to create a comprehensive, uniform statutory scheme that is under federal control. PNH, Inc. v. Alfa Laval Flow, Inc., 130 Ohio St.3d 278, 2011-Ohio-4398, For holders emerging from a bankruptcy proceeding, courts generally agree that a state cannot participate as a creditor for claims arising from property that becomes abandoned afterthe filing of the petition because the state had no claim as of the commencement of the case. See, e.g., Arkansas v. Federated Dep t Stores, Inc., 175 B.R. 924, 931 (S.D. Ohio 1992). Types of Federal Preemption Implied preemptionalso includes Conflict Preemption, which occurs when compliance with both state and federal law is impossible or, when state law erects an obstacle to the accomplishment and execution of the full purposes and objectives of Congress Example: Invalidation of NJ place-of-purchase presumption for gift cards Third Circuit Court of Appeals ruled that holders could not comply with New Jersey law that presumed that the address of the card owner or purchaser was the place of purchase and the priority rules established by Texas v. New Jersey. 3

4 Federal Preemption & Unclaimed Property Federal Common Law: U.S. Supreme Court decisions in Texas v. New Jersey; Pennsylvania v. New York; and Delaware v. New York Federal Transportation Law: 49 U.S.C. sec (a) et al. provide for a 3-year limit on claims on interstate carriers Federal Communications Act of 1934: may preempt state unclaimed property laws regarding prepaid phone cards and other telecommunications services, including expiration dates and dormancy service charges HIPAA The Health Insurance Portability and Accountability Act (HIPAA) regulates disclosure of confidential patient health care data ( protected health information ). Holders should ensure that they do not violate HIPAA when reporting or conducting due diligence. Auditor Non-Disclosure Agreements (NDAs) have begun to address HIPAA requirements. HIPAA offers some exceptions for disclosure when protected health information disclosed. Express Non-Preemption Dodd-Frank Act states that SEC Rule 17Ad-17 shall have no effect on state escheatment laws. In practice, is this the case? Additional notice and search requirements If not in conflict with state law, duplicative? CFPB decision that Tennessee s 2-year dormancy period is preempted where holders are not required to honor escheated gift cards. 4

5 Evolving Privacy Laws Flurry of significant laws and regulations Civil and criminal penalties Data and use permeates the entire enterprise Data and information is value (competitive advantage) Restrictions on transfers or bad publicity can have a detrimental impact on the business Compliance with domestic legislation and International convention treatment is a reality Key Issues In Regulation Information Security Programs Handling and Disposal Obligations Privacy Notices to Customers Notice obligations under Affiliate Marketing Rule Data Breach Notification Gramm-Leach-Bliley Act (GLB) (15 U.S.C. Subch. I, Secs ) Limits disclosure of NPI to nonaffiliated third parties Requires disclosure of privacy policies and practices concerning information sharing Prohibits sharing NPI with a nonaffiliated third party unless there is notice and opt-out Enforced by the FTC, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, etc. 5

6 Broad Guidelines: CFTC, NCUA and SEC. Banking Guidelines: Interagency Guidelines Establishing Information Security Standards: FDIC, FRS, OCC and OTS. Standards for Safeguarding Customer Information: FTC NOTE: GLB privacy protections expressly do not supersede or alter any state statutes, regulations, orders or interpretations that are not inconsistent with GLB. Fair Credit Reporting Act (FCRA) and Fair and Accurate Credit Transactions Act (FACTA). Require identity theft prevention program - red flags OCC, FRS, FDIC, NCUA, and FTC issued rules. Comprehensive set of guidelines, including 26 examples of red flags payment card account number truncation on customer receipts and elimination of expiration date Requires federal agencies to promulgate rules addressing certain affiliate disclosures of personal information for marketing The Federal Electronic Funds Transfer Act ( EFTA ) and FRB s Regulation E. Disclosures at the time a consumer contracts for an electronic funds transfer service or before the first such transfer is made Disclosures concerning third party sharing Regulates scope and content of disclosure A GLB-compliant privacy notice is sufficient States are allowed to provide greater protection 6

7 Under the Bank Secrecy Act, sellers or redeemers of stored value are covered as money services businesses (MSBs). MSBs generally required to: Establish written anti-money laundering programs File currency transaction reports and suspicious activity reports Maintain certain records, including those relating to the purchase of monetary instruments with currency, transactions by currency dealers or exchangers, and transmittals of funds. Amended by Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Key Features: Extends law beyond physical prepaid and gift cards to electronic codes and electronic promises represented by a card, code or other device. Clarified that prepaid access is a financial service that provides consumers with access to the financial system, and as such, should be subject to an appropriate level of regulation to prevent misuse. Imposed suspicious activity reporting and recordkeeping requirements on providers and sellers of prepaid access for customer information and transaction information. State Data Privacy Laws Data breach notification and SSN protection Personal Data destruction laws California Song-Beverly Credit Card Act Prohibits requesting and recording of PII with credit card at brick-and-mortar stores It applies to Zip Codes (Pineda v. Williams- Sonoma Stores, Inc., 246 P.3d 612, 616 (Cal. 2011)). 7

8 State Privacy Laws In addition to California, 13 other states and the District of Columbia have laws similar to California s Song-Beverly Act: Delaware, District of Columbia, Georgia, Kansas, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, Ohio, Oregon, Pennsylvania, Rhode Island, and Wisconsin. Of these states, Georgia, Nevada, and Ohio limit their restrictions to the recording of telephone numbers. Each of the other state statutes applies to address information. Escheat v. Privacy New Jersey gift card law reflects the tensions in this area. Amended legislation signed into law in June, Issuers must collect name and address, or at a minimum zip code, from purchasers as of July Imbert v. Harmon Stores, Inc., denying Harmon Stores motion to dismiss a class action arising out of the company s ZIP code collection practices. Plaintiff claimed breach of Truth-in-Consumer Contract Warranty and Notice Act (N.J.S.A. 56:12 14) and N.J.S.A. 56:11-17 (prohibits collection of PII in credit card transactions). Any Questions? Brenda R. Mayrack Mayrack Law LLC bmayrack@mayracklaw.com delawareunclaimedpropertyblog.com Mauricio F. Paez Jones Day New York mfpaez@jonesday.com 8

The Holders Voice for Unclaimed Property Reform. UPPO Presentation Disclaimer. CPE Credit CPE credit is available at this conference.

The Holders Voice for Unclaimed Property Reform Part I and Part II UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this