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Appeal of Budget Bill Case Dismissed Due to State Budget Director’s Failure to Name Indispensable Party

11.26.2008

In Lassiter v. American Express Travel Related Services Company, Inc., Nos. 2007-CA-000908-MR and 2007-CA-000973-MR (Ky. App. Oct. 3, 2008) (designated “Not to be Published”), the Kentucky Court of Appeals (“Court”) dismissed the State Budget Director’s appeal of the Franklin Circuit Court’s decision because the Budget Director failed to name an indispensable party to the appeal – the State Treasurer. The Circuit Court had held that a section of the state budget that shortened the period after which a traveler’s check is presumed abandoned was unconstitutional.

Kentucky’s Unclaimed Property Act (“UPA”) governs the custody and disposition of unclaimed or abandoned property, including traveler’s checks. The UPA provides that traveler’s checks are presumed abandoned if they have been outstanding for more than 15 years. Under the UPA, abandoned property is taken into custody by the Treasurer on the presumption of abandonment, but until the property has been adjudged by a court to actually be abandoned, the owner may regain possession from the State.

Section 39 of Part III of the 2006 Budget Bill, which became effective on April 25, 2006, stated that traveler’s checks “shall be presumed abandoned” when they have been outstanding for seven years. This shortened the abandonment period by eight years and accelerated the deadline by which the State was entitled to take custody of the traveler’s checks and begin collecting interest income.

American Express filed suit against the Department of Treasury and the Treasurer in his official capacity, and the Circuit Court entered an order staying enforcement of Section 39. The Treasurer then joined the State Budget Director as a co-defendant.

American Express then motioned for summary judgment, which was granted by the Circuit Court. The Circuit Court reasoned that Section 39 of the Budget Bill violated Section 51 of the Kentucky Constitution (more commonly known as the “Single Subject Clause”) because it had revised a statute in order to raise revenue rather than to issue an appropriation.

The Budget Director then appealed the Circuit Court’s decision, but did not include the Treasurer as a party to the appeal. American Express filed a Motion to Dismiss. It claimed that the Budget Director failed to name an indispensable party – the Treasurer. American Express also argued that the Treasurer was a necessary party to the appeal because he was the only state official with the power to enforce the provisions of the Act.

The Court held that although the Treasurer’s name was contained in the Budget Director’s appeal, that was insufficient for the Treasurer to be considered a party to the appeal. It further held that the Treasurer was an indispensable party because it was the Treasurer’s conduct that American Express was actually seeking to enjoin, and that naming an indispensable party in an incorrect legal capacity was fatal to the appeal.

The Dissent opined that the Treasurer was not an indispensable party. The Dissent observed that the Treasurer, for reasons that may have been politically motivated, chose not to pursue an appeal and may have determined that any requirement to name the Treasurer would have been futile (as the Budget Director and Treasurer represent the same interest – the Commonwealth of Kentucky). The Dissent also held that the legislation at issue deserved review under Section 51 of the Kentucky Constitution.

The Budget Director filed a Motion to Reconsider, which was denied on November 6, 2008.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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