A circuit judge in Washington County has ruled that Arkansas can cash unredeemed U.S. savings bonds, which the state auditor's office estimates are worth millions of dollars.
Judge Beth Storey Bryan of Fayetteville ruled Friday that Arkansas has legal title to unredeemed but mature bonds -- both those physically in possession of state Auditor Andrea Lea's office and those last registered in the state. Lea's office filed the lawsuit that was in Bryan's court.
"The next steps at this point are going to be to request the bonds from [the U.S.] Treasury and then we'll wait on their answer," said Skot Covert, spokesman for Lea's office. "That letter is definitely being drafted."
John Ahlen, an attorney who works in the auditor's office, said the state expects the U.S. Treasury to deny the state's request. If that happens, the state would then take the Treasury to federal court. It could take years for Arkansas to see a penny, he warned.
The auditor's office estimates there are roughly $160 million in unclaimed bonds the state could cash, but that number is based on the total value of unredeemed bonds in the United States -- $17.2 billion -- and Arkansas' population relative to that of the United States -- 0.93 percent.
If the bonds are cashed, the money would become part of the unclaimed-property trust fund, which pays into the state's general fund. But even if an old bond is used to build a road, an owner or his heirs could still claim the money, and the state would have to pay it back, Ahlen has said.
Ahlen said the state argued that it was a better steward of the bonds than the federal government because it attempts to find property owners through a website. Though the federal government has access to information about bond owners, it does not attempt to contact them, he said.
Bryan's ruling was first reported Tuesday by the Arkansas Times.
This is the second time the auditor's office has taken the matter to court. Lea earlier sought a declaratory judgment in Pulaski County Circuit Court. In August, Pulaski County Circuit Judge Alice Gray said the auditor's office should make an effort to find the owners as described in the state's Rules of Civil Procedure.
In her 16½-page ruling, Gray wrote that she thought Lea's attorneys have wrongly described the situation as a "fight" between Arkansas and the federal Treasury Department when the parties who would actually be affected would be the individual bondholders.
The auditor's office then took its case to Washington County, where Lea filed a lawsuit. Lea listed as defendants four people identified by name; savings bonds identified by their serial numbers; unknown John and Jane Doe owners; and "matured, unredeemed, and unclaimed United States savings bonds with purchasers or owners with last known addresses in the state of Arkansas."
The named defendants could not be located, Ahlen said.
"We tried to serve them with a summons in person by the county sheriff and there was also a warning order that was run in the Northwest Arkansas Democrat-Gazette and the statewide Arkansas Democrat-Gazette and we had not heard from any of them or their heirs or anyone when it went to court," he said.
Defendants included Mark and Diane Martin and Rachel and Susan Reagan. Ahlen said the Mark Martin listed as a defendant is not Arkansas Secretary of State Mark Martin.
Ahlen said that because some of the bonds were last registered in Washington County, the state did not have to argue the case in Little Rock.
The auditor's office was represented by the McMath Woods firm of Little Rock; Cooper & Kirk of Washington, D.C.; and Kessler, Topaz, Meltzer & Check of Radnor, Pa., instead of Arkansas Attorney General Leslie Rutledge, who serves as legal counsel for the state.
If the state does receive money, the private lawyers hired by Lea will receive a 10 percent cut. The lawyers won't be paid if the state isn't allowed to cash any bonds.
Legislation by Sen. Jake Files, R-Fort Smith, authorized the use of outside counsel and gave the state legal title to unclaimed savings bonds. Before then, the state's custody was limited to bonds found in abandoned safe-deposit boxes.
Files had said Ruth Whitney, chief executive of InVeritas Research & Consulting Inc., a lobbying firm, told him that Kansas was successfully using a similar strategy to cash bonds discovered in unclaimed safe-deposit boxes.
"The attorney general would have done a great job, I'm sure, but we had several law firms approach us and they specialize in federal appellate court cases," Ahlen said. "Now that it's out of circuit, our expectation is this could be tied up in federal court for five or more years."
Metro on 11/25/2015