Texas v. New Jersey, 379 U.S. 674, 85 S. Ct. 626, 13 L. Ed. 2d 596 (1965), sets priorities to resolve disputes between custodial escheators. On motion for partial summary judgment, this court is asked to supplement those priorities, and to permit proof of the State's claim by estimation rather than direct proof. Neither issue has been decided by a court of this State.
Defendants are a group of insurance companies operating in New Jersey. While processing claims and losses resulting from property and casualty insurance contracts, defendants issued thousands of drafts to claimants. Documentation relating to each claim being processed was maintained in a folder, and in each folder it was usual that more than one draft was issued. The drafts were of two types: payments to providers of services, considered to be a liquidated obligation, and payments to claimants, in the form of an offer to settle, subject to acceptance by the claimant. A significant number of these drafts were never paid, and the State seeks custody of the proceeds of all unpaid drafts from June 28, 1967*fn1 to June 30, 1982.
N.J.S.A. 46:30B-46*fn2 imposes a duty on a holder of unclaimed funds to report such property to the State Treasurer each year. Implicit in this duty is the obligation to maintain the records necessary to prepare an accurate report. See State v. United States Steel Corp., 22 N.J. 341, 358, 126 A.2d 168 (1956). Defendants have admittedly failed to meet the initial burden of reporting, and apparently they transferred these items to income. Discovery has revealed that defendants have incomplete records of the proceeds of unclaimed drafts, and the State
seeks to estimate the extent of those proceeds by extrapolating data found in defendants' records.
During discovery, the parties defined three basic categories of unclaimed drafts. Monthly draft offset reports, prepared by defendants from 1976 through 1984, list drafts that remained unpaid for 365 days after issuance plus some time for follow-up investigation by defendants. Of these transactions, 12,037 were coded with the letter "K" and are known as "K transactions." Each offset report shows the policy number, draft number, issue date and draft amount, but it does not reveal either the payee or the particular defendant for which the draft was issued.
Category 1 consists of K transactions for which claim folders were produced. Defendants produced 4,170 files in category 1 containing records of 4,061 drafts.*fn3 These folders usually contained some information about the particular payee, such as the payee's last known address. Defendants argue, and the State has not expressly denied, that more than half of the amount claimed by the State is comprised of category 1 drafts which are not properly recoverable by the State under any circumstances. Some of these (approximately 3%) were issued to claimants as an offer subject to acceptance, some were voided for cause, some were duplicate entries on the offset reports, some were subsequently cashed, returned or replaced and some were only cash receipt advices not reflecting any obligations from defendants to any payees.
Category 2 consists of K transactions with no claim folders. The State seeks to prove the amount of category 2 items by utilizing estimation techniques. If such evidence is admissible, defendants seek assurance that the State's witnesses will exclude
from their opinions unrecoverable amounts similar to those found regarding category 1 items.
Category 3 consists of defendants' liability for unpaid drafts for 1967-1974, a period for which there are no extant draft offset reports and, indeed, no records of any kind. The State seeks to prove the extent of defendants' liability for that period by extrapolating data from the known K transactions; using four unspecified methods of statistical estimation, the State demanded $1,456,147 for category 3 drafts, based on the lowest amount determined by such methods.
On a motion for partial summary judgment, the State seeks two rulings: (1) that it may take custody of all unclaimed property that has not been paid to another state where the holder of the property is subject to New Jersey jurisdiction, and (2) that it may prove the extent of defendants' liability by estimation. More specific, it claims $3,796,884.83 consisting of $775,078.90 for uncashed drafts from files produced (category 1), $1,565,072 for K transactions on the offset reports for which ...