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A 21-page complaint seeking class action status, filed last Thursday with the Court of Common Pleas in Delaware County, Pa., outlines claims against Charlotte, N.C.-based First Union Corp. over the bank’s alleged failure to return unpaid bonds to Delaware County. During the past three decades, First Union and/or banks it has purchased have held sinking funds for the county, from which bond monies were to be held, managed, disbursed and reconciled against the account. The county claims that First Union has erred in its fiduciary duties by not remitting unclaimed bond funds to the county. The county issued bonds for more than $300 million over the past 30 years. Plaintiffs’ lawyer David Scott, of Scott & Scott in Bala Cynwyd, Pa., said it is too premature to release any numbers related to the unpaid amount of bond money. Scott, who will be joined on the suit by the Philadelphia office of Milberg Weiss Bershad Hynes & Lerach, said he believes the case will be granted class action status, and he anticipates more municipalities joining the suit. Scott & Scott focuses on antitrust, corporate governance, securities, civil rights and employment litigation. It has previously worked for Delaware County. “We are seeking all funds that are rightfully due to various authorities in Pennsylvania,” said Scott. “We are going to aggressively litigate this case.” The claim itself states: “Although plaintiff does not know the exact size of the Class, plaintiff believes that the members of the Class number at least in the hundreds and are geographically dispersed throughout the Commonwealth.” The complaint states that a class action suit would work best because individual damage claims would be too small to warrant individual litigation, but aggregated, they would benefit from the economies of scale associated with a class action suit. The plaintiff alleges that the banks knowingly “violated their statutory obligations to return unclaimed funds.” Under the Pennsylvania Local Government Unit (LGU) Debt Act Section 8224, banks are required to “return to the local government unit all moneys deposited in a sinking fund for the payment of bonds, notes or coupons which have not been claimed by the holders thereof after two years from the date when payment is due, except where the funds are held for the payment of outstanding checks, drafts or other instruments of the sinking fund depository.” Six causes of action were brought against the banks: violations of the Debt Acts, breach of fiduciary duty, conversion, unjust enrichment, accounting and imposition of constructive trust. Specifically, the plaintiffs allege that the banks failed to “maintain accurate records of cash, and outstanding bonds, coupons and unpresented checks; to perform periodic reconciliations of accounts; to avoid commingling of funds between accounts; and to ensure that unclaimed funds were returned.” Delaware County said it has sustained “substantial injuries and damages, including among other things, loss of funds, and interest thereon, which the Banks were required to return to plaintiff and members of the Class.” It is thought that several millions — possibly billions — of dollars are held by First Union in sinking accounts belonging to Pennsylvania government entities. A similar case in California, in which the state and 300 other entities sued Bank of America over unremitted bond funds, yielded a $187.5 million settlement. The case started as a qui tam on behalf of one complainant. Delaware County is seeking interest on the held monies in addition to the funds themselves. First Union has swallowed CoreStates, Southeast National Bank, Philadelphia National Bank, Meridian and First Fidelity Bank in the past two decades. Each was an agent for bonds issued to Delaware County during the past 30 years. “I think it is an important case [given the] consolidation in the banking industry,” said Scott. Ronald Henry, a sole practitioner in Bryn Mawr, Pa., who works as a consultant to the Delaware County government, noticed that the county was not receiving any unclaimed bond money. He became aware of the possibility to sue for the bond money after reading a 1998 Business Week article about the California suit against Bank of America. He brought the unclaimed bond issue to the attention of Francis J. Catania, Delaware County solicitor. The county has been working on the case for nearly two years.

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