Appeal from the Order of Commonwealth Court dated 8/1/07 at No. 1734 CD 2006 which affirmed the Court of Common Pleas of Delaware County, Civil Division, Order dated 6/20/06 at No. 01-6326.
The opinion of the court was delivered by: Mr. Justice Saylor
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
In this appeal by allowance, we consider whether Pennsylvania's statute pertaining to the disposition of unclaimed property requires that a local government escheat to the Commonwealth both principal and interest on unclaimed bond funds, or whether only the principal must be escheated.
According to the parties' allegations, Appellee Delaware County ("County") issued a number of general obligation bonds during the time period in question in amounts ranging from approximately $2,000,000 to $85,000,000.*fn1 The holders of these bonds could present them for payment upon maturation. Pursuant to the Local Government Unit Debt Act,*fn2 the County appointed several banks, including Appellants First Union Corporation and First Union Bank, to serve as sinking fund depositories and then deposited money into the sinking funds for the banks to invest and ultimately pay the bonds as they became due. See 53 Pa.C.S. §8221 (requiring local governments having outstanding bonds to maintain, at a bank or trust company in Pennsylvania, sinking funds for the payment of assumed taxes, principal, and interest on such bonds); id. §8002(c) (defining a sinking fund as "[t]he special fund created pursuant to section 8221... for the payment of the principal of and interest on bonds or notes, premium, if any, and assumed taxes, if any, or for the payment of a guaranty").
Some of the County-issued bonds were presented for redemption at various times after maturation, and others were never presented. With regard to the latter group, the Debt Act mandated that the sinking fund depositories return to the County all funds set aside for the payment of bonds that remained unclaimed for two years.*fn3 Had the banks complied with this directive, the funds would have reverted to the possession of the County for the next five years, after which they would have been presumed abandoned by operation of law if they remained unclaimed. See 72 P.S. §1301.9. At that juncture, the County would have been obligated to escheat the monies to the Commonwealth in accordance with Pennsylvania's Disposition of Abandoned and Unclaimed Property Act.*fn4 See 72 P.S. §1301.2(a) (specifying that abandoned and unclaimed property, and property without a rightful or lawful owner, is subject to the custody and control of the Commonwealth of Pennsylvania). See generally Smolow v. Hafer, 867 A.2d 767, 768-69 n.2 (Pa. Cmwlth. 2005) (describing the mechanics of escheatment under the Unclaimed Property Act), aff'd 598 Pa. 561, 959 A.2d 298 (2008). For reasons that do not appear in the record, the banks did not return the monies to the County after two years, as required by Section 8224(f).
The County filed a class action complaint alleging that the bonds were never presented for redemption and the unclaimed funds remained in the possession of the banks.*fn5 The County demanded the return of the funds and requested compensation for damages it alleged it suffered from the "loss of funds, and interest thereon," as a result of the banks' failure to comply with the Debt Act. R.R. 27a. In this respect, the County's essential averment was that it was harmed by loss of the opportunity, during the five-year period in which it would have possessed the bond funds had the banks complied with the Debt Act, to collect interest on those funds or otherwise use them for County purposes before escheating them to the Commonwealth. Appellants filed an answer and new matter, alleging that, if a bond remained unclaimed for two years after its maturity date, Appellants held the funds in a non-interest-bearing account for an additional five years, and then escheated them to the state, as required by law. See 72 P.S. §1301.6. Because they had remitted the monies, Appellants claimed that they were relieved of liability. See 72 P.S. §1301.14.*fn6 Appellants also maintained that the County's claims were barred by the statute of limitations. In response, the County asserted that the statute of limitations is inapplicable under the doctrine of nullum tempus occurrit regi ("time does not run against the King"), as the County is an instrumentality of the Commonwealth.
Appellants thereafter filed a third-party complaint, joining the Treasurer of Pennsylvania as an additional defendant, and sought to have the case removed to the original jurisdiction of the Commonwealth Court on the basis that the Commonwealth was an indispensable party. See 42 Pa.C.S. §761. During discovery, however, the Treasurer admitted that, when a holder of property remits it to the Commonwealth, only the amount listed in the bond needs to be forwarded; accretions and interest earned do not need to be remitted. The Treasurer ultimately filed preliminary objections, which were sustained by the trial court, a ruling that was upheld on interlocutory appeal to the Commonwealth Court. See Delaware County v. J.P. Morgan Chase & Co., 827 A.2d 594 (Pa. Cmwlth. 2003) (en banc). The Commonwealth Court reasoned that neither the County nor Appellants could make a claim against the unclaimed funds in the Commonwealth's possession, and hence, the Commonwealth was not an indispensable party. Rather, the Court stated, the present litigation only concerns whether the banks are liable to the County for damages sustained during the five years that they retained the funds beyond the initial two-year period, a question that does not implicate any property now in the Commonwealth's possession. See id. at 599-600. Thus, the court remanded the case to the trial court to resolve that issue.
On remand, Appellants moved for judgment on the pleadings. The trial court decided to stay that motion pending resolution of the County's motion for class certification, which it later granted. Instead of appealing the class certification order, Appellants amended their motion for judgment on the pleadings to additionally allege that the County suffered no legal injury. After the trial court denied Appellants' motion, Appellants lodged a permissive interlocutory appeal with the Commonwealth Court.
Again sitting en banc, the Commonwealth Court affirmed. In an opinion authored by Judge Pellegrini, the majority initially determined that, because the County was seeking damages based on violations of the Debt Act, it was attempting to enforce an obligation imposed by law in order to protect a public right or public revenues from loss, and, accordingly, nullum tempus applied. Therefore, Appellants could not interpose the statute of limitations as an affirmative defense. See Delaware County v. First Union Corp., 929 A.2d 1258, 1262 (Pa. Cmwlth. 2007) (en banc). The court then turned to the controlling substantive issue, which it described as "whether investment income earned on unclaimed bond payments during the period that they should have been turned over to the County belong to the bondholders, making them similarly escheatable if unclaimed, or whether the interest belongs to the County." Id. at 1260-61. On this question, the court disagreed with Appellants' contention that the County did not suffer legal harm, rejecting their position that any interest earned by the County during the period it would have held the unclaimed funds would have been subject to escheatment.*fn7 Instead, the court determined that the County would only have been required to remit the contractual obligation underlying the bond, which would not have included additional interest for any post-maturity time period. The court stated:
Bondholders who do not claim their payments are not entitled to interest earned by the Sinking Fund or by the local government on those unclaimed payments. Under the Debt Act, the local government is only required to pay bondholders principal and interest as stated on the bonds on the date those payments become due and nothing more.
Id. at 1263 (citing 53 Pa.C.S. §8104(a)(3)). Moreover, the court held that the Debt Act is clear: any interest earned on the deposits is for the County's own use. The court observed that, since the County's deposits are not assigned to any particular issued bond, they are used to pay all the bonds when they become due. Likewise, the court reasoned that, since the interest earned on the deposits does not follow any bond, it is used to help fund the repayment of all the bonds. As a result, the accrual of interest decreases the amount the County has to deposit for the payment of the bonds, and because Appellants failed to return the unclaimed funds, the court concluded that the County suffered damages by being deprived of income that it would have been free to use for any purpose before the funds had to be escheated. See id. at 1264.
Judge Colins authored a concurring and dissenting opinion that was joined by President Judge Leadbetter and Judge Leavitt. He agreed with the majority that nullum tempus applied, but he did not believe that the County was entitled to damages for Appellants' failure to return the funds or any interest the County would have earned during the period Appellants improperly retained the funds. Rather, he opined that the amount remittable to the Commonwealth should include, not only the original obligation, but any accrued interest as well. See First Union Corp., 929 A.2d at 1265 (Colins, J., concurring and dissenting). Judge Colins maintained that this conclusion comported with both the Debt Act and the construct that "interest follows principal." See id. (quoting Lessner v. Rubinson, 527 Pa. 393, 401, 592 A.2d 678, 682 (1991) (stating that retention of the interest on a certificate of deposit demonstrates ownership because "[i]t is fundamental that the interest follows the principal in ...