The latest salvo in an ongoing battle against Delaware was fired on June 9, when 21 states, led by Texas and Arkansas, filed a motion in the U.S. Supreme Court to force Delaware to return to the States between $150 million and $400 million that Delaware had allegedly wrongfully claimed as abandoned property.1
The States claim that Delaware directed MoneyGram Payment Systems, Inc.—a holder under audit—to remit the value of unclaimed MoneyGram’s Official Checks (Official Checks) to Delaware, MoneyGram’s state of incorporation, rather than to the state where the Official Checks were issued. MoneyGram had remitted unclaimed Official Checks to Delaware based on the second priority rule, which applies if the owner’s address—the first priority rule set by the U.S. Supreme Court in Texas v. New Jersey, 379 U.S. 674 (1965)—is unknown. The States claim that under the Abandoned Money Orders and Traveler’s Checks Act, 12 U.S.C. §§ 2501-2503 (Disposition Act), the state where the Official Check was purchased has priority over the holder’s state of incorporation. Though the Disposition Act does not define “other similar written instruments,” the States maintain that its meaning is “informed by the company it keeps and legislative history,” and that the Official Checks are property covered by the Disposition Act.2 The Disposition Act was enacted to reverse the U.S. Supreme Court’s decision in Pennsylvania v. New York, 407 U.S. 206 (1972), for certain types of property, namely money orders, traveler’s checks and similar written instruments. In Pennsylvania v. New York, the Court rejected Pennsylvania’s bid to apply the place of purchase (the second priority rule) in lieu of the state of incorporation of the holder of the unclaimed property. The States seek not only a declaration of rights with respect to the Official Checks, but also pre- and post-judgment interest and attorneys’ fees from Delaware.
The States’ June 9 filing follows on the heels of Delaware’s May 26 motion, also filed in the U.S. Supreme Court, against Pennsylvania and Wisconsin, which claims that the Official Checks are not covered by the Disposition Act since they are not money orders, traveler’s checks or “other similar written instruments.”3
Delaware’s motion was triggered by cases filed in federal district courts by Pennsylvania on February 26 seeking a return of $10.3 million in property from 2000 through 2009, and by Wisconsin on April 27 seeking $13 million from Delaware beginning in 2000.4 Delaware moved to dismiss the case pending in the Middle District of Pennsylvania based on a lack of personal and subject matter jurisdiction. The case was placed by the court on administrative suspension, pending the result of Delaware’s motion filed with the Supreme Court. Delaware’s answer in the Wisconsin case is due in July, and Delaware has said it will also move to dismiss that case.
In an ironic turn of events, the genesis of the States’ position was a third party contract audit firm, Treasury Services Group (TSG), which had brought the Disposition Act to the attention of Pennsylvania, Wisconsin and at least 18 of the other states several years ago. After the states raised the issue with MoneyGram, MoneyGram requested written guidance from Delaware that the company had correctly remitted the Official Check funds to Delaware. Delaware responded to MoneyGram that it was “abundantly clear” that there is no “‘third priority rule’” based on the place of purchase, yet no mention of the Disposition Act was made. Later correspondence between Delaware and Arkansas addressed the Disposition Act, including the distinctions between “third party checks,” and “third party bank checks.” Delaware maintains that MoneyGram’s Official Checks are “third party bank checks,” which are excluded from the Disposition Act, rather than simply “third party checks” that might be covered by the Disposition Act. Delaware also stated that its review “casts serious doubt on the theory of liability proposed by your contract auditor.”5
Delaware, which frequently employs third party auditors (often to the holders’ dismay and with disputed results), stated that it was “frankly shocked that TSG, purporting to act under color of authority of twenty other states, would issue a demand to MoneyGram while acknowledging that the property in question had previously been reported to Delaware.”6 Given the contentious past interactions between holders and the contract auditors employed by Delaware, it is intriguing to see the shoe on the other foot. It will be particularly interesting to see whether Delaware can produce records going back to the earliest years covered by the States' audits, if it is ultimately determined that it must return undisbursed MoneyGram official funds, and whether estimation methods will need to be employed.
These cases highlight the unfortunate position of holders caught between multiple cash demands by states seeking to receive unclaimed property on different theories. When this dispute first spilled over into litigation, MoneyGram itself was named as a co-defendant in the district court case filed by Pennsylvania. Because the states have fundamental differences in their interpretation of the Disposition Act, review by the U.S. Supreme Court is warranted. If the Court agrees to hear the MoneyGram cases, it may offer insight on states’ administration of unclaimed property laws and whether the application of its rulings, which apply to unclaimed property disputes between states, apply with equal force to disputes between private parties and the states. It will also be interesting to see whether the concerns raised in these litigations will be addressed by the ongoing Uniform Law Commission’s drafting of a new unclaimed property model law.
1 Arkansas v. Delaware, Motion for Leave to File Bill of Complaint. The states involved include: Alabama, Arizona, Arkansas, Colorado, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, Texas, Utah and West Virginia (“States”).
2 Arkansas v. Delaware, Motion for Leave to File Bill of Complaint, at 5.
3 Delaware v. Comm’w of Pa., No. 22-0-145-ORG (U.S. Sup. Ct. filed May 26, 2006).
4 Pa. Treas. Dep’t v. Gregor, No. 1:16-cv-00351 (M.D. Pa.) (filed Feb. 26, 2016); Wis. Dep’t of Revenue v. Gregor, No. 16-cv-281 (W.D. Wis. filed Apr. 27, 2016).
5 Letter dated Sept. 29, 2015, from Delaware’s State Escheator to Arkansas. State of Arkansas v. State of Delaware, Motion for Leave to File Bill of Complaint, at A-13-A-21.
6 Letter dated February 24, 2015, of Delaware Deputy Attorney General Caroline Lee Cross to MoneyGram’s counsel. State of Arkansas v. State of Delaware, Motion for Leave to File Bill of Complaint, A-25-A-28.
