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Litigation update: Pennsylvania files complaint and seeks ruling that “official checks” are treated like money orders in suit against Delaware and MoneyGram, Part 1

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, June 9, 2016
Treasury Department of the Commonwealth and Treasurer Timothy Reese, Plaintiffs v. Delaware State Escheator David Gregor and MoneyGram Payment Systems Inc., Defendants (U.S. District Court for Middle District of Pennsylvania)


Among its services, MoneyGram Payment Systems Inc. (MoneyGram) sells both money orders and “official checks.” Although not entirely clear, the complaint indicates that customers purchase either payment instrument from participating MoneyGram locations in exchange for the actual value of the money order or official check, plus a transaction fee.

According to allegations in the complaint, the only differences between money orders and official checks are:

  • Sale location: Money orders are sold in traditional retail locations, such as drugstores, while official checks are generally sold at financial institutions, such as banks.
  • Value: Money orders generally have low face value limits, while official checks do not.

The complaint alleges that MoneyGram is directly liable for the value of both money orders and official checks. Specifically, it claims MoneyGram is the holder of the value of official checks sold in Pennsylvania under that state’s law. If an official check is never presented for payment, the complaint alleges that the company retains the money, resulting in the accumulation of a large sum of money for which MoneyGram is a holder, rather than the owner. The complaint alleges that there is no material commercial difference between money orders and official checks.

State roles
MoneyGram is currently incorporated in Delaware. Previously, the company was incorporated in Minnesota. The complaint alleges that upon information and belief, MoneyGram’s  principal place of business is Texas. The Pennsylvania Treasury Department is the plaintiff in this case, alleging that MoneyGram escheated approximately $10.3 million to Delaware, representing funds for the value of official checks purchased in Pennsylvania between 2000 and 2009. In 2015, Minnesota returned approximately $200,000 to Pennsylvania, the value of funds escheated for abandoned official checks when MoneyGram was incorporated there. According to the complaint, similar demands made to Delaware not only by Pennsylvania, but also by Texas and Colorado for official checks issued in those states, have been unsuccessful.

Federal law
Pennsylvania claims the value of abandoned official checks is owed to the state under the Disposition of Abandoned Money Orders and Traveler’s Checks Act, also referred to as the Federal Disposition Act (FDA), as well as its own unclaimed property law. Under the FDA, the state where a money order, traveler’s check or similar written instrument (other than a third-party bank check) was purchased is entitled to take custody of the value of those payment instruments under its own state laws.

Defenses by defendants
According to the complaint, Pennsylvania made a series of demands of Delaware and MoneyGram for the funds representing the value of official checks, beginning on Sept. 29, 2015. MoneyGram responded, agreeing to abide by a decision by Pennsylvania and Delaware, or by a court’s declaration on the issue that would decide which state is entitled to the unclaimed sums in question in the case. Delaware, the complaint alleges, has taken the position that official checks are “third-party bank checks,” so the sums are not owed to Pennsylvania. Note: Part 2 of this update will discuss potential defenses raised by each of the defendants in more detail.

Relief sought
Pennsylvania seeks several declarations from the court applicable to both Delaware and MoneyGram:

  • MoneyGram official checks are considered either “similar written instruments” or “money orders,” rather than “third-party bank checks,” under the FDA.
  • Delaware is in violation of the FDA.
  • MoneyGram is in violation of the FDA and the Pennsylvania Unclaimed Property Act, because sums payable on Pennsylvania checks should have been remitted to Pennsylvania, rather than Delaware.
  • All future sums payable on abandoned MoneyGram official checks purchased in Pennsylvania should be remitted to Pennsylvania.

With respect to MoneyGram, Pennsylvania also seeks damages of at least $10.3 million, plus 12 percent annual interest, penalties of $1,000 per day and attorneys’ fees. The state also demanded a jury trial.

Key issue
The key issue in the case appears to be whether unclaimed funds attributable to the “official checks” in question are to be governed by the general priority rules of Texas v. New Jersey, or whether unclaimed funds attributable to the “official checks” are to be governed by the specific rules of the FDA.

Wisconsin suit
In a separate but similar suit filed on April 27, 2016, by the Wisconsin Department of Revenue against MoneyGram and Delaware State Escheator David Gregor, Wisconsin is seeking more than $13 million. According to the complaint, this amount represents the value of official checks purchased in Wisconsin beginning in the year 2000, but never cashed.

Part 2
Part 2 of this article will examine separate motions by Delaware and MoneyGram to dismiss the Pennsylvania suit.

About the contributor
Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association and American Bar Association.    

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.


Tags:  Delaware  litigation  money orders  MoneyGram  official checks  Pennsylvania  unclaimed property 

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