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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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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)

Background

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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H.B. 2343 Reflects Arizona’s Culture of Collaboration

Posted By Administration, Thursday, June 2, 2016

On May 12, 2016, Arizona Gov. Doug Ducey signed House Bill 2343 into law. The amendment to the Arizona Revised Unclaimed Property Act requires the state’s Department of Revenue, which oversees unclaimed property enforcement, to take three actions:

1.       Develop standards and metrics to evaluate audit vendors’ performance.

2.       Provide holders with a notice of their rights during an audit.

3.       Issue a request for information to explore the feasibility of alternatives to the current contingency fee payment model for third-party auditors.

 

H.B. 2343 began as an outright ban on contingency fee auditors and morphed as it went through the legislative process. Development of the final bill resulted from extensive discussions between Department of Revenue personnel, the governor’s office, legislators and stakeholders.

 

“It was a very collaborative process,” says Joshua Joyce, administrator of unclaimed property for Arizona’s Department of Revenue. “We at the department sat down with the governor’s staff and stakeholders, and ultimately produced language that holders should like. From the department’s perspective, we think the final language and its passage are very positive developments.”

 

Standards and metrics

One of the Department of Revenue’s first steps toward implementation of H.B. 2343 is developing standards and metrics that will be used to evaluate third-party auditors’ performance. These standards are intended to ensure vendors are performing at a high level on behalf of the department.

 

“From my perspective, this is a positive thing,” Joyce says. “We want to make sure we’re holding any vendor who represents us to high standards.”

 

Notice of rights

Joyce anticipates using his department’s Taxpayer Bill of Rights as a model of the new notice of holders’ rights during an audit. The notice will include a statement that the department—not the audit vendor—makes final decisions regarding audit findings, appeals procedures and instructions, and contact information to direct complaints and problems that arise during audits.

 

“Any time you can add clarity and transparency to state law, it’s a win for those who have to comply with the law or enforce it,” he says. “When a holder gets a letter from the department saying we are going to look at their records to make sure they are in compliance, they’re going to know exactly what happens and who to contact if they have concerns.”

 

Alternative payment models

The contingency payment model typically used to compensate states’ third-party auditors has always been controversial among holders. H.B. 2343 authorizes exploration of alternative models. By Jan. 1, 2017, the department will issue its request for information to gather data about possible non-contingency arrangements.

 

“I don’t think a perfect model exists,” Joyce says. “Paying an hourly rate, for example, could lead to longer audit reviews. But it’s good to explore alternative models to see if we can come up with something that works.”

 

Culture of collaboration

Collaboration between stakeholders and the Arizona Department of Revenue’s unclaimed property staff on H.B. 2343 is not out of character. The department fosters ongoing communications with the holder community by regularly participating in events held by UPPO and other organizations. It also provides a wealth of holder information on its website, and solicits feedback via a holder survey.

 

The department works closely with holders and their advocates during the audit process, battling the perception that auditors might be “running wild.” These efforts have resulted in an impressive record of zero audit appeals filed in at least five years.

 

“The holder community is definitely an important customer to us,” Joyce says. “We absolutely want to partner with them and ensure we understand what they value and care about.”

 

Tags:  Arizona  audits  compliance  H.B. 2343  unclaimed property 

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RadioShack settlements address bankruptcy, gift card and rebate issues

Posted By Administration, Thursday, May 26, 2016

On Feb. 5, 2015, RadioShack filed for Chapter 11 bankruptcy protection. The electronics retailer’s case raised questions about the treatment of unredeemed gift cards and rebates as unclaimed property. Multiple states sued RadioShack in an attempt to ensure outstanding gift cards were given priority during bankruptcy, maximizing their value and escheating to the states on behalf of consumers.

 

In a separate lawsuit, the state of Illinois battled RadioShack and its third-party rebate fulfillment partner, Global Fulfillment Services, over $140,000 in uncashed customer rebates owed to more than 5,000 Illinois residents. 

 

Gift Cards

The U.S. Bankruptcy Code doesn’t address how unused gift cards should be treated under Chapter 11 reorganizations. How companies in bankruptcy handle gift cards varies, often depending on whether a company remains in business or liquidates.

 

Often, companies that go through bankruptcy will still honor their gift cards, to the extent that they are still operating. However, in some cases, retail stores have continued operating under the pre-bankruptcy name but under new owners who purchased only the company’s assets. This can leave customers confused when they attempt to redeem a gift card at a store carrying the same name and logo, only to be told it is no longer valid.

 

In June 2015, the Texas attorney general filed suit against RadioShack, requesting that the balance of outstanding gift cards be turned over to the appropriate state. Texas argued that RadioShack sold gift cards under the premise that they would not expire. As part of the company’s bankruptcy filing, RadioShack obtained an order of the court setting a deadline by which gift cards needed to be redeemed.

 

“While it is not all that unusual to see a state attorney general appear in a retail bankruptcy case to advocate positions for the benefit of consumers, what is unique here is that the states sought standing to file proofs of claim on behalf of the owners of unredeemed gift cards and to take custody of those funds on their behalf,” says Donna Culver of Morris, Nichols, Arsht & Tunnell, LLP.  

 

According to the suit, consumers weren’t given notice of the deadline and, thus, didn’t have a reasonable opportunity to redeem their gift cards before the expiration deadline. The suit also claimed that RadioShack continued to sell gift cards while knowing it would soon be filing for bankruptcy protection.

 

Several other states joined the Texas lawsuit.

 

The bankruptcy judge approved a settlement between the states and RadioShack in September 2015. Rather than turning over funds, estimated at $46 million, to the states, the agreement gave consumers in all 50 states a full year to file claims for the full value of gift cards they purchased. Gift cards distributed as part of store promotions and for merchandise returns, however, were not covered as part of the agreement. Owners of those gift cards would be considered unsecured creditors without a priority claim, so they would likely receive little, if any, compensation.

 

Rebates

On April 26, 2016, Illinois Treasurer Michael Frerichs announced a settlement with RadioShack, which agreed to turn over $140,000 to the state as unclaimed property. The amount represented dormant, uncashed rebates earned by consumers between 2002 and 2008.

 

The state’s auditors discovered that rebates had not been escheated to the state as unclaimed property if they were not claimed within five years, as required under state law. Rather, RadioShack allowed its third-party rebate processor, Global Fulfillment Services, to keep unclaimed funds as revenue, under their contractual agreement. Illinois argued that keeping the funds violated the Illinois Uniform Disposition of Unclaimed Property Act.

 

Upon RadioShack’s bankruptcy filing, Illinois filed a proof of claim on behalf of Illinois residents with dormant, uncashed rebates, notifying the court it wished to assert its right to receive payment from the bankruptcy estate.

 

“The state apparently had fairly detailed information as to the identities and amounts owed to Illinois residents,” Culver says. “In many cases, states do not have that kind of detailed information and do not pursue debtors for unclaimed property liabilities, perhaps fearing that they will quickly get bogged down in the claims litigation process where distributions may be only pennies on the dollar.” 

 

The April settlement allows Illinois consumers to claim their rebates—typically valued between $20 and $100—through the state’s unclaimed property website.

 

For additional information about noteworthy unclaimed property cases, check out UPPO’s govWATCH website.

 

Tags:  bankruptcy  gift cards  litigation  rebates  unclaimed property 

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UPPO Asks: What one thing would you change about unclaimed property?

Posted By Administration, Thursday, May 19, 2016

Periodically, UPPO asks members to respond to a question, sharing their ideas, insights, and experience. The recurring UPPO Asks feature is a compilation of their responses.

 

We recently asked several members: “If you could change one thing about unclaimed property what would it be?”

 

“The audit process: I would like the audit firms to be required to present the state reporting criteria to the audit target, before the audit is in full swing. This way the audit firm cannot twist the requirements to benefit themselves later on down the road. I know this is a pipedream, but it is what I’d like to see change.”— Lori Fitzgerald

 

“Like everyone else, the change I would make would be to have more consistency and uniformity in the laws.”— Anne Furdon

 

“If I could change one thing about unclaimed property it would be to standardize the due diligence mailing windows and remittance dates across the states. That is, states would change the due diligence mailing windows and their remittance days to all fall in, say three mailings and remittances per year. This would make things significantly easier administratively.”— Ryan Dowd

 

“I would request that all U.S. unclaimed property jurisdictions have a statute of limitations of no more than 10 years.”— Evi Magnusson

 

Now it’s your turn. What is the one thing you would change about unclaimed property? Add a comment below to share your response.

Tags:  unclaimed property  UPPO Asks 

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Litigation update: California judge rules that merchandise return certificates are considered gift certificates in Bed, Bath & Beyond case

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, May 12, 2016

Bed, Bath & Beyond Inc., Plantiff v. John Chiang, California State Controller, Defendant (Superior Court of California, County of San Diego)

 

Background

Like many retailers, Bed Bath & Beyond Inc. (BB&B) issues merchandise return certificates (MRC) to customers that have no original receipt but would like to return merchandise. The MRC terms indicated they can only be used at BB&B or affiliates, are not redeemable for cash, do not expire, and in order to redeem the certificate, the MRC must be used to purchase merchandise at BB&B and present the MRC.

From 2004 to 2012, BB&B reported and remitted MRC property that had sat dormant for three years to California equal to the full unredeemed balances of the MRC issued to California customers. In total, $1,834,477.62 was remitted to California.

 

BB&B requested a refund from California claiming it mistakenly remitted MRC funds to California, and when California wouldn’t grant the refund request, BB&B filed suit against California and Controller John Chiang.

 

Ruling
On March 4, 2016 a Superior Court of California judge entered a favorable order to the plaintiff, finding that MRC are deemed a type of gift certificate under California unclaimed property law.  Highlights of the order handed down by the judge are as follows:

  • If property isn’t owing to owner it’s not escheatable: The defendant alleged that the property was properly escheated, and argued that MRC are a type of “intangible personal property” escheatable under California unclaimed property law. The court disagreed, stating that only intangible property that is actually “owing” to an owner is escheatable.  Further, the order stated that “The Court concludes that because the MRCs are not redeemable for cash, the Plaintiff does not owe money to the owner of an MRC.” 
  • MRC do qualify as a gift certificate: The court agreed with the plaintiffs that MRC qualify as gift certificates, and stated two specific reasons for qualification:
  • BB&B’s MRC had the same characteristics as a more traditional gift certificate or card that’s labeled “gift certificate” or “gift card”; and  
  • The order noted that the law recognizes gift certificates in circumstances other than purchases as a gift.  For example, the court stated that “gift certificates” under the law include those distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program. 

 

Impact on unclaimed property compliance

Once the final judgment is entered, this will provide additional clarity to the property that is covered under California unclaimed property law. With the limited published legal opinions on this topic, it’s advised to consult each state’s law before altering compliance policies.  

 

Next steps
The judge has not entered a final judgment in the case, and once the final judgement is issued, the defendant has 60 days to file an appeal, if they so choose.

 

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:  bed bath and beyond  litigation  merchandise return certificates  unclaimed property 

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