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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: AT&T, Siemens, Eaton and Fruit of the Loom Challenge Delaware’s Authority

Posted By Administration, Thursday, June 18, 2020

AT&T Capital Services, Inc. et al. v. Geisenberger, et al.

Siemens USA Holdings, Inc. v. Geisenberger et al.

Eaton Corporation et al. v. Geisenberger et al.

Fruit of the Loom, Inc. et al. v. Geisenberger et al.

 

Among the most noteworthy unclaimed property court cases currently in progress are separate lawsuits filed in December 2019 against the state of Delaware by AT&T Capital Services, Siemens USA Holdings, Eaton Corporation and Fruit of the Loom.

 

Although not identical, the cases have similarities. In all four cases, the companies had been undergoing an audit conducted by a third-party auditor for at least five years. The companies joined the state’s expedited audit program after Delaware passed S.B. 13, which – among other unclaimed property reforms – allowed companies under audit to request an expedited audit within 60 days after the escheator adopted new estimation regulations. As the 18-month expedited audit period ended, Delaware claimed the companies had not complied with its information requests for information about claims with addresses in states other than Delaware. The state then terminated the companies’ participation in the expedited audit program.

 

The plaintiff companies’ claims include:

 

Unreasonable search and seizure

  • Delaware is subpoenaing and demanding documents that are not legitimate exercises of authority, are too indefinite and not reasonable relevant. These include records regarding unclaimed property claims with addresses other than Delaware.

Procedural due process and equal protection

  • Delaware is using Kelmar, a self-interested, third-party auditor as an adjudicator.

Substantial due process, ex post facto clause, takings clause and federal common law

  • Delaware uses records requested from the companies to prepare ex post facto estimation of amounts owed.
  • Estimation conflicts with federal common law established in the Texas trilogy of cases by using information from states other than Delaware in violation of the supremacy and due process clauses, and represents unreasonable search and seizure.
  • Requests for transactions associated with non-Delaware addresses and termination from the expedited audit for not complying violate substantive due process as deliberate and arbitrary abuses of power.
  • Delaware demands documents it lacks authority to take in violation of the takings clause.
  • Many of the information requests are ex post facto because they penalize the failure to keep records companies were not previously obligated to keep until S.B. 13 was passed in 2017.

 

Delaware claims the federal cases are not yet ripe and should be dismissed. The state also claims the companies failed to state claims in part because Delaware interprets the federal common law from the Texas trilogy of cases differently.

 

In only the AT&T case, Delaware asked for the case to be stayed or the District Court to decline jurisdiction because of a pending state action regarding Delaware’s escheat laws and the state court needs the opportunity to address those issues before the federal court proceeds.

 

In December 2019, the companies filed suit alleging violations of constitutional and federal law. Delaware responded by filing suit in the Chancery Court only against AT&T, seeking enforcement of the administrative subpoena. In January 2020, Delaware filed motions to dismiss the federal cases, and the parties filed motions to keep the cases in federal court.

 

UPPO will continue to monitor and report on these cases as noteworthy developments occur.

 

 

Tags:  Delaware  litigation  unclaimed property 

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Court Upholds Delaware’s Subpoena Power

Posted By Administration, Thursday, June 4, 2020

A May 21, 2020, Delaware Chancery Court opinion was a win for the state of Delaware in its ongoing battle with Univar Inc. Vice Chancellor Joseph R. Slights III denied a motion to dismiss from Univar, which argued that the state did not satisfy the statutory prerequisites to enforce a subpoena.

 

On Dec. 11, 2015, Delaware notified Univar it would be subject to an unclaimed property examination, conducted by Kelmar. Upon receiving document requests from Kelmar, Univar objected, citing confidentiality concerns, Kelmar’s self-interest, the estimation process and other aspects of the audit. According to Univar’s complaint, Delaware rejected or ignored the objections and continued to do so for more than two years.

 

On Oct. 30, 2018, the state issued a subpoena for the records Kelmar had previously requested. Univar declined to comply and filed a District Court action challenging the constitutionality of Delaware’s unclaimed property laws, updated in 2017 following the Temple-Inland decision. The state responded by filing a complaint in the Chancery Court, seeking an order enforcing the subpoena.

 

On September 17, 2019, the District Court ruled that many of Univar’s claims lacked “ripeness.” As such, she dismissed the majority of claims, keeping just two alive, pending a decision from the Chancery Court whether to enforce a Delaware subpoena.  

 

Univar’s motion to dismiss the Chancery Court case was based on two arguments:

  • Delaware had not adequately demonstrated its compliance with the unclaimed property law’s confidentiality provisions, a necessary prerequisite to any audit.
  • Delaware had not promulgated sufficient regulations to manage multistate audits fairly, as required by the law.

The court disagreed with both arguments.

 

Univar argued that the audit was a multistate audit, and that, because the public records laws of the other participating states conflict with the confidentiality requirements of the Delaware’s law, the action will not be ripe for decision until Delaware demonstrates its full compliance with its own confidentiality requirements. Delaware maintained that it was conducting a Delaware-only audit.

 

“There is no basis to conclude as a matter of undisputed fact that the state is conducting a multistate audit,” the court stated. “Even if the state were conducting a multistate audit, Kelmar is bound by Delaware law not to share any of Univar’s confidential information with ‘any person who is not a current officer or employee of [Delaware].’”

 

Regarding Univar’s second argument, the court wrote, “The state has written a number of rules and regulations pursuant to that statutory grant of rule-making authority… While Univar may not like the number or content of regulations that have been promulgated, that does not mean this case is unripe.”

 

In denying the motion to dismiss and determining that the state has the ability to enforce its subpoena, the District Court case that was put on hold pending this decision can proceed.

 

UPPO will continue to monitor and report on the progress of the Univar District Court case as noteworthy developments occur.  

 

 

Tags:  Delaware  litigation  Univar 

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Delaware Extends Feb. 2020 Invitations

Posted By Toni J. Nuernberg, CAE, UPPO/Forius, Friday, April 3, 2020

Delaware has issued an alert extending the invitations to join the VDA program issued in February 2020.

 

Here is a link to the alert. 


Tags:  Compliance  Delaware  unclaimed property  VDAs 

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Understanding Delaware’s Verified Report Request and Compliance Review Process

Posted By Administration, Thursday, November 21, 2019

As part of the sweeping changes to Delaware’s unclaimed property law resulting from the passage of S.B. 13, the state created a new verified report and compliance review process. This process is intended to give both the state and holders the ability to review and correct any errors or oversights in annual filings without escalation to examination.

 

Unlike full-fledged unclaimed property examinations, the verified report and compliance review process does not require an invitation to participate in the voluntary disclosure program to proceed. 

 

“With the verified report and compliance review process, we are looking at holders who are already filing or who have filed reports in the past, reviewing their most recent report, making sure it’s accurate and giving them a chance to remedy any errors,” said Delaware State Escheator Brenda Mayrack. 

 

Verified Report Request

Delaware primarily sends verified report requests to holders who previously filed unclaimed property reports but did not do so in the most recent year, or holders who had a significant variance compared to previous filings. Variances may include property types dropping off or reappearing, significant changes in the amount reported, or noteworthy differences compared to other holders in the same industry. 

 

Holders receiving a verified report requests are asked to provide a copy of their unclaimed property policies and procedures and given the option to certify that the report was correct and complete, under penalty of perjury, or to identify and report/remit additional property and correct errors. 

 

“Because many [holders receiving a verified report request] are nonfilers, we want to know the determination that no liability was due to Delaware came after a deliberate process that was informed by robust policies and procedures,” Mayrack said. “Particularly for holders that have gone through a VDA or exam, it’s important for us to know they have implemented appropriate and robust policies and procedures for unclaimed property going forward.”

 

Compliance Review

Holders who fail to provide a sufficient response to Delaware’s verified report request, or who filed a negative or $0 report, may receive a compliance review request. 

 

“The verified report is not a prerequisite to a compliance review, but the compliance review does serve as the first step in escalation if there is a nonresponse or insufficient response to the verified report request,” Mayrack said.

 

Like the verified report request, a compliance review looks at variances compare to previous filings and compared to holders in the same industry. The compliance review also is not a prerequisite to a voluntary disclosure program invitation and subsequent exam notice.

 

Compliance reviews are a more abbreviated review of filings than unclaimed property examinations. Like verified report requests, they provide holders an opportunity to correct errors. Holders are given one year to complete the review, so the state expects a prompt response to compliance review notices.  

 

“The state is not going to have much patience for a nonresponse,” Mayrack said. “We do send follow-up reminders, but if we don’t seem to be getting the holder’s attention, it will be escalated.”

 

Compliance reviews include a more thorough request for documents supporting the most holder’s most recent unclaimed property filing than the verified report request. Information and document requests may include:

  • Supporting federal tax returns, financial statements, chart of accounts, trial balances.
  • Holder’s affiliated and related legal entities information.
  • General ledger reconciliations, check registers, voided check lists, aging/credit reports, etc., supporting Delaware annual report.
  • Third-party administrator information (if applicable) for securities, payroll, stored value cards, rebates, etc.
  • Proof of owner outreach (due diligence) efforts performed.
  • Unclaimed property policies and procedures.

If there is a finding of deficiency in the compliance review, the state can either collect and enforce that deficiency or, if the findings suggest a potentially larger compliance issue, refer the holder for a voluntary disclosure program invitation and subsequent exam (if the holder declines VDA participation).  

 

“If you receive a letter under this program, respond promptly,” Mayrack said. “A nonresponse is the quickest way to be escalated for additional enforcement measures, which means an invitation to the VDA program and, subsequent examination notice if the holder does not opt into the VDA program.”

Tags:  compliance  compliance review  Delaware  unclaimed property  verified report request 

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Litigation Update: Judge Puts Univar Case on Hold

Posted By Administration, Wednesday, October 2, 2019
Updated: Wednesday, October 2, 2019

Univar Inc. v. Geisenberger, et al.

 

In the ongoing dispute between Univar Inc. and the state of Delaware, U.S. District Court Judge Maryellen Noreika ruled on Sept. 17, 2019, that many of the plaintiff’s claims lack “ripeness.” As such, she dismissed the majority of claims, keeping just two alive, pending a decision from the Chancery Court whether to enforce a Delaware subpoena.  

 

Although the plaintiff in Univar argued that, because Delaware subpoenaed Univar to provide records, the complaint’s claims were ripe. The subpoena and formal enforcement action filing set the case apart from the similar Plains All American case, which was brought before the state had formally taken steps to request records or force Plains to comply with an audit.  

 

The judge, however, disagreed. “While the state has subpoenaed documents from Plaintiff under the 2017 amendment to the UPL and has filed suit in state court to compel compliance, Univar cannot meet the adversity prong of the ripeness test until it is actually compelled to participate in the audit,” she wrote in her ruling. 

 

The court declined to dismiss two of Univar’s claims. The complaint argues that the state’s contingent fee arrangement with its third-party auditor violates Univar’s right to due process. It also asserts that audit subjects are selected based on their likelihood to produce large amounts of money for the state, constituting an equal protection violation. 

 

While the court agreed that two of the claims are ripe for consideration, it put the case on hold, pending a Chancery Court decision whether to enforce the state’s subpoena. 

 

“If the Chancery Court does not enforce the Subpoena, this action may no longer be necessary,” the judge wrote. “On the other hand, if the Subpoena is enforced, certain issues may become ripe and an amended complaint may be appropriate.” 

 

UPPO will continue to monitor and report on the progress of the Univar case as noteworthy developments occur.  

 

 

 

Tags:  audits  Delaware  estimation  litigation  Plains All American  Univar 

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