Your Cart   |   Sign In
Unclaimed Property Focus
Blog Home All Blogs
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.

 

Search all posts for:   

 

Top tags: unclaimed property  Compliance  education  UPPO  Delaware  audits  litigation  due diligence  Advocacy  fall reporting  reform  UPPO annual conference  Members  RUUPA  ULC  Gift Cards  legislation  reporting  UP101  UP Laws  VDAs  Uniform Law Commission  california  Canada  Holders Seminar  Texas  UPPO Asks  securities  service providers  Annual Conference 

Litigation update: Pennsylvania files complaint and seeks ruling that “official checks” are treated like money orders in suit against Delaware and MoneyGram, Part 2

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Friday, June 24, 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)

 

Part 1 of this article provides background on lawsuit filed by the state of Pennsylvania against MoneyGram Payment Systems Inc. (MoneyGram), and the state of Delaware, as well as a separate suit filed against the same defendants by the state of Wisconsin.

 

MoneyGram’s Motion to Dismiss

Defendant MoneyGram filed a Motion to Dismiss the lawsuit brought by Pennsylvania. In an April 25, 2016 brief supporting its motion, the company explained how the dispute arose and why it believes the lawsuit lacks merit to proceed.

 

According to allegations made in MoneyGram’s Motion to Dismiss, the dispute began in 2014 when Arkansas demanded the company pay substantial sums to that state for uncashed official checks that had already been escheated to Delaware. MoneyGram declined and encouraged Arkansas to resolve the matter with Delaware. Arkansas refused, informing MoneyGram that the state intended to audit the company and “request that every state join” the audit, unless the state’s demands were met. As a result, approximately 20 states have made similar demands of MoneyGram.

 

MoneyGram’s brief raises numerous issues, two of which are especially noteworthy:

  • The company alleges that the District Court does not have subject matter jurisdiction. It cites 28 U.S. Code sec. 1251(a), which says, in part, that the U.S. Supreme Court “…shall have original and exclusive jurisdiction of all controversies between two or more states.”
  • The company also alleges that the plaintiffs’ claims violate MoneyGram’s constitutional due process rights. It cites the U.S. Supreme Court case of Western Union Telegraph Co. v. Pennsylvania, and claims that requiring MoneyGram (as opposed to Delaware) to pay Pennsylvania for property already escheated to another state would improperly result in the company paying a single debt more than once, taking its property without due process of law. MoneyGram notes that the Supreme Court in the Western Union case stated, “Our Constitution has wisely provided a way in which controversies between states can be settled without subjecting individuals and companies affected by those controversies to a deprivation of their right to due process of law. Article III, Section 2 of the Constitution gives this court original jurisdiction of cases in which a State is a party.”

Delaware’s Motion to Dismiss

Defendant David Gregor, Delaware state escheator, also filed a Motion to Dismiss. In an April 20, 2016 brief in support of the motion, it is stated that the case should be dismissed because it essentially is a disagreement between two states, Pennsylvania and Delaware. Therefore, under 28 U.S. Code sec. 1251(a) and other authorities cited, it is argued that the U.S. Supreme Court has original and exclusive jurisdiction over the dispute.   

 

Supreme Court motions

Despite the disagreement between states, it appears there is one thing on which they agree. They all contend that the U.S Supreme Court (Supreme Court) is the appropriate venue for the dispute. In recent weeks, there have been multiple motions to the U.S. Supreme Court related to the MoneyGram disputes:

  • On May 26, 2016, Delaware filed a motion, asking the Supreme Court to hear its dispute against Pennsylvania and Wisconsin.
  • On June 3, 2016, Wisconsin filed a motion, making a request to the Supreme Court, seeking leave to file a counterclaim against Delaware.
  • On June 9, 2016, 21 states filed a motion, asking the court to hear their dispute against Delaware. The states note that hundreds of millions of dollars are at stake.  For example, they state that between May 2011 and March 2015, at least $162 million in unclaimed funds attributable to MoneyGram official checks went uncashed or were not redeemed. They are asking the court, among other things, to: (i) declare that funds payable on unclaimed MoneyGram official checks sold in their states should be remitted to them, rather than Delaware, (ii) instruct Delaware to turn over funds for unclaimed official checks that have already escheated by MoneyGram, and (iii) award damages, including interest.
  • On June 13, 2016, Pennsylvania filed a motion with the Supreme Court, stating that it concurs in Delaware’s Motion for Leave to file Bill of Complaint, and asking the Supreme Court to grant Delaware’s motion.

The U.S. Supreme Court will review the motions and decide whether to hear the cases or decline. UPPO will continue to monitor and report on developments surrounding these cases as they occur.

 

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 

Share |
PermalinkComments (0)
 

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 

Share |
PermalinkComments (0)
 

Delaware Court Denies Most of Defendants’ Motion to Dismiss Unclaimed Property Gift Card False Claims Action

Posted By Diann Smith & Stephen Kranz, McDermott Will & Emery, Tuesday, December 8, 2015

This article was originally posted on McDermott Will & Emery’s Inside SALT blog.

 

Two years ago, a former employee of Card Fact, LLC (subsequently purchased by Card Compliant), a company providing gift card issuance and management services to retailers, filed a false claims action in Delaware alleging that his former company and its retailer clients concocted a scheme to avoid remitting unclaimed gift card funds to Delaware. Last week, the judge in the case issued a memorandum opinion on the defendants’ Motion to Dismiss. State of Delaware ex rel. French v. Card Compliant LLC, et al., C.A. No.: N13C-06-289 FSS [CCLD] (Del Sup. Ct. Nov. 23, 2015). While the opinion is likely disappointing to most of the defendants, it should not be read as a final victory for the state. There is still much to be decided in the case, as this was just a motion to dismiss and not a decision as to whether the plaintiffs will ultimately prevail.

 

The judge did however make several legal conclusions that are of importance to Delaware companies. First, the judge determined that as to gift card liability that was initially incurred by the retailers but subsequently transferred to Card Fact (and its affiliates), the retailers remained the debtors with respect to the card owners, unless the customers consented to the delegation of debt. The judge found that the contractual agreements between the retailers and the Card Fact companies were not controlling. However, the judge did not specifically rule on gift card liabilities that were never transferred from the retailers to Card Fact, but instead were incurred directly by Card Fact after its relationship with the retailers began.

 

Second, the judge found that for defendants that were not C corporations, the second priority rule was to be applied based on the state of formation, not the principal place of business. This is contrary to most state laws and sets up a direct conflict between the states.

 

Finally, the judge found that because one of the retailers had previously been audited by Delaware (through Kelmar), it could not be a defendant in this false claims action. The judge dismissed this defendant entirely, even for claims that arose subsequent to the audit conclusion. The judge noted that “[i]f the auditor has given [the retailer] a bye that is between the escheater and the auditor.” This is very good news for any company that has previously been audited by the state regarding the risk of a false claims action.

 

Practice Notes

 

1. For companies that have been audited by Delaware, the risk of a false claims action has likely been significantly reduced if not eliminated;

 

2. Unincorporated entities should investigate the indemnification provisions between their state of formation and state of principal place of business to determine the risk of choosing which state to remit to;

 

3. Companies using gift card entities or other liability allocation arrangements should review their disclosures and agreements with customers to verify appropriate consent and understanding regarding which entity holds the actual liability.

 

About the authors

Diann Smith, counsel at McDermott Will & Emery LLP and Stephen P. Kranz, partner at McDermott Will & Emery.

 

Tags:  card compliant  Delaware  false claims action  gift card  unclaimed property 

Share |
PermalinkComments (0)
 

UPPO Submits Audit Manual Recommendations to Delaware

Posted By Administration, Thursday, August 20, 2015

On Aug. 14, 2015, the Unclaimed Property Professionals Organization (UPPO) submitted recommendations to the Delaware Department of Finance for consideration in its development of an audit manual, a provision of Delaware S.B. 11 (S.B. 11). UPPO’s recommendations include the issues that holders believe are important to address before, during, and after an audit in order to achieve clarity, transparency, and predictability in Delaware’s enforcement environment.

The submitted document is broken into two sections, the first addressing guiding principles and clear definitions of audit components. Audit expectations are covered in the second section and organized by audit phase. Here are the key components of UPPO’s recommendations submission:


Section 1: Overview regarding guiding principles

  • Guiding principle stating the purpose of an examination should be to determine whether the holder is in substantial compliance with unclaimed property laws
  • Standard definitions of key unclaimed property terms
  • Measures to increase transparency of auditor contracts and collection quotas
  • Directives that the Delaware Escheator is responsible for selecting audit candidates and that the manual must be followed by auditors

Section 2: Overview regarding the phases of the examination and expectations

  • Notice: The notice should contain the following information entities being examined, name of auditor, examination period, and suggested dates for an entrance conference.
  • Initial records request: The auditor needs to provide the holder an initial document request no less than 45 days before the entrance conference.
  • Entrance conference: During the conference the auditor should address specific information such as (not a comprehensive list):  
  • Examination staff
  • Examination process (which should be supplied to holder in written form as a reference tool) and defined time period
  • Records to be reviewed and property types typically reviewed during audits
  • The consequences if records aren't available, missing, or incomplete and the estimation techniques used to determine liability. 
  • Rights of the holder during the examination, which is to include access to the state escheator 
  • Administrative and judicial options available to holders
  • General standards to apply to the examination and fieldwork: UPPO recommends that Delaware define standards for each of these phases and include in the manual.
  • Exit conference:  The state escheator should be required to hold an exit conference including the holder, holder representatives, auditor, and the escheator or other state-employed delegate.

  • Burden of proof: This section of the manual should specify that the Escheator has the burden of proving the existence and amount of property that is abandoned.

Read the document in full.

The recommendations submitted were debated and drafted by a government relations and advocacy committee (GRAC) task force appointed after the passage of S.B. 11. The task force is comprised of individuals with deep knowledge of Delaware’s unclaimed property laws and first-hand experience in unclaimed property audits.

UPPO is looking forward to continuing the dialogue with Delaware regarding its audit manual, and applauds the State of Delaware on its enactment of S.B. 11. The Department of Finance is tasked to complete the audit manual by Dec. 31, 2015.

Questions? Contact Dana Terry, UPPO president regarding UPPO’s advocacy priorities and projects.

Stay in the know, and subscribe to UPPO’s new, monthly unclaimed property newsletter.

More information

Delaware unclaimed property task force releases final report

Tags:  audit manual  compliance  Delaware  reform  unclaimed property  UPPO 

Share |
PermalinkComments (0)
 

Delaware S.B. 141 moves quickly and receives unanimous support in the Senate

Posted By Administration, Tuesday, June 23, 2015
Updated: Monday, July 27, 2015

Update (July 27, 2015): DE S.B. 141 approved by the Governor. 

 

Update (July 01, 2015): DE S.B. 141 passed the Delaware House of Representatives unanimously. 

 

Update (June 25, 2015): DE S.B. 141 was reported out of the Delaware House Economic Development/Banking/Insurance/Commerce Committee on its merits.

 

Since being introduced and assigned to the Delaware Senate Banking and Business Committee on Tuesday, June 16, Delaware S.B. 141 (DE S.B. 141) has moved quickly through the Senate receiving unanimous support, and is now waiting to be heard in the Delaware House Economic Development/Banking/Insurance/Commerce Committee.

DE S.B. 141 continues to alter the Delaware unclaimed property program to meet the recommendations made by the Delaware Unclaimed Property Task Force, which aims to achieve greater fairness within the audit and Voluntary Disclosure Agreement (VDA) programs.

Provisions of the DE S.B. 141

Extension of the VDA Program
The bills would remove an expiration date of the VDA program and permanently establish it as a fixture of the Delaware unclaimed property program.

Audit selection
The state escheator will not be able to initiate any new audit examinations unless the organization in question has been notified by the Secretary of State that they can enter into a Voluntary Disclosure Agreement (VDA), or if the holder fails to comply with a requirement imposed by the VDA program.

A holder has 60 days, from the date of VDA notice issuance, to respond with intent to enroll in the VDA program. After the 60 day period is up the holder will be referred to the state escheator for an audit examination.

Audit look back
For all audit examinations that are pending at legislation enactment date, the state escheator cannot request payment of any amounts related to transactions that occurred prior to Jan. 1, 1986. 

For audit examinations that are initiated between the legislation enactment date and Dec. 31, 2016, the state escheator cannot request payment of any amounts related to transactions that occurred prior to Jan. 1, 1991.

For audits commenced on or after Jan. 1, 2017, the state escheator will not be allowed to request payment of any amounts related to transactions that occurred more than 22 years prior than the date the audit notice was delivered to the holder.

VDA look back
Holders whose intent to enter into the VDA program was accepted by the Secretary of State on or before Dec. 31, 2016, will not be held liable for transactions that occurred prior to Jan. 1, 1996.


Holders that enter into a VDA program on or after Jan. 1, 2017, will be held liable for transactions that occurred on or later than Jan. 1, 1996.

“I am very pleased that the Delaware legislature is following the recommendations of the [Delaware Unclaimed Property] Task Force.  A permanent VDA program will bring Delaware in line with the majority of the states and is a positive adjustment for the holder community,” says, Dana Terry, UPPO President.

More information
Recap of the Delaware task force meetings
UPPO's advocacy page
UPPO forms Delaware Audit Manual Task Force


Tags:  compliance  DE SB 141  Delaware  state escheator  Townsend  unclaimed property  Voluntary Disclosure Agreement 

Share |
PermalinkComments (0)
 
Page 7 of 8
1  |  2  |  3  |  4  |  5  |  6  |  7  |  8
Membership Software Powered by YourMembership  ::  Legal