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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: Delaware Supreme Court Rejects State’s Appeal

Posted By Administration, Thursday, June 20, 2019

On June 18, 2019, the state of Delaware took another hit in its battle with Univar. The latest rejection came from the Delaware Supreme Court, which denied acceptance of the state’s appeal of a May 2019 denial for interlocutory review by the state’s Chancery Court. 

 

In short, Delaware has been seeking enforcement of a subpoena for records requested by its unclaimed property auditor, Kelmar. The courts have consistently denied Delaware’s request, pending the outcome of litigation brought by Univar challenging the constitutionality of Delaware’s unclaimed property enforcement practices. 

 

“We agree that interlocutory review is not warranted in this case. The Court of Chancery exercised its discretion to stay litigation seeking enforcement of a subpoena issued under a statute that is the subject of federal constitutional challenges in federal court, and to avoid the potential for conflicting rulings and inefficiency,” the Delaware Supreme Court wrote in its decision to refuse Delaware’s appeal.

 

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

Tags:  audits  Delaware  estimation  litigation  Univar 

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Litigation Update: Chancery Court Sides with Univar, Takes Issue with Delaware

Posted By Administration, Thursday, May 16, 2019

State of Delaware, Dept. of Finance v. Univar, Inc., C.A.

On Dec. 3, 2018, Univar Inc. filed a lawsuit against Delaware Department of Finance officials in a Delaware District Court, alleging that several aspects of an unclaimed property audit initiated by third-party auditor Kelmar in 2015 on Delaware’s behalf are unconstitutional.

According to Univar’s complaint, for more than two years Delaware rejected or ignored objections it had made to document requests from Kelmar. In December 2018, Delaware issued a subpoena for the records Kelmar had previously requested. Univar filed suit, raising constitutional issues regarding:

  • Delaware’s retroactive application of amendments to the Delaware Abandoned and Unclaimed Property Law.
  • The state’s estimation methodology.
  • The state’s use of a third-party auditor that simultaneously represents other states in a multi-state audit.
  • The state’s contingent-fee arrangement with its third-party auditor.
On Dec. 7, 2018, Delaware responded to Univar’s lawsuit by filing its own lawsuit in Delaware Chancery Court, seeking to force Univar to comply with its subpoena. Univar filed a motion asking the court to put Delaware’s lawsuit on hold until the constitutional issues at play in its original lawsuit were resolved.

Following a hearing on April 8, 2019, the Chancery Court judge granted Univar’s request. Delaware responded by requesting an interlocutory appeal – an accelerated appeal of the ruling, which can be granted in extraordinary circumstances. On May 6, 2019, Vice Chancellor Joseph R. Slights III denied the request and took exception with Delaware’s actions.

“The State continues to press its strategy of having two courts litigate the same constitutional challenges to the same Delaware statutes at the same time. The inefficiencies of this approach are apparently lost on the State. They are not lost on the Court,” Slights wrote in his decision.

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

Tags:  audits  Delaware  estimation  litigation  Univar 

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Litigation Update: Univar Takes on Delaware

Posted By Administration, Thursday, January 24, 2019

Univar Inc. v. Geisenberger, et al.

 

On Dec. 3, 2018, Univar Inc. filed a lawsuit against Delaware Department of Finance officials, alleging that several aspects of an unclaimed property audit initiated by third-party auditor Kelmar in 2015 on Delaware’s behalf are unconstitutional. Among the issues at play in the Univar case are:

  • Delaware’s retroactive application of amendments to the Delaware Abandoned and Unclaimed Property Law (DUPL), amended on Feb. 2, 2017. 
  • The state’s estimation methodology.
  • The state’s use of a third-party auditor that simultaneously represents other states in a multi-state audit.
  • The state’s contingent-fee arrangement with its third-party auditor.

 

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. 

 

The Univar case includes several issues that have been part of other recent cases, including Temple-Inland v. CookPlains All American v. Cook and Marathon Petroleum v. Cook. However, unlike those lawsuits, the Univarcase was filed after the February 2017 DUPL amendments and, thus, questions the state’s ability to retroactively apply those amendments to audits that were initiated earlier.  

 

“The subpoena power that Delaware is relying on to force production of records from Univar was not effective until February 2017,” said Jameel Turner, one of the attorneys with Bailey Cavalieri who is representing Univar in this case. “The February 2017 amendments also created a 10-year record retention requirement for unclaimed property records. Prior to that time there was no record retention requirement. Delaware is using estimation for holders that did not comply with a record retention requirement that did not exist until February of 2017. So, they are using estimation when holders do not have records for periods when the law did not require records to be kept. It simply does not make sense.”

 

Univar also picks up the challenge to Delaware’s estimation methodology where Temple-Inland left off. The Temple-Inland court ruled that the state’s estimation methodology was unconstitutional. Univar argues that Delaware merely added a 10-year look-back period but otherwise continues to rely on estimation practices already declared invalid.

 

Delaware and Kelmar also allegedly responded to Temple-Inland by rescinding its requests to holders for prior unclaimed property filings for all states because the court took issue with the practice. However, after the case was settled, these requests were reinstated and the state incorporated the right to request such prior filings into the 2017 DUPL amendments. 

 

“Delaware and Kelmar use prior unclaimed property filings for states not participating in the audit to increase the potential liability due and payable to Delaware,” Turner said. “Univar is asking a judge to confirm that the way they are using those prior filings is unconstitutional and that prior filings in nonparticipating states are not relevant to whether a holder has liability due and payable to any participating state.”

 

One of the issues in the Univar case that was also a factor in other recent litigation is the concept of ripeness. The Plains All American case also questioned Delaware’s use of estimation. The court said Plains may have valid complaints, but because the state had not yet formally taken steps to request records or force Plains to comply with the audit, the case was not yet ripe. 

 

“One of the reasons the Plains All American case was dismissed was because Delaware had not made a formal demand for compliance with the audit request,” Turner said. “Univar has been served with a subpoena, so Delaware has taken steps to formally compel Univar to provide records. That’s a significant factor that distinguishes Univar’s situation from that of Plains All American.”

 

Ultimately, a decision in the Univar case may provide clarity for unclaimed property holders regarding the state’s audit and estimation practices. 

 

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

Tags:  audits  Delaware  estimation  litigation  Plains All American  Temple Inland  Univar 

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S.B. 13 makes sweeping changes to Delaware’s unclaimed property statutes

Posted By Administration, Thursday, February 16, 2017

On Feb. 2, 2017, Gov. John Carney signed Delaware S.B. 13 into law, significantly updating the state’s unclaimed property statutes. Many of the changes mirror the 2016 Revised Uniform Unclaimed Property Act (RUUPA), and others appear to respond to issues raised by the Temple-Inland case. The new law is intended to “bring greater predictability, efficiency and fairness to the state’s unclaimed property reporting process and compliance initiatives.” Following is a summary of several of the law’s most noteworthy provisions.

 

Lookback, Record Retention and Statute of Limitations

S.B. 13 reduces the lookback period for both audits and voluntary disclosure agreements (VDAs) to 10 years plus dormancy. It also defines an express record retention period of 10 years from the date a holder submits a report. The statute of limitations is now 10 years from the date the duty arose, whether or not the holder reported the property. The previous statute of limitations, although shorter, began to run from the time the holder reported the property.

 

Estimation Methodology

The new law mandates that the secretaries of finance and state develop estimation regulations by July 1, 2017. They must include permissible base periods; items to be excluded from estimation calculation; aging criteria for outstanding and voided checks; and a definition of what constitutes “complete and researchable records.”

 

Audit Conversion

Under the new law, all holders currently under audit may convert to a two-year accelerated audit. Holders under audit as of July 22, 2015, may convert to a VDA program. Holders have until 60 days after the promulgation of the new estimation regulations to decide whether to convert to an accelerated audit or VDA program. Interest and penalties will be waived if conversion is made. Holders remaining in the audit will be subject to mandatory interest that is waivable only up to 50 percent.

 

Subpoena Authority

Provisions of the new law give the state escheator the power to issue an administrative subpoena and the ability to seek enforcement of an administrative subpoena in the Court of Chancery. These provisions appear to address issues raised by Delaware Department of Finance v. Blackhawk Engagement Solutions.

 

Judicial Review

Among the new provisions adopted in Delaware is a process for appeal by holders to the Delaware Court of Chancery, replacing the previous multi-step administrative review process. Under the new appeal process, holders have the ability to challenge the state escheator’s determination of liability. The court’s standard of review is deferential to the state escheator regarding factual determinations, but errors of law will be reviewed de novo. The judicial review provision also expressly gives the Court of Chancery the authority to review questions of state or constitutional law related to the examination. This provision appears to be a response to the Temple-Inland case.

 

Indications of Owner Interest

S.B. 13 adds a specific list of owner activities that prevent running of the dormancy period. Indications of the owner’s interest in property includes:

  • A written or oral communication by the owner to the holder or agent of the holder concerning the property or the account in which the property is held.
  • Presentment of a check or other instrument of payment of a dividend, interest payment or other distribution.
  • Accessing the account or information concerning the account, or a direction by the owner to increase, decrease or otherwise change the amount or type of property held in the account.
  • Payment of an insurance policy premium with some exceptions.

The new law also specifies that if an owner has more than one investment or account with a holder, an indication of interest in one investment or account is an indication of interest in all of those accounts.

 

Knowledge of Death

The new law adopts the “knowledge of death” concept as a dormancy trigger for life insurance proceeds. “Knowledge of death” may be identified through any source, such as declaration of death, a death certificate or the comparison of the holder’s records against the Social Security Administration’s Death Master File.

 

Priority Rules

For the first time, the Delaware unclaimed property law includes a codification of the U.S. Supreme Court’s priority rules. It expressly prohibits Delaware as the state of domicile under the second priority rule from taking property into custody that is exempted in the first priority rule state. It also allows the state of domicile to claim foreign-address property but excludes property claimed under foreign law.

 

Owner Address

S.B. 13 adopts portions of RUUPA’s definition of an owner’s “last-known address.” The last-known address of an owner is defined as “a description, code or other indication of the location of the owner on the holder’s books and records that identifies the state of the last known address of the owner.”

 

Disposal of Securities

The new law specifies that the state escheator shall sell or dispose of securities on any established stock exchange or by such other means as soon as the escheator deems it feasible after the delivery. The escheator may not sell a security listed on an established stock exchange for less than the price prevailing on the exchange at the time of sale. The escheator may sell a security not listed on an established exchange by any commercially reasonable method.

 

S.B. 13 provides for indemnification of security owners for 18 months. The escheator will provide either a replacement security or the market value of the security at the time the claim is filed if the owner comes forward with that 18-month period.

 

Gift Cards

For the first time, Delaware’s statute defines “gift cards,” “stored value cards” and “loyalty cards.” Gift cards and stored value cards remain escheatable after five years of inactivity. The state retained its unique profit retention provision defining the amount unclaimed as “the amount representing the maximum cost to the issuer of the merchandise, goods, or services represented by the card.” S.B. 13 adds “Goods” and “Services” into the mix, as old statute only provided exemption for “maximum cost to issuer of merchandise represented by the card.” Loyalty cards are expressly exempt.

 

Holders are prohibited from transferring their unclaimed property liability or obligation, except to a parent, subsidiary or affiliate. This provision affects third-party, unrelated companies that issue gift cards on behalf of a business and appears to address some of the uncertainty resulting from the Card Compliant qui tam litigation.

 

Compliance Review

Another new provision in the law permits the state escheator to conduct a “compliance review” if the escheator believes a filed report was inaccurate, incomplete or false. The compliance review is limited to contents of report and all supporting documentation. The escheator is required to adopt rules governing the procedures and standards for compliance reviews, but no timeline was included in the statute.

 

Application of the New Law

S.B. 13 represents a major change in Delaware’s unclaimed property practices with many positive developments for holders. They include reduced lookback, clear record retention period, estimation regulations, statute of limitations regardless of prior reporting compliance, direct appeal to Court of Chancery, new definitions and new exemptions.

 

As with any new law, it remains to be seen how provisions will be interpreted and applied. Holders await the regulations still in development regarding audit conversions to fast-track audits and VDAs, and the new compliance review provision. Clarification from Delaware will help holders make informative judgments about whether to convert current audits into VDA or fast track audits, and whether other changes to their unclaimed property practices are warranted.

 

Tags:  audits  Delaware  estimation  gift cards  RUUPA  unclaimed property 

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Litigation update: Plains All American appeal keeps estimation case alive

Posted By Administration, Thursday, January 12, 2017

One of the more interesting recent unclaimed property cases in recent years is Plains All American Pipeline L.P. v. Thomas Cook et al. In August 2016, the case was dismissed, but Plains has appealed the decision, sending the case to the Third Circuit Court of Appeals.

 

Background

A limited partnership incorporated in Delaware, Plains All American Pipeline, received notification in 2014 that Kelmar would be conducting an audit of the company on behalf of Delaware. Plains objected to the initial information request, claiming, in part, that the company was being audited not because of any suspicion of wrongdoing, but rather because of its profitability. When Delaware dismissed the company’s objections, Plains filed suit.

 

Among the complaint’s allegations, Plains argues that Kelmar’s request for information about subsidiaries organized outside of Delaware constitutes illegal search and seizure under the Fourth Amendment. The company argued that the state and its agent have no right to that information and, if they did, they would need to have reasonable grounds to search for it. The complaint also directly challenged Delaware’s right to use estimation.

 

Decision

On Aug. 16, 2016, the U.S. District Court for the District of Delaware granted the defendants’ motion to dismiss. In part, the court said the plaintiffs brought their suit based on potential threats and not actual threats. For example, Plains challenged the state’s right to use estimation before it had done so, as the lawsuit was brought immediately following Kelmar’s initial information request. Regarding the Fourth Amendment claim, the court said the state’s decision to examine businesses based on their profitability was legitimate, as those companies are logically more likely than others to hold large amounts of unclaimed property.

 

Plains was worried about going through this long audit and then getting an estimated liability,” says Diane Green-Kelly, partner with Reed Smith LLP. “They didn’t think estimation was appropriate. The way the court read the complaint was that Plains was unhappy about how the audit might unfold and what the assessment might be. The court said you can’t complain about something that might happen. You have to wait until you’ve suffered an injury. The court didn’t consider the case ‘ripe.’”

 

Status

As with any case a court dismisses with prejudice, parties involved in the case may appeal the decision. Plains All American did just that on Sept. 16, 2016, sending the case to the Third Circuit Court of Appeals.

 

Outlook

The appealed Plains case is developing at a time when Delaware’s unclaimed property practices face several significant challenges. These challenges may affect how the appeals court views the case.

 

“It’s hard to know what the Third Circuit will do, especially in light of other things,” Green-Kelly says. “You can’t look at the Plains case in a vacuum. The court will see that 21 states are suing Delaware for overreaching its unclaimed property authority. Temple-Inland won because of overreaching and ignoring federal law. Marathon and Office Depot sued Delaware. Everyone is suing Delaware. The Third Circuit will see this case in the context of a lot of things happening out there challenging Delaware’s conduct. So, the court could decide this case actually was ripe in light of the context in which it was filed.”

 

Another case, Delaware Department of Finance v. Blackhawk Engagement Solutions, could also influence the outcome of Plains. In 2015, Delaware’s escheator issued a subpoena to Blackhawk requesting documents related to an audit that had been in progress for several years. Blackhawk refused. Delaware filed an action in court to enforce the subpoena, and Blackhawk resisted, claiming the escheator was not authorized to take these actions, among other things. The state filed a motion for judgment on the pleading, at which point Plains All American and Marathon filed a joint amicus brief.

 

The brief cites several areas of the Delaware Code where state agencies are authorized to conduct examinations to determine with a set of laws and expressly authorized to issue a summons for testimony and a subpoena for documents. The unclaimed property statute authorizes the escheator to issue a summons for testimony, but not a subpoena for documents. The amicus brief points out that the code actually included such authorization until it was repealed and revised in 1990.

 

“If the Blackhawk court says the escheator has the authority to issue a subpoena and enforce it, Plains sort of goes away,” says Green-Kelly. “If the escheator actually has subpoena power and can enforce it in court, the resisting company can claim it doesn’t have authority to so and let the court decide. It happens during the audit, so the court can stop it while it’s happening. Because the statute lacks the authority to issue a subpoena, right now there’s no way to stop it other than to file the type of lawsuit Plains filed.”

 

Impact on Holders

In light of the important issues at play in Plains and other current cases, Green-Kelly offers some advice for holders undergoing an audit or considering entering into a voluntary disclosure agreement (VDA).

 

“If you’re a company already under audit and close to the end, you shouldn’t just accept a result that is not supported by documents or anything that is close to an estimate like Temple-Inland,” she says. “If you’re not under audit and are thinking about a VDA, don’t do anything. See what happens with these cases. Under the new audit program, it might be better to be audited than to go through a VDA. Wait and see what the audit program is going to be. I can’t imagine telling any company to go into the VDA program right now unless they get the letter and have to make a decision.”

 

 

Tags:  Blackhawk  Delaware  estimation  litigation  Plains All American  unclaimed property 

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