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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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Whistleblower Trend Raises Concerns for Unclaimed Property Holders

Posted By Administration, Thursday, October 10, 2019
Updated: Saturday, October 5, 2019

Government politics aren’t the only place whistleblowers are making news these days. Several recent whistleblower lawsuits aimed at unclaimed property practices signal a concerning trend for holders. 

 

Typically, whistleblower, or qui tam, cases under the False Claims Act come about when a company’s employee or former employee (referred to as the “relator”) alleges the company defrauded the government by intentionally paying the government less than what is owed. Allegations usually involve falsifying documents to mislead the government into thinking less money is due. 

 

“Unclaimed property cases don’t fit into the usual False Claims Act mold,” said Ethan Millar, partner with Alson & Bird LLP. “False claims statutes were not intended to apply to regulatory disputes between a state and a holder about when states’ unclaimed property laws apply. They were designed to be quasi-criminal anti-fraud statutes, which is why they impose severe penalties, including treble damages and attorneys’ fees.”

 

Unfortunately, recent qui tam cases have been based on mere regulatory disputes. Given the direction such cases have taken, it’s possible that any noncompliance with unclaimed property statutes could result in accusations of False Claims Act violations. 

 

Decided last September, The State of Delaware ex. rel. William Sean French v. Overstock.com Inc. represents a turning point for False Claims Act cases related to unclaimed property compliance. At issue in the lawsuit was Overstock’s relationship with CardFact (later acquired by Card Compliant LLC), a third-party company used to issue gift cards and assume certain gift card responsibilities. 

 

The case came about when a former CardFact employee filed a qui tam lawsuit, alleging that CardFact and dozens of its retail clients (including Overstock) had violated the Delaware False Claims and Reporting Act by failing to escheat unredeemed gift cards to the State of Delaware. 

 

Among the various allegations, the plaintiffs claimed that the contracts between CardFact and its clients were shams and that the retailers rather than CardFact were the true issuers of the cards, and were required to report them to Delaware, as their states of incorporation. All of the defendants in the case other than Overstock were dismissed or settled. 

 

“I don’t think anybody in the holder community believes that Overstock acted with knowledge or reckless disregard for the law,” Millar said. “Overstock’s actions were perfectly reasonable and consistent with what dozens of other retailers were doing in terms of structuring their operations to reduce unclaimed property risks. These structures were not hidden from Delaware. They were openly discussed at conferences, in Delaware audits and in Delaware voluntary disclosures, and nobody ever said you can’t do this kind of thing or have to do it a particular way. To the contrary, Delaware approved very similar structures for well over a decade prior to this case.” 

 

However, a jury decided the third-party “cardco” structure in this case was improper and that Overstock knowingly or recklessly disregarded the law and should have reported its unredeemed gift card balance, less related profits, to Delaware. Along with the decision came a hefty judgment for $7.2 million, including civil penalties, treble damages and other costs. In addition, the state is entitled to attorneys’ fees, though the amount of such fees is still in dispute. Overstock has appealed the decision.

 

This decision leaves the unclaimed property community wondering, if a company can be held liable under the False Claims Act under those circumstances, what other circumstances could be used to hold businesses liable.

 

Relators are motivated by the prospects of a huge financial windfall of 15-25% of any judgment or settlement resulting from their lawsuits. Unfortunately, their self-interests are advancing aggressive enforcement positions regarding unclaimed property laws that not even state administrators are promoting.

 

In another recent case, New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., the relator alleges that JPMorgan is liable under New York’s False Claims Act for failing to self-assess interest on late reported unclaimed property. Although the New York Office of Unclaimed Funds does not require holders to self-assess interest, the court ruled that, under New York’s Abandoned Property Law, such self-assessment is mandatory. JPMorgan takes the position that nobody in the industry self-assesses interest and that the states don’t expect or ask holders to do so.

 

“We’re now seeing these sorts of cases where relators are making novel legal arguments about what is required under state unclaimed property laws, and then trying to use this alleged violation of the escheat statutes as the basis for False Claims Act liability,” Millar said. “False Claims Act complaints are no longer confined to scenarios when a company is committing what looks like fraud.”

 

Relief for the unclaimed property community from False Claims Act lawsuits that exceed the law’s intent requires a court to address one big question: Should False Claims Act statutes even apply to unclaimed property? The False Claims Act is intended to apply when money is owed to the government. However, unclaimed property is owed to the property owner. The government acts merely as a custodian of the property. 

 

“I suspect any major False Claims Act case in the future will raise this issue,” Millar said. “There is strong authority in the False Claims Act that a custodial interest alone is not sufficient to trigger the False Claims Act. After all, the False Claims Act statutes were intended to apply to government funds, not to money owed to individuals.”

 

Until such a decision, unclaimed property holders can take steps to protect themselves. First, they should ensure their unclaimed property compliance policies, procedures and practices are current, well documented and thoroughly followed. Next, address “gray areas” where holders and states have differing perspectives. 

 

“There will always be gray areas because no unclaimed property law directly deals with every specific situation,” Millar said. “These gray areas may be exploited by relators. However, holders can protect themselves by obtaining legal opinions to support their positions. Even if a court later disagrees with the holder’s position, the fact that the holder reasonably relied on legal counsel can demonstrate that the holder did not act with the knowledge or recklessness for False Claims Act liability.”

 

Finally, respond to issues raised by employees. Companies should have policies and procedures in place for addressing employee complaints. Don’t retaliate against employees who raise potential issues, and always investigate credible complaints. Giving employees a meaningful complaint process and remediating problems early may reduce the likelihood of issues rising to the level of a full-blown qui tam lawsuit. 

Tags:  JPMorgan  litigation  Overstock  qui tam  trends  unclaimed property  whistleblower 

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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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UPPO Advocacy Update: September 2019

Posted By Administration, Thursday, September 26, 2019
Updated: Thursday, September 26, 2019

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog presents the recurring Advocacy Update when legislatures are active or significant advocacy activity has occurred. Following are recent activities and trends from UPPO’s Government Relations and Advocacy Committee (GRAC).

 

Whistleblower Litigation

Among the issues GRAC has been closely monitoring is the increase of whistleblower court cases related to unclaimed property. Bloomberg Law recently covered one such case, which involves allegations surrounding JPMorgan Chase’s unclaimed property liability in New York. 

 

UPPO is concerned that the case could result in unintended consequences affecting unclaimed property compliance: 

  • The outcome of the case could diminish the incentive to voluntarily come into compliance. 
  • The case also raises issues regarding multiple state agencies interpreting the same statute differently.
  • The case could result in new operational burdens for both holders and administrators.

Please watch the UPPO blog in the coming weeks for more information about whistleblower cases and steps holders can take to protect themselves. 

 

Texas H.B. 3598 Questions

Earlier this year, the Texas legislature passed H.B. 3598. Among other things, the legislation outlines requirements for combined reporting of unclaimed property for affiliated companies. The new law raises many questions for holders and service providers. GRAC has begun compiling a list of these questions, which will be used to request clarification from the state. UPPO will email members shortly with additional information and an invitation to contribute questions to GRAC. 

 

Do You Have Ideas for GRAC?

GRAC is interested in your feedback. To make it easier for members to submit ideas and issues for the committee’s consideration, UPPO has added a form to the advocacy web page. Please use this form to share advocacy suggestions, ideas and issues for GRAC to consider. 

 

As more and more legislatures and regulatory agencies take on issues affecting unclaimed property compliance, advocacy has become an increasingly important role for UPPO.

Please take a few minutes to complete our 
Government Relations and Advocacy Survey to help us build our grassroots network. Responses will give us the ability to mobilize UPPO members when we are faced with legislative and regulatory challenges and opportunities.

Tags:  consolidated reporting  litigation  qui tam  Texas  whistleblower 

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