News and Insights

Delaware Law Allows Individuals to Sue Businesses for Failure to Report Unclaimed Property

Tax Development Jun 27, 2012

Delaware’s False Claims and Reporting Act (DFCRA) allows private citizens to bring civil law suits on behalf of the government and allows the government to intervene and join the suit. Under the DFCRA, a citizen’s or plaintiff’s suit must allege that the business owed an amount to the government and that the business knowingly made or used a false record or statement to conceal or avoid the obligation.

Recently, the Delaware Superior Court issued a decision in a DFCRA suit, Higgins v. SourceGas, LLC et al. SourceGas Holdings, LLC; SourceGas, LLC; and SourceGas Distribution, LLC (“Defendants”) were incorporated in Delaware. The Plaintiff, Mr. Higgins, worked for the Defendants, and in the course of his employment discovered unclaimed or un-cashed utility deposits and customer credits. In his suit, Mr. Higgins alleged that instead of returning credits or deposits to the customers or remitting the property to the state, one defendant, SourceGas Distribution, LLC, renamed its Unclaimed Property Liability account Converted Balance from December of 2004. The court found that, with regards to one Defendant, the Plaintiff met his obligation to allege that the Defendant owed amounts to the state and that the Defendant made or used a false record to avoid or conceal that obligation.

As a result of DFCRA and similar laws in other states, an employee who believes that a business has failed to report unclaimed property could be financially incentivized to initiate lawsuits against his or her employer or former employer. Further, avoiding unclaimed property obligations could be actionable under false claims acts, regardless of whether a company filed a false report.