On June 9, 2016, Texas and 20 other states filed an unclaimed property lawsuit against Delaware with the U.S. Supreme Court involving approximately $160 million in unclaimed checks. In addition, similar lawsuits were filed against Delaware by Pennsylvania and Wisconsin earlier this year in federal district courts in those states, and Delaware recently filed a suit of its own with the U.S. Supreme Court on May 26, 2016, seeking to clarify issues discussed below. Based on the large number of states involved, the unique questions presented, and the large amounts of money involved, any decisions in the cases promise to be major unclaimed property developments.
The dispute centers around unclaimed “official checks” held by MoneyGram Payment Systems, Inc. (“MoneyGram”), an entity incorporated in Delaware, with its principal place of business in Texas. MoneyGram has been escheating large amounts attributable to unclaimed official checks to Delaware for years. Based on statements in court pleadings, it appears the official checks may have attributes of money orders or similar instruments, and other attributes of a different nature. When other states where such checks were purchased realized they were not receiving unclaimed funds attributable to these instruments, they conducted an audit and then made demand upon MoneyGram for sums allegedly owed to their respective states. However, when Texas and other states confronted MoneyGram about the funds, MoneyGram indicated it had already escheated the funds in question to Delaware. Estimates regarding how much money may be at stake in the case range from (i) about $160 million for the 21 states that sued Delaware in the U.S. Supreme Court, and (ii) about $400 million if the remaining 28 states were to join such suit and be successful in the suit.
Key Legal Issue
The key issue in the case is whether the escheatment of “official checks” are governed by the federal priority rules decided by the U.S. Supreme Court in Texas v. New Jersey 1965, or whether they are governed by the more specific “place of purchase” rules enacted by Congress in 1974 as part of the Disposition of Abandoned Money Orders and Traveler’s Checks Act. The pertinent part of the 1974 money orders legislation provides that where any sum is payable on a money order, traveler’s check, or similar written instrument (other than a third-party bank check), on which a banking or financial organization or business association is directly liable, and if the books and records of that entity show the state in which such instrument was purchased, then the state where the money order, traveler’s check, or similar written instrument was purchased “…shall be entitled exclusively to escheat or take custody of the sum payable on such instrument, to the extent of that State’s power under its own laws to escheat or take custody of such sum.” See 12 U.S. Code sec. 2503(1). That issue will turn on whether the federal courts decide that an “official check” is or is not a “similar written instrument” under the 1974 money orders legislation.
In light of the high financial stakes in this case, the general upsurge in unclaimed property litigation, and the large amounts of money at issue in many unclaimed property audits, the necessity of an effective unclaimed property compliance program is increasingly important. Holders seeking additional clarification on how unclaimed property matters relate to their specific situations may contact their designated Abandoned and Unclaimed Property (AUP) representative or one of the Ryan contacts below.