A recent Supreme Court decision will soon deliver a significant transfer of funds to numerous states. In a unanimous opinion1 issued on February 28, 2023, the U.S. Supreme Court ruled against Delaware in the ongoing MoneyGram dispute between Delaware and 30 other states.
As reported previously, the primary question in this case was which state has the right to escheat two financial products—Agent and Teller Checks (“Disputed Instruments”)—sold by financial institutions on behalf of MoneyGram. Both products are prepaid financial instruments used to transfer funds to a named payee—very much like money orders. Delaware contended that these Disputed Instruments were not akin to money orders, as they were sold under different names and should be regarded as checks. It was Delaware’s position that when these Disputed Instruments remain abandoned for a certain period of time (“dormancy period”), they are reportable to the state of a creditor’s last known address (“primary rule”), or in the absence of an owner address (“owner unknown”), to the state in which the company holding the funds is incorporated (“secondary rule”). These common law priority rules for reporting unclaimed property were established in Texas v. New Jersey.2 Given that these Disputed Instruments were owner/address unknown, Delaware laid claim to them under the secondary rule.
With Pennsylvania, Arkansas, and Wisconsin leading the charge, 30 states challenged Delaware on this issue in the U.S. Supreme Court last October. They include Alabama, Arizona, Arkansas, California, Colorado, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming. Central to this dispute was the assertion by the states that they held a superior claim to these Disputed Instruments based on the Disposition of Abandoned Money Orders and Traveler’s Checks Act. Passed in 1974, this federal law states that sums “payable on a money order, traveler’s check, or other similar written instrument (other than a third-party bank check)” escheat to the state, where the instrument was purchased, not to the state of incorporation. Because the terms “money order,” “traveler’s check,” or “third-party bank check” were undefined within the statute, the ultimate decision for determining if either Disputed Instrument technically constituted a money order under federal law rested with the Supreme Court.
In the opinion authored by Justice Ketanji Brown Jackson, the Court narrowly held that both Disputed Instruments were sufficiently similar to money orders and would escheat under the federal Disposition of Abandoned Money Orders and Traveler’s Checks Act. “In the context of tangible property, the escheatment rule is straightforward: The State in which the abandoned property is located has the power to take custody of it,” stated Justice Jackson.
All nine Supreme Court Justices concurred with the 30 states that challenged Delaware’s sourcing of these Disputed Instruments. They found that the Disputed Instruments were similar in function and operation to money orders and shared similar characteristics to those types of instruments contemplated by the federal law.
Potential Financial Impact
Going forward, this decision will impact Delaware’s ability to leverage significant financial gain from those Disputed Instruments previously defined by the state as items reportable to the company’s state of incorporation. Under this decision, the abandoned Disputed Instruments will be escheated to the state of purchase. While some reports suggest that as much as $400 million could be transferred back to the plaintiff states, the actual liability and penalty determination as well as the parsing of funds to the states will reside with the Special Master to be appointed by the Supreme Court.
Unclaimed Property Law: Future Application
It remains to be seen how or if this case will impact Delaware’s ongoing enforcement of its unclaimed property laws—whether it’s through the Voluntary Disclosure Agreement (VDA) Program administered by the Delaware Secretary of State and/or more directly through the audit program administered by the Delaware Department of Finance (“State Escheator”). While the Supreme Court pointed out that one state should not have a “windfall” over other states simply because of where a holder is incorporated, the Court narrowly applied the decision to the Disputed Instruments and avoided directly upending common law priority rules.
Please contact a Ryan unclaimed property professional with any questions on the potential implications of this decision and for assistance with your unclaimed property compliance needs.
1 Delaware v. Pennsylvania et al., No. 145, February 28, 2023.
2 Texas v. New Jersey, 379 U.S. 674 (1965).
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