Four Companies Challenge Delaware’s Unclaimed Property Program

| 1/16/2020
Four Companies Challenge Delaware’s Unclaimed Property Program

In the final weeks of 2019, four large companies filed suit in federal district court challenging Delaware’s administration of its unclaimed property program. Each company submitted complaints alleging Delaware’s revised unclaimed property law violates both federal common law and the U.S. Constitution.

While there are slight variations in the facts of each complaint, the basic story is consistent:

  • Each company was undergoing a Delaware unclaimed property audit conducted by a third-party audit firm.
  • Each audit had lasted at least five years.
  • Each company elected to enter into the expedited audit program, which was offered under Delaware’s revised unclaimed property statutes as a result of the Temple-Inland decision in 2016.1
  • Delaware terminated participation in the expedited audit program upon expiration of the statutory two-year completion period.
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According to one company’s complaint, Delaware agreed to apply certain voluntary disclosure agreement terms to an audit being conducted by a third-party audit firm. In exchange, the company made a good faith deposit to the state of $7.4 million to be applied against any unclaimed property liability resulting from the audit. The company ultimately identified a total of $1.8 million in unclaimed property owed to Delaware and requested that the $5.6 million balance be refunded. Delaware then terminated the company’s participation in the expedited program. The complaint notes that the company’s deposit was “something no other company has been required to do and [Delaware law] has never authorized the State Escheator to demand.”2

In their complaints, all four companies allege: 

  • Removal from the expedited audit program violates their Fourth Amendment rights by not providing an opportunity for preenforcement review by a neutral arbiter.
  • Delaware’s method of estimating a liability conflicts with federal common law as it relates to the Texas trilogy,3 and it violates the supremacy clause, due process clause, and Fourth Amendment provision to be free from unreasonable search and seizure.
  • Delaware’s 15-year look-back period violates the due process clause because it applies a law effective February 2017 retroactively, and “for most companies with standard 7-year record retention policies, it would take until 2025 to accumulate 15 years of records.”
  • The use of contingent-fee auditors violates procedural due process because companies are required to submit disputes to a self-interested party.4

On Dec. 10, 2019, Delaware filed a retaliatory suit against one of the companies in state court seeking enforcement of an administrative subpoena, and on Jan. 10, 2020, Delaware responded to that company’s complaint by filing a motion to dismiss the complaint in federal court. Formal responses to the other three complaints are expected from Delaware in early 2020.

1 Temple-Inland v. Cook, Civ. No. 14-654-GMS (D. Del. June 28, 2016).
2 Complaint, Siemens USA Holdings, Inc. v. Geisenberger et al., No. 1:19-cv-02284 (D. Del. Dec. 17, 2019).
3 Texas v. New Jersey, 379 U.S. 674 (1965); Penn. v. New York, 407 U.S. 206 (1972); Delaware v. New York, 507 U.S. 490 (1993).
4 Siemens, supra; Complaint, AT&T Capital Services, Inc. et al. v. Geisenberger et al., No. 1:19-cv-02238-MN (D. Del. Dec. 6, 2019); Complaint, Eaton Corporation et al. v. Geisenberger et al., No. 1:19-cv-02269 (D. Del. Dec. 12, 2019); Complaint, Fruit of the Loom, Inc. et al. v. Geisenberger et al., No. 1:19-cv-02273 (D. Del. Dec. 13, 2019).

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Chris J. Hopkins
Partner, Unclaimed Property Services Leader
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