On March 11, a federal district court granted a substantial victory to Temple-Inland Inc.1 in its ongoing litigation with Delaware over an unclaimed property audit. Temple-Inland challenged Delaware’s use of estimation to compute an unclaimed property assessment. The case now will proceed through U.S. district court, and a federal judge will examine the facts and decide whether Delaware’s estimation methods are constitutional.
On Dec. 22, 2008, Delaware initiated an unclaimed property audit of Temple-Inland, a manufacturer and supplier of corrugated packaging incorporated in Delaware. Because Temple-Inland was unable to produce records for years prior to 2003, Delaware, through a contract audit firm, estimated an unclaimed property liability for the audit period, which began in 1981. The state issued an assessment of approximately $2.1 million for the audit period, which later was reduced to $2.0 million.
Temple-Inland sued Delaware in federal court and asserted that the state’s estimation method violated federal common law, substantive due process requirements, the commerce clause, the takings clause, the full faith and credit clause, and the ex post facto clause. Although the court granted Delaware’s motion to dismiss the claim with respect to the alleged violation of federal common law, the ruling concluded that the federal court has jurisdiction over the case and indicated that the other constitutional issues raised will be examined with great scrutiny.
In direct response to the court’s ruling, Delaware Secretary of State Jeffrey Bullock sent an email to participants in the state’s voluntary disclosure agreement (VDA) program noting “[a]s Delaware law remains unchanged, holders enrolled in the VDA program will be required to estimate liability for the periods that they do not have available records during the statutory look-back period or such VDAs will not close.” Accordingly, Delaware holders should continue to consult their advisers to assess how they should proceed through the VDA program.
1 Temple-Inland, Inc. v. Cook, No. 1:14-cv-00654-SLR (D. Del. March 11, 2015)
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