As we've noted previously, state unclaimed property administrators are getting creative in their efforts to restore their states' battered finances. Now companies are getting equally creative in their efforts to fight back.
Earlier this summer, Temple-Inland, Inc. ("Temple-Inland"), a subsidiary of International Paper, filed a lawsuit against three Delaware state unclaimed property officials and the state's outside audit firm, Kelmar Associates, LLC ("Kelmar") (Kelmar was voluntarily dismissed from the suit in July). The lawsuit alleges that the methodology Kelmar employed to audit Temple-Inland, including the extrapolation methodology used to estimate Temple-Inland's unclaimed property obligations, was unconstitutional.
According to the suit, Delaware estimated that Temple-Inland had more than $2 million in total unclaimed property obligations, despite that Kelmar identified only $147.30 in property that should have been escheated to Delaware during the period covered by the audit (1981-2008). Although the audit showed that Temple-Inland was in substantial compliance with Delaware unclaimed property law for the years for which Temple-Inland had records (2003 and beyond), Kelmar nevertheless estimated Temple-Inland's liability for years that records no longer existed (pre-2003), applying a recordkeeping requirement enacted in 2010 that Temple-Inland claims cannot be applied retroactively.
In July, Temple-Inland moved for summary judgment, arguing, among other things, that estimations of escheat liability are improper because a state's right to escheat is derivative of the property rights of the actual owner. If the actual owners' property rights cannot be conclusively established, according to Temple-Inland, then the state has no rights to the property either.
Concurrently with Temple-Inland's filing of its motion for summary judgment, Delaware moved to dismiss the complaint, arguing that estimates of escheat liability always have occurred and the amendments to its statute allowing reasonable estimates where records are unavailable was simply to codify existing practice.
Oral arguments will be held on the motions for summary judgment and to dismiss on October 1.
Coming hard on the heels of the U.S. Chamber of Commerce's (the "Chamber") recently issued unclaimed property best practices, Temple-Inland's lawsuit could be a harbinger of things to come, with corporate America showing a newfound desire to fight back against what the Chamber and Temple-Inland lawsuit allege are abusive practices by private audit firms.
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