United States: Delaware Asks U.S. Supreme Court To Decide Escheat Dispute Between States

On May 26, 2016, Delaware filed a motion with the United States Supreme Court requesting leave to file a bill of complaint against other states regarding escheatment of uncashed "official checks."1 Specifically, Delaware asserts in its motion that uncashed "official checks" should be escheated to the state where the check issuer is incorporated, not the state where the checks were purchased. Despite the narrow legal dispute, this case could provide the first Supreme Court guidance on unclaimed property since the 1993 case of Delaware v. New York.2

Under the general rules of priority, unclaimed property with an unknown owner address is escheated to the state where the holder is incorporated.3 But in response to litigation over money orders, Congress enacted a law that an unclaimed "money order, traveler's check, or other similar written instrument (other than a third party bank check)" is escheated to the state where the instrument was purchased.4 The question that Delaware is now asking the Supreme Court is whether an official check is a "similar written instrument" to a money order. Delaware contends that an official check does not qualify as an "other similar written instrument" so it should be escheated following the general rules of priority.5 The other states' position is that an official check is a "similar written instrument" to a money order, so the federal statute applies.6

A limited universe of businesses will be directly impacted by a decision concerning where to escheat an official check. But any general guidance that the Court provides on unclaimed property could have an indirect effect on all types of holders. For example, one important question that the Court could answer is whether its original jurisdiction decisions are binding on disputes between private parties and states, or just disputes between states.7 To the extent the original jurisdiction decisions (and the priority rules they contain) extend to disputes involving private parties, holders could contest states' claims to property and the scope of state audits.

Procedurally, the next step is for the other states involved to file briefs in opposition to Delaware's motion.8 The Supreme Court will then have the discretion to decide whether to hear the case.9

While the Supreme Court only hears a small fraction of the cases presented to it, there are several reasons why it may decide to hear this case. First, the Supreme Court is the only venue that can resolve the concrete dispute presented in this case.10 Without Supreme Court intervention, companies that issue official checks will be left without guidance on whether to escheat to their state of incorporation or the states where they sell the official checks. Second, Justices Thomas and Alito have recently expressed their view that the Supreme Court must accept cases that fall within the Court's exclusive original jurisdiction.11 So we expect at least two Justices will vote to hear this case regardless of their views of its importance. Third, unclaimed property is an area that is especially suited for original jurisdiction review since it involves core sovereign interests.12

Footnotes

1. Docket No. 22O145. This filing in the United States Supreme Court is the latest in a round of litigation addressing this dispute. Previously, Pennsylvania and Wisconsin sued Delaware in federal district court. Treasury Dep't of the Commonwealth v. Delaware State Escheator David Gregor, Case 1:16-cv-00351-JEJ, Complaint (M.D. Pa. Feb. 26, 2016); Wisconsin Department of Revenue v. Delaware State Escheator David Gregor, Case No. 16-cv-281, Complaint (W.D. Wis. Apr. 27, 2016).

2. 507 U.S. 490 (1993).

3. Texas v. New Jersey, 379 U.S. 674 (1965).

4. 12 U.S.C. § 2503(1).

5. Letter from David M. Gregor to Brian Munley (Sept. 29, 2015).

6. See, e.g., Treasury Dep't of the Commonwealth v. Delaware State Escheator David Gregor, Case 1:16-cv-00351-JEJ, Complaint ¶¶ 62–68 (Feb. 26, 2016).

7. At least two states (Delaware and New Jersey) have argued that the Supreme Court's original jurisdiction decisions only govern disputes between states, so cannot be invoked by private parties.

8. Sup. Ct. R. 17.5.

9. Id; see also Arizona v. New Mexico, 425 U.S. 794 (1976).

10. See Western Union Telegraph Co. v. Pennsylvania, 368 U.S. 71 (1961).

11. See Nebraska v. Colorado, 136 S. Ct. 1034 (2016) (Thomas, J., dissenting from the denial of motion for leave to file complaint) ("Nothing in [12 U.S.C.] § 1251(a) suggests that the Court can opt to decline jurisdiction over such a controversy.")

12. See Oregon ex rel. Dep't of Transportation v. Heavy Vehicle Electronic License Plate, Inc., 157 F. Supp. 2d 1158, 1164 (D. Ore. 2001) ("What constitutes 'core sovereign interests'" for original jurisdiction purposes "is subject to interpretation, but some issues are clearly included in that phrase, such as . . . interstate escheat . . . .").

This article is presented for informational purposes only and is not intended to constitute legal advice.

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