United States: Financial Institutions Beware: Delaware Seeks Third Party Discovery In Money Order Dispute

At a Glance...

In ongoing litigation in the United States Supreme Court, Delaware has asked other states to produce evidence of financial institutions' escheat practices as well as their identities. If the Court agrees to allow Delaware's request, there could be far reaching implications for financial institutions. For example, Delaware could potentially issue direct requests to non-party holders or use this information to initiate audits against certain financial institutions.

Delaware v. Arkansas is an original jurisdiction action pending before the United States Supreme Court. In that case, numerous states ask the question – what law determines which state can escheat unclaimed "official checks" issued by MoneyGram;1 the federal common law set forth in Texas v. New Jersey,2 or a federal statute3 governing "money order[s], traveler's check[s], or similar written instrument[s]." Under the federal common law set forth in Texas, official checks issued by MoneyGram, which lack addresses, would escheat to Delaware, MoneyGram's state of incorporation. In contrast, under the federal statute, those official checks would escheat to the state in which the checks were purchased from MoneyGram.4 At its heart, the case hinges on whether MoneyGram official checks are "similar written instruments" within the meaning of that phrase in the statute enacted by Congress.

The Supreme Court has appointed a special master to conduct discovery and other factfinding in the case. Up to this point, the court has limited the scope of the case to the official checks issued by MoneyGram. However, on January 19, 2018, Delaware requested a pre-motion conference to try to dramatically expand the scope of the dispute.

In particular, Delaware has requested that the other states in the litigation produce the identities of every financial organization and business association that has escheated property using National Association of Unclaimed Property Administrators (NAUPA)5 codes for cashier's check, certified check, registered check, treasurer's checks, money orders, or other outstanding official check, as well as the amounts that were escheated. This request is broad enough that it could impact several financial institutions.6

Delaware's purported basis for this request is to establish that MoneyGram's official checks are not "similar written instruments" to money orders or traveler's checks. Delaware explains that it needs the names of financial institutions that have escheated to other states "in order to obtain exemplar instruments from third party holders to show that MoneyGram Official Checks share more in common with written instruments like, for example, teller checks" than with money orders.

The question of what Delaware could do with the information it seeks is of most concern. Despite Delaware's explanation for how it would use this information, Delaware could use this information to identify audit targets. Indeed, Delaware has already indicated that it intends to use this information "in order to conduct third party discovery," so it would not be much of a leap for Delaware to use this information in audit selection. Another concern is whether, if privy to such information, Delaware would claim custody over amounts escheated to the defendant states to offset Delaware's exposure in the MoneyGram litigation.

It is also unclear how Delaware's request would lead to relevant information. The question of whether the official checks are "similar written instruments" to money orders or traveler's checks seems like a question of Congressional intent, or at the very least related to MoneyGram's own treatment of the various types of instruments.

The special master held a conference regarding Delaware's request on January 25, 2018. Regardless of the outcome of this request, financial institutions should be alert for Delaware raising issues involving official checks in other forums.


1. No. 22O145 ORG.

2. 379 U.S. 674 (1965).

3. See 12 U.S.C. § 2503(2).

4. Arkansas is joined in this position by Alabama, Arizona, California, Colorado, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Nebraska, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

5. NAUPA codes are promulgated by the National Association of Unclaimed Property Administrators in an effort to standardize unclaimed property reporting.

6. Delaware's requests appear to be outside the scope of the narrow relief it asked the Supreme Court to grant. In its Motion for Leave to File a Bill of Complaint, Delaware itself narrowly framed the issue to be determined as simply the interpretation of the language in the federal statute and asks whether MoneyGram official checks fall within the scope of that statute. Yet, Delaware now seeks wide reaching information on the identities of other companies that escheated property falling under the statute and how much they escheated

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

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