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8/5/16 10:00 AM

Could Delaware Battle Over Official Checks Result in Increased Federal Oversight of Unclaimed Property?

by Clive Cohen

delaware-versus-moneygram.pngIn the recent tug of war between Delaware, MoneyGram and several other states over the escheatment fate of uncashed “official checks,” one of the most interesting points is the potential involvement of the Supreme Court.

Some believe the court is unlikely to take on the case, but others believe there are reasons they might. If that happens, it could result in Supreme Court judges making time to officially study unclaimed property issues and decree opinions about this industry.

It would be the first time the Supreme Court has decided to take an unclaimed property case since 1993.

In 1974, the Supreme Court released their decision in Pennsylvania vs. New York (12 U.S.C. § 2503(1)). That decision decreed that where there is no record of the purchaser’s address, the state of incorporation of the firm issuing the money order has authority to claim the funds from an abandoned money order.

Congress overruled that decision with the Disposition of Abandoned Money Orders and Traveler’s Checks Act of 1974. The act decreed that any unclaimed “money order, travelers check, or other similar written instrument (other than a third-party bank check)” should be escheated to the state where the instrument was purchased, rather than to the state of incorporation.

The question being raised in the “Moneygram” case is the question whether an uncashed official check can be considered an “other similar written instrument.”

Official Checks Are Minimal, but This Could Have Broader Impact on the Unclaimed Property Industry

In reality, not many financial institutions issue official checks and so the specifics of this case are not of great concern to most unclaimed property holders in most industries. However, there are two very interesting elements of this battle of note for holders.

First, if the Supreme Court does get involved for the first time in over two decades, the court might decide to make a more expansive review of the entire unclaimed property field, with a focus on issues other than official checks, such as priority rules and due diligence requirements.

In doing so, the Court could directly affect other industries and property types. Would this potential scrutiny of unclaimed property result in substantial changes to the way unclaimed property is escheated to the states? We will have to wait and see.

The second notable aspect of this battle from our point of view is that this is a relatively rare example of states banding together to support their rights against another state. It’s not the first time this has happened in the land of unclaimed property, but conflict between the states takes the unclaimed property dialogue to a new level. We will keep our eye on potential impacts to holders and report any recommendation in this blog.

It’s interesting to compare this with the increasing propensity of states to come together to conduct multistate unclaimed property audits. It is unclear whether the general push and pull among the states will be ultimately beneficial or detrimental to holders.

It does seem likely that if these issues are solved, whether it’s by states coming together or clashing, it may lead to clearer unclaimed property reporting requirements. Clarity is a benefit, because it can lead to less time and resource consumption by holder staff responsible for processing of unclaimed property — not to mention less stress for those who manage unclaimed property.

If you are unsure how these events could affect your own unclaimed property situation, contact the unclaimed property specialists at MarketSphere to find out more.

Fact Sheet

  • MoneyGram, which was incorporated in Delaware, has been escheating uncashed money orders to Delaware, rather than to the states where the money orders were purchased. This contradicts the Disposition of Abandoned Money Orders and Traveler’s Check Act of 1974.
  • 21 states are suing Delaware for reimbursement of more than $150 million in uncashed official checks they have escheated to Delaware, asserting that the official checks are governed by the 1974 Act and should have been escheated to their states where the transactions took place.
  • Pennsylvania and Wisconsin filed separate suits for the same purpose in the amounts of $10 million and $13 million, respectively.
  • Pennsylvania has asked the judge to transfer the federal lawsuit against Delaware to the Supreme Court.
In a bill of complaint, Delaware requested that the Supreme Court declare official checks are not money orders or “similar instruments” and require future official checks be remitted to Delaware if it is the state of incorporation.

Topics: U.P. Law