Over 20 states are suing Delaware in the U.S. Supreme Court (Court) claiming that Delaware is unlawfully misdirecting hundreds of millions of dollars in unclaimed and abandoned "official checks" issued by MoneyGram Payment Systems, Inc. (MoneyGram) to the state.¹ Led by Arkansas and Texas, the plaintiff states are invoking the original jurisdiction of the Court under the U.S. Constitution since their claim arises because of a disagreement among the states.²

Case overview

MoneyGram is in the business of issuing money orders, travelers checks and other recognized forms of payment outside the usual banking system to customers throughout the US. It also sells "official checks" which are similar to money orders and travelers checks. The plaintiff states argue that MoneyGram is required to remit to them sums payable on unclaimed and abandoned official checks sold by MoneyGram, when the official checks were purchased in the respective plaintiff states, pursuant to the Disposition of Abandoned Money Orders and Traveler's Checks Act, a federal law (the "Federal Disposition Act").³ MoneyGram, at the direction of the Delaware Secretary of State's office, has instead remitted those sums to Delaware, as MoneyGram's state of corporate domicile, pursuant to the general priority rules outlined by the Court in Texas v. New Jersey.⁴

The plaintiff states argue that the Court should resolve the dispute over which state laws control. In Pennsylvania v. New York, the Court held that in the absence of evidence of the address of the owner of an uncashed money order, the state of the holder's corporate domicile had the right to receive the sums owed on the money order.⁵ The plaintiff states, however, argue that in 1974 Congress in response to the holding in Pennsylvania effectively overturned that ruling by enacting the Federal Disposition Act. According to the states' complaint, that law requires the funds from unclaimed and abandoned MoneyGram official checks to be remitted to the states of purchase.

The plaintiff states further argue that under the Federal Disposition Act, the state where an unclaimed or abandoned money order, traveler's check, or other similar written instrument (other than certain third party bank checks) is purchased is entitled exclusively to escheat or take custody of the sum payable on such instrument to the extent of that state's power under its own laws to escheat or take custody of such sum.⁶ The purpose of the Federal Disposition Act, the plaintiff states argue, was to prevent one state, where many corporations maintain their domicile, from enjoying an inequitable windfall at the expense of the other 49 states where the purchasers of traveler's checks and money orders actually reside.

Additional arguments

The plaintiff states argue they have identified instances in which the Delaware's MoneyGram approach is not rigorously applied, as further evidence favoring striking it down. The plaintiff states' brief cites two other entities — a secure payment company and a large bank — that issue official checks. However, unlike MoneyGram, Delaware has not directed those entities to remit sums payable on unclaimed and abandoned official checks to Delaware. Instead, those entities report and remit sums payable on unclaimed and abandoned official checks to the state of purchase. In addition, MoneyGram previously reported and remitted sums payable on unclaimed and abandoned official checks to its previous state of incorporation, Minnesota, and Minnesota has since remitted those sums to the states where the MoneyGram official checks were purchased.

Participating states

The lead plaintiff states are Texas and Arkansas but Alabama, Arizona, Colorado, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, Utah, and West Virginia have joined them in this complaint. Similar suits were initiated in federal district courts by Pennsylvania in February 2016 and Wisconsin in April 2016.

Implications

Arkansas et al. v. Delaware raises important abandoned and unclaimed property issues for the Court to consider and may have broader significance for both holders and owners. The large number of states involved and the potential dollar value at stake is likely to keep this case in the spotlight until it is resolved. It is highly unusual for the Court to be the original court to hear any dispute for the first time as it is generally a Court of appellate jurisdiction. However, the Constitution dictates that when there are disputes among the states, the only court that can hear the case is the Court. It is unlikely that the Court itself will hear testimony in the case but if the past is any indicator what will likely happen is the Court will appoint a master, usually an independent attorney with experience in that area of the law, who will conduct a hearing, request information and ultimately, issue a report to the Court with a recommendation. This process would take place over several months. Thus, it is not likely that a resolution will be forthcoming in the short-term.

Another important point is that it has been over two decades since the Court addressed the nation's system of the unclaimed property laws. Consequently, this case may present the Court with the opportunity to revisit the long-standing priority rules that dictate a particular state's jurisdiction over property. Further, it highlights the importance of analyzing the form and function of monetary instruments that are not clearly defined by a state's abandoned property law. At issue in Arkansas et al. v. Delaware is the definition of an "official check" and whether it is more akin to a money order or to a "third party bank check." MoneyGram, much like Western Union in Pennsylvania, is facing potential double-escheat of the same unclaimed property to two states unless the issue of whether official checks are subject to the Federal Disposition Act is fully resolved in a decision that is binding on all fifty states. Ultimately, it could be that Congress also gets involved under its plenary authority under the Commerce Clause and settles the matter by new legislation.

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ENDNOTES

¹ Arkansas et al. v. Delaware (U.S. S. Ct. June 9, 2016) (motion for leave to file bill of complaint, bill of complaint, and brief in support).

² U.S. Const. Art. III, Section 2, cl. 2; 28 U.S.C. Section 1251(a).

³ 12 U.S.C. 2501 et seq.

⁴ Texas v. New Jersey, 379 U.S. 674 (1965).

⁵ Pennsylvania v. New York, 407 U.S. 206 (U.S. S. Ct. 1972).

⁶ 12 U.S.C. Section 2503.