The Battle Against Delaware Over Unclaimed Funds

The Battle Against Delaware Over Unclaimed Funds
by Jordan A. Irazabal
Legal Assistant
Ferry Joseph, P.A.

It should be no surprise to you that Delaware is the incorporation capital of the United States, the legal home to 65% of Fortune 500 companies. Because of this, Delaware sees a much larger share of unclaimed funds than most states, and now there’s a heated legal battle surrounding those funds, with Delaware at the center.

In early 2016, Pennsylvania filed a lawsuit against the state of Delaware and MoneyGram in the U.S. District Court, asking the court to determine that over $10 million of unclaimed MoneyGram official checks are money orders subject to escheat in Pennsylvania1. Wisconsin followed shortly after, with a similar claim. Delaware filed a motion requesting that the U.S. Supreme Court hear the case. Twenty-one other states filed suit two weeks after Delaware filed its motion, and the U.S. Supreme Court agreed to hear the case and consolidated all 23 states’ lawsuits into one.

As it currently stands, unclaimed funds are escheated (i.e. returned) to the state where the issuing company is headquartered, not the state where the funds were issued. The Texas Attorney General, counsel for one of the leading plaintiffs, claims that the current law violates the 1974 Federal Dispositions Act. In opposition, Delaware’s Attorney General cites the 1993 U.S. Supreme Court case Delaware v. New York, wherein it was ruled that unclaimed stock dividends are to be returned to the state where the company is incorporated.

Unclaimed balances on gift cards is a hot topic right now, especially in the state of Oregon. A 2008 law passed by the Oregon legislature states that no gift card or gift certificate can have an expiration date or fee due to non-use, making it exempt from becoming unclaimed funds. However, Oregon State Senator Chuck Riley proposed a bill (SB 113), a bill that would classify unused gift card balances as unclaimed funds after five years of non-use. The Oregon school system heavily benefits from the unclaimed property; all unclaimed funds are held in the state’s Common School Fund and is invested, and the earnings are used to supplement funding to K-12 schools2. The main roadblock for the bill is the aforementioned federal law, which states that unclaimed funds must return to the state where the issuer is headquartered, not where the gift card as issued. Presently, this would only apply to gift cards purchased from companies headquartered in Oregon.

1http://rsmus.com/what-we-do/services/tax/state-and-local-tax/unclaimed-property/us-supreme-court-to-hear-delaware-unclaimed-property-check-dispu.html

2http://registerguard.com/rg/news/local/35357832-75/bill-would-tap-unredeemed-gift-cards-to-help-fund-k-12-schools.html.csp