Delaware v. Pennsylvania

Delaware v. Pennsylvania, 598 U.S. 115 (2023), was a United States Supreme Court case related to unclaimed money and the escheatment of checks.[1] This case was Justice Ketanji Brown Jackson's first opinion on the Supreme Court.[2][3] It is also the first case the Supreme Court has taken on unclaimed property in over 30 years.[4]

Delaware v. Pennsylvania
Supreme Court of the United States
Argued October 3, 2022
Decided February 28, 2023
Full case nameDelaware v. Pennsylvania and Wisconsin
Docket no.22O145
Citations598 U.S. 115 (more)
ArgumentOral argument
Holding
Unclaimed MoneyGram payments constitute "money orders" or "similar written instruments" subject to escheatment under the Federal Disposition Act, 12 U.S.C. § 2503.
Court membership
Chief Justice
John Roberts
Associate Justices
Clarence Thomas · Samuel Alito
Sonia Sotomayor · Elena Kagan
Neil Gorsuch · Brett Kavanaugh
Amy Coney Barrett · Ketanji Brown Jackson
Case opinion
MajorityJackson, joined by unanimous (Parts I, II, III, and IV–A); Roberts, Sotomayor, Kagan, Kavanaugh (Part IV–B)
Laws applied
Disposition of Abandoned Money Orders and Travelers Check Act (Federal Disposition Act or FDA) 12 U.S.C. §2503

Background

States are entitled to take custody of abandoned personal property via the process of escheatment.[1] The amount of money in dispute that is abandoned from MoneyGram has been reported to be Hundreds of Millions of Unclaimed Dollars.[5] In past years it has been more than $500 million.[6] For the state of Delaware used the escheatment of "like bank and brokerage accounts, unclaimed life insurance policies, uncashed paychecks, traveler's checks, and gift cards" make up 10% of Delaware's third source of revenue.[5] Delaware is home to over 2 million business.[6]

30 states filed suit to get the Supreme Court to resolve a dispute between the states as to the question if abandoned proceeds are subject to the Disposition of Abandoned Money Orders and Travelers Check Act (Federal Disposition Act or FDA) 12 U.S.C. §2503.[1][7]

MoneyGram is a Delaware corporation that provides prepaid financial instruments which are sold to consumers to pay their own obligations. MoneyGram International, Inc. is the second-largest money transfers business in the world, with revenues of over $1 billion. MoneyGram sells two products "Official Checks" and "Retail Money Orders." The retail money orders are not the instrument in dispute of this case.[1] Images of the disputed items can be viewed in the two Affidavits of Jennifer Whitlock the head of Global Supply Chain for MoneyGram summitted samples.[8][9]

Under the MoneyGram "Official checks," there are two types "Agent Checks"[3] and "Teller's Check"[3] These checks are sold only by financial institution banks and credit unions and are not sold at retail locations.

Many large companies in the United States incorporate in Delaware for the legal and tax protections that are offered in the state.

Delaware sought to have the Federally created Common law. The Federal Disposition Act covers disputed Instruments in dispute. The rules came from the case of Texas v. New Jersey, 379 U. S. 674, 675 (1965).

Supreme Court of the United States Special Master

On May 26, 2016, a motion was filed for leave to file a bill of complaint.[10] The Special Master heard oral arguments on the case on March 10, 2021.[11]

First Interim Order

On July 23, 2021, the Special Master issued the First Interim Report.[12]

The Supreme Court Appointed a special master Pierre N. Leval to the case.[13] The Special Master ruled in his initial report; Disputed Instruments are covered by the Federal Disposition Act.

The Special Master bifurcated the case into two parts a liability and damage phase.

There are two ways laws that the special master was asked to look at. The Disposition of Abandoned Money Orders and Travelers Check Act (Federal Disposition Act or FDA) 12 U.S.C. §2503 and the Federal common law rule where that debts left unclaimed by creditors would escheat "to the State of the Creditor's last known address as shown by the debtor's books and records"[14]

There are two types of instruments that Moneygram sells/markets. "Agent Checks" and "Teller's Checks" which are the disputed instruments. Moneygram is incorporated in the state of Delaware. If the common law of escheatment of the disputed instruments applies the abandoned property escheats to the state of incorporation. However, if the FDA applies, the abandoned property goes to the state of purchase.

The special master covered the historical precedent of escheatment. Under the common law of England, all land titles and property originated from the Crown. "“the process by which tenurial land returned to the lord of the fee upon the occurrence of an event obstructing the normal course of descent."[14]

Under American law, escheatment has been justified under the public policy that unclaimed and abandoned should be used for the general good rather than for the chance enrichment of particular individuals or organizations.” Standard Oil Co. v. New Jersey 341 U.S. 428, 436 (1951)."

The special master went on to evaluate the Uniform Disposition of Unclaimed Property Act drafted by the Uniform Law Commission first published in 1954. The act was not universally adopted and did not resolve claims between the states. The revised Uniform disposition of Unclaimed Property Act was published in 1966, which did include "money orders and traveler's checks." For some reason, the Uniform Act of 1966 did not define "money order" or "traveler's check."

The FDA applies only to money payable on "a money order, traveler's check or other similar written instruments (excluding third party bank check).

The special master highlighted the Congressional findings in the FDA that noted:

"(1) the books and records of banking and financial organizations and business associations engaged in issuing and selling money orders and traveler’s checks do not, as a matter of business practice, show the last known addresses of purchasers of such instruments;

(2) a substantial majority of such purchasers reside in the states where such instruments are purchased;

(3) the states wherein the purchasers of money orders and traveler’s checks reside should, as a matter of equity among the several states, be entitled to the proceeds of such instruments in the event of abandonment;"

— 12 U.S.C. § 2501(1)–(3).

Second Interim Order

The Specials Master held Oral arguments on December 8, 2022.[15] On December 13, 2022, the Special Master issued a Second Interim Report.[16] In this report the Special Master issued an apology to the Supreme Court stating: "I have concluded that i can no longer stand by the recommendations that i made to the Court in my First interim special Master's report. Because a special Master's responsibility to the Court does not terminate with the submission of a report but is exercised “at all times and in many ways,” Cynthia J. rapp, Guide for Special Masters in Original Cases Before the Supreme Court of the United States 3, i believe it is my obligation to so advise the Court. i therefore respectfully submit this second interim report of the special Master."[16] This was reproted as a Surprise Change of Mind.[17]

The Special Master stated that he read the oral arguments before the Supreme Court, where he felt that Delaware was "emphasizing a circumstance that, if correct, would distinguish between rights and obligations, at least comparing the disputed instruments with those that MoneyGram labels as “money orders.”[16] The Special Master notified the Clerk of the Court and ordered expedited briefing. After briefing and oral arguments the special master revise his recommendation to the court.

The Special Master concluded that the Disputed Instruments did fall in the category of "other similar written instruments." but were not "money orders." However, because some of the Disputed Instruments are drawn by a bank as the drawer making the bank labile they fell within the exclusion of the "third party bank checks." FDA 12 U.S.C. 2503.[16]

Delaware exception to Supreme Court of the United States Special Master ruling

Once the Special Masters First Interim report concluded the Disputed Instruments were covered under the FDA, Delaware filed an exception.[1]

The court accepted briefs and oral arguments, the Special Master announced that the proceedings before the court had caused him to "reassess his conclusion.[16] He subsequently issued a Second Interim Report that concluded that many of the disputed Instruments were or could be "third party bank checks" and would thereby be excluded from the FDA."[1]

The Special Master recommend to the Supreme Court any of the that the "Disputed Instruments that are checks issued by banks as drawers (on which banks are thus liable are "third party bank checks," which are excluded from the scope of the "other similar written instrument" clause and from the disposition of the act."[16]

The Special master concluded the Teller's Checks marked by MoneyGram are teller's checks, however the "So labeled Agent Checks" and "unlabeled Agent checks are not not drawers.[16]

Supreme Court of the United States

The court held that the disputed instruments are "sufficiently "similar" to money orders to fall under the FDA". The court did not decide if the disputed instruments "are" money orders. The court ruled were similar to money orders under 12 U.S.C. 2503. They fall into the "other similar written instrument" category of the FDA.

The Supreme court opinion addresses the first phase of the bifurcated process from the Special Masters liability phases. The Court left the Special Master to decide the damages in the second phase.[1]

The court looked at the common-law it created in by the court's own case law of two rules.[1]

Primary rule (default) the proceeds of abandoned financial produce should escheat "to the State of the creditor's last known address as shown by the debtor's books." The secondary rule did not resolve the question of escheatment when the creditor's addresses were unknown or because the State did not have a law allowing escheatment. Thus the secondary rule was to allow the abandoned property to default to the State of incorporation.[1]

The court acknowledged the reason it created the default rule to escheat to the state of the creditor's last known address it "tend[ed] to distribute escheats amount States in the proportion of the commercial activities of their residents." The court acknowledged that the regulations it had established were leading to an uneven distribution of benefits among certain financial instruments. It specifically drew attention to Western Union's failure to maintain records of the addresses of consumers who purchased its financial products.

The court discussed the case of Pennsylvania v. New York, 407 U. S. 206 (1972). In Pennsylvania was asking for the Supreme Court to change its rules for escheatment because it was creating a "windfall" unfair to states where money orders are purchased, moving money to the state of New York. in the Pennsylvania case, the court refused to change its rule for escheatment.[1]

In a direct response by congress to the courts holding in Pennsylvania v. New York, Congress created a more equitable rule and passed the FDA. Congress stated "as a matter of equity among the several States, he States “wherein the purchasers of money orders and traveler's checks reside should . . . be entitled to the proceeds of such instruments in the event of abandonment.” §2501(3)"

Both Congress and the court recognized that the common-law rules established by the court were failing to achieve an equitable distribution of resources among the states.

" a variety of dictionary definitions contemporaneous with the Act's passage universally define a “money order” as a prepaid financial instrument used to transmit a specified amount of money to a named payee. And this Court's common-law precedents—the backdrop against which the FDA was enacted—are in accord with that definition."[1]

The court noted that the FDA was passed to change the court's prior common-law rule on the escheatment of these instruments. The court went on to note one reason that the FDA was passed was to "prevent [...] a "windfall" to the State of incorporation by instead adopting a place-of-purchase escheatment rule." This was done as a matter of equity between the states.

The court dismissed Delaware's argument the Special Masters reading and the court's view of section 2503 would "creat[e] surplusage and sweeping in all sorts of unintended financial product [would] go too far."[1]

The court looked at Delaware and the Special Master's view that "even if the Disputed Instruments qualify as “other similar written instrument[s]” under the FDA, they are also “third party bank check[s],” which are expressly excluded from the FDA." However, the court noted that the FDA does not define the term "third party bank check" nor does it have a commonly accepted meaning.

Section IV B

The majority opinion held that Nothing in the legislative history supported Delaware's view that the Disputed Instruments were "third party bank checks." The court acknowledged that the term "third party bank check" has a "myriad [of] alternative definitions and is generally unknown."[1]

The court looked at the view of the Treasury Department letter sent to Congress on the bill. The letter warned that the proposed wording of the FDA prior to passage could be interpreted to cover "third party payment bank checks." and thus recommended excluding "third party payment bank checks from the FDA. Congress adopted this recommendation. The court even looked at the stated of Com. Chair Sen. Sparkman which reviewed the addition of the "third party payment bank check" exclusion as a "minor" change.[1]

The court held that based on the history and text of the FDA "it would be strange to interpret the "third party bank check" language to exempt from the statute entire swaths of prepaid financial instruments that are otherwise similar to money orders in that they operate in generally the same fashion and would likewise escheat inequitably pursuant to the common law due to the business practice of company holding the funds."[1]

The Court adopted the Special Master's First Interim Report and the proposed order, and overruled Delaware's exception to the First Interim report, and sent it back to the Special Master.[1][3]

Reaction Aftermath

Pennsylvania Treasurer Stacy Garrity believes that Delaware may owe up to $400 million to the states that sued as result of the Courts ruling.[6]

“This ruling means that Pennsylvania residents will have a real opportunity to reclaim millions of dollars in unclaimed property. The Supreme Court rejected Delaware's attempt to gain an unfair windfall and struck a strong blow in favor of consumers. I'm eager to get to the business of returning this money to the hardworking people it rightfully belongs to.” - Pennsylvania State Treasurer, Stacy Garrity.[13]

The case now goes back to the Special Master for the second part of the bifurcated action to assess damages.[1][13]

References
  1. Delaware v. Pennsylvania, 598 U.S. 115 (2023)
  2. "Justice Ketanji Brown Jackson's first opinion on the Supreme Court decides who gets to keep millions in unclaimed funds". Law & Crime. February 28, 2023. Retrieved March 27, 2023.
  3. Journal, A. B. A. "Unclaimed MoneyGram checks are subject of Jackson's first SCOTUS opinion in argued case". ABA Journal. Retrieved March 27, 2023.
  4. "Supreme Court Issues First Unclaimed Property Opinion in 30 Years". JD Supra. Retrieved March 27, 2023.
  5. Erb, Kelly Phillips. "Supreme Court Rules Delaware Doesn't Have Dibs On Hundreds Of Millions Of Unclaimed Dollars". Forbes. Retrieved March 27, 2023.
  6. "Delaware loses Supreme Court case with millions at stake over unclaimed property". The News Journal. Retrieved March 27, 2023.
  7. "Delaware v. Pennsylvania and Wisconsin". Oyez.org. February 28, 2023. Retrieved March 27, 2023.
  8. Whitlock, Jennifer (December 13, 2017). "Affidavit of Jennifer Whitlock" (PDF). UScourts.gov. Retrieved March 27, 2023.
  9. Whitlock, Jennifer (October 3, 2017). "Affidavit of Jennifer Whitlock" (PDF). USCourts.gov. Retrieved March 27, 2023.
  10. "Special Master | Second Circuit | United States Court of Appeals". ww2.ca2.uscourts.gov. Retrieved March 27, 2023.
  11. "Transcript of Video Conference Proceedings March 10, 2021" (PDF). Uscourts.gov. May 20, 2021. Retrieved March 27, 2023.
  12. Leval, Pierre (July 23, 2021). "First Interim Report of the Special Master" (PDF). uscourts.gov. Retrieved March 27, 2023.
  13. Staff Report (February 28, 2023). "SCOTUS: Delaware illegally took $19M from PA, $400M total to other states". Tri-State Alert. Retrieved March 27, 2023.
  14. "First interim report of the special master" (PDF). Supreme Court. Retrieved March 27, 2023.
  15. "Revised Proceeding Held Remotely" (PDF). USCourts.org. December 8, 2022. Retrieved March 27, 2023.
  16. Leval, Pierre (December 13, 2022). [ww2.ca2.uscourts.gov/specialmaster/docs_145/Second_Interim_Report_of_the_Special_Master.pdf "Second Interim Report of the Special Master"] (PDF). US Courts. Retrieved March 27, 2023. {{cite web}}: Check |url= value (help)
  17. "Special Master Tells Supreme Court He's Changed His Mind About MoneyGram". National Law Journal. Retrieved March 27, 2023.
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