Once again, the Supreme Court of the United States (hereinafter “Court”) is the ultimate arbiter of an unclaimed property dispute between Delaware and a majority of States. The seminal issue before the Court was, which State has the jurisdictional right to owner-unknown Agent checks and Teller’s checks, two products sold by banks on behalf of MoneyGram International, Inc (“MoneyGram”).
Consistent with its policies, MoneyGram reported these two categories of unclaimed checks to Delaware, its state of incorporation utilizing the common law principles established by the Court in Texas v. New Jersey(1) and reaffirmed in two subsequent cases(2). Under these rules, known as the priority rules, owner-unknown property is reported to the state of incorporation of the company in possession of the property. MoneyGram’s reporting of the checks to Delaware was consistent with the priority rules and consequently, Delaware’s position of its right to these checks is grounded in the authority granted by the priority rules, as MoneyGram’s state of incorporation.
The Commonwealth of Pennsylvania, no stranger to the position on the “inequities” afforded to states of incorporation by the priority rules, joined by Wisconsin and a number of other States, challenged MoneyGram’s remittance of said checks to Delaware. The States relied on the exception to the priority rules provided in the Disposition of Abandoned Money Orders and Traveler’s Check Act (“FDA”), a federal statute.
Pennsylvania’s history on this issue goes back to its position in Pennsylvania v. New York, under a similar set of facts, where Western Union did not maintain records for the purchasers or payees of its unclaimed money orders. Based on the priority rules, the owner-unknown money orders were reportable to New York, Western Union’s state of incorporation. Pennsylvania filed an action, which was heard before the Court, arguing that the windfall to New York by the priority rules was unjust. Pennsylvania urged the Court to modify the priority rules to allow owner-unknown money orders to inure to the jurisdiction of the States where the money orders were purchased and not the state of incorporation. The Court declined to modify the priority rules and Pennsylvania sought and eventually found legislative relief from Congress through the passage of the FDA.
The federal legislation carved out an exception to the priority rules for money orders, travelers checks and other similar instruments by requiring that unclaimed property for these property types, be reported to the States where the instruments were purchased and not the states of incorporation. The FDA also expressly stated that this exception does not apply to 3rd party bank checks. Consequently, in challenging MoneyGram’s reporting of said funds to Delaware, Pennsylvania and the other States argued that the owner-unknown Agent and Teller’s checks fall within the exception to the priority rules set forth in the FDA.
This case took some interesting twists and turns on its way to a decision by the Court but none more surprising and unprecedented than the about-face by the Court’s appointed Special Master. It is not uncommon for the Court to appoint Special Masters to make recommendation to the Court on pending cases. This was certainly the case in Delaware v. New York, where the recommendation of the Special Master was rejected by the Court. In this case regarding MoneyGram’s checks, the Special Master’s initial opinion to the Court supported the arguments put forth by the States that the FDA governed the Agent and Teller’s checks, thus vesting jurisdiction with the States where the checks were purchased.
Delaware filed an exception to this opinion and after briefing and oral argument before the Court, the Special Master, in a very unusual move, issued a second opinion finding that: (i) the Teller’s checks are subject to the priority rules and thus reportable to Delaware; and (ii) the Agent checks are governed by the FDA, thus vesting jurisdiction with the States. The argument that apparently swayed the Special Master to re-think his original recommendation, is Delaware’s position that the Teller’s checks are akin to 3rd party bank checks, which are expressly carved out by the FDA as a property type subject to the priority rules .
Speaking unanimously through the pen of Justice Ketanji Brown Jackson, the newest justice appointed to the high Court, the Court rejected Delaware’s arguments as well as the Special Master’s 2nd opinion/recommendation and found that the Agent and Teller’s checks were similar in both their function and operations to money orders and therefore fall within the definition of “other similar instruments”, which are governed by the FDA (see ruling).
In our earlier blog, Money Grab in MoneyGram’s High Court Case, we left you with 3 alternatives for how the Court could possibly resolve this dispute between the States and Delaware. The answer is now clear as the Court’s opinion pronounces victory for the States. However, as the States bask in their victory, one cannot help but wonder whether future challenges to the priority rules could be looming on the horizon based on the perceived inequitable and unjust windfall to states of incorporation under the priority rules.
Also, it is important to note that the Special Master bifurcated the proceeding into two phases, namely a liability phase and a damages phase. Having concluded the liability phase by the Court’s determination that the FDA is the governing statute for the MoneyGram unclaimed checks, stay tuned for the Special Master’s assessment of damages, if any, as the case now moves to the 2nd phase of the bifurcated process.
For more information on this MoneyGram case or any unclaimed property issue, contact Sonia Walwyn, Partner, Clarus Partners Advisors, at [email protected] or (630)216.9954.
Citations:
- 379 U. S. 674 (1965)
- Pennsylvania v. New York 407 U.S. 206 (1972) and Delaware v. New York, 507 U.S.490 (1993)