Posted on Jan 27, 2020 by JMS Advisory Group |
We’re back – and lots has happened in the First State since our last post. Univar’s due process and equal protection claims are still pending, even as the state seeks to enforce its subpoena in Chancery Court. In the latter, Univar is arguing that Delaware’s may not retroactively apply subpoena power granted in a 2017 law to an audit case that began in 2015. The last we heard from the Chancery Court on this case was a denial of the state’s appeal for interlocutory review of the stay issued in the Chancery case. Notably, the Court pronounced in its opinion on that motion that, “The State’s concerns regarding an expeditious resolution of this dispute ring hollow…even though [the State] knew Univar challenged the statute upon which the subpoena was issued on constitutional grounds, the State did not promptly initiate an action to enforce its subpoena.” Ultimately, this appeal for immediate judicial review of the Chancery Court stay of the matter was denied by the Delaware Supreme Court.
The timing of the Univar litigation provided an interesting overlap: while all the wrangling was going on in the federal and state courts relating to that case, a major deadline at the beginning of December 2019 was looming for hundreds of holders in the Delaware Expedited Audit Program. It was early December when the deadline to complete these exams came due, and not all holders were ready to accept the finality of the process. This was mainly due to Delaware’s continued adherence (through the tactics of its contract auditors) to pre-Temple-Inland estimation techniques, or at least the threat of using such techniques. As a result four (yes four!) different companies filed suit against Delaware in the month of December in federal court (District of Delaware). Set forth below is a synopsis of each case as gleaned from the pleadings:
—complaint filed on December 6, 2019, alleging 10 counts of Constitutional violations by the state, including inter alia, unreasonable search and seizure, procedural due process, substantive due process, ex post facto application of the law, and equal protection claims
—Much like with Univar, the state originally tried to subpoena records from AT&T prior to the filing of the case in federal court, and instead of responding to the subpoena, AT&T chose to file the instant action instead
—January 10, 2020: Delaware files Motion to Dismiss; attached to the state’s filing is an Exhibit containing a new contract between it and Kelmar Associates, one of Delaware’s longstanding contract audit firms, indicating that the firm is to be paid on an hourly basis for general ledger auditing services, no longer on a contingency basis. "*hmmmm*
—January 24, 2020: AT&T files its Answer to the state’s Motion to Dismiss
—February 7, 2020: AT&T files request for Oral Argument
—complaint filed on December 12, 2019, alleging 4 counts of Constitutional violations by the state, including federal preemption, procedural due process, substantive due process, and 4th Amendment claims
—December 20, 2019: Delaware files Motion to Extend Time to Respond, which is stipulated by the parties
—January 23, 2020: Delaware files Motion to Dismiss citing ripeness and failure to state claims
—February 6, 2020: Eaton files Brief in Opposition to Delaware’s Motion to Dismiss, arguing the case is ripe to hear because the audit process itself is flawed: “Plaintiffs challenge [Delaware]’s authority to audit property Delaware cannot claim under the Texas trilogy, even if it is abandoned, because owner addresses are in other states and [Delaware] cannot use them to estimate abandoned property escheatable to Delaware.” Eaton also alleges harm due to the fact that Delaware terminated the company’s participation in the expedited audit program, thereby subjecting it to substantial penalty and interest on any audit findings.
—complaint filed on December 13, 2019, alleging 4 counts of Constitutional violations by the state, including federal preemption, procedural due process, substantive due process, and 4th Amendment claims
—December 20, 2019: Delaware files Motion to Extend Time to respond, which is stipulated by the parties
—January 30, 2020; Delaware files Motion to Dismiss citing failure to state claims (as predicted)
—complaint filed on December 17, 2019, alleging 4 counts of Constitutional violations by the state, including federal preemption, procedural due process, substantive due process, and 4th Amendment claims
—no response from the state yet on this case, but there is an interesting set of facts which makes it a bit different
—as with most of the cases that are presently in litigation, the audit of Siemens was initiated several years prior (2009) to the initiation of the state’s Expedited Audit Program, and the audit was commissioned under dubious circumstances at about the same time Siemens was contemplating a voluntary disclosure (“VDA”) in Delaware
—Under a unique set of circumstances, Delaware and Siemens entered into an agreement whereby the state would conduct an audit, but grant Siemens some of the benefits of a VDA, on the condition that Siemens pay a $7.4MM deposit to perfect the deal; the deposit amount was a pre-review estimate calculated by Siemens (interesting fact: the Delaware Deputy Attorney General and State Escheator involved in the negotiation of this deal went to work for Kelmar while the audit was ongoing)
—Delaware has been holding the deposit since 2009; not surprisingly, Siemens wants it’s money back (at least the part not already determined to be unclaimed property); so in addition to the Constitutional violations it is alleging in this suit, it also is seeking $5.6MM to be refunded from the original deposit
Obviously, there is a lot going on in Delaware right now – all/any of which is very likely to change the landscape of unclaimed property audits and compliance in general in the state. The litigation has already moved the state to change its contractual arrangement with Kelmar, and that’s likely only the beginning. JMS will be updating the blog regularly with new developments as they come in – be sure to check back frequently, and contact us at any time with questions you may have about your unclaimed property compliance.
PS: Delaware’s home newspaper publishes letter indicating the state is Greedy for Unclaimed Property.