Early this month, the Delaware Supreme Court has ruled in a case involving the state’s lucrative and controversial practices regarding unclaimed property.
The case in question was filed by tech giant AT&T against the state Department of Finance.
Unclaimed property is a lucrative source of revenue for the state since many of the nation’s companies are incorporated in Delaware.
Click here for a link to the decision.
Matthew Rifino, an attorney in the Philadelphia and Wilmington offices of McCarter & English, said the ruling “reflects great deference to administrative agencies such as the Delaware Department of Finance (DDR)
Rifino said the high court “provided the Court of Chancery with guidance for resolving administrative subpoena disputes should the DDF amend its complaint and issue a new subpoena by offering a standard favorable to administrative agencies.”
According to Rifino, businesses have reason to contest the state’s demands.
“Businesses would prefer that property remain an asset on their balance sheets and remain available for other commercial purposes. In addition, businesses likely do not want the state to pour through their records,” Rifino stated. “The AT&T decision bolstered the Department of Finance’s ability to obtain additional information to cast doubt on the accuracy of the unclaimed property reports, thereby increasing uncertainty, legal expenses, and/or escheat liabilities.”
Rifino added that “Department of Finance frequently attempts to paint their efforts as ensuring holder’s compliance with Delaware law, but the scope of unclaimed property audits often proves overbroad and intended to increase the state’s coffers at the expense of businesses.”
According to the McCarter & English attorney, the scope of Delaware’s unclaimed property audits has been highly contentious in recent years, in which numerous holders of unclaimed property have asserted constitutional challenges to various aspects of the unclaimed property program in federal court. The litigation has been expensive and resulted in delays. While the AT&T decision reflects the Delaware Supreme Court’s deference to the administrative agency on this issue, the Department of Finance may wish to pursue good faith negotiations with holders of unclaimed property to allow for the escheat of unclaimed property as opposed to a protracted legal dispute in state and federal court. “
The decision invites the Department of Finance and its auditors to test the boundaries of reasonableness, and if the request ultimately proves overbroad, the department can revise the subpoena to address the court’s concerns, Rifino said
Absent an agreement between the parties concerning the scope of the department’s request, the State’s dispute with AT&T and other holders of unclaimed property will likely continue for years, he concluded.
