WASHINGTON (CN) — Determining the fate of hundreds of millions of dollars in a unanimous opinion, the Supreme Court ruled Tuesday that Delaware does not have first dibs on the unclaimed property of the 1.8 million businesses registered in its corporate-friendly state.
“In the context of tangible property, the escheatment rule is straightforward: The State in which the abandoned property is located has the power to take custody of it,” Justice Ketanji Brown Jackson wrote for the court.
MoneyGram is headquartered in Dallas, Texas, but chose to incorporate in Delaware like some 1.8 million other companies that are drawn by the state’s business-friendly laws and reputation. Unclaimed property currently makes up 8% of Delaware’s revenue, part of a doctrine called escheatment that gives states the right to take over certain unclaimed property.
As one might expect for the world’s second-largest money-transfer company, meanwhile, the unclaimed MoneyGram checks that Delaware escheated were sold all over the United States.
Thirty states led by Pennsylvania and Wisconsin had faced off against Delaware at the high court in October, saying that they held a superior claim to these forgotten checks under the Disposition of Abandoned Money Orders and Traveler’s Checks Act. Passed in 1974, the law says sums “payable on a money order, traveler’s check, or other similar written instrument (other than a third party bank check)” would escheat to the state where the instrument was purchased, not the state of incorporation.
Congress did not define the terms “money order,” “traveler’s check” or “third-party bank check” in that statute at issue, however, teeing up the Supreme Court to determine whether a MoneyGram was technically money orders under federal law.
On behalf of the challenging states, Nicholas Bronni with the Office of the Arkansas Attorney General argued before the justices that, because MoneyGram does not keep addresses of its check purchasers, its instrument is like a money order. And because addresses for payees aren’t typically kept for money orders, those instruments escheat to the state of purchase.
Neal Katyal with Hogan Lovells argued for Delaware, explaining that the term money order referred to specific commercial products “typically sold to unbanked consumers to pay small debts” when Congress adopted the language of the law at issue in 1974. He said the term MoneyGram official checks would have been seen in 1974 as “third-party bank checks,” and thus exempt under the statute.
Like a bank check, MoneyGrams are signed by bank employees, and not purchasers. Katyal said this meant that uncashed checks would fall within the third-party bank check exception. The lawyer also emphasized that the MoneyGram checks are sold only at a bank, while money orders are sold typically at retailers like CVS or Walmart.
In the process of buying an official MoneyGram check, purchasers pay the value of the check to a selling bank, which then forwards the sum to MoneyGram. The buyer can then give the check to their intended payee, who can cash the check at their bank, which will then charge the sum from MoneyGram. If the payee never cashes the check, the money becomes unclaimed.
Bronni meanwhile maintained that MoneyGram checks “function precisely like other money orders but are marketed differently.” A marketing strategy wouldn’t justify a $250 million windfall, he’d added.
As an interstate dispute, this case fits under the narrow jurisdiction of cases that fall under the Supreme Court’s original jurisdiction.
Leading up to arguments in the case, the justices appointed an independent arbiter to conduct a review and issue recommendations. The special master’s report, by Senior Judge Pierre Leval of the U.S. Court of Appeals for the Second Circuit, sided with the 30 states. Leval noted that federal law aimed to prevent one state from receiving a large amount of cash because an issuer of certain instruments is incorporated there, “at the expense of many States which then receive no benefit from essentially local transactions.” Leval urged the court not to adopt a firm definition of the term “money order” since doing so could have indirectly ended up affecting other types of financial instruments not at issue in the case.
The other states that sued Delaware in the dispute were Alabama, Arizona, California, Colorado, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.
Neither Katyal nor Bronni immediately responded to a request for comment on the ruling.
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This story is developing and will be updated…
from Courthouse News
