Delaware’s Arguments Fall Short: Supreme Court Special Master Finds That MoneyGram’s Unclaimed “Official Checks” Should Escheat to States Where Purchased
In an action brought under the original jurisdiction of the U.S. Supreme Court, 30 states disputed Delaware’s entitlement to escheat the unclaimed proceeds of certain “Official Checks” issued by MoneyGram. A Special Master appointed by the Supreme Court has now issued a lengthy report, concluding that the instruments in question are either “money orders” or “similar instruments,” and therefore, under a federal statute, escheat not to Delaware—the state of incorporation of MoneyGram—but rather to the states where the instruments were purchased. Delaware v. Pennsylvania and Washington, Nos. 145 &146, [DRAFT] First Interim Report of the Special Master, May 20, 2021. If adopted by the Supreme Court, this will be the first Supreme Court decision on unclaimed property in over 25 years and represents a significant restraint on Delaware’s ability to escheat unclaimed property. It may also mean that financial institutions that issue similar instruments should carefully analyze those instruments and consider whether their current practices are consistent with this new rule.
Facts: The federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (the “FDA”), explicitly provides that money orders and traveler’s checks escheat to the state where the instruments were purchased, to the extent that state escheats such items. This dispute arose over the proper treatment of instruments called “Official Checks,” and whether they too should be treated as “money orders” or other “similar instruments.” If not, they would escheat to Delaware, where MoneyGram was incorporated, under the common-law rules established by the Supreme Court in a series of cases decided between 1961 and 1993.
The Decision: The Special Master conducted a detailed review of the legislative history of the FDA, and the meaning of the terms used in it when it was enacted in 1974. He found that the FDA was passed in direct response to the Supreme Court’s decision in Pennsylvania v. New York, 407 U.S.206 (1972), which held that traveler’s checks and money orders should escheat to the commercial domicile of the vendor. According to that legislative history, Congress acted because the decision had made “more severe” the problem of escheat acting “as a windfall” to the state of incorporation, and depriving of revenue the 49 other states where purchasers of traveler’s checks and money orders actually reside. Report at 20. Against that background, the Special Master carefully reviewed the arguments made by Delaware, which relied on technical differences between actual “money orders” and the Official Checks in issue, and in every case rejected Delaware’s position as less persuasive than that of the states arguing for the similarity of the two instruments. The Special Master described the differences between the two types of instruments as “marketing decisions” and “inconsequential,” finding they had no material effect on the rights and obligations of users, and found “more persuasive” the competing arguments that the Official Checks are closely akin to the Money Orders that are explicitly covered by the FDA. Report at 42, 44, 50. He also found that, even if the Official Checks were not actual “money orders,” they were “similar instruments” and are still governed by the FDA.
The Special Master recommended that the Supreme Court deny Delaware’s motion for summary judgment and award summary judgment to the rest of the states.
This article is one in a series of articles written for the July 2021 edition of The BR State + Local Tax Spotlight.