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Monday, June 10, 2024 | Back issues
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Delaware can’t inherit windfall just because MoneyGram lives there

The most corporate-friendly laws in the country make Delaware the legal home of 1.8 million businesses, but the Supreme Court says other states have a right to the unclaimed property those companies generate.

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 in what is the Biden appointee's first majority opinion 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, 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, teeing up the Supreme Court to determine whether a MoneyGram was technically money orders under federal law.

Jackson turned down Delaware's push to view the unclaimed MoneyGrams as “third party bank checks.”

“When a financial product operates like a money order — i.e., when it is a prepaid written instrument used to transmit money to a named payee — and when it would also escheat inequitably solely to the State of incorporation of the company holding the funds under our common-law rules due to recordkeeping gaps, then it is sufficiently ‘similar’ to a money order to fall presumptively within the FDA," she wrote, abbreviating the Federal Disposition Act. "Such is the case with the Disputed Instruments.”

Jackson noted that Congress specifically excluded third-party bank checks from the FDA at the recommendation of the general counsel for the Treasury Department.

"In any event, given the history and text of the FDA, it would be strange to interpret the 'third party bank check' language to exempt from the statute entire swaths of prepaid financial instruments that are otherwise similar to money orders in that they operate in generally the same fashion and would likewise escheat inequitably pursuant to the common law due to the business practices of the company holding the fund," she added.

Arkansas Attorney General Tim Griffin applauded the ruling Tuesday.

“This is an important win for Arkansas and our fellow states," Griffin in a statement. "For the past decade, Delaware has claimed millions of dollars that rightfully belong to us, and that money will now go where it belongs. I’m proud to lead this bipartisan coalition as we applaud today’s unanimous victory in the Supreme Court."

At oral arguments in the fall, Nicholas Bronni with Griffin's office had argued 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. He did not respond to a request for comment on the ruling, but he told the court at arguments that, at the time when the law was passed, the term money order referred to specific commercial products “typically sold to unbanked consumers to pay small debts." He said the term MoneyGram official checks would have been seen in 1974 as “third-party bank checks,” and thus exempt under the statute.

Jackson noted Tuesday, however, that the phrase “is subject to myriad alternative definitions and is generally unknown.”

“The phrase was inserted into [the law] under well-documented circumstances,” Jackson explained. “And those circumstances further support the conclusion that, whatever ‘third party bank check’ is meant to mean, the Disputed Instruments are not exempted from the FDA under that provision, as Delaware maintains.”

Jackson called it natural to interpret the FDA as applying "to prepaid instruments, such as money orders, given that those instruments are of a type likely to implicate the FDA’s escheatment rules."

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. Senior Judge Pierre Leval of the U.S. Court of Appeals for the Second Circuit sided with the 30 states in a special master's report, the first of which appeared in 2021 and a second appearing the following year. 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, leaving nothing to the many states where the transactions actually happened. 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.

Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Amy Coney Barrett declined to join a portion of Jackson’s opinion that says the legislative history of the FDA did not align with the interpretation of MoneyGrams as third-party bank checks.

No justice offered any additional opinions.

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Categories / Appeals, Business, Financial, National

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