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SCOTUS weighs Delaware escheat limits

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The Supreme Court of the United States heard a case Monday that could cost Delaware millions in escheatment revenue | PHOTO COURTESY OF WIKICOMMONS

WASHINGTON – On the first day of the U.S. Supreme Court hearings Monday, the First State was among the first defendants heard, arguing against challenges of its escheat practices regarding MoneyGram transfers and payments.

The case, consolidated from Pennsylvania & Wisconsin v. Delaware and Arkansas v. Delaware, has been brewing for the last six years under a special master and lower federal courts, and deals with hundreds of millions of dollars annually. In essence, a coalition of 30 other states argue that Delaware is unfairly claiming millions in uncashed MoneyGram checks left by heirless decedents that should be returned to the state in which they were purchased.

In 2016 court filings, Pennsylvania has asserted it is owed at least $10.2 million, while Wisconsin pegged its connected funds at more than $13 million.

However, MoneyGram, the second largest money-transfer company in the world, has determined that it doesn’t meet the federal definition of a money order or cashier’s or traveler’s check, and therefore sends unclaimed funds to Delaware, its state of incorporation. Last year, about 8% of Delaware’s budget was funded by such unclaimed property, which includes a wide variety of other escheatment.

The First State has argued that MoneyGram checks are critically not labeled as money orders, are handled by banks rather than convenience stores or retailers, are for larger sums of money and often fall under other federal regulations.

The latest turn in the argument between states comes directly to the Supreme Court, which assigned an independent arbiter known as a special master to establish facts and issue a recommendation. Last year, the special master, Senior Judge Pierre Leval of the U.S. Court of Appeals for the 2nd Circuit, sided with the plaintiffs after finding their arguments “far more persuasive,” but his ruling is not binding and left to the full Supreme Court.

On Monday, Hogan Lovells partner and former U.S. Solicitor General Neal Katyal represented Delaware while Arkansas Solicitor General Nicholas J. Bronni represented the plaintiffs before the high court in its second hearing of the term, the first that featured Justice Ketanji Brown Jackson. 

The justices’ questioning was primarily framed around what the definitions of the 1974 federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (FDA) meant when approved, how the plaintiffs could legislatively fix the issue and how a Supreme Court ruling could have unintentional impacts beyond MoneyGrams. Several of the judges, including Clarence Thomas, were openly skeptical of Delaware’s claims.

Clarence Thomas in particular opined that the MoneyGrams appeared very much like a money order without an official designation, and even if they aren’t would likely be captured by another catchall clause. Ketyal responded that because MoneyGrams are moved from one bank through the company to another bank, and address info is captured by the banks, that they shouldn’t be treated like anonymous money orders.

“The states have the easiest fix in the world of fix they didn’t have in 1972, which is to say whenever you’re one of those banks dealing with MoneyGram, you just have to transmit the address information that you’re already collecting,” Ketyal argued.

Although the court may be poised to undo Delaware’s grasp on the millions in unclaimed funds, it could still have some support. Chief Justice John Roberts Jr. needled Bronni by inquiring why the allegedly aggrieved states didn’t fix the issue themselves legislatively.

“You can require MoneyGram to ask for that [address] Information. I mean that would solve your problem, just like that,” he noted.

Bronni didn’t quite reply to Roberts’ point, but argued that the states felt they would be covered under the existing Congressional definition.  

Nearly everyone arguing the case also recognized that Congress could address the issue by amending the FDA to better define the instruments nearly five decades after they were first written, fixing the inequity of escheatment currently benefiting Delaware.

Ketyal argued that the court ruling on a new definition for the MoneyGram or money orders could put other financial instruments like cashier’s checks at risk as well though.

This is the second time in three years that Delaware has been heard before the Supreme Court on its opening day. In 2020, it argued against a challenge on its politically balanced judicial benches, a case that it won on a technicality but is rapidly heading to another high court hearing.

A ruling on the escheatment case will be seen before the end of its term in June 2023, but likely will be months earlier.

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