Reuters is reporting that 21 States led by Texas and Arkansas are suing Delaware for allegedly stealing their citizen’s money. The 150 million dollar suit joins Pennsylvania and Wisconsin who already filed separate suits.
Delaware hired contractors to take a more aggressive collection of Escheat funds (unclaimed funds like dormant checking and savings accounts, uncashed money orders, cashiers checks, Unclaimed insurance benefits, Mineral royalty payments, Safe depository contents, Unused gift certificates.dividends, stocks, bonds, utility deposits or refunds). They didn’t hire them to find the people of course, but to push companies to turning them over to the state. The state then spends the money that is unclaimed after it publishes names on the web. It has been a boon to state revenue. Revenue has jumped to a half a billion dollars a year surpassing corporate taxes as our third largest income source. Delaware’s operating budget is approximately 3.9 billion dollars.
The states are not the only ones complaining. Private companies are suing as well. U.S. District Court Judge Gregory Sleet called Delaware’s shake down of corporations “shocking to the conscience”. The state lost a law suit this summer. Delaware Business Times reported the following in the preceding link.
The decision is a positive for businesses, but will have a major impact on the state budget in the coming years,” said Delaware State Chamber of Commerce President A. Richard Heffron. “The Chamber has raised these issues to the State over the years in an attempt to help address what companies under an abandoned property audit went through to calculate what they may owe. It has been an unfair practice to look back 30 plus years when no company keeps records going back that long.”
Temple-Inland argued among other things that Delaware’s practice of estimating unclaimed property liability for years in which actual records are not available amounted to an unlawful taking of property and violated constitutional provisions regarding due process. State officials began an unclaimed property audit of Temple-Inland in 2008, telling the company that the audit period would begin in 1981. But because the company was unable to produce records before 2003, officials used an estimation method to extrapolate that the state was owed $2.1 million. The figure was subsequently reduced to the amount that nevertheless remained in dispute.
The Temple-Inland lawsuit is one of several challenging Delaware’s abandoned property system, which has become a source of tension between the business world and a state that is the legal or corporate home to more than 1 million business entities, including more than 60 percent of Fortune 500 companies. It also has led other states to challenge Delaware in court over abandoned property. Abandoned property can include unclaimed stocks and bonds, insurance policies, uncashed checks, unclaimed wages, dividends, even unredeemed rebates and gift certificates. Under federal law, a state can take such property if it remains unclaimed for a certain number of years and the true owner can’t be found.
Under U.S. Supreme Court rulings, states follow a two-tier scheme for reporting and claiming abandoned property. Under the primary priority rule, unclaimed property is reported to the state of the owner’s last known address appearing on a company’s records. But if the owner’s address is unknown or incomplete, the unclaimed property is reported to the company’s state of incorporation.
Several questions are raised. If Delaware has to give back some of the money, does the firm give back its 25% commission? Why did we turn a blind eye to obvious injustice as a private company twisted the law to get commissions? Who will be accountable in state government? If Delaware loses up to 20% of its revenue, what will that do to state services and taxes? What is the back up plan?
Finally, when are Delaware voters going to hold the ruling party accountable for its malpractice?