All nine Supreme Court Justices sided with a group of 30 states in a dispute with Delaware over hundreds of millions of dollars of unclaimed checks issued by MoneyGram, a money transfer company. The Court held that the unclaimed checks must be sent to the states where they were purchased, and not to Delaware, the company’s state of incorporation. The case turned on the interpretation of the Federal Disposition Act,1 a federal statute enacted by Congress in 1974, which governs escheatment of money orders “or other similar written instruments.”2 The Court held that the MoneyGram checks were similar to money orders, and therefore the federal statute determines which state can escheat the unclaimed funds.
The case has the potential to put a significant dent in Delaware’s unclaimed property revenue. In 2022, after accounting for amounts returned to property owners, the State’s unclaimed property revenue was $349 million, or approximately 6{c024931d10daf6b71b41321fa9ba9cd89123fb34a4039ac9f079a256e3c1e6e8} of total state revenue.3 Although this number is down from recent years, some reports indicate that Delaware could owe as much as $400 million back to other states solely from this case.
Justice Ketanji Brown Jackson delivered the opinion on February 28, 2023 for a Court that ruled unanimously against Delaware. The MoneyGram case represents the first time the Supreme Court has grappled with escheatment and unclaimed property issues since the early 1990s, when the Court decided Delaware v. New York, 507 U.S. 490, 510 (1993).
Before this case, the State of Delaware had been taking custody of these MoneyGram checks based on the common law priority rule that allows a company’s state of incorporation to take custody of abandoned property when the address of the owner is unknown. Other states, led by Pennsylvania and Arkansas, filed suit against Delaware and argued that, for these MoneyGram checks, the Federal Disposition Act overrides the common law rule. The Federal Disposition Act provides that unclaimed funds from money orders or “other similar written instruments” are to be escheated to the state where the checks were purchased. The parties disagreed on which rule should apply: the federal statute or the common law.4
The Supreme Court decided the case on narrow grounds, finding that the MoneyGram instruments are “similar” to money orders and therefore subject to the federal statute, regardless of whether they are actually money orders. The Court adopted a practical approach and reasoned that the MoneyGram checks are similar to money orders in two key respects. First, they are similar in function and operation to money orders. And second, they have similar characteristics to the types of instruments Congress was attempting to address in the statute. Specifically, like money orders, MoneyGram had generally not collected the addresses of the creditors, and so if the common law priority rules were to apply, “then the abandoned proceeds would escheat inequitably solely to the State of incorporation, just like the money orders expressly referenced in the statute.”5
The Court’s decision was based, in part, on the practical consideration of avoiding the “inequitable” result of having all of the money go to the state of incorporation. The Court reasoned that the purpose of the statute—establishing a place-of-purchase standard for these payment instruments—was to prevent a “windfall” for one state over all others. Justice Jackson wrote for the Court that “the [Federal Disposition Act’s] text provides a solution for the problem of the inequitable distribution of escheats, and that solution expressly eschews requiring entities like Western Union to keep adequate records. Inadequate recordkeeping is thus highly relevant to the interpretive question of when the [Federal Disposition Act], rather than the common law, should apply to the escheatment of the intangible property at issue.”6
The Supreme Court found Delaware’s arguments to be unpersuasive because:
- Delaware had failed to convincingly explain how the disputed checks were different enough from money orders to fall outside the Federal Disposition Act, which applies to money order and “similar” instruments; and
- Delaware’s urging that the term “money order” in the Federal Disposition Act should be interpreted narrowly to avoid covering instruments like cashier’s checks was not immediately at issue, because the Court decided the case narrowly by finding the instruments were sufficiently “similar” to money orders. The Court’s opinion expressly indicated it was not deciding whether cashier’s checks, certified checks, or teller’s checks are “money orders” because that issue was not before it.7
The remaining issue in the case involves the determination of the amounts owed by Delaware back to the other states, and the impact on state unclaimed property regimes, particularly in Delaware. For the liability determination, the case will go back to the Special Master to determine the amounts owed and any other remaining issues.
Key Takeaways:
- The Court seemed guided by the practical consideration of avoiding a “windfall” for one state over all others.
- By deciding the case on narrow grounds, the Court avoided wading into other potentially disputed unclaimed property issues, such as reconsideration of the common law priority rules. Other unclaimed property cases could find their way to the Supreme Court in future terms.
- The potential impact on Delaware and its unclaimed property program remain to be seen. The State could be required to distribute hundreds of millions of funds to other states based on the ruling in this case.
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1 The Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act, 12 U.S.C. § § 2501–03.
2 Delaware v. Pennsylvania, No. 145, 146, slip op. at 2, 9 (2023).
3 https://financefiles.delaware.gov/DEFAC/12-22/Revenue.pdf
4 A Special Master appointed by the Supreme Court initially agreed with Pennsylvania and the other states in his First Interim Report, finding that the federal statute and not the common law priority rules should apply to these disputed instruments. The Special Master later changed his recommendation after oral argument and issued a Second Interim Report, where he found that (1) some of the disputed instruments fell within the category of “other similar written instrument,” but would not be included in the category of “money order,” and (2) to the extent the disputed instruments are drawn by a bank as drawer, the disputed instruments would fall within the statute’s “third party bank checks” exception.
5 Delaware v. Pennsylvania, No. 145, 146, slip op. at 13–14 (2023).
7 Id. at 19 n.13.
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