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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Litigation Update: New Jersey Court Issues Merchandise Certificate Decision

Posted By Administration, Thursday, November 16, 2017

BBB Value Services Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al. and Bed Bath & Beyond Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al.

 

On Sept. 21, 2017, the New Jersey Superior Court Appellate Division issued an important decision regarding merchandise certificates. The plaintiffs in the original cases under appeal were Bed Bath and Beyond and its subsidiary, BBB Value Services Inc. The respondents were unclaimed property officials with the state of New Jersey. Both plaintiff companies had filed for refunds with New Jersey for escheated amounts attributable to merchandise certificates and were denied.

 

The merchandise certificates in question resulted from a Bed Bath and Beyond policy that customers who returned merchandise without a receipt would be given a certificate for merchandise or services, but not cash. From 2004 to 2012, Bed Bath and Beyond reported and remitted these certificates to New Jersey’s unclaimed property administration. In 2014, the subsidiary reported a sum attributable to certificates issued between 2010 and 2011. When denying the refund claims from both entities, the state argued that the merchandise certificates were considered credit memoranda.

 

The court reversed the state’s denial of both entities. Bed Bath and Beyond successfully argued that the merchandise certificates weren’t covered under New Jersey’s unclaimed property act, in part because they weren’t redeemable for cash. The court agreed that they didn’t fit the definition of “property,” ruled in favor of Bed Bath and Beyond and said the company was entitled to a refund.

 

The subsidiary, BBB Value Services, argued that the items in questions were stored-value cards and not credit memoranda under a July 2010 amendment to New Jersey’s unclaimed property act. As such, they weren’t presumed abandoned until after five years of inactivity and, even then, they should have been reportable at only 60 percent.

 

The subsidiary said that if the certificates were indeed considered stored value cards, the five-year dormancy period had not run. If they were not considered stored value cards, then they wouldn’t be subject to New Jersey’s unclaimed property act because they weren’t redeemable for money. The court agreed with BBB Value Services that the certificates were stored value cards.

 

The court ruled the state had erred by not giving BBB Value Services a refund. Thus, the subsidiary was entitled to a refund, but because the five-year dormancy period had now run, some of the property must now be reported. So, BBB Value Services was directed to file a new report.

 

 

Special thanks to Sam Schaunaman, recently retired senior manager at Ryan AUP and longtime member of the UPPO Government Relations and Advocacy Committee, for his frequent contributions to UPPO’s litigation update blog posts.

 

Disclaimer: This case summary contains a general description of the case. It is not intended as business, financial, legal, tax, reporting or compliance or other professional advice or services. This summary blog is not a substitute for such professional advice.

 

Tags:  litigation  merchandise certificates  New Jersey 

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Litigation Update: Supreme Court battle over MoneyGram “official checks” begins taking shape

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Monday, June 12, 2017

Delaware v. Pennsylvania and Wisconsin and Arkansas, et al. v. Delaware (U.S. Supreme Court)

MoneyGram has been involved in a number of lawsuits involving Delaware, Wisconsin and Pennsylvania. The states are each claiming right to MoneyGram’s official checks. Delaware claims MoneyGram should escheat the property to Delaware because it is MoneyGram’s place of corporate domicile. Wisconsin and Pennsylvania argue that the official checks should be remitted to the jurisdiction in which the purchase took place. 

 

A key issue is whether the unclaimed funds attributable to the official checks should be escheated in accordance with the federal priority rules set forth in Texas v. New Jersey, or whether they should be escheated in accordance with the rules set forth in the Disposition of Abandoned Money Orders and Traveler’s Checks Act, 12 U.S.C. sec. 2501 et seq.

 

More than two dozen other states have joined Pennsylvania and Wisconsin in the lawsuits against Delaware. In October 2016, the U.S. Supreme Court (“Supreme Court”) agreed to hear the cases, and consolidated the two cases into one.   

 

(Learn more about the cases involving MoneyGram that led to Delaware v. Pennsylvania and Wisconsin: Part 1 and Part 2.)

 

Special master appointment

In disputes involving two or more states, the Supreme Court has original jurisdiction under the U.S. Constitution and the U.S. Code. In order to efficiently consider and manage such original jurisdiction cases, the Supreme Court may appoint a “special master” to act as a de facto trial court, responsible for gathering facts, taking testimony and making recommendations to the Supreme Court.

 

On March 29, 2017, the Supreme Court appointed Circuit Judge Pierre Leval of the Court of Appeals for the Second Circuit as the special master for this case.

 

Case Management Order No. 1

On May 12, 2017, Special Master Leval issued Order No. 1 in the case. It indicated that a status conference would be held in New York City on June 5, 2017, whereby the special master would meet with counsel for the parties and MoneyGram Payment Systems Inc. to discuss formulation of a Case Management Plan. Our understanding is that arguments on certain motions of the parties would be heard at such conference, as well as discussions pertinent to a letter from legal counsel for one of the parties requesting bifurcation of the proceedings. Such request asked that the case be bifurcated into two stages: (i) a first part to determine liability, and (ii) a second phase to determine damages, if needed. 

 

UPPO will continue to monitor and report on this case as it develops.

 

About the contributor
Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property, is a frequent author of unclaimed property articles and whitepapers, and is a co-author of the Bloomberg BNA Unclaimed Property Portfolio, Corporate Practice Series.  Schaunaman is a member of the Oklahoma Bar Association.    


Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

 

Tags:  Delaware  litigation  money orders  MoneyGram  official checks  Pennsylvania  unclaimed property 

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Gobeille case backs ERISA preemption argument

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, February 2, 2017

Many employee benefit plans were established under the federal Employee Retirement Income Security Act of 1974, as amended (ERISA). Unclaimed property holders generally take the position that because federal law dictates how benefit plans should be administered under ERISA, states are preempted from claiming the money associated with those plans. A 2016 U.S. Supreme Court decision appears to add support to this position.

 

Considering the case of Gobeille, Chair of the Vermont Mountain Care Board v. Liberty Mutual Insurance Company, the Supreme Court examined whether Liberty Mutual and its third-party administrator, Blue Cross Blue Shield of Massachusetts, Inc. were required to provide information to Vermont under the state’s disclosure statute.  Liberty Mutual sponsored a self-insured and self-funded health plan that provided health benefits in all 50 states to its employees, their families, and former employees. Vermont issued a subpoena to Blue Cross to provide eligibility, medical claim and pharmacy claim files for the plan’s Vermont members. Liberty Mutual instructed Blue Cross not to comply, and then filed suit, seeking a declaration from the court that ERISA preempts state law and, thus, because the plan is an “employee welfare benefit plan” under ERISA, the company was not compelled to submit the requested information.

 

The Supreme Court ruled in favor of Liberty Mutual. This decision is significant for unclaimed property holders. If a state regulator cannot compel a benefit plan subject to ERISA to obey a healthcare reporting subpoena, it logically follows that it also cannot compel it to file an unclaimed property report or obey an unclaimed property subpoena.

 

This decision adds support to existing authorities favoring ERISA preemption:

  1. Literal reading of the statute and legislative history: It is generally accepted that Congress enacted ERISA so plan sponsors would have to comply with only one federal law, rather than a variety of potentially conflicting state laws.  Sen. Jacob Javits (R-N.Y.), a key sponsor of the bill that became ERISA, stated as part of the legislative history to ERISA that, “The emergence of a comprehensive and pervasive federal interest and the interests of uniformity with respect to interstate plans required—but for certain exceptions—the displacement of state action in the field of private employee benefit programs.”
  2. Previous case law: In the 1999 Commonwealth Edison Company v. Vega case, the U.S. Court of Appeals for the Seventh Circuit denied the state of Illinois’s efforts to escheat uncashed benefits checks issued by an ERISA-covered defined benefit plan.
  3. U.S. Department of Labor (DOL) support: The DOL, which administers some ERISA provisions, is on record supporting the law’s preemption of state laws. It has publicly stated this position via advisory opinions and a formal letter to the Uniform Law Commission committee that was drafting the 1995 edition of the Uniform Unclaimed Property Act.

 

ERISA has been in effect for more than 40 years, but conflicts regarding its preemption of state law related to unclaimed property still arise from time to time. 

 

This Gobeille case appears to support the proposition that states cannot make any plan covered by ERISA respond to a health care reporting subpoena. If they can’t make such a plan sponsor supply information pursuant to litigation, it would seem they shouldn’t be able to require the filing of escheat reports either. Doing so would require an ERISA plan administrator to become familiar with and adhere to 50 different laws, thus defeating the intent of Congress when passing ERISA.

 

 

About the contributor

Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association.    

 

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

 

Tags:  ERISA  federal preemption  litigation  unclaimed property 

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Considering the viability of administrative appeals

Posted By Administration, Thursday, January 19, 2017

Arguably the most controversial aspect of unclaimed property compliance, states’ audit practices are a constant source of frustration among property holders. The use of third-party auditors incentivized by contingency fees continues to shape the direction of holder litigation and advocacy efforts. Few argue against the importance of compliance, but many seek a fair playing field.

 

One way to help ensure a more reasonable environment for unclaimed property professionals is by offering holders a meaningful process for appealing audit assessments. Currently, laws in fewer than half of all states’ make administrative appeals an option.

 

Among the states that do offer administrative appeals, the process, reviewing entity and formality vary widely. This makes it essential for holders undergoing audit to closely examine how the process works when considering an appeal.

 

“You really need to know the forum you’re in because no two are alike,” says Marilyn Wethekam, partner at Horwood Marcus & Berk, Chartered. “Think about the rules that apply in that location and what you’re trying to accomplish under their specific set of rules.”

 

In some states, the appeals process is relatively informal, with the holder or holder’s representative submitting a document outlining the disputed aspects of the audit. Other states follow formal rules of evidence, rely on subpoenas and require legal counsel, much like the litigation process. Regardless of the level of formality, the reviewing body is rarely independent. It usually consists of, or includes, the administrator or administrator’s designee.

 

Despite the hodgepodge of practices and tactics currently used to complete administrative reviews, hope remains for greater standardization. Unlike past versions of the Uniform Unclaimed Property Act (UUPA), the 2016 version of the model law includes administrative appeal language.

 

Unlike current appeal processes, which typically require holders to hold any issues that arise during an audit until they’ve received a notice of determination at the end, Section 1008 of the 2016 UUPA provides for an interim audit conference. If the holder feels an auditor’s request is unreasonable or if the audit is not proceeding in a reasonable timeframe, for example, it may request a conference with the administrator. The administrator is required to issue a written report after the conference, addressing the concerns raised by the holder. Remedial actions could include such things as invalidating an auditor’s request, setting a timeframe for audit completion or reassigning the audit.

 

Article 11 of the 2016 UUPA formalizes the post-audit administrative appeals process. It creates a three-level process—informal conference, administrative review and judicial review. It also specifies that the process is elective and allows the holder to withdraw any time before the administrator issues a decision.

 

“Currently, in some states once you initiate the administrative appeals process, you have to follow it all the way through,” says Michelle Andre, managing member of Tre Towers Advisory Group, LLC. “Under

the 2016 UUPA, you could go through the informal conference, realize you’re not getting an impartial review, and then take your chances in court instead of going through all three levels of review.”

 

The 2016 UUPA also defines specific timelines for each level of review. The holder must request an informal conference within 30 days of receiving the notice of determination. The administrator then must issue a written decision within 20 days. The administrator is authorized to modify or withdraw the assessment. Interest and penalties continue to accrue during this process.

 

The administrative review process must begin within 90 days of the notice of determination or the informal conference decision. The final decision is subject to judicial review, which begins 90 days after the notice of determination or informal conference, or as specified by the state’s Administrative Procedures Act.

 

“Not only do you want to go to an impartial body, but you want them to review your facts and circumstances de novo—with a fresh set of eyes,” Andre says. “Under some states’ administrative procedures acts, the review is not de novo. It’s limited to information in the existing record. We’ll need to fight for that as legislation is introduced in the states, along with the right to have an independent reviewer where both the holder and state can have input into who is hearing the appeal.”

 

Deciding whether to pursue an administrative appeal or litigate is a business decision that may not always be obvious. Holders need to consider numerous factors and prepare accordingly:

  • Strength of the challenge: What is the nature of the case, how good is it in the eyes of the party reviewing the issues, and what type of information is available to support the case?
  • Burden of proof: Does the holder have to prove that determination handed down was incorrect or does the burden to prove the assessment was fair fall on the state?
  • Evidentiary standard: Do rules of evidence apply? Can the holder bring in an expert to demonstrate that the sampling used to calculate an assessment wasn’t statistically accurate?
  • Dollar impact: What does the holder consider a reasonable assessment range, above which they would pursue an administrative appeal?
  • Preparation: Because the appeals timeframes under the 2016 UUPA are relatively short, Is the holder adequately prepared to make their case within relatively tight timeframes?

“The holder has only 30 days to request an informal conference, so if they don’t have their documentation to support their position in order and their issues ready to present, 30 days isn’t a lot of time to pull all of that information together,” Andre says.

 

After evaluating their circumstances, holders who have the ability to pursue an administrative appeal may choose that option or litigate instead. Regardless of whether they ultimately use the appeals process, having the choice is important for holders seeking a fairer environment.

 

“As a general rule, I believe you are always better to avail yourself of the ability to sit down and try to talk to people, explain things and present documents and make a case for your position,” Wethekam says.

 

To learn more about unclaimed property fraud, join Andre and Wethekam, as they lead the Do You Know Your Administrative Appeals Process? session at the 2017 UPPO Annual Conference. They will

explore in greater detail how the process works in several states, costs compared to litigation and holder requirements.

 

 

Tags:  administrative appeals  audits  litigation  unclaimed property 

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Litigation update: Plains All American appeal keeps estimation case alive

Posted By Administration, Thursday, January 12, 2017

One of the more interesting recent unclaimed property cases in recent years is Plains All American Pipeline L.P. v. Thomas Cook et al. In August 2016, the case was dismissed, but Plains has appealed the decision, sending the case to the Third Circuit Court of Appeals.

 

Background

A limited partnership incorporated in Delaware, Plains All American Pipeline, received notification in 2014 that Kelmar would be conducting an audit of the company on behalf of Delaware. Plains objected to the initial information request, claiming, in part, that the company was being audited not because of any suspicion of wrongdoing, but rather because of its profitability. When Delaware dismissed the company’s objections, Plains filed suit.

 

Among the complaint’s allegations, Plains argues that Kelmar’s request for information about subsidiaries organized outside of Delaware constitutes illegal search and seizure under the Fourth Amendment. The company argued that the state and its agent have no right to that information and, if they did, they would need to have reasonable grounds to search for it. The complaint also directly challenged Delaware’s right to use estimation.

 

Decision

On Aug. 16, 2016, the U.S. District Court for the District of Delaware granted the defendants’ motion to dismiss. In part, the court said the plaintiffs brought their suit based on potential threats and not actual threats. For example, Plains challenged the state’s right to use estimation before it had done so, as the lawsuit was brought immediately following Kelmar’s initial information request. Regarding the Fourth Amendment claim, the court said the state’s decision to examine businesses based on their profitability was legitimate, as those companies are logically more likely than others to hold large amounts of unclaimed property.

 

Plains was worried about going through this long audit and then getting an estimated liability,” says Diane Green-Kelly, partner with Reed Smith LLP. “They didn’t think estimation was appropriate. The way the court read the complaint was that Plains was unhappy about how the audit might unfold and what the assessment might be. The court said you can’t complain about something that might happen. You have to wait until you’ve suffered an injury. The court didn’t consider the case ‘ripe.’”

 

Status

As with any case a court dismisses with prejudice, parties involved in the case may appeal the decision. Plains All American did just that on Sept. 16, 2016, sending the case to the Third Circuit Court of Appeals.

 

Outlook

The appealed Plains case is developing at a time when Delaware’s unclaimed property practices face several significant challenges. These challenges may affect how the appeals court views the case.

 

“It’s hard to know what the Third Circuit will do, especially in light of other things,” Green-Kelly says. “You can’t look at the Plains case in a vacuum. The court will see that 21 states are suing Delaware for overreaching its unclaimed property authority. Temple-Inland won because of overreaching and ignoring federal law. Marathon and Office Depot sued Delaware. Everyone is suing Delaware. The Third Circuit will see this case in the context of a lot of things happening out there challenging Delaware’s conduct. So, the court could decide this case actually was ripe in light of the context in which it was filed.”

 

Another case, Delaware Department of Finance v. Blackhawk Engagement Solutions, could also influence the outcome of Plains. In 2015, Delaware’s escheator issued a subpoena to Blackhawk requesting documents related to an audit that had been in progress for several years. Blackhawk refused. Delaware filed an action in court to enforce the subpoena, and Blackhawk resisted, claiming the escheator was not authorized to take these actions, among other things. The state filed a motion for judgment on the pleading, at which point Plains All American and Marathon filed a joint amicus brief.

 

The brief cites several areas of the Delaware Code where state agencies are authorized to conduct examinations to determine with a set of laws and expressly authorized to issue a summons for testimony and a subpoena for documents. The unclaimed property statute authorizes the escheator to issue a summons for testimony, but not a subpoena for documents. The amicus brief points out that the code actually included such authorization until it was repealed and revised in 1990.

 

“If the Blackhawk court says the escheator has the authority to issue a subpoena and enforce it, Plains sort of goes away,” says Green-Kelly. “If the escheator actually has subpoena power and can enforce it in court, the resisting company can claim it doesn’t have authority to so and let the court decide. It happens during the audit, so the court can stop it while it’s happening. Because the statute lacks the authority to issue a subpoena, right now there’s no way to stop it other than to file the type of lawsuit Plains filed.”

 

Impact on Holders

In light of the important issues at play in Plains and other current cases, Green-Kelly offers some advice for holders undergoing an audit or considering entering into a voluntary disclosure agreement (VDA).

 

“If you’re a company already under audit and close to the end, you shouldn’t just accept a result that is not supported by documents or anything that is close to an estimate like Temple-Inland,” she says. “If you’re not under audit and are thinking about a VDA, don’t do anything. See what happens with these cases. Under the new audit program, it might be better to be audited than to go through a VDA. Wait and see what the audit program is going to be. I can’t imagine telling any company to go into the VDA program right now unless they get the letter and have to make a decision.”

 

 

Tags:  Blackhawk  Delaware  estimation  litigation  Plains All American  unclaimed property 

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