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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: 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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Litigation update: Pennsylvania files complaint and seeks ruling that “official checks” are treated like money orders in suit against Delaware and MoneyGram, Part 2

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Friday, June 24, 2016

Treasury Department of the Commonwealth and Treasurer Timothy Reese, Plaintiffs v. Delaware State Escheator David Gregor and MoneyGram Payment Systems Inc., Defendants (U.S. District Court for Middle District of Pennsylvania)

 

Part 1 of this article provides background on lawsuit filed by the state of Pennsylvania against MoneyGram Payment Systems Inc. (MoneyGram), and the state of Delaware, as well as a separate suit filed against the same defendants by the state of Wisconsin.

 

MoneyGram’s Motion to Dismiss

Defendant MoneyGram filed a Motion to Dismiss the lawsuit brought by Pennsylvania. In an April 25, 2016 brief supporting its motion, the company explained how the dispute arose and why it believes the lawsuit lacks merit to proceed.

 

According to allegations made in MoneyGram’s Motion to Dismiss, the dispute began in 2014 when Arkansas demanded the company pay substantial sums to that state for uncashed official checks that had already been escheated to Delaware. MoneyGram declined and encouraged Arkansas to resolve the matter with Delaware. Arkansas refused, informing MoneyGram that the state intended to audit the company and “request that every state join” the audit, unless the state’s demands were met. As a result, approximately 20 states have made similar demands of MoneyGram.

 

MoneyGram’s brief raises numerous issues, two of which are especially noteworthy:

  • The company alleges that the District Court does not have subject matter jurisdiction. It cites 28 U.S. Code sec. 1251(a), which says, in part, that the U.S. Supreme Court “…shall have original and exclusive jurisdiction of all controversies between two or more states.”
  • The company also alleges that the plaintiffs’ claims violate MoneyGram’s constitutional due process rights. It cites the U.S. Supreme Court case of Western Union Telegraph Co. v. Pennsylvania, and claims that requiring MoneyGram (as opposed to Delaware) to pay Pennsylvania for property already escheated to another state would improperly result in the company paying a single debt more than once, taking its property without due process of law. MoneyGram notes that the Supreme Court in the Western Union case stated, “Our Constitution has wisely provided a way in which controversies between states can be settled without subjecting individuals and companies affected by those controversies to a deprivation of their right to due process of law. Article III, Section 2 of the Constitution gives this court original jurisdiction of cases in which a State is a party.”

Delaware’s Motion to Dismiss

Defendant David Gregor, Delaware state escheator, also filed a Motion to Dismiss. In an April 20, 2016 brief in support of the motion, it is stated that the case should be dismissed because it essentially is a disagreement between two states, Pennsylvania and Delaware. Therefore, under 28 U.S. Code sec. 1251(a) and other authorities cited, it is argued that the U.S. Supreme Court has original and exclusive jurisdiction over the dispute.   

 

Supreme Court motions

Despite the disagreement between states, it appears there is one thing on which they agree. They all contend that the U.S Supreme Court (Supreme Court) is the appropriate venue for the dispute. In recent weeks, there have been multiple motions to the U.S. Supreme Court related to the MoneyGram disputes:

  • On May 26, 2016, Delaware filed a motion, asking the Supreme Court to hear its dispute against Pennsylvania and Wisconsin.
  • On June 3, 2016, Wisconsin filed a motion, making a request to the Supreme Court, seeking leave to file a counterclaim against Delaware.
  • On June 9, 2016, 21 states filed a motion, asking the court to hear their dispute against Delaware. The states note that hundreds of millions of dollars are at stake.  For example, they state that between May 2011 and March 2015, at least $162 million in unclaimed funds attributable to MoneyGram official checks went uncashed or were not redeemed. They are asking the court, among other things, to: (i) declare that funds payable on unclaimed MoneyGram official checks sold in their states should be remitted to them, rather than Delaware, (ii) instruct Delaware to turn over funds for unclaimed official checks that have already escheated by MoneyGram, and (iii) award damages, including interest.
  • On June 13, 2016, Pennsylvania filed a motion with the Supreme Court, stating that it concurs in Delaware’s Motion for Leave to file Bill of Complaint, and asking the Supreme Court to grant Delaware’s motion.

The U.S. Supreme Court will review the motions and decide whether to hear the cases or decline. UPPO will continue to monitor and report on developments surrounding these cases as they occur.

 

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 and American 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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Litigation update: Pennsylvania files complaint and seeks ruling that “official checks” are treated like money orders in suit against Delaware and MoneyGram, Part 1

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, June 9, 2016
Treasury Department of the Commonwealth and Treasurer Timothy Reese, Plaintiffs v. Delaware State Escheator David Gregor and MoneyGram Payment Systems Inc., Defendants (U.S. District Court for Middle District of Pennsylvania)

Background

Among its services, MoneyGram Payment Systems Inc. (MoneyGram) sells both money orders and “official checks.” Although not entirely clear, the complaint indicates that customers purchase either payment instrument from participating MoneyGram locations in exchange for the actual value of the money order or official check, plus a transaction fee.


According to allegations in the complaint, the only differences between money orders and official checks are:

  • Sale location: Money orders are sold in traditional retail locations, such as drugstores, while official checks are generally sold at financial institutions, such as banks.
  • Value: Money orders generally have low face value limits, while official checks do not.

The complaint alleges that MoneyGram is directly liable for the value of both money orders and official checks. Specifically, it claims MoneyGram is the holder of the value of official checks sold in Pennsylvania under that state’s law. If an official check is never presented for payment, the complaint alleges that the company retains the money, resulting in the accumulation of a large sum of money for which MoneyGram is a holder, rather than the owner. The complaint alleges that there is no material commercial difference between money orders and official checks.

State roles
MoneyGram is currently incorporated in Delaware. Previously, the company was incorporated in Minnesota. The complaint alleges that upon information and belief, MoneyGram’s  principal place of business is Texas. The Pennsylvania Treasury Department is the plaintiff in this case, alleging that MoneyGram escheated approximately $10.3 million to Delaware, representing funds for the value of official checks purchased in Pennsylvania between 2000 and 2009. In 2015, Minnesota returned approximately $200,000 to Pennsylvania, the value of funds escheated for abandoned official checks when MoneyGram was incorporated there. According to the complaint, similar demands made to Delaware not only by Pennsylvania, but also by Texas and Colorado for official checks issued in those states, have been unsuccessful.

Federal law
Pennsylvania claims the value of abandoned official checks is owed to the state under the Disposition of Abandoned Money Orders and Traveler’s Checks Act, also referred to as the Federal Disposition Act (FDA), as well as its own unclaimed property law. Under the FDA, the state where a money order, traveler’s check or similar written instrument (other than a third-party bank check) was purchased is entitled to take custody of the value of those payment instruments under its own state laws.

Defenses by defendants
According to the complaint, Pennsylvania made a series of demands of Delaware and MoneyGram for the funds representing the value of official checks, beginning on Sept. 29, 2015. MoneyGram responded, agreeing to abide by a decision by Pennsylvania and Delaware, or by a court’s declaration on the issue that would decide which state is entitled to the unclaimed sums in question in the case. Delaware, the complaint alleges, has taken the position that official checks are “third-party bank checks,” so the sums are not owed to Pennsylvania. Note: Part 2 of this update will discuss potential defenses raised by each of the defendants in more detail.

Relief sought
Pennsylvania seeks several declarations from the court applicable to both Delaware and MoneyGram:

  • MoneyGram official checks are considered either “similar written instruments” or “money orders,” rather than “third-party bank checks,” under the FDA.
  • Delaware is in violation of the FDA.
  • MoneyGram is in violation of the FDA and the Pennsylvania Unclaimed Property Act, because sums payable on Pennsylvania checks should have been remitted to Pennsylvania, rather than Delaware.
  • All future sums payable on abandoned MoneyGram official checks purchased in Pennsylvania should be remitted to Pennsylvania.

With respect to MoneyGram, Pennsylvania also seeks damages of at least $10.3 million, plus 12 percent annual interest, penalties of $1,000 per day and attorneys’ fees. The state also demanded a jury trial.

Key issue
The key issue in the case appears to be whether unclaimed funds attributable to the “official checks” in question are to be governed by the general priority rules of Texas v. New Jersey, or whether unclaimed funds attributable to the “official checks” are to be governed by the specific rules of the FDA.

Wisconsin suit
In a separate but similar suit filed on April 27, 2016, by the Wisconsin Department of Revenue against MoneyGram and Delaware State Escheator David Gregor, Wisconsin is seeking more than $13 million. According to the complaint, this amount represents the value of official checks purchased in Wisconsin beginning in the year 2000, but never cashed.

Part 2
Part 2 of this article will examine separate motions by Delaware and MoneyGram to dismiss the Pennsylvania suit.

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 and American 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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