On February 28, 2023, the US Supreme Court issued its decision in the abandoned property lawsuit, Delaware v. Pennsylvania (see https://www.supremecourt.gov/opinions/22pdf/145orig_kjfl.pdf)
The question addressed by the Court focused on which state was entitled to collect unclaimed property, which arose from two financial products sold by banks on behalf of Moneygram: Agent Checks and Teller’s Checks (collectively, the “Checks”).
Following the framework established in the seminal case of Texas v. New Jersey, 379 U. S. 674 (1965), because Moneygram did not have the name and address of the owners of the Checks, Moneygram had been escheating (that is, paying over to the state) the funds underlying these dormant Checks to its state of incorporation, Delaware.
That rule, paying unclaimed property to the state of incorporation in instances where the name and address of the individual property owner is not known, widely applies to most property, except for money orders and travelers checks. This exception arises from a 1974 federal law, the Federal Disposition Act (“FDA”), 12 USC § 2501 et seq), which requires holders of funds underlying unused money orders and travelers checks (and other similar instruments) to remit those funds to the state in which the instruments were purchased, not the holder’s state of incorporation.
Therefore, the Supreme Court focused on whether the Checks should be subject to the Texas v. New Jersey framework or whether they were similar enough to money orders so that they, too, once abandoned, should be paid to the state where purchased and not the state of incorporation.
The Supreme Court held, in the first majority opinion penned by new Supreme Court Justice Ketanji Brown Jackson, that the Checks were indeed similar to money orders, and should be escheated to the state of purchase under the FDA, and not the state of incorporation:
When a financial product operates like a money order— i.e., when it is a prepaid written instrument used to transmit money to a named payee—and when it would also escheat inequitably solely to the State of incorporation of the company holding the funds under our common-law rules due to recordkeeping gaps, then it is sufficiently “similar” to a money order to fall presumptively within the FDA. (598 U.S. __; slip op. at 22)
This is considered a more equitable rule, allowing the property to be distributed among multiple states where the commercial activity occurred.
There was a tremendous amount of money at stake: some estimate Delaware will owe more than $400 million to the other states based on the result in this lawsuit.
The bigger question is whether, now that the definition of “money orders” (and similar instruments) under the FDA has been widened to include the Checks, will other financial products and instruments also be subject to a similar determination? We anticipate that many states will be taking a closer look at “prepaid written instruments used to transmit money” in order to increase their abandoned property collections.