Unclaimed Property Primer 

Unclaimed property is dormant property that is held by a company (the holder) but owned by someone else (the owner). Property is dormant when it has been held by the holder for a certain period of time without any contact or expressed interest from the owner (for example, an abandoned safe deposit box). Once the property becomes dormant, there is generally an obligation for the holder to provide the property to the state, which is referred to as escheat.  Determining where to escheat the property has resulted in litigation and federal statutes, and is the ultimate question at issue in Delaware v. Pennsylvania and Wisconsin.

Priority Rules

The escheat priority rules were born from a line of Supreme Court cases -- Texas v. New Jersey, 380 U.S. 518 (1965), Pennsylvania v. New York, 407 U.S. 206 (1972), and Delaware v. New York, 507 U.S. 490 (1993) -- dubbed the “Texas Trilogy.”  The Texas Trilogy established an order of priority among the states competing to escheat abandoned property.  In short, these priority rules allow first priority to the state of the property owner’s last-known address, and if the last-known address is unknown or in a state that does not provide for escheat, then second priority is to the state where the property holder is incorporated or formed.  

Delaware and other states have made the priority rules law and use them to determine where property escheats.  The second priority rule is significant for Delaware since many companies are incorporated or formed there, resulting in unclaimed property becoming Delaware’s third-largest revenue source after personal income tax and franchise tax.

Federal Disposition of Abandoned Money Orders and Traveler’s Check Act (“Act”)

Enacted in 1974, the Act governs the escheatment of certain unclaimed funds and was passed in response to Pennsylvania v. New York, since the drafters realized that the priority rules were going to result in a windfall for the state of incorporation/formation. The Act thus sought to distribute the financial instruments among the states based on the location of the underlying transaction.

Specifically, the Act states that unclaimed funds that are “payable on a money order, traveler’s check, or other similar written instrument (other than a third party bank check)” are escheated to the state in which the financial instrument was purchased. This is in contrast to the priority rules, which look to the last-known address of the property owner or the state of incorporation of the holder, rather than where the underlying transaction took place.       

Case Background 

MoneyGram is one of the world’s largest money-transfer companies. MoneyGram sells what it labels as “official checks,” which are prepaid financial instruments that can be purchased at financial institutions and are used to transmit funds to a named payee. If the named payee does not present these official checks for payment, they may become unclaimed property, which gave rise to this case.  

A unique component of this case is that it involves states bringing an action against another state.  MoneyGram is not a party to this case because it already escheated the property to Delaware under the priority rules. Therefore, the states are trying to recoup money from Delaware under the Act, preempting Delaware’s statutory priority rules. This is one of the few scenarios where the Supreme Court has original jurisdiction, rather than appellate jurisdiction. Cases that reach the US Supreme Court under its original jurisdiction may require a “special master” to sort the facts and offer a recommendation because the Court is not well suited to act as a fact-finding forum. The Court hears oral arguments and then decides whether to accept or reject the recommendation via a written opinion.  

On 29 March 2017, the US Supreme Court appointed Senior US Circuit Judge for the Second Circuit Judge Pierre N. Leval as the special master in the case. Leval’s May 2021 report sided with the 30 states, finding that the “official checks” were subject to the Act. Leval, however, did not adopt a firm definition of the term “money order” and urged the Court to follow suit because he could not foresee the consequences for other types of financial products not at issue in this case.

Leval’s recommendation was rooted in statutory analysis and a review of the legislative history of the Act. Leval found that the Act was enacted in response to the Court’s decision in Pennsylvania v. New York, and that the purpose of the Act was to ensure traveler’s checks and money orders would not be subject to the priority rules. In analyzing the MoneyGram official checks, Leval found they were different from an actual money order only in name, and at a minimum, would fall under the “similar instruments” catch-all from the Act. Thus, Leval found the official checks were subject to the Act.    

Potential Implications of the Supreme Court Decision 

There are five potential outcomes in this case, including: 

• The Court narrowly interprets the Act and finds in favor of Delaware
• The Court broadly interprets the Act, but finds the official checks are not subject to the Act
• The Court narrowly interprets the Act, but finds that the official checks are subject to the Act
• The Court broadly interprets the Act and finds in favor of the thirty other states. 

Any result will require precision from the US Supreme Court to avoid creating even more headaches for holders.      

Under the first outcome, MoneyGram will continue to escheat the official checks under the priority rules, which, of course, results in the official checks generally being escheated to Delaware since the last-known address is often unknown and MoneyGram is incorporated in Delaware. The precision with which the Court narrowly defines the Act under this outcome would likely determine whether Delaware would view this outcome as an invitation to apply the priority rules to other financial instruments that are similar to money orders or traveler’s checks.

Under the second outcome, MoneyGram would continue to escheat the official checks to Delaware; however, Delaware would likely have less discretion to apply the decision to other financial instruments.

Under the third outcome, MoneyGram would escheat the official checks under the Act; however, the Court may adopt the special master’s recommendation and limit the decision to MoneyGram’s official checks, leaving unanswered how to treat other financial instruments. This is especially true if the decision simply states that MoneyGram’s official checks fall within the Act, without offering any additional guidance on what constitutes a money order, a traveler’s check, or most importantly, “other similar written instrument.”  

Under the fourth outcome, MoneyGram would escheat the official checks under the Act. The precision with which the Court broadly defines the Act under this outcome would likely determine whether states would view this outcome as an invitation to apply the Act to other financial instruments that are similar to money orders or traveler’s checks.  

A fifth, but unlikely, potential outcome is that the Court rewrites the priority rules to somehow address where the underlying transaction took place, to the extent that information is known. This outcome is unlikely because it would require trampling on substantial US Supreme Court precedent and is not necessary for a resolution in this case.  But if this was the outcome, Delaware would take a major hit across many different property types.

The authors believe the third or fourth outcomes are the most likely since that would be substantively consistent with the special master’s recommendation. More importantly for holders is whether the Court, unlike Leval, will provide meaningful guidance on how to interpret the Act for similar financial instruments.  

For Delaware, the third or fourth outcomes may mean turning over up to USD 250 million to the thirty other states to account for the disputed unclaimed property that has escheated to Delaware under the priority rules. Given the importance of unclaimed property to Delaware’s finances, such an outcome may result in Delaware becoming even more aggressive in its unclaimed property audits for other property types.  

While there is no inherently right answer to the question: where should property escheat? Certainty and simplicity are necessary for multistate businesses with different property types, and that should be the ultimate goal of the US Supreme Court in this case.