The Pennsylvania Treasury Department and Its Treasurer Sue the Delaware Escheator for Over $10 Million in Abandoned “Official Checks”
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On February 26, 2016, the Treasury Department of the Commonwealth of Pennsylvania and Mr. Timothy A. Reese, Commonwealth Treasurer, filed a complaint in the United States District Court for the Middle District of Pennsylvania in which MoneyGram Payment Systems, Inc., and Delaware State Escheator, Mr. David Gregor, are named as defendants. The Pennsylvania Treasury Department and the Treasurer claim that MoneyGram erroneously submitted $10,293,869.50 to the Delaware Escheator in relation to abandoned “official checks” issued in Pennsylvania. Pennsylvania seeks, among other relief, an award of damages of no less than the amount submitted to the Delaware Escheator, plus interest at 12% per annum, penalties of $1,000 per day, and attorneys’ fees and costs.
According to the complaint, MoneyGram is a Delaware formed corporation with its principal place of business in Texas. During the period 2000 through 2009, MoneyGram issued “official checks” totaling $10,293,869.50, purchased at MoneyGram participating locations in Pennsylvania, which went uncashed for at least three years, and for which MoneyGram claims it does not have the last known address of the owners. MoneyGram also issued money orders during the same period. However, money orders are not at issue in the complaint.
Official checks are similar to money orders in that, in either case, the customer pays the value of the official check or money order, and a transaction fee. In return, the customer receives an instrument that is pre-printed with the value of the customer’s remitted payment. Like a money order, MoneyGram is directly liable for the pre-printed value of the instrument. The only apparent differences between MoneyGram money orders and official checks are where they are sold, and the amounts that can be reflected on them.
The Pennsylvania Treasury Department retained an outside auditor to perform an audit of MoneyGram to determine if it had any abandoned property which should have been submitted to the Pennsylvania Treasury Department. As a result of the audit, the Pennsylvania Treasury Department learned that MoneyGram remitted $10,293,869.50 to the Delaware Escheator, which represents the value paid for uncashed official checks issued in Pennsylvania during the period 2000 through 2009.
In mid-2015, the Pennsylvania Treasury Department notified representatives of the Delaware Escheator regarding sums payable on the official checks issued in Pennsylvania. In 2016, after not receiving the desired response, the Pennsylvania Treasury Department demanded payment from the Delaware Escheator and MoneyGram of the sums remitted by MoneyGram for abandoned official checks purchased in Pennsylvania. The Pennsylvania Treasury Department further demanded that MoneyGram immediately cease remitting sums payable on official checks purchased in Pennsylvania to the Delaware Escheator. The Delaware Escheator refused the demand on grounds that the official checks are “third party bank checks,” and, thus, not subject to custody of the Pennsylvania Treasury Department.1
Caught in the middle, MoneyGram indicated that it would abide by a decision by Delaware and Pennsylvania, or by a court’s declaration, regarding which state is entitled to the sums payable on the official checks. This lawsuit followed.
Other states, Colorado included, have made similar demands on Delaware for payment of sums payable on MoneyGram official checks that were purchased in states other than Delaware, but were remitted to the Delaware Escheator.
Relevant Federal and Pennsylvania Law
In Pennsylvania v. New York
, 407 U.S. 206 (1972), the Supreme Court of the United States held that, similar to other property, the state of the holder’s corporate domicile (i.e., state of incorporation) had the right to escheat sums owed on an uncashed money order where the address of the owner is unknown. However, the subsequently enacted 12 U.S.C. § 2503 provides that the state in which a “money order, traveler’s check, or similar written instrument (other than a third party bank check) on which a [corporation] is directly liable” was purchased is exclusively entitled to escheat of the sum payable on such an instrument. Consistent with U.S. Supreme Court precedent and federal law, under Pennsylvania law, Pennsylvania has custody over intangible property where the address of the owner is unknown and the holder’s state of incorporation is Pennsylvania, and a money order issued in Pennsylvania for which the holder does not know the address of the holder is subject to the jurisdiction of Pennsylvania. See 72 Pa. Stat. § 1301.2(a)(2).
The Pennsylvania Treasury Department’s and the Treasurer’s Requests for Relief
In its complaint, the Pennsylvania Treasury Department and the Treasurer request declaratory judgments on the following: (i) the official checks are money orders or similar written instruments, and not third party bank checks; (ii) the Delaware Escheator is in violation of 12 U.S.C. § 2503 because Pennsylvania is entitled to custody of the sums payable on the abandoned official checks issued in Pennsylvania; (iii) MoneyGram is in violation of 12 U.S.C. § 2503 and Pennsylvania unclaimed property law for the same reason; and (iv) all future sums payable on MoneyGram abandoned official checks purchased in Pennsylvania are payable to them. In addition, the Pennsylvania Treasury Department and the Treasurer request an award of damages from the Delaware Escheator and MoneyGram of no less than $10,293,869.50, plus interest at 12% per annum, penalties of $1,000 per day, and attorneys’ fees and costs because, under applicable federal and Pennsylvania law, MoneyGram should have remitted the sum payable on the official checks to them, and the Delaware Escheator is in custody of funds which should have been paid to them as well.
BDO’s National Unclaimed Property Practice has successfully assisted many clients in Pennsylvania and Delaware voluntary disclosures and unclaimed property audits, and can assist you. Should you have any questions or would like to discuss escheatment, please contact Joseph Carr, Partner & National Unclaimed Property Practice Leader at (312) 616-3946 or firstname.lastname@example.org.
1 Presumably, the Delaware Escheator is claiming that, as third party bank checks, it has custody over the abandoned official checks under the second priority rule in Texas v. New Jersey, 379 U.S. 674 (1965), which provides that if the records of a debtor do not show the state of the creditor’s last known address, the property is subject to escheat by the debtor’s state of incorporation.
- Pennsylvania is actively pursuing unclaimed property through audits similar to the one MoneyGram underwent. This case further illustrates Pennsylvania’s desire to collect (and Delaware’s desire to retain) money through enforcement of unclaimed property law.
- If the ultimate outcome of this matter results in a decision favorable to Pennsylvania, the result could empower Pennsylvania and other states to pursue other companies that issue money orders or other similar instruments like MoneyGram for unclaimed property. In addition, the Delaware Escheator, and Delaware’s coffers, would be vulnerable to additional claims made by Pennsylvania and other states with respect to the custody of money orders or other similar instruments. This, in turn, could cause the Delaware Escheator to escalate its historically aggressive unclaimed property audit program.