Delaware v. Pennsylvania and Wisconsin (MoneyGram Official Checks)

What happens when all the biggest states and a large corporation all duke it out over unclaimed property?

It becomes the latest original jurisdiction unclaimed property case before the U.S. Supreme Court.

Delaware v. Pennsylvania and Wisconsin was consolidated with Arkansas v. Delaware to resolve the common questions relating to the escheatment of MoneyGram official checks.

What are MoneyGram Official Checks?

Much of the dispute between Delaware and other states are the nature of the MoneyGram official checks.

As you might remember, after the Pennsylvania v. New York U.S. Supreme Court case in 1972, Congress acted in 1974 to specifically change the reporting priority rules for money orders, traveler’s checks, and similar written instruments, not including a third-party bank check.

In the Disposition of Abandoned Money Orders and Traveler’s Checks Act (“Disposition Act”), Congress changed the reporting priority rules to be first, the state of purchase of the instrument, and second, the holder’s state of incorporation.

Are the MoneyGram official checks money orders or similar written instruments where Congress’s priority rules would apply? Or should the Disposition Act not apply to the official checks and the Texas trilogy priority rules apply?

Delaware’s Argument Against Money Orders

Delaware argues that the MoneyGram official checks are not money orders, traveler’s checks, or similar written instruments (let’s just call this collection of property types money orders for the sake of convenience here).

Delaware says that the Official Checks:

  1. are not labeled as money orders
  2. are generally issued by financial institutions and not by convenience stores or similar small businesses
  3. are capable of being issued in substantially larger dollar amounts than money orders
  4. are treated differently under federal law than money orders
  5. are not issued in fixed denominations like traveler’s checks
  6. do not require counter-signature like traveler’s checks
  7. are not issued in such a way as to facilitate replacement checks if lost or stolen
  8. are not promoted to be negotiable by individuals traveling overseas like traveler’s checks

Treasury Services Group Disagrees

Meanwhile, 20 states disagree with Delaware. They were retained by third-party audit firm Treasury Services Group, who conducted the audit of MoneyGram on their behalf. For clarity’s sake, these states will be referred to as the TSG-States

The TSG-States argue that the official checks are money orders or similar written transactions, to wit:

  1. the customer pays a transaction fee and the principal value of the check (the amounts immediately taken from the customer);
  2. the instrument is pre-printed with the principal value paid by the customer;
  3. MoneyGram is directly liable to for the pre-printed amount;
  4. the instruments are purchased at participating MoneyGram locations;
  5. no material differences exist between money orders and official checks.

Moreover, Minnesota agreed with this interpretation, that the checks were subject to the Disposition Act. Minnesota was the state of incorporation for MoneyGram prior to Delaware. In 2015, Minnesota paid in excess of $209,000 to Pennsylvania to settle the claims between the two states.

Two other holders, Integrated Payment Systems and PNC Bank, also issue official checks and remit them under the Disposition Act priority rules to the state of the place of purchase.

The TSG-States allege approximately $150 million in official checks were wrongfully escheated to Delaware. Delaware estimates that there is an additional $135 million in official checks for states not participating in the TSG-audit or litigation. The total historical liability may well exceed $300 million as well as the ongoing annual liability. In other words, this is some serious money to Delaware as well as the other states.

TSG-States Make Demand on Delaware for Remittance of Official Checks

Through most of 2015 and 2016, various TSG-States made inquiries to or demands of Delaware to pay the Official Checks that were previously remitted by MoneyGram.

However, in a series of letters and actions that are quite familiar to holder advocates and practitioners in this field, Delaware delayed taking a final position and ultimately denied the TSG-States requests. The Delaware State Escheator refused to meet with the TSG-States or their representatives to discuss the matter, preferring to keep all communication to written correspondence.

Meanwhile, MoneyGram just wanted the states to come to a decision. MoneyGram knows that these checks are unclaimed property; the Company wants to ensure that it is not at risk of double liability to both Delaware and the TSG-States, which was ultimately the issue in Western Union Telegraph Co. v. Pennsylvania.

When MoneyGram sought indemnification from Delaware for the amounts escheated to Delaware but claimed by the TSG-States, Delaware responded, not to the request for indemnification, but with a notice that it intends to conduct an audit of MoneyGram.

Pennsylvania sued Delaware and MoneyGram in US District Court in the Middle District of Pennsylvania on February 26, 2016, just prior to Delaware’s March 1 annual filing deadline. Pennsylvania claimed over $10 million of official checks had been escheated to Delaware under the Texas priority rules when they should have been escheated to Pennsylvania under the revised priority rules for money orders.

Likewise, Wisconsin filed suit against Delaware in the Western District of Wisconsin, claiming over $13 million in wrongfully escheated official checks.

Supreme Court Litigation

On May 26, 2016, Delaware filed a motion for leave to file a bill of complaint. In June, Wisconsin and Pennsylvania responded, and Delaware filed a reply that all parties agreed to the original jurisdiction of the Court and that a special master should be appointed.

On October 3, 2016, the Supreme Court granted the motion for leave to file a bill of complaint and accepted the case. It consolidated the Delaware v. Pennsylvania and Wisconsin case with the similar Arkansas v. Delaware case.

On March 29, 2017, the Supreme Court ordered that Honorable Pierre N. Leval, of New York, be appointed as Special Master.

On February 1, 2019, the parties filed cross-motions for summary judgment. Initial responses were filed on March 8, 2019, and reply briefs were filed March 29, 2019.

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