Supreme Court Rules Delaware Doesn’t Have Dibs On Hundreds Of Millions Of Unclaimed Dollars

Taxes

What should happen to hundreds of millions of dollars in unclaimed money?

That’s what was at stake in Delaware v. Pennsylvania and Wisconsin. Today, the Supreme Court ruled against Delaware, holding that unclaimed MoneyGram checks should be returned to the states where they were issued.

Background

MoneyGram Payments Systems is one of the world’s largest money transfer companies, and is headquartered in Delaware. As part of its services, which include bill paying and sending money to inmates, you can buy an official check at face value from a participating location, usually a bank or other financial institution. The bank or financial institution will send the funds to MoneyGram, which treats them as a “payment service obligation”—a promise to pay. The check can then be delivered to the payee, who can cash it at a bank. The funds are reimbursed to the bank from MoneyGram. It’s a means to send a check without actually having a checking account.

Sometimes, however, the payee doesn’t cash the check. When that happens, the funds may be considered unclaimed property.

Escheat

Unclaimed property can be big business for state coffers. Under the law, assets like bank and brokerage accounts, unclaimed life insurance policies, uncashed paychecks, traveler’s checks, and gift cards can “escheat” or revert back to the state. That unclaimed property can help states fill budget holes—it’s Delaware’s third largest source of revenue, comprising 10% of the state’s incoming dollars. And while escheated property is supposed to be held until the owner makes a claim, the actual amount of property returned to the owners is typically underwhelming.

Where the property escheats is key to this dispute—and that hinges on how property is characterized. A 1974 federal law, the Disposition of Abandoned Money Orders and Traveler’s Check Act, or FDA specifically lays out the treatment of certain unclaimed property characterized as specific financial products—like money orders, traveler’s checks, and other similar written instruments. Those must be returned to the state where purchased.

If, however, unclaimed property doesn’t fit those criteria, the 1974 law doesn’t apply—common law does. Under a 1965 Supreme Court decision, Texas v. New Jersey, that tends to mean the money goes to the state where the issuer of the financial product is incorporated. That would be good news for Delaware since that’s where MoneyGram and many large banks and financial institutions are incorporated.

Pennsylvania and Wisconsin disagreed, however, that the FDA wouldn’t apply. In contrast, they argued that MoneyGram’s checks are more appropriately considered money orders or “similar written instruments.” That means they would be subject to the FDA, which means that the property would escheat to the states where the checks were purchased. According to Pennsylvania, the Keystone state is owed more than $18.8 million dollars in checks that have escheated to Delaware—plus future escheats. The total value of MoneyGram official checks owed to other states is nearly $400 million.

Dispute Between The States

With those kinds of dollars in play, other states were eager to sign on to support Pennsylvania and Wisconsin’s interpretation, making it a classic dispute between the states. The Supreme Court consolidated the cases and appointed a Special Master (basically, a court referee) to make a recommendation. In his initial report, the Special Master found that the 1974 law covered the MoneyGram checks.

You can read the documents filed with the Special Master here.

Supreme Court Arguments And Ruling

The Supreme Court heard oral arguments on Oct. 3, 2022. Afterward, the Special Master reassessed his earlier decision. He issued a second report, concluding they could be considered “third party bank check[s].” Those are not covered under the FDA and would generally escheat to Delaware.

In a “meh, close enough” call, the Court noted that the statute doesn’t require a decision as to whether the MoneyGram checks actually are money orders, just whether they are sufficiently “similar” to a money order to fall within the FDA. The Court found that “Delaware’ss contrary arguments are unpersuasive.”

Justice Jackson delivered the unanimous option for Parts I, II, III, and IV–A. Only Chief Justice Roberts and Justices Sotomayor, Kagan, and Kavanaugh joined for Part IV–B.

The case is Delaware v. Pennsylvania and Wisconsin. You can read the opinion here.

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