United States

Delaware: Joint Motion Filed to Dismiss Federal District Court Case Holding that Delaware’s Unclaimed Property Enforcement Methods “Shock the Conscience”

Aug 15, 2016
From KPMG TaxWatch

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On August 5, 2016, the parties to a case addressing the constitutionality of certain aspects of Delaware’s unclaimed property enforcement process filed a joint motion to dismiss the case with prejudice. Per the motion, the parties have entered into a voluntary settlement agreement that fully resolves all asserted claims. The motion comes just weeks after a federal district court ruled in the unclaimed property holder’s favor. Recall, on June 28, 2016, in Temple-Inland, Inc. v. Cook et al., the Delaware federal district court held that Delaware’s enforcement of its unclaimed property laws against a holder, Temple-Inland, violated the holder’s substantive due process. The court concluded that a number of actions by Delaware led to the violation. Specifically, Delaware waited 22 years to audit the holder, exploited loopholes in the statute of limitations, failed to notify holders of the need to maintain unclaimed property records, failed to articulate a purpose for the unclaimed property law other than raising revenue, employed a flawed estimation method that negatively affected the holder, and subjected the holder to claims from multiple states regarding the same property.  In the court’s view, Delaware “engaged in a game of ‘gotcha’ that shocks the conscience.” The court’s ruling did not include any remedy for the violation that would have an immediate impact on Delaware’s estimation techniques. However, the case was of great interest to other unclaimed property holders that believed it might have a meaningful effect on the State’s reach in terms of future unclaimed property audit assessments. Presuming the court grants the motion to dismiss, challenges to Delaware enforcement practices will have to begin anew. Please contact Will King at 214-840-6107 with questions.

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.