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Three-way fight over unclaimed property

Seeking to bypass lower courts, a number of states have asked permission to sue each other directly in the Supreme Court in a high-stakes fight over millions of dollars’ worth of unclaimed property.  Delaware wants to sue two states, one of those states — Wisconsin — wants to sue Delaware, and twenty-one other states also want to sue Delaware.

At issue is which state has authority to claim ownership of an unclaimed check-like instrument that works as if it were a money order or traveler’s check, but is issued mainly by a bank or other financial institution in larger amounts, compared with the items issued by convenience stores or small businesses in smaller sums.  Delaware claims as its own all of these different instruments if unclaimed and if originally issued by a company with its legal home in Delaware, no matter where the instrument was issued.

The core legal issue in each of the new filings is whether a 1974 law with an assignment of priority of state ownership for unclaimed tangible property applies to the new instrument, which some 1,900 banks or other institutions across the country are using instead of cashier’s or teller’s checks.  Delaware says the law does not apply; the other states disagree.

The Supreme Court has issued three rulings on competing state claims to unclaimed intangible property; Congress has overruled one of those, in a 1974 law known as the Disposition of Abandoned Money Orders and Traveler’s Checks Act.  That law is at the center of the cases that have reached the Court under its “original” jurisdiction — that is, its authority to decide, in the fashion of a trial court, a legal dispute not decided by a lower court.  This jurisdiction is often implicated in resolving disputes between states — as in the new filings over unclaimed property.

The Court has no binding obligation to take on such a case.  However, if it does, it customarily names a “special master” to act like a junior judge to gather facts and make a recommendation for a decision.  A special master’s report is not final unless it becomes the ruling of the Supreme Court.

While Delaware’s claims are at the center of this new financial fight between the states, the controversy actually turns on the specific financial instrument involved, and the Texas company that has been issuing those items, which it calls “official checks.”   That company, MoneyGram Payments Systems, Inc., has its main business office in Texas but it is incorporated in Delaware.  It does business in all fifty states.

Its main business is as a kind of financial partner to banks and other institutions that prefer not to issue cashier’s checks or teller’s checks in their own name.  MoneyGram does it for them, so it acts as the financial backer of its “official checks.”

That kind of transaction is conducted for some of the same reasons that stores do a business in money orders or traveler’s checks.  The idea is that, in the form of a money order or traveler’s check, the piece of paper is a guaranteed form of payment that works like cash; in other words, it won’t “bounce” for lack of sufficient funds behind it.  Typically, this kind of instrument is in fairly small amounts.

But some financial institutions want to do business in larger amounts, so MoneyGram steps in and issues official checks, for which it receives fees from the financial institutions.  MoneyGram also makes money by investing money that the financial institution has put up for the checks, pending the clearing (cashing, as it were) of the official checks.

If its official checks are abandoned or not claimed, MoneyGram has an understanding with Delaware that it will hand over the money involved to Delaware for that state’s own use.  That is the way Delaware’s legal officials interpret prior Supreme Court rulings, which they say remain intact because the priority they assigned — to the corporate home of the issuing firm — was not overturned by the 1974 law.  That law, from Delaware’s perspective, dealt primarily with money orders and traveler’s checks, not the kind of instrument that is at the core of its business.

On May 26, Delaware filed its own request to pursue a lawsuit directly in the Supreme Court (Delaware v. Pennsylvania and Wisconsin) after those two states had filed lawsuits against Delaware in federal district courts — the normal path for federal law disputes.   Delaware has been seeking to have those lower court cases dismissed, on the theory that this kind of dispute between states belongs in the Supreme Court under its “original” jurisdiction.

In answering Delaware’s complaint, Wisconsin asked the Court to allow it to counter-sue Delaware in the Court.

Then, on Thursday, a group of twenty-one states filed their own original complaint (which has not yet been docketed) in the Court, making the same claim as Wisconsin: the unclaimed official checks belong to the states where they were purchased, not to Delaware as MoneyGram’s corporate home.


Recommended Citation: Lyle Denniston, Three-way fight over unclaimed property, SCOTUSblog (Jun. 10, 2016, 1:43 PM),