Arkansas v. Delaware

UNCLAIMED PROPERTY
Arkansas v. Delaware
Date: Jan. 10, 2023

Issue: Whether official checks are subject to the federal Disposition of Unclaimed Money Orders and Travelers’ Checks Act (FDA).

Case Summary: The American Bankers Association (ABA) filed an amicus brief urging the Supreme Court to rule the FDA does not govern cashier’s checks both issued and purchased by banks.

Banks hold unclaimed property and annually report hundreds of millions of dollars in unclaimed property to states. Multiple states may try to escheat the same property item. For this reason, the U.S. Supreme Court established priority rules governing which competing states may escheat the unclaimed property.

The FDA is a statutory exception to the priority rules. In 1974, Congress passed the FDA following the Supreme Court’s decision in Pennsylvania v. New York (1972), which held unclaimed money orders issued by Western Union escheated to Western Union’s state of incorporation. Congress determined an “unfair windfall” existed because “large amounts of money” in travelers checks and money orders would only escheat to the issuers’ domicile. The FDA applies to “money orders, travelers checks and other similar written instruments.” However, the FDA does not define these terms. Additionally, an instrument qualifying for escheatment as an “other similar instrument” is excluded from the FDA’s coverage if found to be a “third-party bank check.” The FDA also provides the state of purchase controls which state is entitled to escheat.

While Moneygram historically escheated money orders to the state of purchase, it escheated other instruments, including official checks, to its state of incorporation, Delaware. Following an unclaimed property audit, Pennsylvania sued Moneygram and Delaware. Pennsylvania contended the FDA applied to hundreds of millions of dollars in official checks and therefore should escheat to the state of purchase, rather than Delaware. Other states joined the case supporting Pennsylvania.

The Supreme Court referred the consolidated cases to a special master. Both sides moved for summary judgment, and the special master issued a report on July 23, 2021. The special master ruled against Delaware, finding the FDA applied to the Moneygram official checks and should escheat to the state of purchase. However, the special master did not define the terms “money order” or “similar written instrument.” According to the special master, defining these terms is unnecessary. Yet the special master concluded the Moneygram official checks could be characterized as either term. At the same time, the special master suggested cashier’s checks could potentially fall within the scope of either “money orders” or “similar written instruments.”

Afterward, ABA filed an amicus brief urging the Supreme Court to reject the special master’s approach and clearly define the terms “money order” and “other similar written instrument.” Otherwise, the brief argued banks will experience undue burdens, penalties, and litigation. ABA emphasized the special master’s approach frustrates the court’s “longstanding efforts to provide clear and easily administered priority rules to resolve competing State claims to abandoned property.” ABA also emphasized the Court should narrowly interpret the terms “money order” and “other similar written instrument” to exclude cashier’s checks and other financial instruments consumers commonly used before the FDA’s enactment.

In an unusual procedural move, the special master issued a second interim report following oral argument. The special master concluded Moneygram official checks qualify as “other similar written instruments,’ but are not “money orders” Further, the special master concluded if the Moneygram official checks are drawn by a bank as drawer, or otherwise in a capacity that renders the bank liable, these instruments fall under the FDA’s exclusion of “third party bank checks.” According to the special master, “Delaware is on far firmer ground in arguing that the use of the term ‘bank check’ in the exclusion clause was intended to mean checks signed by banks so as to carry bank liability.”

Following the special master’s Second Interim Report, ABA filed a second amicus brief. ABA emphasized clear priority rules are necessary for resolving competing State claims to unclaimed property, and these rules should specify the FDA does not apply to instruments, like cashier’s checks, which were widely used before 1974 and not mentioned in the FDA. ABA urged the Court to conclude the FDA does not apply to instruments such as cashier’s checks either because those instruments are not encompassed by the phrases “money order” and “other similar written instrument”; or those instruments are excluded by the “third-party bank check” exclusion. In ABA’s view, if the Court decides the “third-party bank check” exclusion applies, the Court should make clear this exclusion applies to both bank-issued and bank purchased cashier’s checks. Additionally, the Court should make clear this exclusion “means essentially a check (an instrument that is designed for making payments to third parties) on which a bank is liable.”

Bottom Line: The Supreme Court will likely resolve this case without another oral argument and issue a decision before June 30, 2023.

Download the amicus brief to read the full text.