Volume 30, Issue 6: This Report summarizes opinions issued on February 22 and 28, 2023 (Part I); and cases granted review on February 27 and March 6, 2023 (Part II).
Opinion: Delaware v. Pennsylvania, 145 Orig.
Delaware v. Pennsylvania, 145 Orig. At issue was which states are entitled to escheat, or take custody of, the proceeds of certain unclaimed monetary instruments issued by MoneyGram Payment Systems, Inc. The Court unanimously held that the disputed monetary instruments fall within the scope of the Disposition of Abandoned Money Orders and Traveler’s Checks Act (Federal Disposition Act or FDA) and that the states of purchase of the unclaimed monetary instruments may therefore escheat the proceeds. The Court rejected Delaware’s contention that the instruments fall outside the scope of the Act and that the unclaimed proceeds therefore go to Delaware as the state of MoneyGram’s incorporation.
Before enactment of the FDA, the Court-created common-law primary rule was that the proceeds of abandoned financial products escheated to the state where the payee or purchaser lived. See Texas v. New York, 379 U.S. 674 (1965). If the entity holding the abandoned proceeds did not know that information, the secondary rule was that the proceeds escheated to the entity’s state of incorporation. The Court here explained that “[t]hese rules were designed, at least in part, to distribute escheats equitably. We selected escheatment to the State of the creditor’s last known address as the default principle because it ‘tend[ed] to distribute escheats among the States in the proportion of the commercial activities of their residents.’ By contrast, escheatment to the State of incorporation of the debtor (our secondary rule) ‘would too greatly exalt a minor factor’—i.e., where the debtor chose to incorporate.” (Citations omitted.) But the Court had believed the secondary rule was likely to apply “‘with comparative infrequency.’” As it turned out, however, these rules led to inequitable distributions because “Western Union largely did not keep records of the addresses of the purchasers or payees of the money orders that the company sold, as a matter of business practice.” That meant the “proceeds from abandoned Western Union money orders largely escheated to New York, Western Union’s State of incorporation.” Pennsylvania later asked the Court to reconsider Texas’s escheatment rules, arguing that they produced inequitable results. See Pennsylvania v. New York, 407 U.S. 206 (1972). The Court declined Pennsylvania’s invitation. Two years later, Congress adopted the FDA, which abrogates Texas’s escheatment rules for property within its coverage. The FDA provides that “[w]here any sum is payable on a money order, traveler’s check, or other similar written instrument (other than a third party bank check) on which a banking or financial organization or a business association is directly liable,” the primary escheatment rule is that the money escheats to the state where the product was purchased. 12 U.S.C. §2501.
Now we arrive at this case. MoneyGram creates and markets financial instruments called “Agent Checks” and “Teller’s Checks.” These products allow a purchaser to securely transmit money to an intended payee. The purchaser goes to a retail location or bank and prepays the face value of the instrument, plus any fee. The seller entity then sends the proceeds to MoneyGram, which holds the money until the payee cashes the instrument. MoneyGram does not know the identity or address of the purchaser or payee of these transactions. If the payee does not present the financial instrument for payment within a certain amount of time, MoneyGram gave the abandoned proceeds to Delaware (MoneyGram’s state of incorporation) under common-law rules of escheatment. Pennsylvania and Wisconsin separately challenged MoneyGram’s policy regarding “Agent Checks” and “Teller’s Checks” (the Disputed Instruments) in court. In response, Delaware invoked the Court’s original jurisdiction by moving to file a bill of complaint against Pennsylvania and Wisconsin. Acting on behalf of itself and other states, Arkansas later moved to file a bill of complaint against Delaware. The Court consolidated the actions and appointed a Special Master, who issued a First Interim Report concluding that the FDA’s escheatment rules governed the dispute between the parties. That meant that, generally, the abandoned proceeds escheated to the state where the products were purchased. After the Court considered the parties’ briefs and held oral argument, the Special Master issued a Second Interim Report reversing course. He determined that the abandoned proceeds generally escheated to Delaware under the common law. In an opinion by Justice Jackson, the Court declined to adopt the Second Interim Report and instead adopted the recommendations in the First Interim Report.
In holding that the FDA applies, the Court first concluded that the Disputed Instruments are similar to money orders, thereby satisfying the FDA’s “other similar written instrument” requirement. The Court explained that “the Disputed Instruments are similar to money orders in function and operation.” After consulting dictionary definitions and prior escheatment cases, the Court identified the “core features” of a money order: “prepayment of a specified amount of money to be transmitted to a named payee.” “[J]ust like money orders,” the Court continued, “the Disputed Instruments are prepaid written financial instruments used to transmit money to intended payees.” The Court further determined that the Disputed Instruments “are similar to ‘money orders’ that the FDA targets because they inequitably escheat in the manner that the text of the FDA specifically identifies as warranting statutory intervention.” The Court explained that, due to MoneyGram’s business practices, the abandoned proceeds escheat inequitably to Delaware under the secondary common-law rule. Given Congress’s clear desire to avoid such inequity—and its choice to address the problem of inadequate recordkeeping by changing the escheatment rules—this is a meaningful similarity between money orders and the Disputed Instruments.
The Court next determined that the Disputed Instruments are not “third party bank check[s],” which are beyond the FDA’s reach. The Court acknowledged that defining the statutory term was “tricky” because the FDA provides no definition, and the term has no common or ordinary meaning. For the Court, it was enough to reject Delaware’s and the Special Master’s proposed definitions for the phrase. And five justices—Chief Justice Roberts and Justices Sotomayor, Kagan, Kavanaugh, and Jackson—consulted the legislative history to confirm “that, whatever ‘third party bank check’ is meant to mean, the Disputed Instruments are not exempted from the FDA under that provision, as Delaware maintains.” In Part IV-B of the opinion, which Justices Thomas, Alito, Gorsuch, and Barrett did not join, the Court explained that the insertion of “third party bank check” into the statute “was not supposed to be a significant addition” but rather “a mere ‘technical’ alteration” in response to a concern raised by the Treasury Department. If Congress meant to “exempt from the statute entire swaths of prepaid financial instruments that are otherwise similar to money orders in that they operate in generally the same fashion and would likewise escheat inequitably pursuant to the common law due to the business practices of the company holding the funds,” the exception “far surpasses a ‘technical change.’” The Court therefore declined to read the exception as broadly as Delaware does.