Tag: lawsuits

Developing: Jury Finds Against Gift-Card Issuer in Delaware Qui Tam Litigation

Delaware ex rel French v. Card Compliant, et al, has been one of the most closely-watched unclaimed property cases in recent memory.  The case involves a whistleblower claim by a former executive of a so-called “GiftCo” structuring entity, alleging that the “giftco” structure (whereby a company issues gift cards through a subsdiary incorporated in a state that exempts gift cards from the scope of unclaimed property laws) amounts to an improper avoidance of Delaware’s escheat laws.

According to a press release issued by the Plaintiff’s attorneys, the jury unanimously found that the card issuer violated Delaware law by using a “giftco” structure to circumvent the state’s escheat laws.  More information when it becomes available.

Happy New Year – A Look At 2016

Welcome to 2016.  What unclaimed property issues will come up over the next 365 (actually, 366) days?  While you can never be sure, here are some stories that we will be keeping an eye on.

Lawsuits, Lawsuits, Everwhere — More and more holders are challenging state audit procedures, practices, and results.  The Unclaimed Property Professionals Organization has a great roundup that we needn’t repeat here, but cases are pending challenging Delaware’s estimation techniques (Temple Inland v. Cook), the legality and use of gift card subsidiaries (French v. Card Compliant), federal preemption (National Freight v. Sidamon-Eristoff), and a variety of other issues.  A decision in any one of these cases could have a significant effect on unclaimed property practices.

Revision to the Uniform Unclaimed Property Act — The Uniform Law Commission of the National Conference of Commissioners on Uniform State Laws is continuing its efforts to revise the Uniform Unclaimed Property Act.  For a primer about the who, what, where, when, and why of the revision effort, see our previous post here.  The next meeting of the committee is scheduled for late February in Dallas.

Owner Challenges to State Unclaimed Property Laws — While the historical justification for the state taking custody of unclaimed property for the rightful owner is the theory that the state “steps into the shoes” of the missing owner, some citizens are beginning to challenge the eagerness with which the state jumps into those shoes (sometimes while they are still being worn).  Lawsuits in Minnesota and Oklahoma are challenging the methods by which the state takes custody of unclaimed property or the actions that the state takes (or doesn’t take) to direct those funds to the rightful owner.

Another Delaware Audit Related Lawsuit

Earlier this summer Temple-Inland commenced a lawsuit against the State of Delaware, challenging the findings of a Kelmar-initiated unclaimed property audit, especially as to how estimated liabilities are calculated.  In particular, Temple-Inland alleges that Delaware made an audit demand in excess of $1 million for estimated historical unclaimed property liabilities after having identified only about $150 in actual liability.  Delaware promptly moved to dismiss that litigation, and that motion is still pending in a Delaware federal court.

Now, it looks like Delaware has another lawsuit on its hands.  Late last week, Osram Sylvania, filed suit against Delaware in the same federal court arising out of another Kelmar audit.  This time, according to the allegations of the complaint, Delaware seeks in excess of $2.2 million on an actual liability of less than $22,000.  As in the Temple-Inland case, Osram alleges that Delaware’s audit and liability estimation methods violate holders’ due process rights and the Supreme Court’s holding in Texas v. New Jersey as to both the mechanics and the retroactive nature of that process.

One notable item in the filing is an allegation as to the fees Kelmar earns from auditing holders.  According to the complaint, Delaware earned in excess of $53 million from Delaware from unclaimed property.  Since most audits are conducted on a “contingent fee” basis – that is, the auditor’s fee is a portion of property collected.  That’s a lot of (presumably, other peoples’) money.