Which states have jurisdiction over funds from unclaimed financial instruments under the Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act, and are MoneyGram Official Checks subject to that Act?
This case asks the Supreme Court to define MoneyGram’s Official Checks (“Official Checks”) to determine which states have jurisdiction over funds from unclaimed Official Checks, and then to clarify which abandoned financial instruments are subject to the Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (“FDA”). The FDA sets the standards for the remittance of funds payable on unclaimed financial instruments. Petitioner Delaware argues that Official Checks are “third party bank checks,” not “money orders,” “traveler’s checks,” or “other similar written instruments” and are therefore not subject to the FDA. Respondents Pennsylvania and Wisconsin counter that Official Checks are subject to the FDA as either “money orders” or “other similar written instruments.” The outcome of this case has implications for the state receipt of funds from unpaid financial instruments, the role of the Court in interpreting legislation, and the direction of future litigation regarding the recovery of funds.
Questions as Framed for the Court by the Parties
(1) Whether MoneyGram Official Checks are “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,” pursuant to 12 U.S.C. § 2503; (2) whether the court should command Wisconsin and Pennsylvania not to assert any claim over abandoned and unclaimed property related to MoneyGram Official Checks; and (3) whether all future sums payable on abandoned MoneyGram Official Checks should be remitted to Delaware.
MoneyGram Payment Systems, Inc. (“MoneyGram”) sells financial instruments through which its customers can transfer their funds. Exceptions to Report of the Special Master, Delaware at 2, 9. MoneyGram issues two types of financial instruments, “Agent Checks” and “Teller’s Checks,” which are both considered “Official Checks.” First Interim Report of the Special Master, Special Master at 24. Customers send money to MoneyGram in exchange for either type of Official Check in order to pay third parties, who can subsequently exchange the Official Check for its cash value. See Exceptions to Report of the Special Master at 9-10. Many third parties fail to do so, and their associated funds subsequently become abandoned. First Interim Report of the Special Master at 22-23. MoneyGram sends the abandoned funds to Delaware, MoneyGram’s state of incorporation. Id. at 30.
In 2014, twenty states—including Pennsylvania and Wisconsin—hired an auditor to discover whether Delaware had the right to escheat MoneyGram-issued Official Checks (“Official Checks”). Exceptions to Report of the Special Master at 12–13. The auditor found that MoneyGram violated the Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (“FDA”), and should have remitted the abandoned checks to their state of sale. See id.; First Interim Report of the Special Master at 31. Consequently, Pennsylvania and Wisconsin sued Delaware and MoneyGram in federal district court. Exceptions to Report of the Special Master at 12–13; First Interim Report of the Special Master at 31.
Delaware filed a motion for leave to file a bill of complaint with the Supreme Court, arguing that the case was subject to original jurisdiction, which all parties later stipulated to. First Interim Report of the Special Master at 30–32. Arkansas, on behalf of twenty-eight other states, filed its own claim against Delaware, which the Court subsequently merged with the Pennsylvania action. Id. at 31–32.
The Court, accepting the case, appointed a Special Master to oversee the litigation on March 29, 2017. Order in Delaware v. Pennsylvania and Wisconsin and Arkansas et al. v. Delaware, at 1. The Special Master divided proceedings into a liability stage and a damages stage. First Interim Report of the Special Master at 32. At the conclusion of discovery for the liability stage, all parties moved for partial summary judgment on the question of whether the FDA applied to Official Checks. Id. at 33. The Special Master stated that the Court should grant partial summary judgment for Pennsylvania and Wisconsin and deny partial summary judgment for Delaware. Id. at 34. The Special Master found that Official Checks qualified as money orders or another form of written instrument under the FDA; therefore, they fell under the jurisdiction of Pennsylvania and Wisconsin to escheat. Id. at 55–56, 63–64, 88-91.
Delaware filed an exception to the Report of the Special Master, contending that to limit uncertainty over escheat rules for unclaimed financial instruments, the Court should find that Official Checks do not fall under the FDA. Exceptions to Report of the Special Master at 36, 48–50. Arkansas argued in response that Official Checks were money orders, or at least sufficiently similar to subject them to the FDA’s reach. Reply to Delaware’s exceptions to Report of Special Master, Arkansas et al. at 27, 40. Delaware’s final response reiterated that the FDA should be read narrowly to exclude Official Checks, or that at minimum, Delaware should not be liable for repayment, which would burden Delaware taxpayers. Sur-Reply in support of exceptions to the Report of the Special Master, Delaware at 8, 24.
MONEYGRAM OFFICIAL CHECKS AS “MONEY ORDERS” OR “TRAVELER’S CHECKS” UNDER THE FDA
Petitioner Delaware argues that MoneyGram Official Checks (“Official Checks”) are not “money orders” or “traveler’s checks;” therefore, they are not subject to the Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (“FDA”). Exceptions to Report of the Special Master at 16. Delaware maintains that the funds payable on unclaimed Official Checks properly escheated and should continue to be remitted to Delaware under the common law. Id. Delaware contends that, in the context of the FDA, the Court should read the terms money order and traveler’s check narrowly to mean only specific commercial products that are labeled as a money order or traveler’s check. Id. at 17. According to Delaware, this would exclude Official Checks because MoneyGram does not label them as money orders or traveler’s checks. Id. Delaware posits that MoneyGram chooses not to label its Official Checks in this way because MoneyGram sells the Official Checks to people who specifically want a different product meant for a different purpose. Id. at 48. Delaware argues that when Congress enacted the FDA the terms money order and traveler’s check referred specifically to the products that people without bank accounts or travelers would use for relatively small transactions, where the payer’s address was not kept by the seller. Id. at 25, 28. Delaware contends that if Congress had meant the FDA to apply to more than money orders and traveler’s checks, Congress would have used the broader term of art “prepaid drafts and notes.” Id. at 25. Delaware asserts that identifying money orders and traveler’s checks based on the label of the instrument is the type of “bright-line rule” that the Court prefers in escheatment cases. Id. at 46.
Respondents Pennsylvania and Wisconsin counter that Official Checks are money orders under the FDA, and the related funds should remit to the state in which the instruments were purchased, rather than to Delaware. Reply to Delaware’s exceptions to Report of Special Master at 27, 51. Pennsylvania and Wisconsin argue that Official Checks are money orders under the FDA because they are prepaid “drafts” issued by a business entity for sending money to a named payee. Id. at 22. According to Pennsylvania and Wisconsin, Congress enacted the FDA in part because transaction records for banks that issue or sell money orders and traveler’s checks do not show the last known address of the purchasers of such instruments. Id. at 29–30. Thus, Pennsylvania and Wisconsin contend that Official Checks are the kind of financial product that Congress wanted to address in the FDA since MoneyGram does not record the addresses of those who purchase Official Checks. Id. at 30. Moreover, Pennsylvania and Wisconsin contend that Delaware does not dispute that certain other MoneyGram products are money orders. Id. at 27-28. Pennsylvania and Wisconsin then argue that little, if anything, operationally differentiates the Official Checks from the aforementioned products. Id. In addition, Pennsylvania and Wisconsin assert that classifying Official Checks as money orders would promote “equity and predictability” because it would result in the distribution of funds payable on these unclaimed instruments to the states of purchase, not just to Delaware. Id. at 52. Further, Pennsylvania and Wisconsin argue that Delaware’s contention that the business labels of a financial product should determine whether the FDA applies to that particular product diminishes the Act’s predictability. See id. at 51-52.
MONEYGRAM OFFICIAL CHECKS AS “THIRD PARTY BANK CHECKS”
Delaware argues that Official Checks are “third party bank checks,” which are not subject to the FDA but are subject to escheatment under the common law. Exceptions to Report of the Special Master at 42–44. According to Delaware, “bank checks,” which are not subject to the FDA, must have a bank employee’s signature, as opposed to that of a purchaser, and consumers typically prefer to use these bank checks for relatively large purchases. Id. Thus, Delaware argues that since Official Checks become effective with the signature of a bank employee and are typically used in the same manner, they are third party bank checks. Id. at 43. Delaware contends that the fact that Official Checks are processed through a third-party is not dispositive since they are processed this way to save costs. Sur-Reply in support of exceptions to the Report of the Special Master at 19.
Pennsylvania and Wisconsin counter that even if the Court holds that Official Checks are not money orders, they are still not third party bank checks. Reply to Delaware’s exceptions to Report of Special Master at 40. Pennsylvania and Wisconsin argue that Official Checks do not meet the definition “of a third party bank check . . . [that] is a check that is drawn by a bank on a bank that has been indorsed over to a new . . . ‘third party’ payee.” Id. at 45. According to Pennsylvania and Wisconsin, Delaware’s argument conflicts with three expert opinions in this case, including the opinion of Delaware’s own expert, who concluded that the Official Checks do not meet the definition of third party bank checks. Id. at 44. Pennsylvania and Wisconsin argue that, based on the legislative history and text of the FDA, Congress did not likely consider any material difference between bank checks offered by third parties and bank checks issued directly by banks. Id. at 48. Thus, Pennsylvania and Wisconsin contend that the FDA’s legislative history reveals that Congress intended for financial instruments that banks sell, “[but are] paid through third parties”—as is the case with Official Checks—to fall under the jurisdiction of the FDA. Id.
MONEYGRAM OFFICIAL CHECKS AS “OTHER SIMILAR WRITTEN INSTRUMENTS” UNDER THE FDA
In the alternative, Delaware argues that even if the Court holds that the term third party bank check refers only to personal checks, thus excluding Official Checks, then Official Checks are still not “other similar written instruments” that would be subject to the FDA. Exceptions to Report of the Special Master at 42. Delaware contends that “the Court should [interpret the term] ‘other similar written instrument’ narrowly.” Id. Delaware argues that “Congress . . . intended [for] the term ‘other similar written instrument’” to apply to financial products that are money orders and traveler’s checks that use “alternat[ive] spellings of [the words] money order or traveler’s check.” Id. at 44. Delaware contends that reading the phrase “other similar written instrument” to mean only products labeled with such alternate spellings results in broadly applicable standards that ensure consistency in the Court’s escheatment cases. Id. at 46.
Pennsylvania and Wisconsin counter that even if the Court holds that Official Checks are not money orders, they still fall under the FDA as “other similar written instruments.” Reply to Delaware’s exceptions to Report of Special Master at 40. Pennsylvania and Wisconsin contend that since money orders and traveler’s checks are “instruments for the transmission of money” and that Official Checks are also “prepaid instruments for transmitting funds,” then under the plain meaning of the word “similar,” the latter are “similar written instruments.” Id. at 41. Moreover, Pennsylvania and Wisconsin argue that Delaware does not provide citations to the text of the FDA or its legislative history to support its contention that Congress believed there was an issue regarding alternate spellings of these commercial products. Id. at 43. Furthermore, Pennsylvania and Wisconsin contend that Delaware does not offer examples of any alternative spellings for money order products. Id. at 43.
IMPLICATIONS FOR EQUITY, FAIRNESS AND THE RIGHT TO ESCHEAT
Delaware argues that a ruling in its favor would promote equity and fairness because it would allow all states to have equal access to the abandoned instruments. Exceptions to Report of the Special Master at 46–47. Specifically, Delaware asserts that all states would be able to receive their fair share of funds so long as they pass laws that would require companies, such as MoneyGram, to record the addresses of the purchasers of future instruments. Id. According to Delaware, states that have such laws would then be able to “assert [their] predominant interest” in the abandoned instruments “through the common law.” Id. Delaware contends this practice is consistent with the purpose of federal common law rules of escheat the Court developed in Texas v. New Jersey. Id. at 45. Consequently, Delaware maintains that a ruling in its favor would grant all states equal opportunity to preserve their right to escheat any future abandoned property. See id. at 46-47.
Pennsylvania and Wisconsin argue that a ruling for Delaware would promote inequity and unfairness. Reply to Delaware’s exceptions to Report of Special Master at 51. Pennsylvania and Wisconsin contend that an adverse ruling would allow Delaware to impermissibly retain “$250 million in [already abandoned] MoneyGram products” even though “less than 0.5% of” those products were sold “in Delaware.” Id. Moreover, Pennsylvania and Wisconsin assert that a ruling in their favor would promote equity by automatically requiring companies such as MoneyGram to distribute abandoned instruments among all the states, without requiring the states to pass additional laws to preserve their rights to escheat the property. Id. at 51–53. Pennsylvania and Wisconsin maintain that Delaware’s argument that financial organizations like MoneyGram should keep records of addresses would unfairly burden the states, promoting inequity, which is contrary to the congressional purpose of the FDA. Id. at 52-53. Thus, Pennsylvania and Wisconsin argue that ruling in their favor would allow all states to escheat previously abandoned property and automatically preserve the right of all states to escheat future abandoned property. See id. at 51-53.
THE REDISTRIBUTION OF ABANDONED PROPERTY
Delaware argues that a ruling for Pennsylvania and Wisconsin would harm the people of Delaware because it would deprive them of a substantial source of funding for government programs. Exceptions to the Report of the Special Master at 49. In addition, Delaware asserts that an adverse ruling would force the people of Delaware to repay funds that have already been spent. Id. Delaware argues that it could end up owing “five decades’ worth of funds” to the other states. Id. Delaware contends that this would unfairly punish it for a good faith policy regarding abandoned financial instruments. Id. Delaware maintains that this would also embroil it in expensive and lengthy litigation over similar similar abandoned financial instruments and their status under the FDA. Id. at 49-50. Consequently, Delaware argues that it would be forced to impose tax hikes or programmatic cuts in order to comply with an adverse ruling. Id.
Pennsylvania and Wisconsin similarly argue that a ruling in Delaware’s favor would harm the residents of their states because it would syphon off a significant amount of funding from their state governments. See Pennsylvania’s Answer and Counterclaims to Delaware’s Bill of Complaint, Pennsylvania at 14-19. Specifically, Pennsylvania and Wisconsin assert that Delaware’s escheat industry expands its coffers to the tune of $500 million a year. Id. at 14. Accordingly, Pennsylvania and Wisconsin argue that a ruling in their favor would entitle them to additional funding, which would in turn benefit the residents of their states through the enactment of beneficial government programs and implementation of favorable tax cuts. See id. at 14–19.
Wilson Barmeyer & Phillip Stano, Tables Turned: 21 States Tell Delaware to “Fork Over Our Unclaimed Property!”, JD Supra (June 16, 2016).
- Maria Koklanaris, States MoneyGram Feud Could Clarify Unclaimed Property Law, Law360 (Feb. 24, 2022).