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Still haggling over Delaware’s unclaimed property windfall, Pa. Treasury faces class-action suit

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Peter Hall, Pennsylvania Capital-Star
February 16, 2024

Nearly a year after the U.S. Supreme Court ruled that Delaware improperly kept millions of dollars unclaimed by Pennsylvania residents, the neighboring states and 29 others are still working out how much is owed and by whom.

Pennsylvania and Delaware, meanwhile, find themselves as allies fending off another set of lawsuits that claim states should be required to pay interest when they return unclaimed property and money to the rightful owners. 

In the case that led to last year’s Supreme Court decision, Pennsylvania and Wisconsin separately sued Delaware, arguing that it had wrongfully kept hundreds of millions of dollars paid to international payments provider MoneyGram. 

The other states joined them and a court-appointed special master found in 2021 that Delaware improperly required MoneyGram to turn over unclaimed funds that should have gone to the states where the unclaimed MoneyGram checks were purchased. 

The Supreme Court, which had original jurisdiction over the case as a dispute between states, adopted the special master’s recommendation. It also rejected Delaware’s argument that MoneyGram’s checks are not covered by a 1974 federal law that requires money orders to be returned to the state where they were purchased. 

Pennsylvania Treasury spokesperson Erik Arneson said the states and MoneyGram are now working with the special master to work out the intricacies of a settlement, including how much Delaware should pay, how much MoneyGram should pay and what portion of the money owed should be repaid with interest. Treasurer Stacy Garrity estimated after the 2023 decision that Pennsylvania could receive nearly $19 million. Delaware’s total liability could top $400 million.

Arneson told the Capital-Star on Wednesday there’s no timeline for a settlement and the parties are working amicably to reach a resolution.

“It doesn’t appear to be imminent. Enough progress is being made in the discussions that nobody is clamoring for the judge to pull the parties into a courtroom,” Arneson said, adding “It’d be fair to sum it up as Pennsylvania is seeking what it believes is the appropriate amount and Delaware and MoneyGram want to give less.”

Calls to a spokesperson at the Delaware Department of Finance were not returned this week.

With favorable corporation laws and business-friendly courts, Delaware is home to many large financial services companies, such as MoneyGram, that handle large amounts of money that sometimes go unclaimed. Delaware has derived between 6% and 13% of its state budget revenue through the legal process of escheatment, in which unclaimed property is used for the greater good.

Pennsylvania does this too, holding on to $4.5 billion in unclaimed property while actively searching for its rightful owners, Arneson said. 

Each year hundreds of millions dollars are handed over to the Treasury by financial institutions, insurance companies and other entities required by law to give property to the state if they have no contact with the owner for a given amount of time.

In 2022-23, the Treasury returned $274 million, the most ever in a single fiscal year. But some of that money cannot be claimed by anyone, Arneson said, and a portion of that remainder each year goes into Pennsylvania’s general fund to pay for government programs.

Since the MoneyGram lawsuits were filed in 2016 but before the Supreme Court ruled last year, Pennsylvania and Delaware were each hit with proposed class action lawsuits claiming that the states owe interest for the use of unclaimed property when the owners come forward. 

The suits were each filed on behalf of representative plaintiffs by the Wilmington, Delaware, law firm Halloran Farkas Kittila. They claim the states’ unclaimed property laws violate the Takings Clause of the Fifth Amendment and the Due Process Clause of the 14th Amendment because they deny property owners just compensation for the benefit of the property while the states held it. The lead plaintiff in the Pennsylvania suit is a Chester County man.

A federal appeals court ruled in 2017 that Illinois’ unclaimed property law was unconstitutional and Illinois in 2021 reached a settlement in which it is required to pay interest to those who claim property it has held.

The plaintiffs in the Pennsylvania and Delaware lawsuits argue that the 7th U.S. Circuit Court of Appeals decision on Illinois’ law should apply in those states, too.

In September, Delaware won an initial decision dismissing its lawsuit.

A judge in the U.S. District Court for Delaware found that the state’s actions in holding and using the property don’t add up to a taking because the owner of the property was the one who allowed his interest in the property to lapse in the first place.

That decision is now on appeal to the U.S. 3rd Circuit Court of Appeals in Philadelphia, where Garrity has filed an amicus brief arguing that the outcome will also affect Pennsylvania.

The firm’s proposed class action against Pennsylvania is still in a preliminary stage and lawyers for the Treasury have filed a motion to dismiss the case on similar grounds to those Delaware argued in the case against it. 

Arneson said the origins of the unclaimed property laws in Pennsylvania and in states across the country were originally intended and remain consumer protection measures for people who forgot about a bank account or whose heirs were unaware of an insurance policy.

The process laid out by the laws is very different from the circumstances the Takings Clause was intended to address, such as a state taking property through eminent domain to build a road, he added.

“These are not things that the state took from individuals,” Arneson said, adding that the alternative is to allow the money to sit in a bank where it might never be claimed. “The concept here is that while the state is working to get it back to the rightful owner it is being used for the greater good.”

Pennsylvania Capital-Star is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor Kim Lyons for questions: info@penncapital-star.com. Follow Pennsylvania Capital-Star on Facebook and Twitter.

This article is republished from Pennsylvania Capital-Star under a Creative Commons license. Read the original article.