Court Voids Overreaching Delaware Unclaimed Property Subpoena
Thursday, July 23, 2020
In a July 10, 2020, decision in Delaware Department of Finance v. AT&T Inc., a Delaware Chancery Court ruled in favor of AT&T, voiding a Delaware subpoena for information requested during an unclaimed property examination.
In 2012, the Delaware Department of Finance began an unclaimed property examination of AT&T via its third-part auditor, Kelmar. AT&T provided most of the information requested but declined to provide two categories of documents.
Among the information sought by Kelmar was identification of all general ledger accounts used by AT&T since 1992 – a 20-year lookback – to track its rebate accrual and expense activity, along with the time period each account was used for that activity. This request also asked AT&T to identify each third-party administrator used to issue rebates.
Another request sought information for every check AT&T had issued from 27 accounts since 1992. The request required AT&T to identify each check issued, the general ledger account to which it was recorded, the disposition status, the payee name and address, and the amount. It also sought information regarding checks marked void, cleared, stopped, or void and reissued.
AT&T initially worked to provide the requested information, including the rebate and disbursement requests. However, the state notified AT&T beginning in May 2019 that of requests that had not been fulfilled and warned that the company’s participation
in an expedited examination, initiated by AT&T after Delaware updated its escheat law following the Temple-Inland decision, could be terminated.
In November 2019, Delaware issued an administrative subpoena. AT&T refused to comply and filed action in U.S. District Court. Delaware responded by filing action to enforce the subpoena. AT&T asked the court for relief.
The court granted one of three requests for relief requested by AT&T – that the subpoena be quashed or modified because the Department of Finance exceeded the authority granted to the escheator in the state’s escheat law. Although the state’s law gives the escheator subpoena power, AT&T successfully argued that the subpoena was so expansive that enforcement would be an abuse of power. The court quashed the subpoena in its current form.
In its 63-page decision, the court noted multiple concerns, including the state’s lack of meaningful involvement in the information request and the contingency nature of Delaware’s relationship with Kelmar.
“The Department appears to have lent the State Escheator’s investigatory authority to Kelmar to use as it sees fit. Kelmar is compensated contingently,” the court wrote. “That arrangement benefits the State by minimizing fixed costs, but it gives Kelmar an incentive to engage in aggressive enforcement tactics. It potentially creates a pernicious incentive for Kelmar to serve broad information requests and engage in expansive audits that impose substantial burdens on companies, thereby inducing settlements that generate income for Kelmar. The breadth of the Subpoena in this case is suggestive of such tactics.”
In quashing the subpoena, the court gave Delaware the ability to issue a subpoena with a narrowed scope or appeal the decision, so this saga may continue.
This article originally appeared on the UPPO Unclaimed Property Focus Blog. Republished with permission.