The proposed reforms are a welcome change, specifically as they relate to lookback periods, electronic filing and limited compliance reviews.
As a result of what some might view as a scathing decision by the U.S. District Court for the District of Delaware in Temple-Inland, Inc. v. Cook, 192 F. Supp. 3d 527 (D. Del. 2016), Delaware has proposed comprehensive unclaimed property legislative reform. This reform could impact any corporation formed in Delaware, without regard to state of activity. Delaware still retains its status as one of the most favorable jurisdictions within which to incorporate, and the unclaimed property priority rules require escheat of property to the state of incorporation when the last-known address of the rightful owner is unknown. As a result, changes to the Delaware unclaimed property laws have nationwide implications for Delaware-incorporated businesses. This article reviews the Temple-Inland decision as well as the proposals on the table in Delaware SB 13, which was introduced in the general assembly on January 12, 2017.
Temple-Inland is a Delaware corporation that manufactures corrugated packaging, with its principal places of business in Texas and Indiana. In 2008, the Delaware state escheator notified the company of an impending audit. The audit was completed by a third-party auditor retained by the state to conduct its escheat audits. As a result of the audit, Temple-Inland was assessed more than $2 million, attributable to escheatable but dormant accounts payable and payroll. Once Temple-Inland exhausted its administrative remedies, it filed suit challenging the constitutionality of the assessment in U.S. district court, rather than litigating the assessment in the Delaware Court of Chancery.
The district court granted Temple-Inland’s motion for summary judgment in part on substantive due process grounds. These substantive due process claims are reviewed below, followed by the proposed changes in the law in light of the decision.
The district court noted that Delaware’s actions during the audit “shocked the conscience,” so as to constitute a due process violation. The court found that Delaware’s attempts to audit a full 22-year lookback period violated the explicit terms of the statute, which provided for a six-year statute of limitations, and that the state could only go back through the entire lookback period if Temple-Inland had not filed escheat returns. Delaware made an...
