Subpoena enforcement on hold in abandoned-property fight

April 8, 2019 GMT

WILMINGTON, Del. (AP) — A judge on Monday rejected a request by state officials to rule on the validity of an unprecedented subpoena they issued seeking records from a company challenging the constitutionality of Delaware’s unclaimed-property laws.

After a hearing, Vice Chancellor Joseph Slights III granted a motion by Illinois-based chemical supplier Univar to put the case on hold while a federal judge considers the company’s broader challenge to Delaware’s abandoned property, or escheat, laws.

“I’m satisfied that a stay is justified here, at least for now,” Slights said, adding that it doesn’t make sense for a court to decide a narrow issue in a case that encompasses broader unresolved questions.


The legal battle is the latest in a series of court challenges to Delaware’s escheat laws.

Thanks to its status as the legal home of more than 1 million business entities, including more than two-thirds of the country’s Fortune 500 companies, and to various U.S. Supreme Court rulings dating to 1965, Delaware is able to lay claim to the abandoned property of those businesses.

As a result, abandoned property — everything from uncashed checks and forgotten utility deposits to dormant bank accounts and unclaimed stock and insurance policies — has become a key revenue source for Delaware. It is the third-largest source of funds for state government, regularly exceeding half a billion dollars annually.

But companies have complained for years that Delaware’s abandoned-property laws have resulted in attempts at unconstitutional money grabs.

After receiving an audit notice from state officials in December 2015, Univar raised several objections and has refused to turn over any records.

In October, officials took the unprecedented step of issuing an administrative subpoena for Univar’s records, citing new authority they were given in a 2017 overhaul of Delaware’s unclaimed property laws. The legislation was drafted after a 2016 court ruling in a separate case in which a federal judge in Wilmington harshly criticized Delaware’s practices, saying they violated due process and amounted to a game of “gotcha” that “shocks the conscience.” The bill was aimed at bringing more predictability, efficiency, and fairness to unclaimed-property reporting and compliance rules.

Rather than respond to the subpoena, however, Univar filed a federal lawsuit. State officials countered a few days later with a state lawsuit seeking enforcement of the subpoena.


Univar argues, among other things, that Delaware’s audit practices infringe on the company’s right to be free from unreasonable searches and seizures, violate its due process and equal protection rights, and amount to an unconstitutional taking of private property for public use without just compensation. The company also has specifically challenged Delaware’s ability to retroactively apply the subpoena power granted in the 2017 law to an audit case that began in 2015.

“The federal court is the court handling all these issues,” said Michael Kelly, an attorney for Univar.

Steve Rosenthal, an attorney for Delaware officials, tried to downplay the subpoena dispute, arguing that the state has always had the power to issue subpoenas.

“Not under the power you invoke,” the judge interjected, noting that the subpoena to Univar was issued under authority granted in the 2017 law.

Rosenthal responded that the power to issue a summons was “comparable” to the authority granted in the 2017 law. He suggested that the purpose of the law was simply to clarify that any dispute over a subpoena involving unclaimed property would be decided in the Court of Chancery.

Rosenthal also argued that until the validity of the state’s subpoena is resolved, others will be encouraged to file federal lawsuits when faced with a demand for records, putting the state’s enforcement scheme at risk.