General Publications March 7, 2023

“Justices’ MoneyGram Opinion Could Spur State Legislation,” Law360, March 7, 2023.

Extracted from Law360

On Feb. 28, the U.S. Supreme Court issued its opinion in the consolidated cases of Delaware v. Pennsylvania and Arkansas v. Delaware, commonly referred to together as the MoneyGram case. The court ruled in favor of the 30 states aligned against Delaware, in a dispute involving possession of more than $250 million in unclaimed checks issued by MoneyGram International Inc.[1]

Justice Jackson's Opinion

In Justice Ketanji Brown Jackson's thoughtful opinion, the Supreme Court held that MoneyGram's agent checks and teller's checks are sufficiently similar to money orders that they fall under the 1974 Disposition of Abandoned Money Orders and Traveler's Checks Act, or Federal Disposition Act, determining that the disputed instruments were improperly escheated to Delaware.

While the Supreme Court declined to define "money order" or decide whether the disputed instruments are money orders, the court concluded that the disputed instruments fall under the act's definition of "other similar written instruments."

The court reasoned that an instrument is sufficiently similar to a money order, and therefore falls under the Federal Disposition Act's escheatment rules, when it (1) is a prepaid written instrument used to transmit money to a named payee; and (2) will inequitably escheat to the holder's state of incorporation under the federal common law's secondary escheatment rule due to the holder's business practice of not retaining a record of the instrument owner's address.

The second prong of this test is particularly noteworthy because it hinges the analysis not just on the nature of the instrument itself but also on the particular holder's address collection and retention practices, which somewhat departures from the bright-line rule informing the principles in a line of precedent for the Supreme Court's 1968 decision in Texas v. New Jersey.

The court recognized that check issuers such as MoneyGram generally do not collect creditor addresses as a matter of business practice. Therefore, the primary federal common law escheatment rule, under which unclaimed intangible property escheats to the address of the creditor, would not apply.

The court emphasized that Congress enacted the Federal Disposition Act to prevent inequitable escheatment that creates a windfall to the state of the holder's incorporation.

The court rejected Delaware's contention that the disputed instruments fall within the Federal Disposition Act's third-party bank checks exception simply because the disputed instruments are signed by bank employees and paid through MoneyGram.

The court's opinion also clarified confusion caused by the special master's filing of a second interim report after the court held oral argument. In the second interim report, the special master made a U-turn and recommended treating one category of MoneyGram instruments — teller's checks — as falling within the Federal Disposition Act's third-party bank check exception because those instruments designate the selling bank as the drawer and MoneyGram as the issuer, leading the special master to believe that both are liable on the checks.

The court rejected the special master's second interim report and instead adopted the recommendations of the first interim report, concluding that the disputed instruments fell within the scope of the Federal Disposition Act.

The court's unanimous decision represents a victory for the 30 states that will divide over $250 million in abandoned MoneyGram checks, and provides clarity for issuers of instruments substantially similar to those disputed in the case.

However, it should be noted that the court explicitly stated that it was not opining on whether the Federal Disposition Act applies to cashier's checks, certified checks or non-MoneyGram teller's checks because those instruments were not before the court. And while the Supreme Court handed the 30 states a victory, it did not address damages, which will be addressed by the special master.

The Future of the Federal Common-Law Rules of Jurisdiction

The court had the opportunity to address the future of the federal common-law rules of jurisdiction, but declined to do so.

Pennsylvania, one of the states aligned against Delaware, requested that if the court ruled in favor of Delaware it remand to the special master the question whether Texas v. New Jersey, which established primary and secondary rules based on "ease of administration and of equity," is still good law.

As articulated in the opinion's final footnote, because the court did not adopt the special master's second interim report and did not rule in favor of Delaware, it refused Pennsylvania's request.

However, the court's opinion acknowledged that inequitable escheatment outcomes can result from the federal common law rules of jurisdiction, stating:

[Such rules] were permitting inequitable escheatment (insofar as our primary rule mistakenly relied on the assumption that the holders of such instruments regularly collected creditors' address information), and the statute that Congress en­acted in the wake of our Pennsylvania ruling [i.e., the Federal Disposition Act] details the in­equitable escheatment problem.

States may use the court's acknowledgment as an opportunity to resort to legislative action and enact statutory rules for property types that states want to be escheated on a multistate basis, prospectively — e.g., provisions requiring holders to collect and maintain owner address information for certain property types.

Implications for Other Property

In declining to define money orders or decide whether the disputed instruments are money orders, the court provided a two-part test to determine whether an instrument is sufficiently similar to a money order to fall under the Federal Disposition Act's escheatment rules.

Given the guidance provided in the two-part test, issuers of an ostensibly similar property type, for which the business model does not entail collection and retention of owner address information, should consider the implications of the court's two-part test, and whether such property falls under the Federal Disposition Act's escheatment rules.

These holders should engage in a detailed factual analysis of how their address collection and retention practices relate to such property types.

However, the court's guidance and two-part test will not apply to every holder's business model that entails the noncollection of owner address information because the court's guidance was provided in the narrow context of the Federal Disposition Act, and not in a broader commercial context.

Ultimately, it may be that no definitive answers come from holders engaging in such analysis, unless and until the states initiate a followup dispute, perhaps to fight over jurisdiction to escheat cashier's checks, certified checks and teller's checks, which were expressly carved out of the court's opinion.

[1] See our advisory summarizing the legal issues of the dispute and the Oct. 3, 2022, oral argument:

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