This includes hiring third party contingent fee audit firms to aggressively pursue the collection of unclaimed property. These firms, with support of the Delaware legislature, have broadly interpreted decades old provisions which provide that the state of incorporation of an organization has jurisdiction over unclaimed funds when the address of a payee (employee, vendor, gift card owner or customer) remains unknown. Typically, unclaimed funds arise when checks or amounts owed to vendors, employees or customers go unclaimed and the organization in possession of those funds (the holder) is required to remit it to a state so the funds have a better chance of being reconnected with the true owner (employee, vendor, customer). In the case of Delaware, the state and its auditors have executed an audit policy of creating unclaimed funds which in fact are owed to no one. This result is accomplished by the use of aggressive estimation techniques and unlimited statute of limitations otherwise limiting the retroactive period in which a law can be imposed. Despite a series of challenges, Delaware has thus far been able to extract hundreds of millions each year from companies incorporated in Delaware to shore up its state coffers with virtually no portion of the amounts collected having been returned to any real owner. Now for the first time on multiple fronts, there appears to be a crack in the foundation that has insulated the state from scrutiny. The most recent challenge is in the form of proposed legislative reforms, initiated by those very same state representatives that less than four years ago based legislation supporting the use of these very same aggressive audit techniques.
On the legal front, a recent case has been brought against Delaware which challenges its use of extrapolation techniques. Kelmar, a third party audit firm in estimating the liability for Temple-Inland resulting in a $1.3 million assessment, even though only $147.30 of property was identified that should have been escheatable to Delaware during the audit period. Temple-Inland has appealed the State’s audit assessment, which was upheld at the administrative appeals level in Federal District Court, seeking a declaratory judgment and injunctive relief against Delaware and Kelmar.