United States District Court, D. Delaware
For Plaintiff: Diane Green-Kelley, Esquire of Reed Smith LLP, Of Counsel, Brian M. Rostocki, Esquire and John C. Cordrey, Esquire of Reed Smith LLP, Wilmington, Delaware.
For Defendants: Edward K. Black, Esquire of the Division of Revenue, and Caroline Lee Cross, Esquire of the Department of Justice of Ballard Spahr LLP, Of Counsel, David J. Margules, Esquire, Beth Moskow-Schnoll, Esquire, and Jessica L. Case, Esquire of Ballard Spahr LLP, Wilmington, Delaware.
Sue L. Robinson, District Judge.
On May 21, 2014, plaintiff Temple-Inland Inc. (" plaintiff') filed a complaint against defendants Thomas Cook (" Mr. Cook" ), in his capacity as the Secretary of Finance for the State of Delaware; David M. Gregor (" Mr. Gregor" ), in his capacity as the State Escheator of the State of Delaware; and Michelle M. Whitaker (" Ms. Whitaker" ), in her capacity as the Audit Manager for the State of Delaware (collectively, " defendants" ). Plaintiff seeks equitable, declaratory, injunctive and other relief under 28 U.S.C. § § 2201-2202 and 42. U.S.C. § 1983 for violation of plaintiff's rights under federal law and the United States Constitution. (D.I. 1) Plaintiff challenged the use of a statistical model by the Department of Finance of the State of Delaware to estimate plaintiff's obligations under Delaware's Abandoned and Unclaimed Property Law, 12 Del C. § § 1110, et seq. (the " Escheat Act" ). Also on May 21, 2014, plaintiff moved for a preliminary injunction to enjoin defendants from enforcing the assessment of $1,388,573.97 in uncashed accounts payable and payroll checks during calendar years 1986-2008, and to enjoin defendants' continued examination of plaintiff's records for potentially abandoned or unclaimed property. (D.I. 3) On July 2, 2014, the parties jointly stipulated to a standstill regarding the enforcement of the assessment and examination of records pending entry of final judgment, and plaintiff withdrew its motion for a preliminary injunction. (D.I. 20)
Presently before the court is plaintiff's motion for summary judgment (D.I. 22), and defendants' motion to dismiss for lack of jurisdiction over the subject matter and motion to dismiss for failure to state a claim (D.I. 24). The court has federal question jurisdiction pursuant to 28 U.S.C. § 1331, as plaintiff asserts five counts for federal preemption and violations of the United States Constitution. Requests seeking injunctive relief, such as those asserted by plaintiff, have been held to form the basis for federal question jurisdiction. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n.14, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (" A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute [over] which, by virtue of the Supremacy Clause of the Constitution, must prevail, thus presents a federal question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve." ).
A. The Parties
Plaintiff is a corporation organized under the laws of Delaware, with a principal place of business in Memphis, Tennessee. Plaintiff is a manufacturer and nationwide supplier of corrugated packaging.
Mr. Cook is the Delaware Secretary of Finance. Section 1102 of the Delaware Code vests authority for the administration and enforcement of the Escheat Act " in the Secretary of Finance or the Secretary's delegate." 12 Del. C. § 1102. Mr. Gregor is the Secretary's delegate and holds the title of Delaware State Escheator. As State Escheator, Mr. Gregor " may make such rules and regulations as the Escheator may deem necessary to enforce [the Escheat Act]." Id. § 1154. Ms. Whitaker is the Delaware Abandoned Property Audit Manager, acting under the direction of the State Escheator. As the Audit Manager, Ms. Whitaker may issue a statement of findings and request for payment from a Delaware corporate citizen who has under-reported unclaimed property. Id. § 1156(a).
B. Delaware Escheat Law
All fifty states, as well as the District of Columbia, have laws that govern the disposition of unclaimed property, often referred to as " escheat laws." Many states, with the exception of Delaware and five others, model their escheat laws on the Uniform Unclaimed Property Act (" UUPA" ). Diane Green-Kelly, Unclaimed Property: An Ancient Concept Creating Modern Liabilities, 32 Franchise L.J. 41, 41 (2012). Escheat laws require companies holding unclaimed or abandoned property, whether tangible or intangible, to turn that property over to the State. The stated purpose of Delaware's Escheat Act is to provide for the " care and custody ... of all abandoned property paid to the State Escheator" until the property is reclaimed by the true owner. 12 Del. C. § 1144(a).
Procedurally, a company must typically first attempt to return the abandoned property to the owner, using the owner's name and last known address, before turning the property over to the State. Once the State takes custody, the company is no longer liable to the property owner, and the State will attempt to reunite the owner with the property. Id. § 1144(b). To facilitate the reunion, the State Escheator is mandated to " maintain a public record of all names and last known addresses of the person or persons appearing to be entitled to the abandoned property paid or delivered to the State Escheator." Id. § 1141. " [T]o the extent necessary for the proper disposition of property," if " the records of the holder available for the periods subject to this chapter are insufficient to permit the preparation of a report, the State Escheator may require the holder to report and pay to the State the amount of abandoned or unclaimed property that should have been but was not reported[, and] that the State Escheator reasonably estimates to be due and owing on the basis of any available records of the holder or by any other reasonable method of estimation." Id. § 1155.
The Escheat Act was amended in 2010 by Senate Bill No. 272 § 4 to permit the State Escheator to estimate the liability for unclaimed property " [w]here the records of the holder available for the periods subject to [examination] are insufficient to permit the preparation of a report." Id. § 1155. In amending the statute, the Delaware General Assembly found that " the employment of estimation techniques is an accepted and routine practice used both by holders of abandoned and unclaimed property and by the State Escheator in determining holders' liability to report and pay such property to the State with respect to periods for which inadequate holder records exist." Delaware Senate Bill No. 272 (May 12, 2010) (hereinafter " SB No. 272" ).
C. Factual Background
On December 22, 2008, pursuant to his authority under 12 Del. C. § 1155, the State Escheator initiated an unclaimed property audit of plaintiff. The State Escheator notified plaintiff that the audit period would begin in 1981, and he asked plaintiff to make past and present records of unclaimed property " retained under standard retention policies" available for examination. An examination of plaintiff's unclaimed property reports revealed that plaintiff escheated a cumulative total of $1,338,116.70 of unclaimed accounts payable and payroll checks to various states during the audit period, including Delaware.
Plaintiff produced disbursement records for payroll starting in the year 2004 and disbursement records for accounts payable starting in the year 2003. The audit resulted in no unclaimed property esheatable to Delaware from the payable disbursement account, and $147.30 in unclaimed moneys from the payroll disbursement account. The $147.30 was escheated to Delaware on May 22, 2013. Because plaintiff was unable to produce records prior to 2003, the State Escheator used an estimation method to extrapolate the amount of unclaimed property due to Delaware. Defendants reported an underpayment of approximately $2.1 million, and later reduced the amount to $2.0 million. Following an administrative appeal by plaintiff and appointment of an independent reviewer, the Secretary of Finance accepted a reduction in the amount owed to $1,388,573.98, with collection to be enforced by the State Escheator.
III. STANDARD OF REVIEW
A. Motion to Dismiss for Failure to State a Claim
A motion filed under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint's factual allegations. Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). A complaint must contain " a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Twombly, 550 U.S. at 545 (internal quotation marks omitted) (interpreting Fed.R.Civ.P. 8(a)). Consistent with the Supreme Court's rulings in Twombly and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Third Circuit requires a two-part analysis when reviewing a Rule 12(b)(6) motion. Edwards v. A.H. Cornell & Son, Inc., 610 F.3d 217, 219 (3d Cir. 2010); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, a court should separate the factual and legal elements of a claim, accepting the facts and disregarding the legal conclusions. Fowler, 578 F.3d at 210-11. Second, a court should determine whether the remaining well-pled facts sufficiently show that the plaintiff " has a 'plausible claim for relief.'" Id. at 211 (quoting Iqbal, 556 U.S. at 679). As part of the analysis, a court must accept all well-pleaded factual allegations in the complaint as true, and view them in the light most favorable to the plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007); Christopher v. Harbury, 536 U.S. 403, 406, 122 S.Ct. 2179, 153 L.Ed.2d 413 (2002); Phillips v. Cnty. of Allegheny, 515 ...