Plains All Am. Pipeline L.P. v. Cook

Decision Date09 August 2017
Docket NumberNo. 16-3631,16-3631
Citation866 F.3d 534
Parties PLAINS ALL AMERICAN PIPELINE L.P., Appellant v. Thomas COOK, in his capacity as the Secretary of Finance for the State of Delaware; David M. Gregor, in his capacity as the State Escheator of the State of Delaware; Michelle M. Whitaker, in her capacity as the Audit Manager for the State of Delaware; Kelmar Associates LLC
CourtU.S. Court of Appeals — Third Circuit

Phillip B. Dye, Jr., Deborah C. Milner, Vinson & Elkins, 1001 Fannin Street, Suite 2300, Houston, TX 77002, Jeremy C. Marwell ARGUED, Christian D. Sheehan, Vinson & Elkins, 2200 Pennsylvania Avenue, N.W., Suite 500 West, Washington, DC 20037, James E. O'Neill, III, Colin R. Robinson, Bradford J. Sandler, Pachulski Stang Ziehl & Jones, 919 North Market Street, P.O. Box 8705, 17th Floor, Wilmington, DE 19801, Attorneys for Appellant

Caroline L. Cross, Jennifer R. Noel, Delaware Department of Justice, 820 North French Street, Wilmington, DE 19801, Marc S. Cohen, Loeb & Loeb, 10100 Santa Monica Boulevard, Suite 2200, Los Angeles, CA 90067, Tiffany R. Moseley, Steven S. Rosenthal ARGUED, John D. Taliaferro, Loeb & Loeb, 901 New York Avenue, N.W., Suite 300 East, Washington, DC 20001, Attorneys for Appellees Thomas Cook, David M. Gregor and Michelle M. Whitaker

Marc J. Phillips, Manion Gaynor & Manning, 1007 North Orange Street, Tenth Floor, Wilmington, DE 19801,Stephen W. Kidder, Ryan P. McManus ARGUED, Hemenway & Barnes, 75 State Street, 16th Floor, Boston, MA 02109, Attorneys for Appellee Kelmar Associates LLC

Before: CHAGARES, SCIRICA, and FISHER, Circuit Judges

OPINION OF THE COURT

FISHER, Circuit Judge.

All states have laws authorizing them to seize private property through escheat, "a procedure with ancient origins whereby a sovereign may acquire title to abandoned property if after a number of years no rightful owner appears." Texas v. New Jersey , 379 U.S. 674, 675, 85 S.Ct. 626, 13 L.Ed.2d 596 (1965). But in recent years, state escheat laws have come under assault for being exploited to raise revenue rather than reunite abandoned property with its owners. Delaware's Escheats, or Unclaimed Property, Law is no exception; as unclaimed property has become Delaware's third-largest source of revenue, companies have brought a wave of lawsuits challenging the constitutionality of Delaware's escheat regime.

In this case, Plains All American Pipeline ("Plains") seeks to attack the constitutionality of several provisions of the Delaware Escheats Law, as well as Delaware's demand that it submit to an abandoned property audit. But because Plains brought suit before Delaware assessed liability based on its audit or sought a subpoena to make its audit-related document requests enforceable, the District Court dismissed the suit, finding that Plains's claims were unripe except for an equal protection claim that it dismissed for failure to state a claim. Although we disagree with the District Court that Plains's as-applied, procedural due process claim is unripe and will therefore reverse and remand in part, we will affirm the District Court's dismissal in all other respects.

I
A

Rooted in a practice that dates back to feudal times, Delaware's Escheats Law is the mechanism by which Delaware takes custody of abandoned property in the State. As amended,1 the law provides that a holder of "property presumed abandoned" must file a yearly report with the State Escheator in which it provides information about the property and its possible owner. Del. Code Ann. tit. 12, §§ 1142, 1143. When filing the yearly report, the holder must "pay or deliver ... the property described in the report" to the State Escheator, id . § 1152, who then takes custody of the property and may sell it.

To ensure compliance with the law, the statute permits the Escheator to "[e]xamine the records of a person or the records in the possession of an agent, representative, subsidiary, or affiliate of the person under examination in order to determine whether the person complied with this chapter." Id . § 1171(1). And the "State Escheator may contract" with private third-parties to perform this audit on his or her behalf. Id . § 1178(a). If the person subject to examination "does not retain the records required," the "State Escheator may determine the amount of property due using a reasonable method of estimation." Id . § 1176(a). And if the State Escheator completes its examination and "determines that a holder has underreported unclaimed property due and owing," the State Escheator "shall mail a statement of findings and request for payment to the holder that filed." Id . § 1179(a). When liability is assessed, the State may charge interest and penalties. Id . § 1183. But the holder of the abandoned property may seek judicial review of the Escheator's decision in the Court of Chancery. Id . § 1179(b).

B

On October 22, 2014, Delaware's Audit Manager, Michelle Whitaker, sent Plains a notice that the State intended to audit its records from 1986 through present to evaluate its compliance with Delaware's Escheats Law. In that notice, Whitaker informed Plains that Kelmar Associates, a private auditing firm that conducts a large percentage of Delaware's unclaimed property audits, would conduct the audit; that she was "the final arbiter of any disputes that may arise during the course of the examination"; and that the audit would be expanded back to 1981 if not completed by June 30, 2015. J.A. 200.

After Kelmar sent Plains its initial document requests, Plains sent a letter raising several constitutional objections to the audit and informing Whitaker that it would not respond to Kelmar. Dismissing Plains's concerns as unfounded, Whitaker responded that multistate audits were common and Delaware's actions were legal. She directed Plains to "produce the records requested" by Kelmar and noted that "the State will consider the level of [Plains's] cooperation when determining whether penalties should be assessed, or whether any other statutorily available actions should be taken, in connection with any past due unclaimed property that is identified as a result of the examination." J.A. 325.

Plains did not respond to Whitaker. Instead, it sued Kelmar, Whitaker, Delaware Secretary of Finance Thomas Cook, and Delaware State Escheator David Gregor in federal court for a declaration that the proposed audit violated the Constitution, an injunction preventing the defendants from pursuing the audit, and attorney's fees. In its initial complaint, Plains alleged that the proposed audit and portions of Delaware's Escheats Law violated the Fourth Amendment, as well as the Ex Post Facto, Due Process, Equal Protection, and Takings Clauses of the Constitution. But Plains later amended its complaint to add one claim that Kelmar conspired with Delaware to violate its rights and two claims that Delaware's Escheats Law was void for vagueness and preempted by federal law.

In July 2015, the Defendants moved to dismiss the amended complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The District Court dismissed this case on August 16, 2016, finding that Plains's claims were all unripe except for an equal protection claim that it dismissed for failure to state a claim. This timely appeal followed.

II

The District Court had federal question jurisdiction under 28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291. We exercise plenary review over both a district court's dismissal for lack of ripeness, NE Hub Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333, 341 (3d Cir. 2001), and its dismissal for failure to state a claim under Rule 12(b)(6), Monroe v. Beard , 536 F.3d 198, 205 (3d Cir. 2008). Where, as here, the defendants move to dismiss a complaint under Rule 12(b)(1) for failure to allege subject matter jurisdiction, we treat the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. NE Hub , 239 F.3d at 341.

III

On appeal, Plains argues that the District Court improperly dismissed six of its claims—four facial challenges and two as-applied challenges—as unripe.2 This assertion requires us to consider whether Plains has presented a justiciable case or controversy.

A

While it is "emphatically the province and duty of the judicial department to say what the law is," Marbury v. Madison , 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803), Article III of the Constitution limits the federal judiciary's authority to exercise its "judicial Power" to "Cases" and "Controversies."

U.S. Const. art. III, § 2. This case-or-controversy limitation, in turn, is crucial in "ensuring that the Federal Judiciary respects the proper—and properly limited—role of the courts in a democratic society." DaimlerChrysler Corp. v. Cuno , 547 U.S. 332, 341, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006) (internal quotation marks omitted). And courts enforce it "through the several justiciability doctrines that cluster about Article III," including "standing, ripeness, mootness, the political-question doctrine, and the prohibition on advisory opinions." Toll Bros., Inc. v. Twp. of Readington , 555 F.3d 131, 137 (3d Cir. 2009) (internal quotation marks omitted).

As the District Court noted, this case involves ripeness, "a matter of degree whose threshold is notoriously hard to pinpoint." NE Hub , 239 F.3d at 341. But because Plains is bringing a preenforcement action, the justiciability issue in this case can equally be described in terms of standing. See, e.g. , MedImmune, Inc. v. Gene n tech, Inc , 549 U.S. 118, 128 n.8, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) ("The justiciability problem that arises, when the party seeking declaratory relief is himself preventing the complained-of injury from occurring, can be described in terms of standing ... or ... ripeness"); Free Speech Coal., Inc. v. Att'y Gen. of United States , 825 F.3d 149, 167 n.15 (3d Cir. 2016) ("[W]hether Plaintiffs have standing or their claims are ripe ... both turn on whether...

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