State v. AT&T Inc.
| Decision Date | 01 June 2021 |
| Docket Number | No. 303, 2020,303, 2020 |
| Citation | 253 A.3d 537 |
| Parties | State of Delaware, DEPARTMENT OF FINANCE, Plaintiff Below, Appellant, v. AT&T INC., Defendant Below, Appellee. |
| Court | United States State Supreme Court of Delaware |
Melanie K. Sharp, Esquire, Martin S. Lessner, Esquire (argued), Mary F. Dugan, Esquire, and Michael A. Laukaitis II, Esquire, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Attorneys for Plaintiff-Appellant State of Delaware, Department of Finance.
Brian M. Rostocki, Esquire and Benjamin P. Chapple, Esquire, REED SMITH LLP, Wilmington, Delaware; Sara A. Lima, Esquire (argued), REED SMITH LLP, Philadelphia, Pennsylvania; Attorneys for Defendant-Appellee, AT&T Inc.
Before SEITZ, Chief Justice; VALIHURA and TRAYNOR, Justices.
The Delaware Department of Finance served an administrative subpoena on AT&T Inc. to produce records relating to a financial audit. AT&T refused to produce all of the requested records. The Department responded by filing a complaint in the Court of Chancery to enforce the subpoena. AT&T defended by claiming, among other things, that the subpoena exceeded the Department's authority and was overbroad. The Court of Chancery held that, although the Department validly issued the subpoena, AT&T "met its burden to show that the scope of the subpoena is so expansive that enforcement would constitute an abuse" of the court's process.1 The court noted that it had offered the Department the opportunity to supplement the record to explain why the subpoena should be enforced as written, but the Department declined the invitation. And, according to the court, it could have modified the subpoena, or permitted the Department to serve a narrower subpoena, but the Department declined these alternatives. The court therefore quashed the subpoena in its entirety. The Department has appealed the court's decision.
For the reasons explained below, we affirm the Court of Chancery's judgment. We recognize, however, as the Court of Chancery did, that the procedural and substantive aspects of administrative subpoena enforcement are issues of first impression in Delaware. We adopt the procedures and substance followed by the federal courts in administrative subpoena enforcement proceedings. When the Department files a complaint to enforce an administrative subpoena, it must support the complaint with an affidavit or verification that shows it has a legitimate purpose for its investigation, the information sought may be relevant to the purpose and is not already in the Department's possession, and the Department has complied with any administrative requirements. The respondent then files a response, where it can contest the Department's assertions. If the respondent goes a step further and claims that the subpoena has been issued for an improper purpose such that enforcement would be an abuse of the court's process, then the burden is on the respondent to make a particularized showing in its response that the Department issued the subpoena in bad faith, such as for harassment or to pressure the respondent to settle a collateral dispute. After the respondent files a response, and the parties make any further submissions called for by the court, the Court of Chancery should then convene a prompt hearing and address in summary fashion the enforcement issues. An evidentiary hearing should take place only in those cases when the court, after according great deference to the Department's administrative judgments, believes that the disputed issues can only be resolved after hearing from witnesses.
Because we have announced new procedural and substantive standards governing administrative subpoenas, we will allow the Department to serve a new subpoena on AT&T that complies with the guidance in this opinion. If the dispute cannot be resolved, the Department should file an amended complaint to enforce the new subpoena, which should be addressed by the Court of Chancery consistent with the procedures and substantive review announced in this opinion.
Delaware's unclaimed property law, also known as escheat, allows the State to claim abandoned property if, after the statutory dormancy period, no rightful owner appears (the "Escheat Law" or "Escheat Statute").2 Unclaimed property laws are rooted in the principle that abandoned property should be collected by the State to benefit the citizenry rather than confer a potential windfall on the holder.3
Under Delaware's Escheat Law, there is an Escheator of the State, who is the Secretary of Finance or the Secretary's delegate.4 The State Escheator can, subject to limitations, "contract with a person to conduct compliance reviews and examinations" of the State's unclaimed property laws.5 It can examine records, take testimony, and issue subpoenas to assess compliance with the State's unclaimed property laws.6 Specific to subpoenas, the statute provides that the State Escheator or its agent can:
A.
On January 12, 2012, the Department sent AT&T—a Delaware corporation—a notice of unclaimed property examination.8 The Department designated third-party auditor Kelmar Associates LLC ("Kelmar") as its agent for the examination. Over the next several years, Kelmar requested from AT&T documents related to the audit. AT&T apparently satisfied all the requests except the two that are the subject of this appeal. The parties refer to these requests as the "Rebates Request" and the "Disbursements Request." On October 30, 2014, Kelmar sent the Rebates Request. It asked AT&T to identify and provide transaction details for all general ledger accounts used to track customer rebate accrual and expense activity during a particular period.9 The Rebates Request also asked AT&T to name all third-party administrators it had used to issue rebates and the duration of the vendors’ relationships with AT&T.10
On January 17, 2018, Kelmar notified AT&T of the Disbursements Request. The Disbursements Request sought information on all checks issued from twenty-seven accounts since June 1992.11 Kelmar asked AT&T to identify which business unit each check was issued on behalf of, the general ledger account where it was recorded, the payee's name and address, and whether the check was cashed, voided, stopped, still outstanding, or voided and reissued.12 Seven months later, Kelmar notified AT&T of an additional bank account it had added to the Disbursement Request.13
While the examination of AT&T's records was ongoing, the General Assembly amended Delaware's unclaimed property laws (the "2017 Amendments").14 Three aspects of the 2017 Amendments are relevant to this appeal. First, the amendments authorized the State to issue administrative subpoenas to require production of records related to an unclaimed property examination.15 Second, the amendments extended the statute of limitations for most unclaimed property audits from three years to ten years.16 This decision will refer to the statute of limitations in place prior to the 2017 Amendments as the "Old Statute of Limitations" and the statute of limitations as amended in 2017 as the "New Statute of Limitations." Finally, under the 2017 Amendments, the subject of a pending examination may "notify the [Department] of the person's intent to expedite the completion of the pending examination ...."17 Doing so requires the Department to serve "[a]ll requests for records, testimony, and information" no more than eighteen months from the date the expedited examination request was submitted.18
AT&T was the subject of a pending examination when the General Assembly enacted the 2017 Amendments. Thus, AT&T was entitled to an expedited examination under the revised law. AT&T submitted the required notice to the Department on December 11, 2017. Two months later, AT&T and Kelmar finalized a work plan for the expedited examination.19
The parties disagree on what happened next. The Department argues that, after the parties executed the work plan, AT&T "refused to produce documents" relating to the Rebates and Disbursements Requests thereby "violating its own work plan with the State."20 According to AT&T, "the records produced to date, which include[d] years of AT&T's unclaimed property reports to Delaware, [were] sufficient to proceed with its audit to determine AT&T's unclaimed property compliance."21 Specifically, AT&T argues that it responded to the Disbursement Request with "payment data for every quarter-end month (four months per year) for approximately eight years[,]" which "amounted to over 10.5 million lines of information and reflected spend of over $16 billion."22 AT&T further claims that it "provided schedules of data and detailed in writing how it maintain[ed] information that may be responsive to the [Rebates] [R]equest."23
In response to AT&T's objections to the outstanding requests, the Department sent AT&T seven notices of deficiencies between July 2018 and October 2019. The Department cautioned that failure to comply with the work plan could result in termination of the expedited examination. On October 31, 2019, the Department terminated the expedited examination. The termination notice included a warning that the Department might issue an administrative subpoena for the records if AT&T did not produce the outstanding documents. AT&T did not respond. On November 8, 2019, the Department issued an administrative subpoena demanding the production of documents responsive to the Rebates Request and the Disbursement Request.
B.
On December 6, 2019, AT&T filed an action in the United States District Court for the District of Delaware against three Delaware...
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...owner died without heirs. (11) 82 F. Supp. 3d 539 (D. Del. 2015). (12) Id. at 550. (13) 876 F.3d 481, 497 (3d Cir. 2017). (14) Id. (15) 253 A.3d 537 (Del. (16) See id. at 553. (17) Id. at 547, 552. (18) 876 F.3d at 486. (19) No. CGC-15-548384, 2016 Cal. Super. LEXIS 5650 (S.F. Sup. Ct. Apri......