Del. Dep't of Fin. v. Univar, Inc.
| Decision Date | 21 May 2020 |
| Docket Number | C.A. No. 2018-0884-JRS |
| Parties | Re: State of Delaware, Department of Finance v. Univar, Inc. |
| Court | Court of Chancery of Delaware |
JOSEPH R. SLIGHTS III VICE CHANCELLOR
Elizabeth R. McFarlan, Esquire
Delaware Department of Justice
820 North French Street
Wilmington, DE 19801
Melanie K. Sharp, Esquire
Martin S. Lessner, Esquire
Mary F. Dugan, Esquire
Michael A. Laukaitis, II, Esquire
Young Conaway Stargatt & Taylor, LLP
1000 North King Street
Wilmington, DE 19801
Michael P. Kelly, Esquire
David A. White Esquire
Matthew J. Rifino, Esquire
McCarter & English LLP
405 North King Street, Suite 800
Wilmington, DE 10801
Dear Counsel:
Plaintiff, the Delaware Department of Finance (the "Department" or the "State"), has statutory authority to audit Delaware corporations to assess their compliance with Delaware's unclaimed property law. Defendant, Univar, Inc. ("Univar"), received a notice of examination regarding unclaimed property from Brenda Mayrack, the State Escheator, in 2015. It has declined to comply with the examination, igniting litigation in this Court and the United States District Court for the District of Delaware (the "District Court"). The proceedings in this Court concern the State's attempt to enforce an administrative subpoena compelling Univar to produce certain corporate books and records.
Univar has moved to dismiss, arguing this case is not ripe for adjudication because the State has failed to satisfy the statutory prerequisites for enforcing a subpoena. The State responds that, to the extent there are such prerequisites, they have been satisfied and this case is ripe for adjudication. After carefully weighing the parties' arguments, I am convinced Univar has not met its burden of demonstrating, as a matter of law, that the claims asserted here are not ripe. Its Motion to Dismiss, therefore, must be denied.
I have drawn the facts from the well-pled allegations in the Complaint and documents incorporated by reference or integral to the Complaint.1 "Any additional facts [discussed here] are either not subject to reasonable dispute or subject to judicial notice."2
Plaintiff, the Department, is charged with enforcing Delaware's unclaimed property law.3 Brenda Mayrack, the State Escheator, performs her function as a representative of the Department.
Defendant, Univar, is a Delaware corporation.4 It received a notice of an unclaimed property examination from the State on December 11, 2015.5
Delaware's escheat law allows the State to acquire title to abandoned property if, after the statutory waiting period, no rightful owner appears.6 Until the property is claimed, the State may (and does) use the funds in its operating budget.7 Large sections of Delaware's escheat law were struck down as unconstitutional by court order in 2016 (the "Old Law").8 Apparently in response to the Temple-Inland, Inc. decision, the escheat law was substantively amended in 2017 (the "New Law").9
Delaware's recovery of unclaimed property is facilitated by the priority rules set forth by the United States Supreme Court in Texas v. New Jersey.10 There, the court explained that only one state may escheat unclaimed property.11 The first priority goes to the state of the owner's last known address.12 When, as often is the case, that address is unknown, the second priority, in the entity context, goes to the state where the holder is incorporated.13 Because so many business organizations call Delaware home, our state often has priority to escheat unclaimed property held by those entities.14
As an entity incorporated in Delaware, Univar is a potential holder of unclaimed property under the New Law.15 As such, the New Law, like the Old Law, authorizes the State Escheator to "[e]xamine the records of a person or the recordsin the possession of an agent, representative, subsidiary, or affiliate of the person under examination in order to determine whether the person complied with [the Escheat Law]."16 Delaware utilizes an agent, Kelmar Associates LLC ("Kelmar"), to perform audits to investigate whether entities are complying with Delaware law.17 As a part of this auditing procedure, the New Law, unlike the Old Law, authorizes the State to issue administrative subpoenas that can direct a company to turn over corporate books and records to Kelmar.18
As noted, the State sent an examination notice to Univar in late 2015.19 Kelmar sent its first document request to Univar on September 23, 2016.20 Sincethen, Univar has declined to cooperate with the State's audit and has refused to produce any documents in response to Kelmar's requests.21
On October 30, 2018, the State issued an administrative subpoena, pursuant to 12 Del. C. § 1171(3), directing Univar to provide responsive documents by December 3, 2018.22 Again, Univar did not comply and, instead, filed an action in the District Court challenging the New Law's constitutionality.23
The State responded by filing its Complaint in this Court seeking a summary order enforcing its subpoena. Specifically, the Complaint seeks an Order under 12 Del. C. § 1171(4) requiring Univar to comply with the State's administrative subpoena.24
Defendant moved to dismiss or stay this action on January 11, 2019, in favor of the first-filed federal action.25 On April 8, 2019, this Court granted the motion to stay upon concluding that the statute granting the State subpoena power, at issue in this litigation, was among the statutory provisions Univar was challenging as unconstitutional in the first-filed federal action.26 On September 17, 2019, the District Court granted in part and denied in part the State's Motion to Dismiss.27 In doing so, the court determined that Univar had stated a claim that the State has violated its due process and equal protection rights.28 The court also held many of Univar's claims were not ripe, and stayed that case while this Court decides whether to enforce the State's subpoena as a matter of Delaware law.29
Univar has now moved to dismiss this action, arguing the State's claim is not ripe for adjudication because the State has failed to comply with the statutory prerequisites for issuing a subpoena.30 It also argues it has preserved all constitutional arguments that are properly before the District Court, and that this Court need not address any constitutional issues when deciding the State's entitlement to enforce its subpoena.31
"Ripeness, the simple question of whether a suit has been brought at the correct time, goes to the very heart of whether a court has subject matter jurisdiction."32 "Courts in [Delaware] decline to exercise jurisdiction over cases in which a controversy has not yet matured to a point where judicial action isappropriate."33 This measured approach both preserves limited judicial resources and ensures an orderly development of the law.34
At oral argument, Univar made clear that its ripeness defense is predicated on two points. First, it argues the State has not adequately demonstrated its compliance with the New Law's confidentiality provisions, a necessary prerequisite to any audit.35 Second, it argues the State has not promulgated sufficient regulations to manage multistate audits fairly, as required by the New Law.36 Separately, theparties dispute whether Univar has preserved, and may present to the District Court, its constitutional arguments with respect to the subpoena under England v. Louisiana State Board of Medical Examiners.37 I address each argument below.
As noted, Univar maintains this action is not ripe because the State has not demonstrated its compliance with the New Law's confidentiality requirements for multistate audits.38 In this regard, Univar maintains that the audit being conducted by the State is a multistate audit, notwithstanding the State's insistence that it is conducting a "Delaware-only" audit.39 Univar then argues that, because the public records laws of the other states participating in this supposed multistate audit materially conflict with the confidentiality requirements of the New Law, this action will not be ripe for decision until the State demonstrates its full compliance with Delaware's confidentiality requirements.40
I am not persuaded. First, there is no basis to conclude as a matter of undisputed fact that the State is conducting a multistate audit.41 More to the point, even if the State were conducting a multistate audit, Kelmar is bound by Delaware law not to share any of Univar's confidential information with "any person who is not a current officer or employee of [Delaware]. . . ."42 This Court has the authority, backed by its inherent contempt powers, to order that any books and records Univar produces in response to the subpoena be subject to a confidentiality order that complies with (and imposes) Delaware law.43 Such an order could include, for example, a provision prohibiting the Kelmar auditors who receive Univar's information pursuant to the Delaware subpoena from sharing that information with others, including other Kelmar auditors.
Univar next argues that the State has failed to demonstrate it has promulgated regulations that will allow it to ensure that the New Law is being enforced as intended.44 Here again, I disagree. Section 1172 of the New Law empowers the Department of Finance to promulgate regulations.45 The State has written a number of rules and regulations pursuant to that statutory grant of rule-making authority.46 Nothing in the New Law, however, sets some qualitative or quantitative regulatory threshold against which the State's authority to enforce its administrative subpoenas should be measured. While Univar may not like the number or content of regulations that have been promulgated, that does not mean this case is unripe. Any gap that might exist in the regulations can easily be filled by the...
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