Eaton Corp. v. Geisenberger

Decision Date15 September 2020
Docket Number C.A. No. 19-2273 (MN), C.A. No. 19-2284 (MN),C.A. No. 19-2269 (MN)
Citation486 F.Supp.3d 770
Parties EATON CORPORATION, Eaton Aerospace LLC; Eaton Electrical Inc. and Eaton Hydraulics Inc., Plaintiffs, v. Richard J. GEISENBERGER, in his capacity as the Secretary of Finance and the Acting Delaware State Escheator; and Michelle M. Sullivan in her capacity as the Assistant Director of the Office of Unclaimed Property, Defendants. Fruit of the Loom, Inc., Union Underwear Company, Inc., Vanity Fair Brands, LP, and Russell Brands, LLC, Plaintiffs, v. Richard J. Geisenberger, in his capacity as the Secretary of Finance for the State of Delaware; Brenda Mayrack, in her capacity as the Delaware State Escheator ; and Michelle M. Sullivan, in her capacity as the Assistant Director of the Office of Unclaimed Property, Defendants. Siemens USA Holdings, Inc. and Siemens Industry, Inc. Plaintiff, v. Richard J. Geisenberger, in his capacity as the Secretary of Finance for the State of Delaware; Brenda Mayrack, in her capacity as the Delaware State Escheator ; and Michelle M. Sullivan in her capacity as the Assistant Director of the Office of Unclaimed Property, and the State of Delaware, Defendants.
CourtU.S. District Court — District of Delaware

Arthur G. Connolly, III, Max Walton, Matthew F. Boyer, Lisa R. Hatfield, Connolly Gallagher LLP, Wilmington, DE; Melanie K. Sharp, Martin S. Lessner, Mary F. Dugan, Robert M. Vrana, Young Conaway Stargatt & Taylor, LLC, Wilmington, DE; Caroline Lee Cross, Elizabeth R. McFarlan, Delaware Department of Justice, Wilmington DE – Attorneys for Defendants.

R. Eric Hutz, Reed Smith LLP, Wilmington, DE; Diane Green-Kelly, Reed Smith LLP, Chicago, IL – Attorneys for Plaintiffs.

MEMORANDUM OPINION

NOREIKA, U.S. DISTRICT JUDGE:

Before the Court are three related declaratory judgment actions – Civil Action Nos. 19-2269, 19-2273, and 19-2284, referred to herein as Eaton, FOTL , and Siemens , respectively1 – raising similar issues against largely the same Defendants2 regarding audits being conducted under Delaware's Escheat Law. In each action, Defendants have filed a motion to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedures and the respective plaintiffs have each filed a motion for preliminary injunction. As the parties agree that the cases are related, (e.g. , Eaton , D.I. 23 (writing on behalf of Defendants); id. , D.I. 24 (writing on behalf of Plaintiffs)), and each set of briefs makes similar arguments, the Court addresses all six motions here, considering any unique arguments and issues as necessary. For the reasons set forth below, Defendantsmotions to dismiss (Eaton , D.I. 14; FOTL , D.I. 15; Siemens , D.I. 11) are each granted-in-part and denied-in-part and Plaintiffsmotions for preliminary injunctions (Eaton , D.I. 27; FOTL , D.I. 24; Siemens , D.I. 22) are each denied.

I. BACKGROUND
A. The Law

These cases are more in the line of cases challenging aspects or application of Delaware's Escheat Law, commonly referred to as the Delaware Unclaimed Property Law or "UPL," Del. Code Ann. tit. 12, § 1101 et seq.3 Derived from feudal property concepts, "[a]n escheat is a procedure by which ‘a sovereign may acquire title to abandoned property if after a number of years no rightful owner appears.’ " Univar, Inc. v. Geisenberger , 409 F. Supp. 3d 273, 276 (D. Del. 2019) (quoting Texas v. New Jersey , 379 U.S. 674, 675, 85 S.Ct. 626, 13 L.Ed.2d 596 (1965) ).

Despite societal evolution away from feudalism, the concept of "escheat" remains. Today, "the state steps in the place of the feudal lord, by virtue of its sovereignty." Escheat , Black's Law Dictionary (11th ed. 2019) (quoting James Kent, Commentaries on American Law *423-24 (George Comstock ed., 11th ed. 1866)); Marathon Petroleum Corp. v. Sec'y of Fin. for Delaware , 876 F.3d 481, 486-87 (3d Cir. 2017) (quoting the same with approval). "Every state and the District of Columbia has a set of escheat laws, under which holders of abandoned property must turn such property over to the State ‘to provide for the safekeeping of abandoned property and then to reunite the abandoned property with its owner.’ " Marathon , 876 F.3d at 488 (quoting N.J. Retail Merchs. Ass'n v. Sidamon–Eristoff , 669 F.3d 374, 383 (3d Cir. 2012) ).

As the Third Circuit has explained, however, such laws are not always warmly regarded:

... "in recent years, state escheat laws have come under assault for being exploited to raise revenue rather than" to safeguard abandoned property for the benefit of its owners. Plains All Am. Pipeline L.P. v. Cook , 866 F.3d 534, 536 (3d Cir. 2017). Two Justices of the United States Supreme Court [relatively] recently noted their concern that states are "doing less and less to meet their constitutional obligation to" reunite property owners with their property before seeking escheatment, even as they more aggressively go about classifying property as abandoned. Taylor v. Yee , ––– U.S. ––––, 136 S.Ct. 929, 930, 194 L.Ed.2d 237 (2016) (Alito, J., joined by Thomas, J., concurring in the denial of certiorari) (discussing a challenge to California's procedure for notifying property owners). Delaware is "no exception, as unclaimed property has become Delaware's third-largest source of revenue." Plains All Am. Pipeline , 866 F.3d at 536.

Marathon , 876 F.3d at 488-89. "In fact, it has been pointed out that Delaware in particular ‘relies on decidedly old-fashioned methods for providing notice of escheatment, methods that are unlikely to be effective.’ " Id. at 489 n.10 (quoting Taylor , ––– U.S. ––––, 136 S.Ct. at 930 (Alito, J., concurring)). In other words, it appears that many observers – not to mention targeted parties – have come to think "escheat" should be written without the initial "es."

In the wake of criticisms – and contrary judicial rulings – several states, including Delaware, have revised their escheat laws. Today, Delaware's UPL, as amended in 2017, authorizes the State Escheator to, inter alia , enforce the UPL and "[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 [the law]." 12 Del. C. § 1171(1). The State Escheator may also "[i]ssue an administrative subpoena to require that [any] records [requested] be made available for examination" and may "[b]ring an action in the Court of Chancery seeking enforcement of" such a subpoena. Id. § 1171(3), (4).

The UPL also imposes a record retention requirement on entities subject to it, see id. § 1145, and authorizes the use of estimation to determine escheat liability should companies fail to keep the mandated records, see id. § 1176(a). The UPL further levies limited interest and penalties on those who fail to timely turn over unclaimed property, as well as in certain other circumstances, see id. §§ 1183-84, though it allows the State Escheator to waive most such additional costs in several situations, see id. § 1185, including for audited parties if "the person under examination" elects to "expedite" the audit, see id. § 1172(c).

If the audited party makes such an election, the "person conducting the examination," is required to make all requests for records, testimony, and information within eighteen months. Id. § 1172(c)(3). Additionally, if the expediting party "responds within the time and in the manner established by the State Escheator to all" such requests, the State Escheator is required "to complete the examination and provide a final examination report within 2 years." Id. § 1172(c)(2). Determining whether an expediting party has complied with its side of the bargain – and whether to terminate expediting the examination if the party has not – is at the "complete discretion of the State Escheator and subject only to the review of the Secretary of Finance." Id. § 1172(c)(4).

B. The Cases

Plaintiffs brought the instant lawsuits on December 12 and 13, 2019. (See Eaton , D.I. 1; FOTL , D.I. 1; Siemens , D.I. 1). The Complaints paint similar pictures:

• Each set of plaintiffs (or companies controlled by those plaintiffs) is currently being audited by Defendants for compliance with the UPL, (e.g., Eaton , D.I. 1 ¶ 1; FOTL , D.I. 1 ¶ 1; Siemens , D.I. 1 ¶ 1);4 • Each audit was assigned by Defendants to one of two "contract auditors" hired on a contingent fee basis – Kelmar Associates, LLC ("Kelmar") was assigned the Eaton and Siemens audits, (e.g. , Eaton , D.I. 1 ¶ 42; Siemens , D.I. 1 ¶ 55), and Innovative Advocates Group, LLC ("IAG") was assigned the FOTL audit, (e.g., FOTL , D.I. 1 ¶ 34);
• Each audit began before Temple-Inland v. Cook , 192 F. Supp. 3d 527 (D. Del. 2016), in which the court found various of Delaware's activities during an unclaimed property audit to, inter alia , "shock the conscience" in violation of due process; before the Delaware legislature revised the UPL (effective February 2, 2017); and before the Delaware Secretary of Finance revised the applicable regulations (effective October 1, 2017), (e.g. , Eaton , D.I. 1 ¶ 101; FOTL , D.I. 1 ¶ 99; Siemens , D.I. 1 ¶ 76);
• Each audited party elected to expedite under the 2017 UPL revisions, (e.g., Eaton , D.I. 1 ¶ 49; FOTL , D.I. 1 ¶ 67; Siemens , D.I. 1 ¶ 106);
• Each audited party was asked to produce records dating back at least fifteen years, (e.g. , Eaton , D.I. 1 ¶ 106; FOTL , D.I. 1 ¶ 102; Siemens , D.I. 1 ¶¶ 98, 104);
• Each third-party auditor applied a presumption of abandonment for "aged" checks – i.e. , checks outstanding 90 or more days from issuance and checks voided 30 or more days from issuance – and gave Plaintiffs the opportunity to conduct research to refute the presumption of abandonment (i.e. , to "remediate"), (e.g. , Eaton , D.I. 1 ¶ 113; FOTL , D.I. 1 ¶ 106; Siemens , D.I. 1 ¶ 115);
• Each set of plaintiffs attempted to remediate items, but refused to do so for items with owner addresses in other domestic states,
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