Siemens USA Holdings Inc v. Geisenberger

• Decision Date: 28 October 2021
• Docket Number: No. 20-2991,20-2991
• Citation: 17 F.4th 393
• Parties: SIEMENS USA HOLDINGS INC; Siemens Industry Inc, Appellants 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; Michelle M. Sullivan, in her capacity as the Assistant Director of the Office of Unclaimed Property; State of Delaware
• Court: U.S. Court of Appeals — Third Circuit

17 F.4th 393

SIEMENS USA HOLDINGS INC; Siemens Industry Inc, Appellants

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; Michelle M. Sullivan, in her capacity as the Assistant Director of the Office of Unclaimed Property; State of Delaware

No. 20-2991

United States Court of Appeals, Third Circuit.

Argued April 16, 2021

Filed: October 28, 2021

Diane Green-Kelly [ARGUED], Reed Smith, 10 S. Wacker Drive – 40th Fl., Chicago, IL 60606, R. Eric Hutz, Reed Smith, 1201 Market Street – Ste. 1500, Wilmington, DE 19801, Counsel for Appellant

Mary F. Dugan [ARGUED], Martin S. Lessner, Melanie K. Sharp, Robert M. Vrana, Young Conaway Startatt & Taylor, 1000 N. King Street, Wilmington, DE 19801, Counsel for Appellee

Before: CHAGARES, JORDAN, and SCIRICA, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This appeal centers on the law of escheat, under which a citizen's abandoned property may end up in a sovereign's treasury. Delaware's Unclaimed Property Law ("UPL"), Del. Code Ann. tit. 12, § 1101 et seq. , allows the state to escheat certain types of unclaimed property held by businesses chartered in the state, if the particular business holding the property is not the owner of it, and if there has been no contact with the owner for a specified period of time. See id. § 1133 (stating when property is presumed abandoned); § 1136 (listing indications of owner interest in property).

Seeking to enforce its escheat law, Delaware initiated an audit of Siemens USA Holdings, Inc. and Siemens Industry, Inc. (collectively "Siemens") and related entities, which are incorporated under Delaware law. After a near-decade-long audit process, Siemens brought suit against the state and Richard Geisenberger, in his capacity as the Delaware Secretary of Finance, Brenda Mayrack, in her capacity as the Delaware State Escheator, and Michelle Sullivan, in her capacity as the Assistant Director of the Office of Unclaimed Property (collectively, the "Defendants"). Siemens challenges the constitutionality of the audit and argues that Delaware's actions conflict with federal common law limiting the scope of any state's escheatment authority. Approximately four months after filing its complaint, and while a motion to dismiss was pending, Siemens filed a motion to preliminarily enjoin the Defendants from enforcing Delaware's UPL against it. In a single order, the District Court dismissed the majority of Siemens's claims and denied the motion for a preliminary injunction on the sole surviving claim, which alleged a violation of procedural due process.

Because the District Court erred in concluding that Siemens failed to show irreparable harm based on its procedural due process claim, and in dismissing Siemens's federal preemption claim as unripe, we will vacate and remand.

I. BACKGROUND

A. Escheat Legal Landscape

Derived from feudal property concepts, "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) ). No longer a tool of the nobility, escheat remains today a significant legal process, though "the state [now] 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)); see also Marathon Petroleum Corp. v. Sec'y of Fin. , 876 F.3d 481, 485-86 (3d Cir. 2017) (quoting the same with approval). Delaware, like every other 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 Petroleum , 876 F.3d at 488 (quoting N.J. Retail Merchs. Ass'n v. Sidamon-Eristoff , 669 F.3d 374, 383 (3d Cir. 2012) ). When the rightful owner cannot be found, the property stays in the state's coffers. "Such property thus escapes seizure by would-be possessors and is used for the general good rather than for the chance enrichment of particular individuals or organizations." Standard Oil Co. v. New Jersey , 341 U.S. 428, 436, 71 S.Ct. 822, 95 L.Ed. 1078 (1951).

A great deal of the property subject to escheatment is intangible and could be subject to claims by more than one state.¹ The Supreme Court, in a line of cases dubbed the "Texas trilogy," has therefore established "a strict order of priority among states competing to escheat" abandoned intangible personal property. Marathon Petroleum , 876 F.3d at 484 ; see also Texas v. New Jersey , 379 U.S. 674, 85 S.Ct. 626, 13 L.Ed.2d 596 (1965) ; Pennsylvania v. New York , 407 U.S. 206, 92 S.Ct. 2075, 32 L.Ed.2d 693 (1972) ; Delaware v. New York , 507 U.S. 490, 113 S.Ct. 1550, 123 L.Ed.2d 211 (1993). That order of priority is as follows:

First, we must determine the precise debtor-creditor^[2] relationship as defined by the law that creates the property at issue.

Second, because the property interest in any debt belongs to the creditor rather than the debtor, the primary rule gives the first opportunity to escheat to the State of "the creditor's last known address as shown by the debtor's books and records."

Finally, if the primary rule fails because the debtor's records disclose no address for a creditor or because the creditor's last known address is in a State whose laws do not provide for escheat, the secondary rule awards the right to escheat to the State in which the debtor is incorporated.

Delaware , 507 U.S. at 499-500, 113 S.Ct. 1550 (citation omitted). In establishing that analytical framework, "the Supreme Court emphasized the importance of having bright-lines rules[,]" Marathon Petroleum , 876 F.3d at 491, and explicitly stated that "no State may supersede [the priority rules] by purporting to prescribe a different priority under state law."³ Delaware , 507 U.S. at 500, 113 S.Ct. 1550.

As a leading domicile for corporations, Delaware has taken full advantage of the Texas trilogy framework. Plains All Am. Pipeline L.P. v. Cook , 866 F.3d 534, 536 (3d Cir. 2017) ("[I]n 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 ... [UPL] is no exception; ... unclaimed property has become Delaware's third-largest source of revenue[.]"). Amended in 2017,⁴ Delaware's UPL requires companies to report abandoned property to the state annually and authorizes an official called 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 escheat law]." Del. Code Ann. tit. 12, §§ 1144, 1171(1) ; Marathon Petroleum , 876 F.3d at 486 n.6. 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. Del. Code Ann. tit. 12, § 1171(3), (4). The UPL imposes a records retention requirement,⁵ see id. § 1145, and authorizes the use of "a reasonable method of estimation" to determine escheat liability if companies fail to keep the mandated records, id. § 1176(a). The statute further levies interest and penalties on those who fail to timely turn over unclaimed property, id. § 1183, though it allows the State Escheator to waive some costs in some situations, see id. § 1185, including when "the person under examination" elects to "expedite" the audit, see id. § 1172(c)(1).

If the audited party makes such an election, the "person conducting the examination," is required to make "[a]ll requests for records, testimony, and information" within eighteen months. Id. § 1172(c)(4). Additionally, if the party choosing an expedited audit "provides sufficient responses 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 an examination report within 2 years from the date of the acceptance of the request to expedite[.]" Id. § 1172(c)(3). Determining whether an expediting party has complied with its side of the bargain – and, if not, whether to terminate the expediting of the examination – is at the "complete discretion of the State Escheator and subject only to the review of the Secretary of Finance." Id. § 1172(c)(5).

B. Examination of Siemens⁶

The audit at issue in this case began many years before the 2017 UPL amendments. On June 2, 2009, Siemens notified Delaware of its intent to submit a Voluntary Disclosure Agreement ("VDA") – a statutorily authorized tool for informing the state of an intent to comply with the UPL in exchange for certain limitations on liability and on the scope of an audit. Four minutes later, the State Escheator rejected Siemens's request, stating that "Siemens has been selected for audit, therefore the VDA request is rejected." (J.A. at 100 ¶ 87.) The contention that the state's instantaneous denial was prohibited by Delaware's own law is woven into Siemens's narrative of the Defendants’ alleged wrongdoings,⁷ but that question is irrelevant for purposes of this appeal because the state and Siemens signed an agreement laying out a mutually satisfactory path forward for the audit. That agreement granted Siemens some of the VDA's benefits, including a shortened look-back period and a potential waiver of interest and penalties, in exchange for Siemens's provision of "a substantial advance deposit against audit liability." (...