Univar, Inc. v. Geisenberger

• Decision Date: 17 September 2019
• Docket Number: C.A. No. 18-1909 (MN)
• Citation: 409 F.Supp.3d 273
• Parties: UNIVAR, INC., Plaintiff, v. Richard J. GEISENBERGER, in his capacity as the Secretary of Finance for the State of Delaware; Brenda R. Mayrack, in her capacity as the State Escheator of the State of Delaware; and Michelle M. Sullivan, in her capacity as the Assistant Director for the Department of Finance for the State of Delaware, Defendants.
• Court: U.S. District Court — District of Delaware

409 F.Supp.3d 273

UNIVAR, INC., Plaintiff,

v.Richard J. GEISENBERGER, in his capacity as the Secretary of Finance for the State of Delaware; Brenda R. Mayrack, in her capacity as the State Escheator of the State of Delaware; and Michelle M. Sullivan, in her capacity as the Assistant Director for the Department of Finance for the State of Delaware, Defendants.

C.A. No. 18-1909 (MN)

United States District Court, D. Delaware.

Signed September 17, 2019

Michael P. Kelly, David A. White, Matthew J. Rifino, McCarter & English LLP, Wilmington, DE; James G. Ryan, Jameel S. Turner, Bailey Cavalieri LLC, Columbus, OH – attorneys for Plaintiff.

Caroline Lee Cross, Elizabeth R. McFarlan, Delaware Department of Justice, Department of Finance, Wilmington, DE; Melanie K. Sharp, Martin S. Lessner, Mary F. Dugan, Robert M. Vrana, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE; Steven S. Rosenthal, Tiffany R. Moseley, John David Taliaferro, Loeb & Loeb LLC, Washington, DC – attorneys for Defendants.

MEMORANDUM OPINION

NOREIKA, U.S. DISTRICT JUDGE:

Before the Court is a motion to dismiss (D.I. 14) pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, filed by Defendants Richard J. Geisenberger, in his capacity as the Secretary of Finance for the State of Delaware; Brenda R. Mayrack, in her capacity as the State Escheator of the State of Delaware; and Michelle M. Sullivan, in her capacity as the Assistant Director for the Department of Finance for the State of Delaware (collectively "Defendants"), seeking dismissal of the Complaint (D.I. 1) filed by Plaintiff Univar, Inc. ("Univar" or "Plaintiff"). Plaintiff opposes the motion. For the reasons set forth below, Defendants' motion to dismiss the Complaint is granted-in-part and denied-in-part.

I. BACKGROUND ¹

This case requests the Court to review the constitutionality of certain provisions of Delaware's Escheats Law² (commonly referred to as the "UPL"), Del. Code Ann. tit. 12, § 1101 et seq. An escheat is a procedure by which "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). In Delaware, the UPL, as amended in 2017, authorizes the State Escheator to 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 UPL]," Del. Code Ann. tit. 12, § 1171(1). Following the 2017 amendment, the State Escheator may "[i]ssue an administrative subpoena to require that the records specified [by the State Escheator] be made available for examination" and may "[b]ring an action in the Court of Chancery seeking enforcement of an administrative subpoena issued under [the UPL]." Del. Code Ann. tit. 12, § 1171(3), (4).

Univar is a public corporation organized under the laws of the State of Delaware with a principal place of business in Illinois. (D.I. 1 ¶ 7). On December 11, 2015, Defendants informed Univar that it was the subject of an unclaimed property audit ("the Audit") to be conducted by the State of Delaware's agent, Kelmar Associates, LLC ("Kelmar"). (Id. ¶¶ 1, 21). Kelmar is employed by the State of Delaware on contingency, based on the amount that the state is able to recover from the targets that Kelmar audits. (Id. ¶ 52). A letter from the State Escheator notified Plaintiff that the purpose of the Audit was to "determine [Univar's] compliance with Delaware escheat laws," and that "the scope of the examination will be for the period 1986 through present." (Id. ¶ 55). On December 22, 2015, in a subsequent letter, Defendant Whitaker notified Plaintiff that "the notice contained an error in paragraph two. The correct scope of the examination will be for period 1991 through present." (Id. ¶ 56). Defendant Whitaker requested Plaintiff to "have available all of Univar prior years' reports of unclaimed property and supporting documentation for all states." (Id. ¶ 57). From December 11, 2015 through March 9, 2018, Kelmar solicited nineteen (19) additional states to join the Audit. (Id. ¶ 58). Following the first letter from Defendant Whitaker, Plaintiff, through counsel, sent a response to the state and Kelmar outlining concerns about the Audit and the confidentiality of Univar's records and proprietary information. (Id. ¶ 59). For the next several months, Univar communicated with Kelmar about a potential Confidentiality and Non-Disclosure Agreement, but the parties were unable to come to a compromise. (Id. ¶¶ 60-65). An employee at Kelmar wrote to Plaintiff's attorney on May 2, 2016 to "remind [them] that several of the other states have made it clear that Univar should proceed with their examinations regardless of whether the parties' agree on a private confidentiality agreement" and threatened that "[a]bsent progress, we will update the states again concerning the lack of cooperation." (Id. ¶ 63; see also id. , Ex. A at 62). On September 23, 2016, Kelmar sent seventeen (17) emails to Plaintiff indicating that a Kelmar team would conduct seventeen (17) separate audits, with information tailored to each of the participating states. (Id. ¶ 66). Plaintiff objected to Kelmar's plan. (Id. ¶ 67). Kelmar again threatened to "report Univar's continued delay to the authorizing states." (Id. ¶ 68). On May 9, 2018, Kelmar informed Plaintiff that three (3) additional states had been added to the Audit. (Id. ¶ 70). Then, on July 31, 2018, Defendant Whitaker wrote to Univar on behalf of the State of Delaware to demand that Plaintiff comply with the Audit. (Id. ¶ 72). Finally, on October 30, 2018, Delaware issued a subpoena ("the Subpoena") to Univar, pursuant to the amended UPL, requesting all information appearing in Kelmar's initial document request, including: tax returns; consolidating income statements; consolidating balance sheets; consolidating cost of goods sold; detailed state apportionment schedules; cash managers, shared services entities, and common paymaster entities; G/L numbers and account numbers; and prior audits or voluntary disclosure agreements. (Id. ¶¶ 74-75). The Subpoena required that documents be produced on December 3, 2018. (Id. ¶ 75).

Rather than complying with the Subpoena, Plaintiff filed the Complaint in this case on December 3, 2018. (Id. at 1). Plaintiff alleges ten counts against Defendants for: unreasonable search and seizure (Count I); violation of substantive due process (Count II); violation of procedural due process (Count III); violation of the ex post facto clause (Count IV); an unconstitutional taking (Count V); a violation of equal protection of the laws (Count VI); "injunction" (Count VII); "void for vagueness" (Count VIII); violation of federal common law (Count IX); and "attorneys fees" (Count X). (Id. ¶¶ 77-154). The Complaint

seeks a declaration that the State of Delaware, through its agent and auditor, [Kelmar] has subjected and continues to subject, Univar to an unclaimed property audit ("Audit") under 12 Del. C. § 1171 et seq. [sic] that (1) infringes on Univar' [sic] right under the Fourth Amendment to the United States Constitution to be free from unreasonable searches and seizures; (2) deprives Univar of its substantive due process rights under the Fourteenth Amendment to the United States Constitution; (3) deprives Univar of its procedural due process rights under the Fourteenth Amendment to the United States Constitution; (4) has subjected Univar to an unconstitutional taking of private property for public use without just compensation; and (5) has violated Univar's Fourteenth Amendment right to equal protection of the laws.

(Id. ¶ 1). The Complaint, moreover "seeks a declaration that Delaware's retroactive application of 12 Del. C. § 1176, as amended in July of 2010 and again on February 2, 2017, to allow the State Escheator to estimate a holder's liability when the holder has failed to maintain adequate records when Delaware law did not require the holder to maintain records during the period covered by the audit, is a violation of the Constitution's Ex Post Facto and Due Process Clauses." (Id. ¶ 2). Lastly, the Complaint asks the Court to declare that the state's estimation methodology violates the due process clause, that the use of Kelmar to conduct a multi-state audit violates the due process clause by exposing confidential and proprietary records to public inspection, and that Delaware's contingent-fee compensation arrangement with Kelmar violates Univar's due process rights "because Kelmar is the real party in interest that selects the audit subjects and performs all legally significant audit tasks and assessments, which results in Univar submitting a dispute to a self-interested party." (Id. ¶¶ 3-5).

On December 7, 2018, Delaware filed a Verified Complaint against Univar in the Delaware Court of Chancery seeking an Order requiring Univar to comply with the Subpoena. (D.I. 16 at 1). On April 11, 2019, Vice Chancellor Slights granted Univar's motion to stay the Chancery Court action "for the sake of efficiency and the orderly adjudication of the threshold constitutional issues" by this Court. (D.I. 22, Ex. B at 45:15-46:4). The Vice Chancellor's order has been affirmed by the Delaware appellate courts.

The motion to dismiss presently before the Court (D.I. 14) "requests that this Court decline jurisdiction over a declaratory judgment action to allow the state court system an opportunity to resolve ... questions of state law" and, alternatively, dismiss "each claim in the Complaint for failure to state a claim upon which relief can be granted." On May 31, 2019, the Court ordered the parties to submit letters "outlining which, if any, of Plaintiff's claims may be susceptible to a challenge of ripeness and the legal basis upon which any such assertions are based." (D.I. 28).

In response, Defendants contend that "[u]...