"Unclaimed Property: What Every Company Should Know About the Risks of a Multistate Audit"

by Skadden, Arps, Slate, Meagher & Flom LLP


[authors: Jonathan Frank, Edward B. Micheletti, Rachel J. Barnett]

All 50 states require companies to comply with broad and often complex unclaimed property (escheat) laws that mandate annual reporting. As we noted in our mailing of April 23, 2010 (click here to view), states can seek payments from companies that may reach tens of millions of dollars. But while states are becoming increasingly vigilant with respect to ensuring compliance, case law dealing with unclaimed property compliance remains sparse. The recent decision of Delaware Chancellor Leo E. Strine on February 2, 2012, in Staples, Inc. v. Cook, et al., accordingly merits review. Below we provide a brief overview of a few of the basic escheat principles and then discuss the case.

Unclaimed Property Defined

Unclaimed property generally is defined as tangible or intangible property that has gone unclaimed by its rightful owner for a specified period of time. States typically focus on recovering intangible property, which includes (i) general ledger property and (ii) unclaimed equity. Every state has its own statutory definitions of what constitutes unclaimed, or escheatable, property. The most common general ledger abandoned property collected are unused customer credits or refunds (accounts receivable), uncashed vendor checks (accounts payable) and uncashed wage checks (payroll). On the equity side, abandoned property includes, among other things, uncashed dividends, dormant shareholder accounts, unclaimed merger consideration and unredeemed bonds. In addition, states focus on different types of unclaimed property that are industry specific. For example, among other things that states may target are unclaimed insurance proceeds (including annuities, life policies and death claims) and unredeemed gift certificates or rebates. 

Reporting Rules

The United States Supreme Court created a two-tier priority scheme for reporting intangible unclaimed property. See Texas v. New Jersey, 379 U.S. 674 (1965); Delaware v. New York, 507 U.S. 490 (U.S. 1993). Under the primary rule, unclaimed property is reported to the state of the owner’s last known address as shown by the debtor’s books and records. However, if the owner’s address is unknown or if there is an incomplete address, the unclaimed property is reported to the company’s state of incorporation. Pursuant to these rules, unclaimed property is of particular interest in the states where either (i) a company is incorporated or (ii) a large percentage of its customers or shareholders are located based on the company’s records. 

Delaware Court of Chancery Weighs In On Rebates

On February 2, 2012, the Delaware Court of Chancery issued a decision, Staples, Inc. v. Cook, et al., which resolved the question of whether certain “rebates” issued by Staples, Inc. to business customers were escheatable to the state of Delaware. Specifically, in October 2005, the state of Delaware commenced an audit for unclaimed property held by Staples, and by 2010, the State completed its audit on certain property types and sent Staples a demand for payment. Instead of paying the State, Staples brought a lawsuit against the State arguing that certain rebates were not unclaimed property under Delaware’s escheat statute (Escheat Statute) and therefore it was not obligated to pay the State for this liability. Central to Staples’ argument was its contention that the statute of limitations as to the rebates had run against the rightful owners and that the Escheat Statute did not allow Delaware to escheat property as to which a claim by the rightful owner would be time barred. Delaware disagreed and countersued, seeking a declaration that its demand was proper. 

Chancellor Strine answered the “core” question of whether a statute of limitations argument would be relevant to the escheatment of the unclaimed rebates. He ruled in the State’s favor, finding that in these circumstances the statute of limitations was not relevant and that Staples had to escheat the property to the State. Specifically, Chancellor Strine explained that the “running of the statute of limitations against the owner [is] irrelevant when the property at issue is one of the specifically enumerated types” set forth in the Escheat Statute (in particular, § 1198(11)). Because Chancellor Strine found the unclaimed rebates to be, in Staples’ circumstances, either “bills of exchange” (i.e., checks) or “credits,” both of which fall within the enumerated categories of what is escheatable property under the Escheat Statute, they were subject to escheat. Chancellor Strine further explained that the “reason why the property was given is irrelevant” to the analysis, and that what matters is whether the property falls within one of the enumerated unclaimed properties under the Escheat Statute – which, in this case, it did.

This decision further confirms that it is important for companies to fully understand escheat laws in order to grasp their potential exposure to unclaimed property liability, which can be asserted by a state long after traditional time bars for private claims have elapsed. It also demonstrates that courts will apply the letter of the law and order compliance if necessary.

Download PDF Version


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.