One of the most vexing current issues for holders of Unclaimed Property (“UP”) and their attorneys is how to address audit assessments for years where no records exist. Current U.S. Supreme Court rules date back to 1965 and dictate that the holder’s domiciliary state is given priority over UP where the holder’s records show no owner address. If the holder’s record shows an owner address, that state gets first priority. Domiciliary states are thus encouraged and rewarded for delaying an audit until the holder’s records are sufficiently degraded or destroyed so as to allow an estimation of exposure for reporting years that could be decades old. This Article explores the Supreme Court jurisprudence on this issue in light of Temple-Inland v. Cook. Two recent district court opinions related to Temple-Inland challenge Delaware’s ability to assess estimated UP liability for prior years (in fact decades) where no records exist. The second Temple-Inland decision in June 2016 criticized Delaware harshly for its audit estimations of UP liability, describing its conduct as having “shocked the conscience” but the court did not go so far as to suggest a remedy.
The author recommends a UP estimation remedy to address the court’s criticisms. To understand the recommended remedy, the author first explores the importance of addresses and records related to UP. Next, estimation techniques are compared showing the benefit to the domiciliary state of delaying an audit. The author then explores the history of the U.S. Supreme Court’s UP cases showing how the Court in 1965 bridled states eager to be the first to seize UP. In 1965 the Supreme Court dictated priority rules to states and holders giving priority to the domiciliary state over UP where the holder’s records showed no record of an owner address. The author then questions whether the U.S. Supreme Court, in providing the priority rules in 1965 to reign in overly zealous states to be the first to seize UP, meant to unleash holders’ domiciliary states to slow walk audits and “create” UP in decades old reporting years where records no longer exist.
Upon examination of the U.S. Supreme Court’s historical jurisprudence over UP, the author suggests that the 1965 ruling should be interpreted in such a way as to disenfranchise the holder’s domiciliary state to a certain extent regarding an estimation of liability where no records exist—referred to as the “Dormant Texas Rule.” The Dormant Texas Rule provides balance to the holder, states where addressed records exist, and the holder’s domiciliary state. The Dormant Texas Rule prevents holders from escaping their reporting duties by destroying records, respects the sovereignty of states where audited addressed records exist, and limits the ability of the holder’s domiciliary state to estimate all UP exposure in years where no records at all exist.
Applying the Dormant Texas Rule would thus limit the holder’s domiciliary state in estimating UP in years where no records exist.