US Court of Appeals reverses US District Court’s dismissal of Plains All American Pipeline’s procedural due process claim against Delaware & Kelmar Associates.
On August 9, 2017, almost a year after the U.S. District Court for the District of Delaware dismissed a case brought by Plains All American Pipeline LLC (“Plains”) against Delaware for its use of a contingency fee auditor, the United States Court of Appeals for the Third Circuit (“Third Circuit”) held in Plains All American Pipeline L.P. v. Cook  that Plains’ procedural due process claim was ripe for review and remanded the case to federal district court.
To recap briefly, Plains is an oil pipeline company headquartered in Texas, though organized as a limited partnership under Delaware law. In October 2014, Plains was notified by Delaware’s audit manager that Kelmar Associates would be conducting an unclaimed property audit with a lookback period dating back to 1986 (or to 1981 if the audit was not completed by June 30, 2015).
Plains sued Delaware and Kelmar, alleging multiple constitutional violations, including substantive and procedural due process violations, seeking declaratory judgment and injunctive relief. On August 16, 2016, the district court dismissed the case on all grounds for lack of ripeness and failure to state a claim (as it related to an equal protection claim).
The Third Circuit affirmed the district court’s dismissal of the claims based on Kelmar’s use of estimation as lacking ripeness by applying the 3-prong “Step-Saver test” to determine that:
- The Kelmar audit, though burdensome, did not present actual or imminent harm (Plains brought the action prior to any actual calculation of liability);
- A ruling by the court would not result in conclusive judgment (Delaware’s escheat law did not define estimation and the statute can be interpreted in different ways); and
- There would be no practical utility in issuing a ruling (a decision would not affect the current legal relationship between the parties, though it would be of interest to other companies challenging the law).
The Third Circuit, however, reversed the dismissal of the procedural due process claim, holding that Plains established a due process violation in showing that it was required to submit its dispute to a self-interested party and finding that the three prongs of the Step-Saver test had been satisfied, particularly the “utility of judgment” prong.
Such a ruling would be useful to the parties and others affected by Delaware’s “widespread use of private auditors.” In doing so, the Third Circuit questioned the constitutionality of the contingency fee auditor arrangement, which is of course, not unique to Delaware.
 Plains All American Pipeline, L.P. v Cook, Civ. No. 15-468-RGA
 Plains All American Pipeline L.P. v. Cook, No. 16-3631, 2017 WL 3403129 (3rd. Cir. Aug. 9, 2017)
 Id, p. 6
 Id., p. 14