Eton Corporation and Fruit of the Loom (along with related entities) are the latest companies to have filed suit against Delaware in federal court, alleging that the state violated their constitution rights in connection with the state’s estimation methodology used in unclaimed property audits by its contingency fee auditors. These back-to-back lawsuits filed on December 12 and 13, respectively, come days after A&T filed in the same court and keep the focus squarely on the state’s audit practices.
Many of the facts and constitutional arguments presented by Eton and Fruit of the Loom (FOTL) are similar to those recently presented by AT&T and Univar, and allege that certain provisions of the Delaware unclaimed property law, along with the estimation methodology codified in the Regulations, violate federal law in that they:
- Identified unclaimed property via estimation and extrapolation without first identifying specific debts owed to actual creditors that could be claimed by Delaware;
- Retroactively applied certain provisions of the unclaimed property law, as amended in 2017, including the state’s subpoena power, record retention requirement, look back period and use of estimation;
- Removed the companies from the expedited audit program without pre-enforcement review, subjecting them to mandatory interest and the tolling of the statute of limitations;
- Utilized self-interested parties that are paid on a contingent fee basis to perform audits (Kelmar in Eton and Innovative Advocates Group LLC (IAG) in FOTL);
- Subjected the companies to multiple liability for the same property; and
- Included foreign-owned property in the estimations – escheating such property could be in conflict with those foreign jurisdictions that have their own escheat laws.
The Complaints provide a detailed overview and analysis of the federal preemption argument and a historical record of the state’s actions with respect to the unclaimed property law, the state’s audit program and practices, and its relationship with Kelmar.
Eton and FOTL, like AT&T, were terminated from Delaware’s expedited audit program during the final phases of their audits, after objecting to what they believed were overly broad and burdensome document requests. Delaware law does not provide for pre or post enforcement review, and thus the companies have not had an opportunity to be heard, or to defend against the termination.
In the landmark decision in 2016, the U.S. District Court for the district of Delaware held in Temple-Inland  that Delaware could not retroactively estimate property, particularly because its law did not include a record retention requirement, and that Kelmar’s estimation methodology created “significantly misleading results,” as it was largely based on property with owner addresses outside of Delaware, and could not be claimed by the state. Delaware subsequently amended the law in 2017 to add a record retention requirement, but the same estimation practices used by Kelmar that were criticized by the district court were codified in the state’s Regulations, which were made effective on October 11, 2017.
The state will need to answer to the holders and the court to defend its practices against these constitutional claims, as the federal court’s docket for 2020 continues to fill up.
 Eton Corporation, et al v. Geisenberger, et al, Case 1:19-cv-02269-UNA; and Fruit of the Loom, Inc., et al v. Geisenberger, et al, Case 1:19-cv-02273-UNA.
 Temple-Inland Inc. v. Cook, 192 F. 3d 527, 549 (D. Del. 2016).