Keane's Unclaimed Property Blog

Office Depot Update: Third Circuit Applies Marathon Holding

On January 22, 2018, a panel comprised of three judges of the United States Court of Appeals for the Third Circuit found that Office Depot Inc.; North American Card and Coupon Services, LLC v. Secretary of Finance for the State of Delaware; State Escheator of the State of Delaware; Audit Manager of the State of Delaware[1] was, in all material aspects, identical to Marathon Petroleum Corp. v. Secretary of Finance,[2] recently decided on December 4, 2017, and merited the same ruling.

The issue before the panel in the Office Depot case was whether Delaware was permitted to conduct an audit to determine whether funds paid for stored-value gift cards issued by Office Depot’s Virginia incorporated subsidiary, but held by the parent company, were subject to escheat, or whether such an audit was preempted under the federal common law priority rules.

Echoing the Third Circuit’s holding in Marathon, the panel reiterated that private parties have standing to challenge a state’s authority to conduct an audit, but that the priority rules do not preclude Delaware from initiating an audit to determine the “true holder” of unclaimed property.  However, the priority rules may be triggered should the state go beyond that narrow scope.  The panel also determined that, because Delaware had not yet begun the enforcement process, the challenge as to the scope of the audit was not yet a viable claim.

The panel vacated the judgment of the United States District Court for the District of Delaware and remanded the case, with instructions to dismiss Office Depot’s preemption claim without prejudice, thereby leaving the door open to a potential challenge by Office Depot as to the scope of the audit, should Delaware initiate an official enforcement action.

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[1] Office Depot Inc.; North American Card and Coupon Services, LLC v. Secretary of Finance for the State of Delaware; State Escheator of the State of Delaware; Audit Manager of the State of Delaware, No. 17-1594 (3rd. Circ. 2018)

[2] Marathon Petroleum Corp. v. Secretary of Finance, 876 F. 3d 481 (3rd Cir. 2017)


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