By Heather Gabell, J.D., Director of Compliance
March 24, 2020
March 24, 2020
As Delaware continues mailing invitations to certain holders for participation in the Secretary of State’s Voluntary Disclosure Agreement (VDA) program, the state is also facing a rising number of audit-related complaints in federal court. At the end of 2019, four cases were filed that highlight holders’ constitutional concerns regarding Delaware’s estimation methodology and retroactive application of other provisions of the 2017 revised unclaimed property law to preexisting audits.
Filed in December 2019, AT&T v. Geisenberger  is similar to Univar, Inc. v. Geisenberger, et al,, pending in the same court, as the case raises similar constitutional arguments made in connection with an unclaimed property audit that began in 2012. AT&T maintains that after complying with multiple document requests from Kelmar, acting as the state’s third party contingent fee based auditor, in 2018, Kelmar requested additional records for issued checks dating back to 1992 for 34 affiliate entities and 28 accounts, which included check information for addresses in all states. AT&T estimated that the research and remediation efforts needed to comply with such a request would take approximately 23.6 years and involve 60 million transactions. Kelmar failed to respond to objections made by AT&T regarding the scope of the request and to alternative methods proposed by AT&T to test their data.
AT&T was accepted into the Delaware expedited audit program in December 2017, under which the state agreed to waive interest if the company complied with the terms of the audit within the prescribed 2-year period. AT&T claims that it was terminated from the program, in violation of its due process rights, when after objecting to the scope of the document requests as the company did not have an opportunity to be heard prior to the removal.
Delaware issued a subpoena for the records and later filed to enforce the subpoena in state court. AT&T argued that because the State Escheator was not afforded subpoena power until 2017, the retroactive use of the subpoena power was not permissible. Similarly, Delaware law lacked a record retention requirement and a look back period until the 2017 amendments. As a result, AT&T was not required to retain, and did not retain, the records for many of the years in question. AT&T argues that the retroactive application of the 2017 amendments also violates it due process rights.
AT&T maintains, as does Univar, that the state’s estimation methodology subjects it to multiple liabilities for the same property, and that confidential and proprietary records could be exposed because of conflicting public disclosure laws of other states participating in the audit. AT&T further alleges it was unfairly targeted for audit by Kelmar because of its size and status and not based on neutral criteria, ensuring a large financial reward in light of Kelmar’s contingent fee arrangement with the state. Interestingly, the Kelmar contract attached to the state’s opening brief reflects payment based on an hourly fee and was executed after AT&T filed its Complaint.
Eton Corporation, Fruit of the Loom, and Siemens also filed Complaints against Delaware at the end of December 2019. Each organization was in the final phase of its expedited audit. Each refused to remediate transactions that were not reportable to the state of Delaware. All were terminated from the expedited audit program after their refusal to remediate such transactions. The companies contend that this removal violated their constitutional rights, as they were not afforded pre-enforcement review.
Further, they allege that the use of estimation and extrapolation was improper without first identifying any specific debts owed to actual creditors that could be claimed by the state. As in the AT&T and Univar cases, constitutional violations alleged include, inter alia, the retroactive application of the provisions in the 2017 amendment to the unclaimed property law, including the state’s subpoena power, the record retention requirement and look back period, and employing self-interested parties paid on a contingent fee basis to perform audits.
As cases like these continue to fill the federal court’s docket, holders eagerly await the state’s defense of its practices against these constitutional claims and the court’s response.
 Complaint, AT&T Capital Services Inc. et al v. Richard Geisenberger et al, No. 1:19-cv-02238-MN (D. Del. Dec. 6, 2019).
 Complaint, Univar, Inc. v. Geisenberger, et al, Case No. 1:18-cv-01909-UNA (D. Del. Dec. 3, 2018).
 Complaint, Eton Corporation, et al v. Geisenberger, et al, No. 1:19-cv-02269 (D. Del. Dec. 12, 2019); Fruit of the Loom, Inc., et al v. Geisenberger, et al, No. 1:19-cv-02273 (D. Del. Dec. 13, 2019); Complaint, Siemens USA Holdings, Inc. v. Geisenberger, et al., No. 1:19-cv-02284 (D. Del. Dec. 17, 2019).