December 12, 2019

Using a Third-Party to Audit Unclaimed Property? Take Note…

By admin

first_imgDelaware argued that it was legitimate foran agency with limited resources, such as the state escheator, to target acompany that was more likely than others to hold large amounts of unclaimedproperty. To support itsclaim, the company argued that the third-party auditor had a financial interestin the outcome of the audit, as fees were contingent on the amount of liabilityassessed. The company asserted that the contingent fee structure netted thethird-party auditor over $104 million since 2013.  However, the court was not convinced thatDelaware’s process met the requirement of a denovo review that would neutralize the appearance of a self-interested partyhaving control over the audit and liability determination.  Thus, the company had a ripeprocedural due process claim. Use of Third-Party Auditor However, the court noted that the state escheator was well-funded and outsourced its work to an outsider that was then paid on commission. Because Delaware ffered no legitimate purpose for selecting wealthy companies, other than raising revenue, the equal protection claim was also ripe. Not a subscriber? Sign up for a free trial or contact us for a representative. Claims Stayed Delaware arguedthat the third-party auditor only collected evidence to determine liability,which was then reviewed by the state escheator. Delaware claimed that the stateescheator was not limited by the audit report and was free to make its owndecision. Further, Delaware pointed out that liability may be challenged in thestate court of chancery. However, since there was an action pending in the state court of chancery, the federal district court issued a stay until the state court decided whether to enforce the subpoena against the company. The district court noted that if the subpoena was not enforced, this action may no longer be necessary. Alternatively, if the subpoena was enforced, the ripe issues in this case may proceed and other issues raised may become ripe and an amended complaint may become appropriate. After several months of negotiating, theparties could not reach an agreement regarding confidentiality andnon-disclosure. Ultimately, Delaware issued a document subpoena. Procedural Due Process Claimcenter_img For a proceduraldue process claim to proceed, a party must show that it was required to submita dispute to a self-interested party. The company argued that its equalprotection was violated because the third-party auditor and Delaware targetedcompanies that would bring in large amounts of money. By Emily Baugh, J.D., LL.M The company being audited did not complywith the subpoena and instead filed a complaint alleging constitutional claims. The court found that the equalprotection and procedural due process claims were ripe for review. In Univer,  the U.S. District Court for the District ofDelaware held that procedural due process and equal protection claims arisingout of Delaware’s use of a third-party unclaimed property auditor were ripe andstated a claim. Equal Protection Claim States that use third-parties to audit unclaimed property liability may want to take note of Univer v. Geisenberger, et al., (C.A. No. 18-1909 (MN), Sep. 17, 2019), a recent U.S. District Court ruling out of Delaware. Login to read more on CCHAnswerConnect. Like many states, Delaware allows unclaimedproperty audits to be conducted by third-parties. The third-party auditor inthis case was paid based on the amount recovered in the audit. In total, 22states joined the audit.last_img