What the Supreme Court’s MoneyGram Litigation Ruling Means

The Supreme Court has issued its decision in Delaware v. Pennsylvania and Wisconsin, and Arkansas v. Delaware (the MoneyGram litigation). It is the Court’s opinion that Agent Checks and Teller’s Checks (check instruments) issued by MoneyGram are similar to “money orders and other similar instruments” and should be escheated according to federal law.

As a result, the funds previously escheated to Delaware, MoneyGram’s state of incorporation, should have properly escheated to the states in which the instruments were purchased.

MoneyGram litigation background

In order to understand the Court’s decision and its application going forward, it is important to review the nature of the check instruments issued by MoneyGram. For both products, the purchaser prepays the face value of the instrument, and MoneyGram holds the proceeds (which have been sent to them by the seller entity) until the intended payee presents the instrument for payment. In addition, as a matter of business practice, MoneyGram keeps only limited records about transactions concerning these products. The seller entity transmits information to MoneyGram that identifies where the product was sold, among other things, but the seller does not include in the information given to the identity or address of the purchaser or payee (even if the seller collects that information).

Delaware has argued that the check instruments are not money orders and therefore not subject to the exception to the jurisdiction priority rules in the Federal Disposition of Money Orders and Traveler’s Checks Act (the FDA). Instead, it is Delaware’s position that the check instruments are similar to uncashed checks and that they were properly escheated to Delaware pursuant to the priority of escheat rules set forth by the Supreme Court, which holds that uncashed checks escheat to the state of the creditor’s last known address, and if there is no address, to the state of the debtor’s incorporation.

Conversely, the 28 states challenging Delaware’s position argue that the check instruments fall under the FDA, which provides that if a “money order, traveler’s check, or other similar written instrument (other than a third-party bank check)” goes unclaimed, the state in which the instrument was purchased shall be entitled to the escheat of the property.

What does the MoneyGram ruling mean?

The Court sided with the states challenging Delaware’s position. Although the Court did not deem it necessary to define money orders or “other similar instruments” as those terms appear in the FDA, it ruled that instruments issued by MoneyGram are sufficiently similar to money orders and other similar instruments enough to bring them within the purview of federal law. The Court focused on two features in determining that the check instruments were similar to money others.

First, because the check instruments involved the prepayment of a specified amount of money to be transmitted to a named payee, they functioned similar to money orders as described in the Western Union case, the case that prompted the enactment of the FDA. Indeed, the FDA naturally applies to prepaid instruments.

Second, because MoneyGram only had limited records about the transactions as a matter of business practice, the instruments would “escheat inequitably solely to the state of incorporation of the company holding the funds under common-law rules due to recordkeeping gaps.” The text of the FDA specifically identifies this outcome as “warranting statutory intervention” and thus the creation of the FDA.

The matter was sent back to the Special Master administrating the case to determine how much Delaware owes and should transfer to the other 28 states. The outcome will likely deal a huge blow to Delaware’s budget, which relies heavily on unclaimed property.