During the last few years, the state of Delaware has been involved in litigation concerning unclaimed property audits that the state has authorized a third-party firm, Kelmar Associates (“Kelmar”), to conduct. Litigation from theses audits has ensued in two cases, AT&T and Univar Solutions (“Univar”). Although there is other Delaware unclaimed property litigation in process, the focus of the proposed legislation appears to be primarily a reaction to the AT&T and Univar cases.
These two companies have asserted that the information that Delaware was seeking was overly broad. They stated that in many instances Kelmar requested information covering transactions without a connection to Delaware. They were concerned that delivering the data to Kelmar would cause potential privacy risks.
On Friday, April 16, 2021, the Delaware Senate introduced Senate Bill 104 (“SB 104”). SB 104 addresses several important issues for companies that are incorporated in Delaware and are currently subject to an unclaimed property audit or may be subject to audit in the future:
- In a previous reaction to unclaimed property audit litigation, Delaware had previously created a one-time audit to voluntary disclosure agreement (VDA) conversion and “expedited audit” option for certain companies under audit at that time. SB 104 creates a permanent expedited audit program available to holders under audit as of February 3, 2017 or later.
- The expedited audit must be completed within two years of the acceptance of the request to expedite and is subject to a reduced interest assessment of 1%.
- The legislation imposes a mandatory 20% interest assessment for regular course (non-expedited) audits authorized after August 1, 2021.
In both the AT&T and Univar cases, the plaintiffs argued that it was inappropriate for Kelmar to be compensated by a contingent fee based on the audit findings. SB 104 proposes to end such arrangements in Delaware, except for exams related to securities-related property or insurance policies.
In the Univar case, the plaintiff argued that Kelmar’s requests were too broad and created privacy and liability risks for the holder because Delaware would be in possession of information pertaining to other states if the holder delivered the requested data. SB 104 specifies that documents received as part of an unclaimed property audit initiated by Delaware cannot be used in a multistate examination without the holder’s written consent. However, the bill confirms the ability of the state to broadly subpoena records. SB 104 appears to expand Delaware’s authority to subpoena records to verify the completeness or accuracy of the records.
SB 104 clarifies that holders will not be indemnified for penalties, such as estimation and interest assessments imposed by another state. This appears to be included as a response to the concerns of AT&T and Univar of “double liability” in an audit setting. The proposed legislation confirms that the state will not change its audit method based on the risk of double liability alleged by the plaintiffs. Delaware takes the position that it can calculate an estimated liability for years when fully researchable records do not exist. The estimated liability is based on purported unclaimed property with addresses in all states, not just Delaware, as long as the company under audit is incorporated in Delaware.
The Legislature also introduced another bill, SB 103, to address different types of virtual currencies and whether or not they are reportable under Delaware law. If enacted, SB 103 would specify that certain tokens, points, or other types of game-related digital content that are used within various gaming platforms do not constitute unclaimed property. However, all other types of virtual currency, such as bitcoin and other forms of cryptocurrency, must be reported as unclaimed property by holders after five years of inactivity. Before reporting such currency to Delaware, it must be liquidated and converted into U.S. dollars.
Please note that these bills are currently proposed legislation, and the final wording of legislation may change when enacted. Ryan’s unclaimed property specialists will continue to monitor the legislative developments in Delaware and update our readers with additional information.
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Mark A. Paolillo
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