The Duff & Phelps Unclaimed Property and Tax Risk Advisory team has learned that on December 3, 2018, Univar, Inc. filed an action in the U.S. District Court for the District of Delaware asserting that an unclaimed property audit initiated by the Delaware Department of Finance and its third-party contingent auditor Kelmar Associates LLC violates the company's rights under the United States Constitution.
Specifically, Univar claims the audit impinges the company's rights under the Fourth, Fifth and Fourteenth Amendments. Univar seeks declaratory judgment and injunction relief. The complaint may be viewed here.
This action appears to fulfil predictions recently outlined in Duff & Phelps' publication titled, " What is the Future State of Unclaimed Property" that the time could be ripe for a lawsuit in Federal Court against Delaware's audit regime based on due process grounds.
Univar's Constitutional claims assert that Delaware's actions subject the Company to unreasonable search and seizures, deprives it of its rights to substantive and procedural due process, subjects it to unconstitutional taking and violates its right to equal protection. This claim appears to be a continuation of Plains All American Pipeline L.P v Cook 866 F. 3d 534 (3rd Circuit 2017). In that case, Plains All American Pipeline made similar procedural due process claims that this same District Court rejected as not yet ripe because the audit had not yet started. The United States Court of Appeals for the Third Circuit reversed that ruling and sent the matter back to the District Court, but Plains All American Pipeline subsequently entered Delaware's Voluntary Disclosure Agreement (VDA) Program and dropped the claim. In fact, Univar specifically asserts its claim is ripe based on Plains.
The complaint is notable for revealing the tactics, methodology and record requests of the Delaware Department of Finance and, especially, Kelmar. That narrative begins with Univar's receipt of a notification of audit by Delaware in December 2015 and ends with its receipt of an administrative subpoena in October 2018. It is alleged that during that time, Kelmar solicited 17 additional states to join Delaware's audit and repeatedly ignored Univar's requests to address its concerns about the audit. This included Univar's perceived violations of Delaware's own data security laws and the retroactive application of the 2017 amendment and published administrative regulations of the Delaware Unclaimed Property Law (DUPL).
DUPL assigns responsibility for initiating and managing the unclaimed property voluntary disclosure agreement (VDA) program to the Department of the Secretary of State; and assigns responsibility for managing the unclaimed property audit program to the Department of the Finance. Corporations may not be audited until they have been invited to the VDA program and they have failed to respond. Last month, we reported that Delaware had begun mailing VDA invitations, sending 100 in September, with plans to send as many as 800 to 1,000 in 2019. It will be interesting to see how the Univar complaint could impact this plan.
The Duff & Phelps Unclaimed Property and Tax Risk Advisory team will continue to monitor and advise on both the actions of the Department of Secretary of State and the Department of Finance, as well as provide updates on this important litigation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.