State of Delaware, Department of Finance v. AT&T, Inc.

• Court: Court of Chancery of Delaware
• Decided: July 10, 2020
• Docket: C.A. No. 2019-0985-JTL
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STATE OF DELAWARE, DEPARTMENT ) OF FINANCE, ) ) Plaintiff, ) ) v. ) C.A. No. 2019-0985-JTL ) AT&T INC., ) ) Defendant. )

OPINION

Date Submitted: June 3, 2020 Date Decided: July 10, 2020

Melanie K. Sharp, Martin S. Lessner, Mary F. Dugan, Michael Laukaitis, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Counsel for Plaintiff.

Brian M. Rostocki, Benjamin P. Chapple, REED SMITH LLP, Wilmington, Delaware; Sara A. Lima, REED SMITH LLP, Philadelphia, Pennsylvania; R. Gregory Roberts, REED SMITH LLP, New York, New York; Counsel for Defendant.

LASTER, V.C. Escheat is a procedure by which “a sovereign may acquire title to abandoned

property if after a number of years no rightful owner appears.” Texas v. New Jersey, 379

U.S. 674, 675 (1965). Title 12, Chapter 11, Subchapter II of the Delaware Code, titled

“Unclaimed Property,” requires that a person holding property that meets certain

requirements file a report identifying the property and escheat it to the State. See 12 Del.

C. §§ 1130–1190. Because the subchapter contemplates escheat, it is frequently called the

“Escheat Law.”

The Escheat Law designates the Secretary of Finance (or the Secretary’s delegate)

as the “State Escheator.”1 The Escheat Law charges the State Escheator with

administering and enforcing the Escheat Law and authorizes the State Escheator to

conduct examinations of companies’ books and records to determine whether they have

complied with the statutory requirements.

Acting on behalf of the State Escheator, the Department of Finance began

examining the books and records of AT&T, Inc. Except for two categories of

information, AT&T agreed to produce the information that the Department sought. On

November 8, 2019, the Department issued an administrative subpoena for the two

1 See 12 Del. C. § 1102 (“There shall be an Escheator of the State, who shall be the Secretary of Finance or the Secretary’s delegate. The administration and enforcement of this chapter are vested in the Secretary of Finance or the Secretary’s delegate.”); 30 Del. C. § 363 (“The Secretary of Finance shall act as Escheator of the State under the provisions of Chapter 11 of Title 12.”); see also 12 Del. C. § 1130(23) (“‘State Escheator’ means the person responsible for the administration and enforcement of this chapter, as established by § 1102 of this title and § 363 of Title 30.”). categories of information. AT&T refused to comply and filed an action against the State

Escheator and two other state officials in the United States District Court for the District

of Delaware (respectively, the “Federal Action” and the “Delaware District Court”).

There, AT&T contends that the officials took actions that violated federal law and the

United States Constitution.

The Department responded by filing this action to enforce the subpoena. AT&T

did not answer the complaint; it responded instead with a motion to stay this action or to

modify or quash the subpoena. In its singular motion, AT&T requested three types of

relief, each of which implicates a different legal framework.

First, AT&T asked to stay this action in favor of the Federal Action. Recent

precedent teaches that the enforceability of the administrative subpoena raises issues of

state law that could moot or otherwise affect the federal and constitutional analysis. As a

matter of judicial efficiency, this action should go first. The request for a stay is denied.

Second, AT&T argued that AT&T’s affiliates are necessary parties who must be

joined if this action is to proceed. AT&T controls its affiliates, and the Escheat Law

authorizes the State Escheator to obtain records from subsidiaries and affiliates. AT&T

has always filed reports and interacted with the State Escheator on behalf of its affiliates.

In this action, AT&T can raise arguments on behalf of its affiliates and protect their

interests. If the subpoena is enforced, then AT&T can cause its affiliates to comply. The

affiliates therefore are not indispensable parties, and the request to join AT&T’s affiliates

is denied.

2 Third, AT&T asked that the subpoena be quashed or modified because the

Department exceeded the authority granted to the State Escheator under the Escheat Law.

This motion raises procedural and substantive issues of first impression. This decision

holds that the Escheat Law granted the State Escheator the authority to issue the

subpoena, which the Department exercised. That, however, is not the end of the analysis.

Precedents governing the enforcement of administrative subpoenas in other contexts

recognize that a court may decline to enforce a subpoena that is technically authorized if

doing so would represent an abuse of the court’s process. In this case, AT&T has met its

burden to show that the scope of the subpoena is so expansive that enforcement would

constitute an abuse. Although the court could have permitted the Department to

supplement the record with an additional explanation as to why the subpoena should be

enforced, the Department eschewed that opportunity, insisting that it wanted the court to

issue a final, appealable order.

This court could also modify the subpoena. Only AT&T proposed modifications,

and its limitations tracked its arguments regarding the scope of the State Escheator’s legal

authority, which this decision rejects. The Department should be given the opportunity in

the first instance to frame a narrower subpoena. This decision therefore quashes the

subpoena in its current form.

I. FACTUAL BACKGROUND

The facts are drawn from the parties’ submissions in connection with AT&T’s

motion.

3 A. The Examination

AT&T is a Delaware corporation headquartered in Dallas, Texas. Since 1999,

AT&T has filed unclaimed property reports with the State Escheator on a consolidated

basis with thirty-three of its affiliates (the “Affiliates”). For simplicity, except where

necessary to address AT&T’s argument about joining necessary parties under Court of

Chancery Rule 19, this decision refers only to AT&T. See Part II.B., infra.

On January 12, 2012, the Department notified AT&T that it intended to examine

AT&T’s books and records to confirm that it was complying with the Escheat Law.

Compl. Ex. A. The Department designated Kelmar Associates LLC as its agent to

conduct the review. The Department generally uses Kelmar to conduct audits and pursue

escheatable property, and Kelmar receives as compensation a percentage of the escheated

property. See Dkt. 10 at 7. The fact that Kelmar is compensated contingently has obvious

implications, beneficial and otherwise, for its incentives to investigate companies, pursue

escheatable property, and obtain favorable settlements.

On February 10, 2012, Kelmar sent AT&T an initial document request. Compl. ¶

16. Over the next several years, Kelmar sent AT&T additional requests.

The parties refer to one of the requests as the “Rebates Request.” Id. Ex. J Ex. 2;

see id. ¶ 17. It asks AT&T to identify all general ledger accounts used by AT&T since

1992 “to track its rebate accrual and expense activity along with the period of time . . .

each account was utilized to track this activity.” Id. Ex. J Ex. 2 at 2. The Rebates Request

also asks AT&T to identify each third-party administrator that it used to issue rebates to

4 consumers. Id. The Department thus seeks records going back twenty years from the

commencement of the audit.

B. The Temple-Inland Ruling

In June 2016, the Delaware District Court issued its ruling in Temple-Inland, Inc.

v. Cook, 192 F. Supp. 3d 527 (D. Del. 2016). In that decision, the Delaware District Court

granted summary judgment in favor of Temple-Inland, Inc., holding that Delaware’s

then-prevailing methods of auditing companies for and collecting unclaimed property

violated the substantive due process clause of the United States Constitution.

Like AT&T, Temple-Inland was a Delaware corporation with its principal place of

business in Texas. In 2008, the State Escheator notified Temple-Inland that it was

commencing an audit to determine whether there were deficiencies in its reporting and

escheating of unclaimed property during the previous twenty-two years—from January

1986 until December 2007. Id. at 531–32. The State Escheator recognized, and the record

in the Temple-Inland case established, that a standard records retention policy is typically

seven years. Id. at 534. As in this case, Kelmar conducted the audit for the State

Escheator and would be compensated on a contingent basis with a percentage of the

escheated property. Id.

The audit focused on Temple-Inland’s issuance of checks for accounts payable

and payroll. Temple-Inland was only able to produce complete records dating back to

2003 for accounts payable and dating back to 2004 for payroll. Id. Temple-Inland

produced all of the unclaimed property reports it had filed in Delaware from 1998 to

5 2008, a couple of reports filed before 1998, and two audit reports filed in Texas covering

1985 until 2005. Id.

When a company lacks sufficient records for a period to determine whether

property was subject to escheat, the State Escheator estimates the amount of abandoned

property that the company should have escheated during that period. For Temple-Inland,

the State Escheator estimated the amount of property subject to escheat for its accounts

payables from 1986 to 2002 and for its payroll from 1986 to 2003. Id. at 535. The

estimates resulted in amounts of abandoned property that were an order of magnitude

higher than what Temple-Inland reported during the period for which records were

available. Id. at 537–38.

Temple-Inland pursued an administrative appeal and secured only minor changes

to the State Escheator’s decision. Temple-Inland then filed suit in the Delaware District

Court, contending the State Escheator’s “audit and assessment of [Temple-Inland’s]

unclaimed property liability” violated federal law, including provisions of the United

States Constitution. Id. at 541.

The Delaware District Court held that Temple-Inland was challenging a form of

executive action that would violate federal substantive due process protections “‘only

when it shocks the conscience.’” Id. (quoting Ecotone Farm LLC v. Ward, 639 Fed.

Appx. 118, 125 (3d Cir. 2016)). The Delaware District Court found that the following

combination of factors, taken together, “shock[ed] the conscience” and resulted in a due

process violation:

6 [D]efendants[] (i) waited 22 years to audit plaintiff; (ii) exploited loopholes in the statute of limitations; (iii) never properly notified holders regarding the need to maintain unclaimed property records longer than is standard; (iv) failed to articulate any legitimate state interest in retroactively applying [the Delaware statute that permitted the use of estimation] except to raise revenue; (v) employed a method of estimation where characteristics that favored liability were replicated across the whole, but characteristics that reduced liability were ignored; and [(vi)] subjected plaintiff to multiple liability.

Id. at 550.

In response to the Temple-Inland ruling, the General Assembly amended the

Escheat Law. See 81 Del. Laws ch. 1 (2017) (the “2017 Amendments”). Among other

things, the 2017 Amendments authorized the subject of any then-pending examination to

“notify the State Escheator of the person’s intent to expedite the completion of the

pending examination . . . .” 12 Del. C. § 1172(c)(1). If the subject of a then-pending

examination opted to expedite its completion, then the State Escheator only has eighteen

months from the triggering of the expedited examination to serve “[a]ll requests for

records, testimony, and information.” Id. § 1172(c)(3). The 2017 Amendments further

provided that

[i]f the person [triggering the expedited examination] responds within the time and in the manner established by the State Escheator to all requests for records, testimony, and information made by the person conducting the examination, the State Escheator shall complete the examination and provide an examination report . . . within 2 years from the date of receipt of the written notification and shall waive interest and penalty . . . .

Id. § 1172(c)(2). The 2017 Amendments gave the State Escheator “complete discretion”

to determine whether the subject of the examination had “responded within the time and

in the manner established.” Id. § 1172(c)(4).

7 C. The Expedited Examination

AT&T was subject to a pending examination when the General Assembly enacted

the 2017 Amendments. AT&T was therefore entitled to “notify the State Escheator of

[its] intent to expedite the completion of the pending examination . . . .” Id. § 1172(c)(1).

On December 7, 2017, AT&T gave the requisite notice. See Dkt. 10 Exs. B, C.

On January 25, 2018, the Department acknowledged receipt of the notice and

directed AT&T to work with Kelmar to submit an “agreed-upon detailed work plan” by

February 2, 2018. Id. Ex. C sched. A. On Wednesday, January 31, Kelmar sent AT&T a

proposed work plan. Given the obvious problems in reaching agreement on a work plan

by that Friday, the Department extended the deadline to February 28. Kelmar and AT&T

subsequently reached agreement on a work plan. See id. Ex. E (the “Work Plan”).

The Work Plan divided the parties’ efforts into three phases:

 a 430-day period during which AT&T would respond to Kelmar’s requests and Kelmar would identify deficiencies,

 a subsequent 180-day period during which Kelmar would issue an interim report and AT&T would remediate discrepancies, and

 a subsequent 110-day period during which Kelmar would issue a final report and AT&T would again remediate discrepancies.

In agreeing to the Work Plan, AT&T reserved its rights, “including but not limited to any

rights to challenge the audit process or to request modifications to the plan as the audit

progresses.” Id.

8 D. Disputes Over AT&T’s Production Of Records

Meanwhile, on January 17, 2018, Kelmar sent AT&T what the parties refer to as

the “Disbursements Request.” See Compl. Ex. J Ex. 1. It seeks information concerning

every check AT&T had issued from twenty-seven accounts since June 1992. Complying

with the request would require AT&T to identify each check issued, the general ledger

account to which it was recorded, the disposition status, the payee name and address, and

the amount. The Disbursements Request also seeks information concerning checks

marked void, cleared, stopped, or void and reissued.

Over the next several months, AT&T worked with Kelmar to satisfy the

information requests, including the Rebates Request and Disbursements Request. See

Dkt. 10 Ex. F. On August 24, 2018, Kelmar asked AT&T to fulfill the Disbursements

Request for an additional bank account. See Compl. Ex. J Ex. 1. On November 27,

AT&T objected to the breadth of Kelmar’s outstanding requests. Dkt. 10 Ex. G.

E. The Notices Of Deficiencies

On July 26, 2018, the Department sent a reminder to AT&T that its failure to

comply with the deadlines in the Work Plan could result in the State Escheator

terminating the expedited examination. Compl. Ex. E. The Department sent virtually

identical letters to AT&T on December 20, 2018, and March 6, 2019, and August 8,

2019. See id. Exs. F–H.

On May 9, 2019, the Department sent AT&T a notice identifying outstanding

requests that had not been fulfilled. The Department warned AT&T that failing to comply

9 could result in termination of the expedited examination. Id. Ex. B. The Department sent

nearly identical notices on September 19 and October 9. See id. Exs. C, D.

On October 31, 2019, the Department notified AT&T that the State Escheator had

terminated the expedited examination. The notice demanded that AT&T produce

documents responsive to the Rebates Request and the Disbursements Request and stated

that failure to do so could lead to the issuance of an administrative subpoena. Compl. ¶

31; id. Ex. I.

On November 8, 2019, the Department issued an administrative subpoena seeking

production of documents responsive to the Rebates Request and the Disbursements

Request by 9:00 a.m. on December 9. See id. Ex. J (the “Subpoena”). On November 27,

AT&T again notified the Department that it objected to the requests on multiple grounds.

Dkt. 10 Ex. H.

F. Litigation

On December 6, 2019, AT&T filed the Federal Action against the State Escheator

and two other Delaware officials—the Secretary of Finance and the Assistant Secretary

of Finance. AT&T contends that by terminating the expedited audit and serving the

Subpoena, the state officials (i) infringed on AT&T’s right under the Fourth Amendment

of the United States Constitution to be free from unreasonable searches and seizures, (ii)

deprived AT&T of procedural due process rights protected by the Fourteenth

Amendment, (iii) deprived AT&T of substantive due process rights protected by the

Fourteenth Amendment, (iv) violated the Ex Post Facto Clause, and (v) violated the

Takings Clause. AT&T further asserted that by focusing on large companies like AT&T,

10 the state officials violated the Equal Protection Clause. And AT&T argued that the

aspects of the Escheat Law were void for vagueness and preempted by federal common

law.

On December 10, 2019, the Department filed this action seeking an order

compelling AT&T to comply with the Subpoena. On January 10, 2020, AT&T moved to

stay the litigation in favor of the Federal Action or in the alternative, to quash or modify

the Subpoena. In its proposed form of order, AT&T asked the court to narrow the

Subpoena as follows:

 “The subpoena applies only to records related to transactions within the statute of limitations set out in 12 Del. C. § 1158(a) (2016). Therefore, the subpoena may seek only records for transactions dated eight years prior to the entry of this order, but in no case prior to 2008.” Dkt. 18.

 “The subpoena applies only to records that reflect amounts outstanding which have remained unclaimed on the company’s books and records for five years in accordance with 12 Del. C. § 1133. Therefore, the subpoena may only seek outstanding checks or checks voided, stopped, or cancelled after five years from issuance.” Id.

 “The subpoena does not apply to records related to transactions issued to an apparent owner for which Defendant’s records reflect an address in a state other than Delaware.” Id.

II. LEGAL ANALYSIS

The Escheat Law authorizes the State Escheator “at reasonable times and on

reasonable notice” to:

(1) Examine the records of a person or the records in the possession of an agent, representative, subsidiary, or affiliate of the person under examination in order to determine whether the person complied with [the Escheat Law].

11 (2) Take testimony of a person, including the person’s employee, agent, representative, subsidiary, or affiliate, to determine whether the person complied with [the Escheat Law].

(3) Issue an administrative subpoena to require that the records specified in paragraph (1) of this section be made available for examination and that the testimony specified in paragraph (2) of this section be provided.

(4) Bring an action in the Court of Chancery seeking enforcement of an administrative subpoena issued under paragraph (3) of this section, which the Court shall consider under procedures that will lead to an expeditious resolution of the action.

12 Del. C. § 1171.

Acting on behalf of the State Escheator, the Department relied on Section 1171(1)

when requesting information from AT&T. The Department relied on Section 1171(3)

when issuing the Subpoena. And the Department relied on Section 1171(4) when filing

this action “seeking enforcement of” the Subpoena.

The Escheat Law charges the court with considering the application “under

procedures that will lead to an expeditious resolution of the action.” This court has not

established a special set of procedures.

The statue contemplates “an action in the Court of Chancery,” and the Department

commenced the action by filing a complaint. AT&T, however, did not respond to the

complaint as a defendant normally would, such as by filing an answer or by moving to

dismiss on grounds set forth in Court of Chancery Rule 12. AT&T instead docketed a

“Motion to Stay, or in the Alternative, Quash or Modify Plaintiff’s Administrative

Subpoena.” Dkt. 10 (the “Motion”). In its opening brief in support of the Motion, AT&T

advanced three requests for relief, styling two as procedural and one as substantive. See

12 id. at 2–4. In the first procedural request, AT&T asked the court to stay this action in

deference to the Federal Action. In the second procedural request, AT&T argued that the

Affiliates are indispensable parties who must be joined before this action can continue. In

its substantive request, AT&T also argued that by issuing the Subpoena, the Department

exceeded the authority granted to the State Escheator under the Escheat Law.

AT&T’s request for a stay presents a question governed by settled precedent that

addresses motions of that type. Recent authority teaches that this action should proceed

before the Federal Action, so the motion to stay is denied. See generally Dept. of Fin. v.

Univar, Inc. (Univar Chancery III), 2020 WL 2569703 (Del. Ch. May 21, 2020).

AT&T’s argument about the Department’s failure to join the Affiliates raises an

issue under Rule 19, which governs the joinder of indispensable parties. Relevant

authority teaches that the Affiliates are not indispensable parties, so AT&T’s request that

this action be dismissed or stayed pending joinder is denied.

AT&T’s request to quash or modify the Subpoena raises procedural and

substantive issues of first impression. In the section of this memorandum opinion

addressing that aspect of AT&T’s motion, this decision explains the framework it applies.

A. The Request For A Stay

AT&T argues that this action should be stayed pending the outcome of the Federal

Action. As the grounds for the stay, AT&T cites this court’s “inherent power to manage

its own docket, including the power to stay litigation on the basis of comity, efficiency, or

simple common sense.” Paolino v. Mace Sec. Int’l, Inc., 985 A.2d 392, 397 (Del. Ch.

2009); see Salzman v. Canaan Capital P’rs, 1996 WL 422341, at *5 (Del. Ch. July 23,

13 1996) (“To enable courts to manage their dockets, courts possess the inherent power to

stay proceedings.”); Phillips Petroleum Co. v. ARCO Alaska, Inc., 1983 WL 20283, at *4

(Del. Ch. Aug. 3, 1983) (granting stay in favor of pending arbitration based on “common

sense”). AT&T contends that it would be inefficient for this action to proceed before the

Federal Action because of the “possibility that the [Delaware District Court] will address

the very claims at issue here.” Dkt. 10 at 19.

Both AT&T and the Department rely on a series of decisions in a parallel action

involving Univar, Inc., where both the Delaware District Court and this court considered

whether a similar federal action should take precedence over a comparable state

proceeding. The early rounds in that action supported AT&T’s request for a stay. This

court stayed the Department’s action to enforce an administrative subpoena in favor of

the federal challenge. See Dept. of Fin. v. Univar, Inc., C.A. No. 2018-0884-JRS, at 45

(Del. Ch. Apr. 8, 2019) (TRANSCRIPT). This court declined to certify the ruling for

interlocutory appeal, see Dept. of Fin. v. Univar, Inc., 2019 WL 1995150, at *4 (Del. Ch.

May 6, 2019), and the Delaware Supreme Court agreed that an interlocutory appeal was

not warranted, see Dept. of Fin. v. Univar, Inc., 2019 WL 2513772, at *2 (Del. June 18,

2019) (ORDER).

Four months later, the Delaware District Court dismissed as unripe all but two of

the ten counts in Univar’s federal complaint because this court had not yet determined

whether to enforce the administrative subpoena. Univar, Inc. v. Geisenberger, 409 F.

Supp. 3d 273, 281–82 (D. Del. 2019). The Delaware District Court held that Univar’s

equal protection and procedural due process claims were ripe, but the court stayed those

14 claims pending the outcome of the proceeding to enforce the administrative subpoena. Id.

at 281, 285. The court explained that a stay was “in the interest of justice” and that

the best course of action is to stay this case until such a time that the Court of Chancery determines whether to enforce the Subpoena against Plaintiff. If the Chancery Court does not enforce the Subpoena, this action may no longer be necessary. On the other hand, if the Subpoena is enforced, certain issues may become ripe and an amended complaint may be appropriate. The Court recognizes that certain abstention doctrines may come into play, but believes that as a matter of comity, it would be well if Delaware had the opportunity to address some of these issues in the first instance. Thus, the present litigation before this Court is stayed until the enforceability of the subpoena against Univar has been addressed.

Id. at 284–85 (citation, footnote, and internal quotation marks and alterations omitted).

After the Delaware District Court issued its decision, this court lifted the stay, and

Univar moved to dismiss the Department’s claim as unripe. This court denied the motion

and instructed the parties that “the next step is to present the claim for decision on the

merits promptly.” See Univar Chancery III, 2020 WL 2569703, at *5.

The sequence of rulings in the Univar litigation demonstrates that this action

should proceed. A stay would create inefficiencies and waste judicial resources, because

the issues before the Delaware District Court largely will remain unripe until this court

has ruled on whether to enforce the Subpoena. As to those claims that are ripe, the

Delaware District Court has expressed a preference that this court first decide whether the

Subpoena is enforceable. This approach comports with the general principle that “[w]here

the constitutionality of a state statute . . . is involved, there are sound reasons why any

uncertainty as to its meaning should first be resolved by the state.” Jehovah’s Witnesses

15 v. King Cty. Hosp. Unit No. 1 (Harborview), 278 F. Supp. 488, 505 (W.D. Wash. 1967),

aff’d, 390 U.S. 598 (1968).

AT&T seeks to distinguish the outcome in Univar on the theory that its federal

challenge to the termination of its expedited examination is ripe, regardless of any

challenge to the scope of the Subpoena. The two issues are not separate. The State

Escheator terminated the expedited examination because AT&T failed to comply with the

Department’s requests for information. If this court holds that the Department exceeded

the authority granted to the State Escheator under Delaware law by making those

requests, then that ruling could affect whether the State Escheator had grounds for

terminating the expedited examination.

AT&T also cites three similar challenges to the Escheat Law that are pending in

the Delaware District Court. Dkt. 10 at 18–19 (first citing Eaton Corp. v. Geisenberger,

C.A. No. 1:19-cv-02269-RGA (D. Del. Dec. 12, 2019); then citing Fruit of the Loom,

Inc. v. Geisenberger, C.A. No. 1:19-cv-02273-CFC (D. Del. Dec. 13, 2019); and then

citing Siemens USA Hldgs. Inc. v. Geisenberger, C.A. No. 1:19-cv-02284-MN (D. Del.

Dec. 17, 2019)). AT&T argues that the overlapping issues in those cases should be

decided first, before this court addresses the enforceability of the Subpoena. This is a

variant of the argument that was rejected in the Univar litigation. The Delaware District

Court has already indicated that this court should go first, and this court has agreed.

Alternatively, AT&T contends that the case should be stayed because AT&T made

a so-called “England reservation.” See generally England v. La. State Bd. of Med.

Exam’rs, 375 U.S. 411 (1964). The England reservation preserves AT&T’s ability to

16 litigate federal claims related to this action in federal court. It does not affect whether this

litigation should be stayed. If anything, it counsels in favor of this action going first,

because AT&T has preserved its federal claims.

Staying this action in favor of the Federal Action would be inefficient. This

litigation involves the narrow question of whether the Subpoena is enforceable.

Answering this question will affect the analysis of the constitutional questions at issue in

the Federal Action. The request for a stay is denied.

B. The Failure To Join Necessary Parties

AT&T next argues that the Subpoena should be quashed because the Affiliates are

necessary parties who must be joined as defendants before this court can enforce the

Subpoena. Alternatively, AT&T contends that this court should “order [the Department]

to join in this action all other legal entities from which it seeks documents,” namely the

Affiliates. Dkt. 10 at 22.

AT&T’s request for relief is the equivalent of a motion to join necessary parties

under Rule 19. That rule provides that joinder of a party is necessary if

(1) in the person’s absence complete relief cannot be accorded among those already parties, or

(2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person’s absence may

(i) as a practical matter impair or impede the person’s ability to protect that interest or

(ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

17 Ch. Ct. R. 19(a) (formatting altered).

Invoking the standard set out in Rule 19(a)(1), AT&T contends that this court

cannot grant complete relief unless the Affiliates are joined as necessary parties because

this court cannot order non-parties to comply with the Subpoena. That is not so. This

court can order AT&T to cause the Affiliates to comply with the Subpoena. AT&T

controls the Affiliates, and it can cause them to comply with an order of this court.

The Escheat Law expressly authorizes the enforcement of a subpoena against a

“subsidiary or affiliate” of a person under examination. Section 1171 authorizes the State

Escheator to “[e]xamine the records of a person or the records in the possession of an

agent, representative, subsidiary, or affiliate of the person under examination in order to

determine whether the person complied with [the Escheat Law].” 12 Del. C. § 1171(1).

The statute authorizes the State Escheator to “[i]ssue an administrative subpoena to

require” the production of these records. Id. § 1171(3). The statute also authorizes the

State Escheator to bring an action in this court to enforce the administrative subpoena. Id.

§ 1171(4). If there were any question about this court’s ability to order AT&T to cause

the Affiliates to comply with the Subpoena, the Escheat Law answers it.

AT&T’s conduct also demonstrates that the Affiliates are not necessary to provide

complete relief. For the past two decades, AT&T has filed consolidated reports on behalf

of itself and the Affiliates. See Dkt. 10 at 9, 26. For the past eight years, AT&T has

participated in the examination on behalf of itself and the Affiliates. In responding to the

requests, AT&T has relied on in-house counsel at one of the Affiliates to act on AT&T’s

behalf. See id. at 13–14; see also id. Exs. G, H. AT&T has never previously objected that

18 the Affiliates are technically separate entities or that it lacks the ability to control or

provide information on behalf of the Affiliates. The joinder of the Affiliates as parties is

not necessary for this court to grant complete relief. Only AT&T’s presence is necessary

for this court to grant complete relief.

Separately invoking the language of Rule 19(a)(2), AT&T claims that joining the

Affiliates is necessary to enable the Affiliates to produce information without running

afoul of “any laws or regulations that could prohibit disclosure absent such a court order

directed to the particular entity.” Dkt. 10 at 22. AT&T does not identify what laws or

regulations might apply, making this a hypothetical concern.

In any event, AT&T is the real party in interest. AT&T controls the Affiliates, and

AT&T is fully capable of raising any issues and advocating on their behalf. The joinder

of the Affiliates as parties is not necessary to protect their interests or to avoid duplicative

obligations. See Actrade Fin. Techs. Ltd. v. Aharoni, 2003 WL 22389891, at *7 (Del. Ch.

Oct. 17, 2003) (“There is also little risk that these companies will be unable to protect

their interests or that Aharoni will be subject to duplicative obligations. If, as alleged,

Aharoni controls ICC, Fort and CFI, then Aharoni can adequately defend their

interests.”).

It is not necessary to stay or dismiss this action because the Affiliates are not

parties. AT&T’s request for relief under Rule 19 is denied.

C. The Request To Quash Or Modify The Subpoena

AT&T finally contends that the Subpoena should be quashed or modified because

the Department has not properly exercised the authority granted to the State Escheator

19 under the Escheat Law. AT&T advances six arguments as to why the Subpoena is not a

proper exercise of authority. First, AT&T argues that the Department’s stated reasons for

issuing the Subpoena do not match the language of the statute. Second, AT&T argues that

the Department is seeking information for reporting periods that cannot give rise to any

escheatable property because the statute of limitations has already run. Third, AT&T

argues that the Department is seeking information about transactions where AT&T’s

records show that the property could not possibly be escheatable to Delaware. Fourth,

AT&T argues that the Department is seeking information about voided or cleared checks

that are not yet escheatable. Fifth, AT&T argues that the Subpoena requires AT&T to

create new documents. Finally, AT&T argues that even if the requests might be

technically authorized, the Department’s demands for information are “‘so obviously

pretextual or insatiable’” as to extend “‘beyond a legitimate inquiry.’” Dkt. 10 at 23

(quoting Marathon Petroleum Corp. v. Sec’y of Fin., 876 F.3d 481, 501 (3d Cir. 2017)).

As noted previously, the Delaware courts have not yet addressed the procedures

that should govern an action to enforce a subpoena issued under the Escheat Law. Section

1171(4) authorizes the State Escheator to “[b]ring an action in the Court of Chancery

seeking enforcement of [the Subpoena],” and it instructs the court to consider that request

for relief “under procedures that will lead to an expeditious resolution of the action.” 12

Del. C. § 1171(4).

The statutory reference to an “action in the Court of Chancery” indicates that a

proceeding to enforce a subpoena is governed by the Court of Chancery rules. Like the

Federal Rules of Civil Procedure, the Court of Chancery rules dispense with the prior

20 systems of forms of action, common law writs, and code pleading. There is only “1 form

of action to be known as ‘civil action.’” Ch. Ct. R. 2.

A party confronted with a complaint ordinarily responds by filing an answer or a

motion to dismiss. AT&T filed a singular motion that made pleading-stage arguments

(the request for a stay in deference to the Federal Action and the request for a stay or

dismissal under Rule 19) and also included a motion to quash or modify. Under the Court

of Chancery Rules, a motion to quash or modify is not a motion to dismiss. It is a

discovery motion analogous to a motion for a protective order that is filed in response to

a subpoena issued pursuant to Court of Chancery Rule 45. See Ch. Ct. R. 45(c)(3)(A)

(“On timely motion, the court on behalf of which the subpoena was issued shall quash or

modify the subpoena . . . .”).

A party who moves to quash or modify a subpoena generally takes on the burden

to establish that a subpoena exceeds the scope of proper discovery. 2 Rule 45(c)(3)(A)

identifies possible grounds, including that the subpoena

2 See Tekstrom, Inc. v. Savla, 2007 WL 3231632, at *5 (Del. Com. Pl. Oct. 25, 2007) (“As a rule, the moving party seeking to quash or modify a subpoena bears the burden in obtaining the desired remedy.”); 9A Charles Allen Wright et al., Federal Practice and Procedure § 2463.1 (3d ed.), Westlaw (database updated Apr. 2020) (explaining that under the federal analogue of Court of Chancery Rule 45(c)(3)(A), “the burden to establish that a subpoena duces tecum imposes an undue burden is on the person who moves to have it quashed”); cf. Drysdale v. Noble, 2003 WL 21481005, at *2 (Del. Super. June 19, 2003) (“[A] party seeking an order protecting confidential trade information bears the burden of establishing good cause for the order by showing specifically that it will be harmed by disclosure.” (internal quotation marks and alterations omitted)); 23 Am. Jur. 2d Depositions and Discovery § 62 (“The party seeking a protective order bears the burden of demonstrating the requisite good cause.”).

21 (i) Fails to allow reasonable time for compliance;

(ii) Requires disclosure of privileged or other protected matter and no exception or waiver applies; or

(iii) Subjects a person to undue burden.

Ch. Ct. R. 45(c)(3)(A); see id. 45(c)(3)(B) (providing additional bases to quash or modify

a subpoena seeking disclosure of trade secrets or expert opinion). A party might seek to

quash or modify an administrative subpoena on similar grounds, and a party seeking to

do so would logically bear the burden to establish a fact-based objection of this type.

By moving affirmatively to quash or modify the Subpoena, AT&T could be seen

as taking on a burden to show that the Subpoena was improper. But in the Motion and its

supporting briefs, AT&T appeared to advance only pleading-stage challenges to the

Department’s authority to issue the Subpoena. At oral argument, the court asked AT&T’s

counsel whether some form of further proceedings would be warranted if those

challenges failed. AT&T’s counsel did not seem to have contemplated further

proceedings, but agreed it was possible. Dkt. 30 at 11–13, 19.

To the extent that the filing and framing of the Motion muddied the procedural

waters, the Department’s response did not help clarify them. The Department did not

respond to the Motion by cross moving for affirmative relief, such as by filing a motion

for judgment on the pleadings or a motion for summary judgment. The Department only

filed an answering brief. Dkt. 16. At oral argument, the Department maintained that in an

action to enforce an administrative subpoena, the only pleading is a complaint, the

standard response is a motion to quash, and that based on that record, this court must

22 make a decision that would result in a “final, appealable order” regarding the

administrative subpoena. Dkt. 30 at 61; see id. at 34–37, 39–42; see also Dkt. 25 at 5.

The Department’s procedural position has little to recommend it. It conflicts with

the Department’s assertion in its answering brief that “this proceeding is analogous to a

summary proceeding seeking examination of a Delaware corporation’s books and records

pursuant to 8 Del. C. § 220.” Dkt. 16 at 7. A Section 220 proceeding does not leap from

the filing of a complaint and the equivalent of a pleading-stage motion to the issuance of

a final, appealable order. Like any other civil action, a Section 220 proceeding starts with

pleadings and culminates in a merits hearing that enables the court to enter final relief,

often after a short trial on a paper record. See, e.g., Lavin v. West Corp., 2017 WL

6728702, at *1 (Del. Ch. Dec. 29, 2017) (rendering post-trial decision on a “‘paper

record’ without depositions or live testimony”). Because the statute calls for the

proceeding to be summary, the court takes steps to streamline the proceeding and

accelerate the merits hearing and motion practice in a Section 220 proceeding is

disfavored.3 But the responding party in a Section 220 proceeding typically files an

3 See La. Mun. Police Empls. Ret. Sys. v. Morgan Stanley & Co., Inc., 2011 WL 773316, at *3 (Del. Ch. Mar. 4, 2011) (“The summary nature of [a Section 220] proceeding ‘dictate[s] against allowing preliminary motions addressed to the pleadings to be presented and decided. . . . Such a practice would tend to promote delay, thereby undercutting the statutory mandate and policy that the proceeding be summary in character.’” (quoting Coit v. Am. Century Corp., 1987 WL 8458, at *1 (Del. Ch. Mar. 20, 1987))); Lavi v. Wideawake Deathrow Entm’t, LLC, 2011 WL 284986, at *1 (Del. Ch. Jan. 18, 2011) (“Rarely is dispositive motion practice efficient when the case can be tried within two months of filing.”); Coit, 1987 WL 8458, at *1 (explaining that pretrial

23 answer, limited discovery is available, and the case follows a standard, albeit accelerated,

procedural track. If a Section 220 proceeding is the proper analogy, then the

Department’s position at oral argument is mistaken.

The Department’s position also conflicts with the implications of Delaware

precedent regarding the enforcement of administrative subpoenas in other settings. In

First Jersey Securities, Inc. v. Bruton, 1980 WL 273543 (Del. Ch. Mar. 6, 1980), the

Delaware Division of Securities issued an administrative subpoena to examine an

employee of First Jersey Securities, Inc. First Jersey filed an action in the Court of

Chancery against Donald Bruton, then Securities Commissioner of the State of Delaware.

First Jersey asked the court to quash the subpoena and sought to have any discovery

governed by the rules of this court. Chancellor Marvel agreed that “once the opposing

contentions of the opposing parties are drawn into the Court of Chancery for decision, it

is clear that the rules of this court must apply . . . .” Id. at *1.

After the Securities Commissioner moved for reargument, Chancellor Marvel

reiterated that “when an administrative proceeding reaches an adjudicatory stage, the full

panoply of judicial procedures must be observed by an administrative agency.” First

Jersey Sec., Inc. v. Bruton, 1980 WL 273547, at *1 (Del. Ch. May 8, 1980). Chancellor

Marvel noted that by statute, “‘[n]othing in this Code, anything therein to the contrary

notwithstanding, shall in any way limit, supersede or repeal any rule heretofore

motions in a Section 220 action “ought not to be presented for decision in advance of the final hearing on the merits except where necessary to avoid substantial prejudice”).

24 promulgated governing practice or procedure in the Court of Chancery.’” Id. at *1

(quoting 10 Del. C. § 361(d)). As a result, the Court of Chancery Rules prevailed over

any contrary statute for purposes of governing a court proceeding. Chancellor Marvel

also held that the standards set forth in Court of Chancery Rule 26 would govern First

Jersey’s request to quash the subpoena. See id. at *2.

The Department’s argument that the proceedings on AT&T’s motion to quash

must result in a final, appealable order also runs contrary to In re Blue Hen Country

Network, Inc., 314 A.2d 197 (Del. Super. 1973). There, the Attorney General filed an

action to enforce an administrative subpoena as part of an investigation into securities

fraud. The Attorney General petitioned for a rule to show cause as to why the subpoena

should not be enforced, and the responding parties filed motions to quash and for a

protective order. Id. at 199. The trial court largely enforced the subpoena, but found it

unclear whether certain types of documents “would contain information relevant to the

investigation.” Id. at 202. The trial court ordered the Attorney General to “submit

justification for the production of those records.” Id. The trial court thus requested

additional information and conducted further proceedings; it did not immediately issue a

final order.

The Department’s position even departs from how federal decisions describe the

operative procedure for enforcing an administrative subpoena. The United States Court of

Appeals for the Third Circuit recommended the following “generally acceptable

procedure”:

25 1. The Secretary or his delegate would file a complaint accompanied by an affidavit of the agent who issued the summons, seeking enforcement. The complaint should separately allege compliance with each of the requirements of the Powell test of enforceability.4 The affidavit should support these allegations.

2. Process on the complaint could be in the form of an order served on the person summoned fixing a deadline for filing any responsive pleading, albeit an informal pleading, together with an affidavit, and any motions, and directing that person to show cause at a date and time certain why an order should not be entered enforcing the administrative summons. The order should provide that unless the court determines otherwise, any motions and issues raised by the pleadings will be considered at the return date of the order to show cause. In addition, the order should state that only those issues raised in motions or brought into controversy by the responsive pleading and supported by affidavit will be considered at the return of the order and that any uncontested allegation in the complaint will be taken as admitted.

3. At the hearing on the order, the Secretary should be prepared to prove the allegations of the complaint that the summons complies with the Powell requirements. He should also be prepared to rebut any proper defenses asserted by the person summoned.

The person summoned should be prepared to produce any evidence rebutting the government’s case and also to assume the burden as to affirmative issues raised by him for the purpose of demonstrating that enforcement of the summons would constitute an abuse of the court’s process. After completion of the hearing, the district court in conformity with [Federal Rule of Civil Procedure] 52(a), should make the requisite findings of fact and conclusions of law.

4. Although the proceedings are of a summary nature, if the district court concluded that it could not fairly decide the case on the record before it at the return of the order, it would be free to direct further proceedings, including discovery, if requested.

4 The “Powell test” is a reference to United States v. Powell, 379 U.S. 48 (1964), discussed below.

26 United States v. McCarthy, 514 F.2d 368, 372–73 (3d Cir. 1975) (Seitz, C.J.) (footnote

added) (footnote from original omitted); accord United States v. Genser, 582 F.2d 292,

302 (3d Cir. 1978) (endorsing McCarthy; noting that “[o]ther courts have established

similar procedures”). The McCarthy court clarified that although its procedure

contemplated an evidentiary hearing, “implicit in our design is the realization that not

every summons enforcement proceeding will require an evidentiary hearing.” 514 F.2d at

373. The court observed that “if the person summoned neither puts in issue allegations of

the complaint nor raises proper affirmative defenses, no evidentiary hearing will be

required; the matter can be decided on the pleadings.” Id.

In a somewhat more recent decision, the United States Court of Appeals for the

Third Circuit described the process for enforcing an administrative subpoena in similar

terms:

 “The agency seeking enforcement must first file a complaint alleging compliance with the [requirements for issuing an administrative subpoena under Powell] and an affidavit of the agent who issued the subpoena verifying those allegations.” SEC v. Wheeling-Pittsburgh Steel Corp., 648 F.2d 118, 128 (3d Cir. 1981).

 “The person subpoenaed is then served, and finally a hearing is held during which the government must prove its compliance with the [requirements for issuing an administrative subpoena under Powell].” Id.

 “If the government makes this preliminary showing, the burden then shifts to the respondent to prove that enforcement of the subpoena would be improper . . . .” Id.

 “After these proceedings, the district court must make findings of fact and conclusions of law in conformity with [Federal Rule of Civil Procedure] 52(a), but if the record as then constituted is inadequate to dispose of the action, the trial judge may, in his discretion and on request, direct further proceedings including discovery.” Id.

27  “The trial judge must evaluate the assertions of the recipient of the subpoena and any evidence introduced by both parties before allowing substantial discovery. This procedure requires the respondent to bear the initial burden of convincing the trial judge that the claimed abuse of process is not frivolous.” Id. (citations omitted).

See also United States v. Gertner, 65 F.3d 963, 966–68 (1st Cir. 1995) (describing similar

framework); cf. United States v. Morton Salt Co., 338 U.S. 632, 637 (1950) (noting that

after the United States filed actions to enforce information requests issued by the Federal

Trade Commission, the responding parties answered, the parties filed cross motions for

summary judgment, and the court ruled on the cross motions because there was no

dispute as to the material facts). The Department’s description of how enforcement

proceedings unfold only contemplates the filing of a complaint, followed by a motion to

quash and briefing on the motion to quash, then culminating in a hearing on those papers

without the taking of any evidence, and the immediate issuance of a final, appealable

order. That is inconsistent with the federal scheme.

In the abstract, the McCarthy and Wheeling-Pittsburgh decisions describe a

method of proceeding that fits well with the Court of Chancery Rules, albeit one that the

parties did not follow here. The immediately pressing question is how to proceed in this

case.

During oral argument, AT&T cited Blue Hen and referenced the possibility that if

the court had concerns about the scope of the Subpoena, then the Department might wish

to provide additional justification. Dkt. 30 at 30–33. The Department rejected that route,

insisting that it wanted a final, appealable order. Id. at 34–37, 39–42, 61. In a similar

situation where a government agency not only did not seek an evidentiary hearing but

28 affirmatively opposed it, the United States Court of Appeals for the First Circuit held that

a district court had acted within its discretion by not holding an evidentiary hearing and

deciding the case based on the agency’s complaint and supporting submissions. See

Gertner, 65 F.3d at 969–70.

Given the Department’s position, this decision evaluates the Department’s

application to enforce the Subpoena based solely on the allegations of the complaint. If

those allegations do not support the requested relief, then the relief will be denied.

Similarly, because of AT&T’s decision to file a motion to quash or modify, this

decision will not give AT&T an opportunity to raise further arguments in opposition to

the Subpoena. As the responding party, AT&T was in a position to know whether

compliance would be unduly burdensome or implicate other fact-based complications.

When it filed the Motion, AT&T could have raised fact-based objections in addition to its

legal arguments. AT&T did not need any discovery to do so; it could have submitted

affidavits and supporting documents with the Motion. Although the McCarthy procedures

contemplate a different procedural means by which the responding party would raise

issues, the parties have not followed that framework.

Giving AT&T a second bite at the apple would be inconsistent with “an

expeditious resolution of the action.” 12 Del. C. § 1171(4). AT&T is therefore limited to

the legal arguments it raised in the Motion. This ruling is not prejudicial to AT&T,

because requiring a party opposing a subpoena to come forward with all of its objections

at once comports with how courts approach motions to quash or modify under Rule 45 or

29 in miscellaneous actions to enforce out-of-state subpoenas. As noted, AT&T does not

appear to have contemplated making further fact-based arguments.

1. The Legal Framework

This court has not previously articulated the legal framework that governs an

action to enforce an administrative subpoena under the Escheat Law. As Vice Chancellor

Slights recently suggested, the proper course is to look to the “well-developed common

law standards in Delaware for enforcing subpoenas,” including the “abundant authority

with respect to the parameters for enforcement of administrative subpoenas generally.”

Univar Chancery III, 2020 WL 2569703, at *4 & n.47.

When the legislature gives an administrative agency the power to subpoena, it has

given the agency “a power of inquisition” that is “analogous to the Grand Jury, which

does not depend on a case or controversy for power to get evidence but can investigate

merely on suspicion that the law is being violated, or even just because it wants assurance

that it is not.” Morton Salt, 338 U.S. at 642–43; accord In re Hawkins, 123 A.2d 113, 115

(Del. 1956) (holding that after enacting of statute conferring power to issue subpoenas

and other writs on Attorney General, “it is clear that the general investigatory powers of

the grand jury are now shared, at least to a substantial extent, by the Attorney General”

and that like the grand jury, the Attorney General “may institute an investigation of

suspected violations of law, and in pursuing the investigation may compel the appearance

of witnesses and the production of documents”). The resulting power to investigate

possible wrongdoing is “‘necessarily broad.’” Blue Hen, 314 A.2d at 200 (quoting

Branzburg v. Hayes, 408 U.S. 665, 688 (1972)). “For these reasons, judicial review of

30 administrative subpoenas is ‘strictly limited.’” Univ. of Med. & Dentistry of N.J. v.

Corrigan, 347 F.3d 57, 64 (3d Cir. 2003) (quoting FTC v. Texaco, Inc., 555 F.2d 862,

872 (D.C. Cir. 1977) (en banc)).

An agency has authority to issue an administrative subpoena “if the inquiry is

within the authority of the agency, the demand is not too indefinite and the information

sought is reasonably relevant.” Morton Salt, 338 U.S. at 652. Reframed in slightly

different words, the agency can establish its authority to issue the subpoena by showing

“that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry

may be relevant to the purpose, that the information sought is not already within the

[agency’s] possession, and that the administrative steps required by the [statute] have

been followed . . . .” Powell, 379 U.S. at 57–58; see State v. Salasky, 2013 WL 5487363,

at *15 (Del. Super. Sept. 26, 2013) (finding that under statute conferring subpoena power

on Attorney General, “as long as the Attorney General is conducting an investigation of

alleged criminal activity, they are acting within the statutory authority provided to them

by the General Assembly”). It is nevertheless possible that an agency may issue a

subpoena that is not sufficiently grounded in its statutory authority. See In re McGowen,

303 A.2d 645, 647 (Del. 1973) (quashing subpoena issued by Attorney General as

beyond statutory authority). It is also possible that “a governmental investigation . . . may

be of such sweeping nature and so unrelated to the matter properly under inquiry as to

exceed the investigatory power.” Morton Salt, 338 U.S. at 652.

If the court finds that the agency had authority to issue the subpoena, the scope of

judicial review remains limited, but it is not over.

31 It is the court’s process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such as to harass the [subject of the investigation] or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation. The burden of showing an abuse of the court’s process is on the [party objecting to the subpoena] . . . .

Powell, 379 U.S. at 58 (footnote omitted). These examples of abuse “were not intended

as an exclusive statement about the meaning of good faith.” United States v. LaSalle

Nat’l Bank, 437 U.S. 298, 317 n.19 (1978). “Future cases may well reveal the need to

prevent other forms of agency abuse of congressional authority and judicial process.” Id.

at 318 n.20.

Decisions considering the enforcement of administrative subpoenas also evaluate

the dimension of reasonableness. This requirement is often grounded in the protections

supplied by the Fourth Amendment of the United States Constitution, but it flows more

generally from the “real problem of balancing the public interest against private

security.” Okla. Press Pub. Co. v. Walling, 327 U.S. 186, 203 (1946). For purposes of an

administrative subpoena,

the requirement of reasonableness . . . comes down to specification of the documents to be produced adequate, but not excessive, for the purposes of the relevant inquiry. Necessarily, as has been said, this cannot be reduced to formula; for relevance or adequacy or excess in the breadth of the subpoena are matters variable in relation to the nature, purposes and scope of the inquiry.5

5 Id. at 209; see id. at 216 (explaining that analysis of scope of administrative subpoena is “essentially the same as . . . the court’s in issuing other pretrial orders for the

32 Put differently, (i) the subpoena must “specify the materials to be produced with

reasonable particularity,” (ii) the subpoena must “require the production only of materials

that are relevant to the investigation,” and (iii) the request “must not cover an

unreasonable amount of time” or otherwise be overly burdensome. Blue Hen, 314 A.2d at

201.

When evaluating reasonableness, courts show deference to the needs of the

agency, even though “such investigations can be expensive and time consuming” for the

responding party. EEOC v. Am. Express Centurion Bank, 758 F. Supp. 217, 221 (D. Del.

1991) (citing Okla. Press, 327 U.S. at 213). “Premature interruption of investigation

‘would render substantially impossible [the agency’s] effective discharge of the duties of

investigation and enforcement’” that have been assigned to it. Id. at 221 (quoting Okla.

Press, 327 U.S. at 213).

Because the reasonableness analysis has traditionally been grounded in the Fourth

Amendment, and because AT&T has sought to reserve its right to litigate issues under

federal law and the United States Constitution in the Federal Action, this court could

conclude that reasonableness is solely a federal law issue and decline to consider it on

that basis. Under Powell, however, this court must evaluate whether the enforcement of

discovery of evidence”); id. at 217 n.57 (noting that a court has the power to address whether the agency has “authority[]to conduct the investigation, relevancy of the materials sought, and breadth of the demand”); id. at 217 (reiterating that “[p]ersons from whom [an agency] seeks relevant information are not required to submit to [the agency’s] demand, if in any respect it is unreasonable or overreaches the authority [the legislature] has given”).

33 the subpoena would be “an abuse of the court’s process,” 379 U.S. at 58, and the

enforcement of an unreasonable subpoena would be abusive. In addition, the Escheat

Law appears to contemplate an inquiry into reasonableness by stating that a subpoena

may be issued “at reasonable times and on reasonable notice,” 12 Del. C. § 1171, and a

leading authority on the Escheat Law observes that “[h]olders expect both the conduct

and the review methodology employed by unclaimed property auditors to be reasonable .

. . .” Ethan D. Millar et al., Unclaimed Property, Tax Portfolio Series (BNA) no. 1600-3d

§ 1600.09(F), Bloomberg Law (database updated June 2020). This decision therefore

concludes that Delaware law contemplates an inquiry into the reasonableness of an

administrative subpoena under the Escheat Law, albeit one that is deferential to the State

Escheator.

The resulting legal framework for enforcing an administrative subpoena involves a

shifting burden of proof. The agency has the initial burden of showing that its subpoena is

authorized. “If the [agency] makes this preliminary showing, the burden then shifts to the

respondent to prove that enforcement of the subpoena would be improper under the test

enunciated in Powell.” Wheeling-Pittsburgh, 648 F.2d at 128. This decision has already

discussed the McCarthy procedures, which parties ideally would use in these settings.

At bottom, AT&T maintains that the Subpoena exceeds the authority granted to

the State Escheator. The Department bears the initial burden to show that it possesses the

authority to issue the Subpoena. See Powell, 379 U.S. at 57–58. The allocation of the

burden is not significant in this case, because the question of authority raises issues of

law. The one exception is the question of whether the Subpoena is so broad,

34 unreasonable, or otherwise infirm that it would constitute an abuse of the court’s process

to enforce it. As to this issue, AT&T bears the burden. See LaSalle, 437 U.S. at 316.

2. Whether The Department Properly Exercised Authority Granted To The State Escheator.

For an administrative subpoena to be valid, the agency must show “that the

investigation will be conducted pursuant to a legitimate purpose . . . .” Powell, 379 U.S.

at 57. Framed in slightly different terms, “the inquiry must be within the authority of the

agency . . . .” United States v. Westinghouse Elec. Corp., 638 F.2d 570, 574 (3d Cir.

1980).

AT&T advances different theories as to why the Subpoena falls outside the

authority granted to the State Escheator. Individually, the theories fall short. Evaluated

collectively, however, AT&T has established that the Department issued an overly broad

and unreasonable subpoena such that to enforce it would abuse the court’s process.

a. Linguistic Divergence Between Section 1171 And The Complaint

AT&T first focuses on the linguistic divergence between the language of Section

1171 and how the complaint frames the purpose of the Subpoena. This argument does not

provide grounds for quashing or modifying the Subpoena.

Section 1171 gives the State Escheator the authority to “[e]xamine the records of a

person or the records in the possession of an agent, representative, subsidiary, or affiliate

of the person under examination in order to determine whether the person complied with

[the Escheat Law].” 12 Del. C. § 1171(1). The complaint frames the purpose for the

Subpoena in different terms. It alleges that the Department served the Subpoena to

35 “identify abandoned and unclaimed property in the custody of [AT&T] . . . to which the

State is entitled to custody” and “to determine the property being held by AT&T that

shall be escheated to the State pursuant to the [Escheat Law].” Compl. ¶¶ 6, 23.

AT&T argues that the Department is exceeding the authority granted to the State

Escheator by seeking to identify escheatable property rather than by seeking to determine

whether AT&T complied with the Escheat Law. See Dkt. 10 at 25. This argument is

meritless. The process of examining a party’s compliance with the Escheat Law

necessarily involves determining whether that party has unclaimed property in its custody

that should be escheated to the State of Delaware. A party who has complied with the

Escheat Law will have identified and escheated any escheatable property. A party who

has not complied with the Escheat Law either will not have identified escheatable

property, not have escheated the property, or both. The Escheat Law authorizes the State

Escheator to conduct this inquiry, and the Department can issue a subpoena for that

purpose.

AT&T also complains that “[t]he Complaint does not contain a single allegation

addressing why the documents requested are relevant to Delaware’s unclaimed property

law.” Id. That omission is not inherently fatal, because the law governing the

enforcement of agency subpoenas rejects any bright-line requirement that the agency

provide an explanation for its actions or meet a standard of proof such as probable cause.

The Supreme Court of the United States addressed this issue in Powell. In March

1963, the Internal Revenue Service issued an administrative subpoena for records relating

to tax returns from 1958 and 1959. Powell, 379 U.S. at 49. A three-year statute of

36 limitations barred the assessment of additional deficiencies for those years, except in

cases of fraud. Because more than three years had passed, the taxpayer argued “that

before he could be forced to produce the records the Service had to indicate some

grounds for its belief that a fraud had been committed.” Id. The IRS “declined to give any

such indication . . . .” Id. The IRS then sought to enforce its subpoena and filed an

affidavit from an agent stating that he “had reason to suspect the taxpayer had

fraudulently falsified its 1958 and 1959 returns by overstating expenses.” Id. at 50. The

trial court enforced the subpoena, but the court of appeals reversed, holding that the IRS

failed to give “probable cause” to suspect fraud. Id. The Supreme Court of the United

States reversed the court of appeals, holding that “the Commissioner need not meet any

standard of probable cause to obtain enforcement of his summons, either before or after

the three-year statute of limitations on ordinary tax liabilities has expired.” Id. at 57. The

opinion used the term “probable cause” to refer not only to that level of proof in a

specific legal sense, but more generally “to include the full range of formulations offered

by lower courts.” Id. at 50 n.7.

Subsequent decisions have relied on Powell to reject any requirement that an

agency show cause before obtaining the information it seeks. See, e.g., Am. Express, 758

F. Supp. at 221 (“The agency need not meet any standard of probable or reasonable

cause.”). “[A]n agency ordinarily ‘can investigate merely on suspicion that the law is

being violated, or even just because it wants assurance that it is not.’” Univ. of Med. &

Dentistry, 347 F.3d at 64 (quoting Powell, 379 U.S. at 57). “‘Judicial supervision of

agency decisions to investigate might hopelessly entangle the courts in areas that would

37 prove to be unmanageable and would certainly throw great amounts of sand into the gears

of the administrative process.’” Wheeling-Pittsburgh, 648 F.2d at 127 n.12 (quoting

Dresser Indus., Inc. v. United States, 596 F.2d 1231, 1235 n.1 (5th Cir. 1979)).

Delaware decisions take the same view. See Blue Hen, 314 A.2d at 201

(recognizing that defendant “fail[ed] to point to any case that would support its position

that subpoenas duces tecum must be supported with probable cause”). In Hawkins, the

recipient of a subpoena from the Attorney General objected that “the subpoena fails to

show on its face the subject matter of the investigation to which the demanded records

relate.”123 A.2d at 116. The recipient argued that “a witness is entitled for his own

protection to know the nature of the inquiry and the purpose of the subpoena so that he

may challenge its propriety if he so desires.” Id. The Delaware Supreme Court rejected

this argument:

The simple answer to this contention is that the limits of the investigation and the relevancy of the documents sought are matters which are of no concern to the witness. Such is the rule when a witness is called before a grand jury, and we think it equally applicable when he is summoned before the Attorney General.

Id. (citation omitted).

A statute certainly could require an agency to provide some reason or make some

showing before conducting an investigation or obtaining an order enforcing a subpoena.

The Escheat Law does not contain any such requirement. Section 1171 does not require

the State Escheator to have any purpose for seeking documents beyond “determin[ing]

whether the person complied with [the Escheat Law].” 12 Del. C. § 1171(1).

38 These authorities demonstrate that an agency does not inherently exceed its

authority by failing to provide an explanation for its investigation or a justification for its

information requests. These general rules do not mean that an agency can never be

required to make some showing or provide some explanation before a court will enforce

its subpoena. In Blue Hen, the Attorney General issued an administrative subpoena

seeking information from Blue Hen Country Network, Inc. and its president. Blue Hen

had been formed only two years earlier, and the firm raised capital by selling securities.

The Attorney General’s stated purpose for the subpoena was its “continuing investigation

of sales of securities within the State of Delaware to determine if materially misleading or

fraudulent representations have been made in connection with the offerings thereof.” Blue

Hen, 314 A.2d at 199 (internal quotation marks omitted). The Attorney General had

issued the subpoena pursuant to its statutory power “‘to investigate matters involving the

public peace, safety and justice, and to subpoena witnesses and evidence in connection

therewith . . . .’” Id. (quoting what is now 29 Del. C. § 2504(4)). The subpoena instructed

Blue Hen’s president to “appear at the office of the Attorney General . . . and to bring

with you all stock records, stock transfer records, books of account, and minutes of

Directors’ meetings of Blue Hen . . . and its subsidiaries.” Id. (internal quotation marks

omitted).

Blue Hen and its president challenged the subpoenas on multiple grounds. For

purposes of this decision, the relevant challenge was their claim that the subpoena was

both “unconstitutionally broad” and inconsistent with “the Fourth Amendment

prohibition against unreasonable searches and seizures.” Id. The trial court concluded that

39 the Attorney General had authority to issue the subpoenas, reasoning that “[t]he purpose

stated by the Attorney General . . . is a proper purpose under the statute,” and the statute

was constitutional. Id. at 200. The trial court also concluded that it was “not unreasonable

to require the production of materials covering the two year period of its corporate

existence.” Id. at 202. But the trial court observed that “[w]hile it is clear that stock

records and stock transfers would contain information relevant to stock sales, it is not

clear that books of account and minutes of directors’ meetings, in general, would contain

information relevant to the investigation.” Id. The court therefore directed the Attorney

General to “submit justification for the production of those records.” Id.

As Blue Hen demonstrates, a court can take into account the fact that an agency

has not provided an explanation or a justification when evaluating whether it would be an

abuse of the court’s process to enforce a subpoena. If an agency has served a wide-

ranging request, and if the responding party has raised valid concerns about the request,

then as in Blue Hen, some form of explanation or justification may be warranted before a

court will enforce the subpoena.

b. Records Of Rebates And Checks Where Any Claim For Escheat Would Be Barred By The Statute Of Limitations

In its second argument, AT&T maintains that the Department exceeded the

authority granted to the State Escheator by seeking information for years that are barred

from assessment under the applicable statute of limitations. Framed in this bright-line

fashion, this argument does not provide grounds for quashing or modifying the Subpoena.

40 Analyzing AT&T’s argument requires determining whether the statute of

limitations in fact would bar the State Escheator from issuing a notice of deficiency and

escheating abandoned property for any of the years that the Subpoena covers. If the

statute of limitations would not bar the claim, then AT&T’s argument fails on its own

terms.

Before July 22, 2002, the Escheat Law did not impose a statute of limitations

restricting the State Escheator’s ability to recover unclaimed property. Millar et al.,

Unclaimed Property, supra, § 1600.05(J)(1). Under this regime, the State Escheator in

theory could recover property that should have been escheated at any point in history. No

one argues that the pre-2002 regime applies to this case.

In 2002, the General Assembly amended the Escheat Law by imposing a statute of

limitations tied to the filing of annual reports. A holder of escheatable property is

required to file an annual report on March 1 of each year and describe “property

presumed abandoned and subject to the custody of the State Escheator.” 12 Del. C. §

1142(a); see id. § 1144(a). Under the 2002 amendments, the State Escheator could

recover unreported unclaimed property only if the State Escheator issued a notice of

deficiency for an annual report. 73 Del. Laws ch. 417, § 1 (2002). In ordinary

circumstances, the State Escheator had three years to issue a notice of deficiency. Id. If

“an omission of abandoned or unclaimed property from a report ha[d] a value in excess

of 25 % of the amount of abandoned or unclaimed property disclosed in [the] report,”

then the State Escheator had six years. Id. And if “no report [was] filed, or if a false or

fraudulent report [was] filed with the intent to evade the obligation to pay over

41 abandoned property,” then the State Escheator could issue a notice of deficiency at any

time. Id. If the State Escheator failed to issue a notice of deficiency within the statutory

time period, then it was barred from suing to recover the unclaimed property. This

decision refers to this regime as the “Old Statute of Limitations.”

Effective February 22, 2017, the 2017 Amendments changed the limitations

period. As amended, the Escheat Law prohibits the State Escheator from “commenc[ing]

an action or proceeding to enforce . . . the reporting, payment, or delivery of property

more than 10 years after the duty arose.” 12 Del. C. § 1156(b). As amended, the Escheat

Law also provides that the “period of limitation established . . . is tolled by the State

Escheator’s delivery of a notice of an examination . . . , or if the State Escheator

reasonably concludes that the holder has filed a report containing a fraudulent or willful

misrepresentation.” Id. This decision refers to this regime as the “New Statute of

Limitations.”

The Department began its current examination of AT&T in 2012. Thus, if the New

Statute of Limitations were to apply, then the commencement of the investigation would

toll the statute of limitations, and the State Escheator could recover property that became

escheatable as far back as 2002. The State Escheator would not be able to recover

property that became escheatable during years pre-dating 2002.

AT&T contends that when the 2017 Amendments amended the statute of

limitations effective February 22, 2017, the three-year default period under the Old

Statute of Limitations had already run for any report filed on February 21, 2014, or

earlier, i.e., three years or more before the amendment. AT&T filed a report on March 1,

42 2014, which is subject to the New Statute of Limitations, but AT&T maintains that its

reports for earlier years are subject to the Old Statute of Limitations. The State Escheator

has never issued a notice of deficiency for any of its earlier reports, so AT&T maintains

that the three-year statute of limitations applies to the reports filed in 2013 or earlier.

In this case, the Department is investigating property that takes the form of rebates

or checks issued in connection with employee compensation. See Compl. Ex. J. Both

forms of property are presumed abandoned five years after issuance.6 AT&T reasons that

to be escheatable, a rebate or check would have had to be issued at least five years before

the applicable report was filed. Under AT&T’s theory of how the Old Statute of

Limitations worked, the latest report that the State Escheator could pursue was filed in

2013 and covered rebates and checks issued through December 31, 2007. AT&T

6 For checks, the Escheat Law specifies the five-year period. 12 Del. C. § 1133(11). For rebates, the analysis is more complicated. Before the 2017 Amendments, rebates were escheatable under the “catch-all” provision of the Escheat Law. See 12 Del. C. § 1198(11) (2016); Staples, Inc. v. Cook, 35 A.3d 421, 424–27 (Del. Ch. 2012) (finding that rebates at issue were “either ‘bills of exchange’ or ‘credits,’ and therefore properly subject to escheatment by the State”); see also Millar et al., Unclaimed Property, supra, § 1600.04(M) (explaining that ordinarily “a rebate is subject to escheat under the state’s ‘catch-all’ provision”). After the 2017 Amendments, rebates which cannot “be redeemed for money or otherwise monetized by the issuer” are no longer escheatable property. 12 Del. C. § 1130(11) (including “rebate” in the definition of “loyalty card”); see id. § 1130(18) (excluding “loyalty card” from the definition of “property”). AT&T has not argued, and this decision does not address, whether the 2017 Amendments apply retroactively to rebates issued before the amendments went into effect. Both parties proceeded as if the rebates are presumed abandoned after five years. See Dkt. 30 at 28, 38–39; Dkt. 10 at 28, 34.

43 concludes that the State Escheator cannot recover any rebates or checks from that date or

earlier (i.e., before 2008).

Having reasoned in this fashion, AT&T asserts that the Department should not be

able to demand information for years in which the State Escheator would not be able to

recover escheatable property. The Subpoena seeks records dating back to 1992. 7 AT&T

concludes that the Subpoena therefore exceeds the authority granted to the State

Under the Old Statute of Limitations, if the State Escheator could prove the value

of the checks and rebates exceeded the total value of unclaimed property disclosed in an

7 On November 26, 2019, representatives from AT&T met with the State Escheator to discuss the scope of the Subpoena. In a letter sent to the State Escheator the next day, AT&T expressed its understanding that “Delaware’s revised request for documents is limited to 2008 and forward. . . . That is, Delaware is not requesting data for periods prior to 2008, nor is it requesting that AT&T confirm whether it can access or research such data.” Dkt. 10 Ex. H at 1. When the Department filed this action to enforce the Subpoena, the Department did not limit its request to documents from 2008 forward. See Compl. Ex. J. In its opening brief, AT&T asserted that the Subpoena seeks records dating back to 1992 and devoted eight pages of briefing to the relevant statute of limitations. See Dkt. 10 at 26–34. In its answering brief, the Department did not challenge AT&T’s assertion that the Subpoena seeks records dating as far back as 1992. See Dkt. 16 at 23–26. In its reply, AT&T spent another three pages responding to the Department’s arguments about the statute of limitations. At oral argument, counsel for the Department asserted for the first time that the Rebates Request only seeks records dating back to 1998 and the Disbursements Request only seeks records dating back to 2008. Dkt. 30 at 38–39. Counsel for AT&T expressed surprise, indicating that “AT&T has been trying to get the Department to commit only to look back to 2008 in requesting records” but that the Department “has refused to do so.” Id. at 71. Because the narrowing of the requests was not raised until oral argument, and because the Department did not explain its position, this decision treats the Subpoena as seeking records dating back to 1992.

44 annual report by 25%, then the Old Statute of Limitations would increase from three

years to six, bringing into play reports filed in 2010 and covering rebates and checks

issued through December 31, 2004. And if the State Escheator could prove AT&T filed a

report fraudulently with the intent to evade the obligation to turn over abandoned

property, the State Escheator could recover any checks or rebates that should have been

covered by that report. AT&T’s answer to these problems is that the complaint does not

allege any basis to think that AT&T’s reports were off by 25% or more or filed

fraudulently. Ironically, under AT&T’s reasoning, the State Escheator could sue to

recover checks or rebates issued before 1994, because AT&T did not start filing reports

until 1999, but neither AT&T nor the Department has addressed that possibility.

The Department responds to AT&T’s laborious analysis with a single sentence,

devoid of authority or argument. According to the Department, “[t]he new Escheats Law

applies to this examination.” Dkt. 16 at 24. As discussed above, the New Statute of

Limitations would allow the State Escheator to seek records of checks or rebates covered

in the 2002 report and therefore issued as early as 1997.

The Department has not provided any grounds for applying the New Statute of

Limitations retroactively. Doing so would break with the “time-honored principle that

[Delaware courts] ‘will not infer an intention to make an act retrospective,’ and that ‘to

give an act a retrospective operation would be contrary to well settled principles of law

applicable to the construction of statutes unless it be plainly and unmistakably so

provided by the statute.’” Chrysler Corp. v. State, 457 A.2d 345, 351 (Del. 1983)

(quoting Keller v. Wilson & Co., 190 A. 115, 125 (Del. 1936)). Nothing in the statute or

45 the legislative history indicates that the General Assembly intended for the retroactive

application of the New Statute of Limitations. See Del. S.B. 13 syn., 149th Gen. Assem.

(2017). Instead, the effective date of February 22, 2017, suggests the opposite. That was

the position that the State Escheator took in connection with the 2002 amendments. Then,

the State Escheator agreed that “no statute of limitations applie[d] for periods for which

reports were filed prior to July 22, 2002,” and that the new statute of limitations applied

for reports filed after the effective date. Millar et al., Unclaimed Property, supra, §

1600.05(J)(1).

It thus appears correct that there are reports covering years for which the Old

Statute of Limitations would bar the State Escheator from seeking to recover escheatable

property. But AT&T’s bright-line argument that the statute of limitations bars the

Department from investigating those years runs contrary to precedent.

The decision in Powell again provides the answer. To recap the facts, the IRS

issued an administrative subpoena for records for years where it could not assess any

deficiencies under a three-year statute of limitations. Powell, 379 U.S. at 49. The statute

of limitations created an exception for cases of fraud, and the taxpayer argued that the

IRS should have to provide some “grounds for its belief that a fraud had been committed”

before investigating years for which an assessment otherwise would be barred. Id. The

IRS declined to give any explanation and sought to enforce the subpoena. Id. at 49–50.

The trial court enforced the subpoena, but the court of appeals reversed, holding that the

IRS lacked “probable cause” to suspect fraud. Id. at 50. The Supreme Court of the United

States reversed the court of appeals and held that “the Commissioner need not meet any

46 standard of probable cause to obtain enforcement of his summons, either before or after

the three-year statute of limitations on ordinary tax liabilities has expired.” Id. at 57

(emphasis added).

Subsequent decisions have relied on Powell to reject any bright-line limitation on

an agency’s authority to conduct an investigation based on the running of the statute of

limitations that would apply if the agency sought a remedy. The Delaware District Court

addressed this issue in EEOC v. Delaware State Police, 618 F. Supp. 451 (D. Del. 1985).

The agency sought information dating back three years, but a two-year statute of

limitations applied to charges unless the agency could show willfulness. The defendant

argued that the agency should be limited to two years of information. Id. at 453. Chief

Judge Schwartz explained that “[a] party may not defeat an agency’s authority to

investigate by raising what could be a defense if the agency subsequently decides to bring

an action against the party” and held that “[i]t would be an inappropriate exercise of

judicial power in an administrative subpoena enforcement proceeding to determine the

merits of a statute of limitations defense that might be raised to a hypothetical future

complaint . . . .” Id.; accord EEOC v. Karuk Tribe Hous. Auth., 260 F.3d 1071, 1076 (9th

Cir. 2001) (“A party may not defeat agency authority to investigate with a claim that

could be a defense if the agency subsequently decides to bring an action against it.”

(internal quotations marks and alterations omitted)).

The statute of limitations thus does not operate as a bright-line rule that leads to a

finding that a subpoena is unauthorized if the agency seeks records that are outside the

limitations period. But that fact does not become irrelevant to the Department’s ability to

47 conduct an investigation. The State Escheator only has authority to examine records “to

determine whether the person complied with [the Escheat Law].” 12 Del. C. § 1171(1).

If it appears highly unlikely, even impossible, that the State Escheator could reach

property from a given year, then it becomes more likely, all else equal, that the subpoena

is improper. The extent to which an information request goes beyond the statute of

limitations thus becomes part of the inquiry into whether it would represent an abuse of

the court’s process to enforce a subpoena, absent some creditable explanation addressing

how the information would be used.

c. Records Of Checks Issued To Parties Whose Last Known Addresses Would Not Result In Escheatable Property

Similar reasoning applies to AT&T’s third argument. The Subpoena requests

information about “all checks issued.” Compl. Ex. J. Ex. 1. As framed, it encompasses

checks issued to parties with addresses in other states. AT&T contends that the State

Escheator lacks authority to investigate checks issued to payees with addresses located in

states other than Delaware because the State Escheator only has standing to escheat

property where the company’s records show no last-known address, a Delaware address,

or an address in a state that does not have an escheat law. As with the statute of

limitations, this defense to an enforcement action does not apply as a matter of law at this

stage.

Under the Supreme Court of the United States’ decision in Texas v. New Jersey, as

applied by this court in Nellius v. Tampax, Inc., 394 A.2d 233 (Del. Ch. 1978), AT&T’s

description of the governing law appears correct. In Nellius, the State Escheator sought to

48 escheat certain shares of Tampax, Inc. and dividends associated with those shares.

According to the company’s records, Tampax had originally issued 200 shares of stock in

1941 to William C. Russell at an address in Canton, Massachusetts. Id. at 234. Sometime

thereafter, Russell transferred the shares to a man named Cronin, but notice of the

transfer was never given to Tampax. As a result, the company’s records always reflected

Russell as the owner. In 1945 and 1946, Tampax mailed four separate dividend checks to

Russell. Each time, he returned the check and informed Tampax that he had sold the

shares. Tampax stopped sending further dividends to Russell. As of 1978, the original

200 shares had grown through stock splits and stock dividends to 7,200 shares, and

Tampax was holding $145,072 in cash dividends payable on those shares. Tampax had

reason to believe that the “Cronin” in question was a John G. Cronin, who had died in

1944. Id. at 234–35.

The State Escheator argued that on the facts presented, the address of the owner of

the shares was unknown, and so the shares and associated dividends should escheat to

Delaware. This court held that “the existence of Russell’s name and his Massachusetts

address on the records of Tampax bars the State of Delaware from bringing this action to

escheat the stock and accumulated dividends despite the State Escheator’s contention . . .

that the address of the last actual owner of the original two stock certificates is unknown .

. . .” Id. at 237.

The Department suggests that the Nellius court reached this conclusion because

the Delaware General Corporation Law affords special status to a corporation’s list of

stockholders to determine who are the record holders of its shares. Dkt. 30 at 59–60. That

49 is not correct. The Nellius court reasoned that this holding was mandated by the decision

of the Supreme Court of the United States in Texas v. New Jersey, which established

priorities for which state is entitled to escheat abandoned property. The Supreme Court of

the United States had previously held that “the Due Process Clause of the Fourteenth

Amendment prevents more than one State from escheating a given item of property.”

Nellius, 394 A.2d at 235 (citing W. Union Tel. Co. v. Pennsylvania, 368 U.S. 71 (1961)).

In Texas v. New Jersey, the Supreme Court of the United States considered what rules

should govern intangible property, taking into account the competing claims of the state

of incorporation, the state of the company’s principal place of business, the state where

the documents evidencing the property were physically located, and the state where the

owner’s last known address was located. See 379 U.S. at 678. Any dispute between the

states over which jurisdiction could escheat property would invoke the original

jurisdiction of the Supreme Court of the United States, so that court sought to establish

clear rules that would govern the competing claims. Id. at 675, 683.

The Supreme Court of the United States held initially that an item of intangible

property “is subject to escheat only by the State of the last known address of the [owner],

as shown by the [company’s] books and records.” Id. at 682. The Court then held “where

there is no last known address,” then the property is “subject to escheat by the State of

corporate domicile . . . .” Id. If the state of the last known address did not provide for

escheat, then the property was again subject to escheat by “the State of corporate

domicile.” Id.

50 In Nellius, this court held that the State Escheator’s effort to claim that the

Tampax shares had no known address ran afoul of the ruling in Texas v. New Jersey:

Viewed hypothetically, if the issue here was between Massachusetts and Delaware as to which of them had the prior right to escheat the stock and accumulated dividends, Delaware would have to prove those very evidentiary elements on which the State Escheator is relying here in his effort to defeat the motion for summary judgment, namely, Russell’s rejection of the various dividend checks in 1945 and 1946, Russell’s deposition testimony as to what he did and what he recollected, the certified copies of the probate records of John G. Cronin’s estate, etc. In other words, it would be Delaware’s burden to establish by sufficient evidence that the last Actual owner of the stock was a person, known or unknown, other than the owner shown of record on the stock ledger of Tampax. This appears to be the type of situation that the rationale behind the primacy rules of Texas v. New Jersey sought to avoid.

Nellius, 394 A.2d at 237. This court therefore held that the State Escheator lacked

standing to dispute the last known address of the owner of the shares as it appeared on

Tampax’s records. Id. at 235.

Under Nellius, the State Escheator could not attempt to look behind the last known

address of a check recipient as it appears on AT&T’s records. Under Texas v. New

Jersey, the State Escheator can only seek to escheat property where (i) the last known

address is in Delaware or (ii) the company is domiciled in Delaware and (a) there is no

last known address or (b) the last known address is in a jurisdiction that does not escheat

property. The Escheat Law memorializes these rules. See 12 Del. C. §§ 1140, 1141(a).

The problem for AT&T is that the issue of standing recognized in Nellius applies

when the State Escheator seeks to escheat property, not when the State Escheator is

conducting an investigation to determine compliance with the Escheat Law. As with the

statute of limitations, Nellius is a defense to an enforcement action, not an investigation.

51 But as with the statute of limitations, the two issues are interrelated. Because the

State Escheator can never reach property that does not fall into one of the escheatable

categories, the State Escheator acts at the outer limit of its auditing authority when it

requests records involving that type of property. The State Escheator might have grounds

to request the information. For example, although the parties did not brief the issue, it

seems likely that Nellius and Texas v. New Jersey assume that a company has not

engaged in a pattern or practice of fraud when recording addresses on its books and

records. A legitimate concern with investigating fraud might warrant some inquiry into

records relating to property that does not fall into one of the escheatable categories. All

else equal, however, a broad request for information concerning property that does not

fall into any escheatable category makes it more likely that enforcing a subpoena would

be an abuse of this court’s process.

d. Records Of Cleared, Stopped, And Cancelled Checks

In what is becoming a refrain, the same reasoning applies to AT&T’s fourth

argument. The Subpoena requests all records of checks issued, whether they were

“cashed, voided, stopped, voided and reissued, [or] still outstanding.” Compl. Ex. J. Ex.

1. AT&T argues that as framed, the request encompasses property that was not

abandoned. According to AT&T, the Department’s request therefore exceeds the

authority granted to the State Escheator.

In the Motion, AT&T contends that the Department should not be permitted to

examine payments that have been voided or marked cleared. According to AT&T, the

Department is effectively presuming that checks which are neither voided nor cleared

52 within thirty days of issuance constitute unclaimed property. See Dkt. 10 at 39. AT&T

contends this presumption is unwarranted, asserting that the information request

somehow “adjudicate[s] property rights” and “impose[s] [the Department’s] own

accounting standards” on AT&T. Id. AT&T takes the extreme view that that the State

Escheator cannot seek information about “potential or disputed” escheatable property,

but “[o]nly ‘fixed and certain’ amounts clearly owed to a third party and abandoned by

that party.” Id. at 38.

Section 1171 gives the State Escheator the authority to conduct investigations “in

order to determine whether the person complied with [the Escheat Law].” 12 Del. C. §

1171(1). Determining compliance necessarily includes investigating potential or disputed

escheatable property.

In the abstract, it seems apparent why an auditor would seek records regarding

“still outstanding” checks. Those checks are by definition unclaimed. It likewise seems

apparent why the Department would seek records regarding voided or stopped checks,

because it is possible that those checks were voided or stopped because the property was

abandoned.

Similar reasoning does not apply to voided-and-reissued checks, because the

reissued check replaces the original voided check. Similar reasoning also does not apply

to cleared or cashed checks. Cleared checks are not unclaimed; they have been deposited.

Cashed checks are not unclaimed; they have been cashed.

During oral argument, the Department hinted at a reason for requesting these

records by analogizing its audit of AT&T to an IRS audit. If the IRS were examining

53 whether a taxpayer properly reported all of its taxable income, the IRS would not only

request documents about taxable categories of income. The IRS logically would request

information about all types of income so that it could verify how the taxpayer was

categorizing income. See Dkt. 30 at 44–45. The Department could be viewed as making

an analogous request not only for records about escheatable categories of property, but

also for records about property that has been categorized as non-escheatable. One can

hypothesize that the Department might want voided-and-reissued checks, cleared checks,

and cashed checks simply to verify the accuracy of AT&T’s categorizations. An

investigation of this type would fall within the authority granted to the State Escheator.

AT&T contends that permitting the State Escheator to investigate the voided

checks “shifts the burden of proof to AT&T to show that all checks issued were not

abandoned.” Dkt. 18 at 12; accord Dkt. 10 at 39. To the contrary, AT&T only has the

burden to produce records. The State Escheator has the burden to show that a check was

improperly voided because it was unclaimed. Only by doing so can the State Escheator

carry its “burden of proof as to the existence and amount of the [unclaimed] property and

its abandonment . . . by showing evidence of the unpaid debt or undischarged obligation

and passage of the requisite period of abandonment.” 12 Del. C. § 1175(a).

AT&T also contends that because it is already subject to regulatory and financial

oversight, this court should infer that “AT&T only voids a check because it is not owed[,]

not a true liability.” Dkt. 18 at 12 n.12. Mistakes happen. The State Escheator has broad

authority to examine AT&T’s records to determine compliance with the Escheat Law,

including the authority to determine if AT&T is properly voiding checks.

54 The request for records of “all checks issued” is certainly broad. It falls within the

authority granted to the State Escheator, but the expansive nature of the request will be

taken into account when evaluating whether enforcing the Subpoena would be an abuse

of this court’s process.

e. The Obligation To Produce A Spreadsheet

According to AT&T, the Rebates Request exceeds the authority granted to the

State Escheator because it asks AT&T to create documents that do not exist. AT&T

accepts that it has an obligation to produce documents, but it maintains that it does not

have any obligation to create new documents to satisfy the request. Dkt. 10 at 40. AT&T

misconstrues the request, which does not exceed the authority granted to the State

The Rebates Request asks AT&T to “[u]tilize the Excel file embedded [in the

letter] to organize [AT&T’s] responses to the” request to “[i]ndicate whether each [of

AT&T and the Affiliates] utilizes a [third party administrator] for issuance of rebates”

and to “[i]dentify by name and number all [general ledger] accounts used by [AT&T] to

track its rebate accrual and expense activity along with the period of time . . . each

account was utilized to track this activity.” Compl. Ex. J Ex. 2 at 2. The Rebates Request

also asks AT&T “[f]or each [general ledger] account identified . . . , [to] provide in Excel

format the individual transaction detail . . . posted to the [general ledger] account for the

time periods indicated.” Id. at 3. Finally, the request asks for “the associated annual

system screen print for each [general ledger] account identified . . . that will reconcile the

transaction detail provided . . . .” Id.

55 As a general rule, a party responding to a document request is “not required to

create documents that do not exist, simply for the purposes of discovery.” 8 That said, a

responding party may be required to query a database to extract and export information

when reasonably requested. See, e.g., Apple Inc. v. Samsung Elecs. Co. Ltd., 2013 WL

4426512, at *3 (N.D. Cal. Aug. 14, 2013); Google, 234 F.R.D. at 683. Querying a

database and extracting or exporting information does not constitute the creation of a new

document. It is how a party accesses an electronic records-keeping system in the ordinary

course of business.

Although the requests could have been framed more clearly, the court construes

the requests as asking AT&T to pull information from existing databases and other

records and provide that information in an electronically usable format. Dkt. 16 at 30–31.

That is a permissible request.

AT&T objects that the Rebates Request literally asks AT&T to “fill in the cells of

an excel schedule that Kelmar created.” Dkt. 10 at 40. The Escheat Law confers on the

State Escheator the power to conduct depositions. See Dkt. 30 at 63; see also 12 Del. C. §

1171(2) (permitting the State Escheator to “[t]ake testimony of a person, including a

person’s employee, agent, representative, subsidiary, or affiliate, to determine whether

8 Gonzalez v. Google, Inc., 234 F.R.D. 674, 683 (N.D. Cal. 2006); accord IQVIA, Inc. v. Veeva Sys., Inc., 2019 WL 6044938, at *6 (D.N.J. Nov. 14, 2019); Mervyn v. Atlas Van Lines, Inc., 2015 WL 12826474, at *5 (N.D. Ill. Oct. 23, 2015); Van v. Wal-Mart Stores, Inc., 2011 WL 62499, at *1 n.1 (N.D. Cal. Jan. 7, 2011); Alexander v. FBI, 194 F.R.D. 305, 310 (D.D.C. 2000).

56 the person complied with [the Escheat Law]”). The Department could exercise that

power, depose a series of AT&T officials, and have them provide the information so that

the Department could create the spreadsheet, but that would be a far more onerous

request. Asking AT&T to populate the spreadsheet is a more efficient means of reaching

the same result.

A request that asked a party to populate an Excel spreadsheet manually with

millions of transactions would be abusive. In this case, a reasonable interpretation of the

Rebates Request is that AT&T can export the information into an accessible format.

AT&T has not argued that the request is overly burdensome, only that it technically

exceeds the authority granted to the State Escheator. The request to query an electronic

database and export the information into a usable format such as an Excel spreadsheet

does not exceed the authority granted to the State Escheator.

f. Enforcement As An Abuse Of The Court’s Process

Even when an agency has the legal authority to issue an administrative subpoena

and seek the information it contains, a court can decline to enforce the subpoena if doing

so would result in “an abuse of the court’s process.” Powell, 379 U.S. at 58. There is no

bright-line test for abuse, nor is there an exclusive list of abusive practices. La Salle, 437

U.S. at 317 n.19, 318 n.20. A subpoena can be abusive if it is “issued for an improper

purpose, such as to harass the taxpayer or to put pressure on him to settle a collateral

dispute, or for any other purpose reflecting on the good faith of the particular

investigation.” Powell, 379 U.S. at 58. A subpoena can also be abusive if its demands for

57 information are “so obviously pretextual or insatiable” as to extend “beyond a legitimate

inquiry.” Marathon, 876 F.3d at 501.

One factor that can suggest abuse is if the agency appears to be “pursuing a claim

it knows it cannot win” on the merits. Wheeling-Pittsburgh, 648 F.2d at 127. Another

factor is when an agency supports its request for information with only “the bareboned

allegations needed for the government’s prima facie showing.” Gertner, 65 F.3d at 968.

Although such a showing may be “enough to satisfy the government’s [initial] burden,”

that tactical decision can “come back to haunt the proponent if it is not later

supplemented by more hearty fare once the challenger succeeds in [its rebuttal].” Id.

(citation omitted). “[M]inor irregularities . . . do not rise to the ‘abuse of process’ level,”

provided “that there is no question about the basic legitimacy of the agency’s

investigation.” In re EEOC, 709 F.2d 392, 402 (5th Cir. 1983).

Here, a combination of factors supports a finding that to enforce the Subpoena

would be an abuse of this court’s process. The Subpoena is expansive, both as to the time

period it covers and the subject matter it embraces. Temporally, the Department requests

records of rebates and checks going back to 1992. The Department did not provide any

rationale for seeking information going back so far. The period covered extends sixteen

years beyond the point at which the Old Statute of Limitations would prevent the State

Escheator from recovering unclaimed property. The Department did not offer any reason

why the Old Statute of Limitations would have been displaced by the New Statute of

Limitations, choosing merely to assert in ipse dixit fashion that the New Statute of

Limitations applied. Even if it did, the request extends five years beyond the point at

58 which the New Statute of Limitations would prevent the State Escheator from recovering

unclaimed property. The Department seems to be pursuing information about property

that it knows it cannot recover, and it has supported those requests with only bareboned

allegations.

Similar problems infect the subject matter of the Subpoena. Covering the full

temporal period, the Department asks for records regardless of whether the last-known

address as reflected on AT&T’s records was located in Delaware. Under Nellius and

Texas v. New Jersey, records with last-known addresses outside of Delaware are almost

certainly non-escheatable. Once again, the Department seems to be pursuing information

about property that it knows it cannot recover, and it failed to support those requests with

any creditable explanation.

Also covering the full temporal period, the Department asks for records of all

checks, regardless of whether they have been marked cashed, cleared, voided, stopped,

reissued, or still outstanding. This is a massive request for information, and one would

expect the Department to have articulated some rational basis for seeking it. As discussed

previously, it is of course true that an agency need not provide a reason for seeking

information, but when an agency makes so broad a request, it should anticipate having to

proffer some justification.

It seems evident that the Subpoena will sweep in a vast amount of irrelevant data.

At oral argument, the Department argued that it needs “the universe of documents,” to

answer questions like “How do you keep your records? Do our records check out with

your general ledger?” Dkt. 30 at 54–55. The Department thus sees even irrelevant

59 documents as relevant to “the audit” and “the audit process.” Id. at 55. That rationale has

no limiting principle. If the Department wishes to understand how AT&T keeps its

records, it could readily depose AT&T’s employees or officers.

This case is also part of a larger picture. “‘[I]n recent years, state escheat laws

have come under assault for being exploited to raise revenue rather than’ to safeguard

abandoned property for the benefit of its owners.” Marathon, 876 F.3d at 488 (quoting

Plains All Am. Pipeline L.P. v. Cook, 866 F.3d 534, 536 (3d Cir. 2017)). Two justices of

the Supreme Court of the United States have expressed concern that “states are ‘doing

less and less to meet their constitutional obligation to’ reunite property owners with their

property before seeking escheatment, even as they more aggressively go about classifying

property as abandoned.” Id. at 489 (quoting Taylor v. Yee, 136 S. Ct. 929, 930 (2016)

(Alito, J., joined by Thomas, J., concurring in denial of certiorari)). As of December

2017, “Delaware [was] ‘no exception[,] as unclaimed property ha[d] become Delaware’s

third-largest source of revenue[.]’” Id. at 489 (quoting Plains, 866 F.3d at 536).

The preparation of the Subpoena in this case provides cause for concern. The

Department delegated its investigation to Kelmar. The Rebates Request and

Disbursements Request appear on Kelmar letterhead, and Kelmar appears to have drafted

them and conducted the investigation. There is no indication that the Department had any

meaningful involvement in the investigation. The Department appears to have lent the

State Escheator’s investigatory authority to Kelmar to use as it sees fit.

Kelmar is compensated contingently. That arrangement benefits the State by

minimizing fixed costs, but it gives Kelmar an incentive to engage in aggressive

60 enforcement tactics. It potentially creates a pernicious incentive for Kelmar to serve

broad information requests and engage in expansive audits that impose substantial

burdens on companies, thereby inducing settlements that generate income for Kelmar.

The breadth of the Subpoena in this case is suggestive of such tactics.

The breadth of the Subpoena also suggests that Kelmar may be furthering its own

interests in other ways. Judicial decisions involving escheat indicate that Kelmar works

for other states under similar arrangements. See, e.g., Fidelity & Guar. Life Ins. Co. v.

Frerichs, 2017 WL 4863318, at *4 (C.D. Ill. Sept. 5, 2017) (examining Kelmar’s efforts

to conduct “a multi-state audit performed by several states, including Illinois”); Fidelity

& Guar. Life Ins. Co. v. Chiang, 2014 WL 6090559, at *1–2 (E.D. Cal. Nov. 13, 2014)

(examining Kelmar’s auditing practices on behalf of the Controller of the State of

California). Kelmar’s website describes the firm as “helping unclaimed property

departments across the United States.” About Kelmar, Kelmar,

https://www.kelmarassoc.com/about/ (last visited July 8, 2020). The fact that Kelmar

works for multiple states supplies a potential motivation for Kelmar’s insistence on

obtaining records for all checks and rebates, regardless of whether or not the last-known

address on AT&T’s records indicates that the property would be escheatable to Delaware.

Those records would be helpful to Kelmar in recovering property for other states, but

helping other states recover property is not a purpose of the Escheat Law.

The Department might have good explanations on these points, but it eschewed

the opportunity to provide them. The court is therefore left with the bare allegations of

61 the complaint. Based on those allegations, the court is forced to conclude that enforcing

the Subpoena as written would be an abuse of the court’s process.

The question therefore becomes whether to modify the Subpoena or quash it

entirely. AT&T has proposed an order that would narrow the Subpoena, but the proposed

limitations track the bright-line legal restrictions that AT&T claimed should confine the

State Escheator’s authority. This decision has rejected those bright-line limitations, and

the court is not convinced that the Department’s investigation needs to be constrained to

such a degree. It could be warranted, for example, for the Department to seek records for

a limited number of years predating the point when the statute of limitations would apply.

AT&T’s proposed form of order would rule that out.

Except for AT&T’s order, the parties have not provided the court with any basis to

narrow the Subpoena. The party to whom the court would prefer to give significant

deference—the Department—has declined to offer any guidance.

The better course is therefore to quash the Subpoena in its entirety. The

Department can pursue an appeal or craft a new subpoena. If the Department chooses to

issue a new subpoena, and if it becomes necessary to enforce it, the court hopes that the

parties will follow the procedures described by Chief Judge Seitz in the McCarthy case

and that the Department will be willing to assist the court in understanding its requests.

III. CONCLUSION

The request to stay this case in deference to the Federal Action is denied. The

request to dismiss this case for failure to join the Affiliates or to stay it pending joinder is

denied. The request to quash the Subpoena is granted. Within ten days, the parties shall

62 submit a final order, agreed as to form, that implements this ruling. If there are any

proceedings that are necessary to bring this action to a close at the trial level before such

an order can be entered, then the parties shall submit a joint letter identifying the issues

and proposing a path forward.