IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STATE OF DELAWARE, ) DEPARTMENT OF FINANCE, ) ) Plaintiff, ) ) v. ) C.A. No. 2018-0884-JRS ) UNIVAR, INC., ) ) Defendant. )
MEMORANDUM OPINION
Date Submitted: August 14, 2020 Date Decided: October 29, 2020
Melanie K. Sharp, Esquire, Martin S. Lessner, Esquire, Mary F. Dugan, Esquire and Michael A. Laukaitis, II, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Steven S. Rosenthal, Esquire, Tiffany R. Moseley, Esquire and John David Taliaferro, Esquire of Loeb & Loeb LLP, Washington, DC, Attorneys for Plaintiff State of Delaware, Department of Finance.
Michael P. Kelly, Esquire, David A. White, Esquire and Matthew J. Rifino, Esquire of McCarter & English LLP, Wilmington, Delaware and Jameel S. Turner, Esquire and James G. Ryan, Esquire of Bailey Cavalieri LLC, Columbus, Ohio, Attorneys for Defendant Univar, Inc.
SLIGHTS, Vice Chancellor Plaintiff, the State of Delaware, Department of Finance (the “State”), is in the
midst of a years-long examination of Defendant, Univar, Inc.’s compliance with
Delaware’s unclaimed property law. In connection with that examination, the State,
through its agent and chosen auditor, Kelmar Associates LLC (“Kelmar”), directed
Univar to supply certain documents. When Univar did not respond to that direction
to the State’s satisfaction, the State issued an administrative subpoena to Univar
under a new provision of the statutory scheme governing unclaimed property in
Delaware (the “Escheat Law”). The State now seeks a court order enforcing its
subpoena.
Univar maintains that it need not comply with the State’s subpoena on three
grounds. First, it argues that changes in Delaware’s Escheat Law, as amended in
2017 (the “New Law”), including the State’s newly authorized subpoena power,
cannot be applied retroactively to facilitate the State’s examination of Univar since
that examination was initiated well before the New Law was enacted.1 Second,
Univar argues the State’s inability to protect the confidentiality of Univar’s
information by ensuring that the Kelmar auditors assigned to the Delaware
examination will not share the information with other in-house auditors compels a
finding that enforcement of the subpoena would be unreasonable. Finally, Univar
1 See generally 12 Del. C. §§ 1130–90.
1 argues that the four specific categories of documents sought in the subpoena are too
broad to satisfy the prerequisites for enforcement of an administrative subpoena
under Delaware law.
As for Univar’s retroactivity argument, even though its examination of Univar
began before the New Law was enacted, I am satisfied the State has properly invoked
its subpoena power under the New Law on a prospective basis. And, while Univar’s
confidentiality concerns are well-founded, the State has adequately addressed those
concerns by consenting to certain conditions that will ensure Kelmar, as auditor,
cannot improperly disseminate Univar’s confidential documents. Finally, I disagree
with Univar’s characterization of the subpoena as unreasonably broad or
burdensome under Delaware law. Accordingly, I will enter an order directing
Univar to comply with the administrative subpoena, subject to strict confidentiality
protections.
I. BACKGROUND
The facts are drawn from the well-pled allegations in the State’s Complaint,
admissions in Univar’s Answer, documents incorporated in those pleadings by
reference and judicially noticeable facts.2
2 Verified Compl. (“Compl.”) (D.I. 1).
2 A. The Parties and Relevant Non-Parties
Delaware’s Department of Finance is responsible for enforcing Delaware’s
Escheat Law.3 Brenda Mayrack, as the State Escheator, is designated by statute and
by the Secretary of Finance as the principal enforcement officer.4
Defendant, Univar, is a Delaware corporation.5 As a Delaware corporation,
Univar is subject to examination under the Escheat Law as a potential holder of
unclaimed property.6
3 Compl. ¶ 3; 12 Del. C. § 1102. 4 Id. With no support and little fanfare, Univar has argued the State’s Complaint fails because “[n]either the Secretary [of Finance] nor its delegate are [named] parties to this Action.” Def.’s Answering Br. in Opp’n to J. on the Pleadings (“AB”) (D.I. 78) at 14 n.44. I disagree. The Complaint’s first line makes clear that the action is brought by “[t]he State of Delaware, Department of Finance (the “State”), by and through Brenda R. Mayrack, the State Escheator.” See generally Compl. Indeed, the State Escheator contemporaneously filed a Verification to the Complaint certifying its accuracy. See Verification, Dep’t of Fin. v. Univar, Inc., 2018-0884-JRS (Del. Ch. Dec. 7, 2018) (D.I. 1). Not only does Univar’s argument ignore the Complaint’s plain language, it ignores the purpose of Chancery Rule 17(a). That rule requires that actions be brought by the real party in interest to “protect[] against multiple litigation and the risk of double liability.” 6A CHARLES A. WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1553 (3d ed. 2004); see also White v. Metzer, 159 A.2d 788, 790 (Del. Super. Ct. 1960) (“This rule was taken verbatim from the Federal Rules of Civil Procedure . . . .”). Given the manner in which the Complaint is framed, there is no risk that Univar will be subjected to further claims from the Department of Finance or State Escheator based on the same claim being adjudicated here. 5 Compl. ¶ 1. 6 Compl. ¶ 2; 12 Del. C. § 1130(9).
3 Nonparty, Kelmar, is a private auditing firm specializing in unclaimed
property. It acts as an agent of the State to conduct unclaimed property examinations
of Delaware businesses under the Escheat Law.7
B. The Escheat Law
Delaware’s Escheat Law allows the State to acquire title to abandoned or
unclaimed property after the statutory waiting period has lapsed. 8 The statutory
waiting period differs depending on the type of property that has or potentially has
been abandoned.9
Delaware has had an Escheat Law for years, but the law was revised rather
substantially in 2017 in response to the United States District Court for the District
of Delaware’s 2016 decision in Temple-Inland, Inc. v. Cook.10 There, the court
determined that certain aspects of the pre-2017 Escheat Law (the “Old Law”) were
unconstitutional as applied.11
7 Compl. ¶ 10, Ex. A. 8 See 12 Del. C. §§ 1130–90; Dep’t of Fin. v. AT&T Inc., 2020 WL 3888310 (Del. Ch. July 10, 2020) (providing a thorough explication of Delaware’s Escheat Law). 9 12 Del. C. §§ 1133–34; Def.’s Answer to Pl.’s Verified Compl. ¶ 5 (D.I. 71) (describing the purpose and operation of the Escheat Law). 10 Temple-Inland, Inc. v. Cook, 192 F. Supp. 3d 527 (D. Del. 2016). 11 Id. at 550 (holding that the State’s application of the Old Law violated substantive due process because “defendants: (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 Section 1155 except to raise revenue; 4 The New Law, like the Old Law, authorizes the State Escheator to examine
records and take testimony to determine compliance with the Escheat Law.12 Unlike
the Old Law, however, the New Law now expressly authorizes the State Escheator
to “[i]ssue an administrative subpoena to require that the records . . . [or] testimony
specified . . . be provided.”13 The subpoena may be enforced through “an action in
the Court of Chancery.”14
C. Procedural History
In December of 2015, the State provided notice of its intent to examine
Univar’s books and records to determine compliance with the Escheat Law.15
On September 23, 2016, Kelmar sent its initial document request to Univar,
requesting: (1) certain “Returns,” (2) “Detailed State Apportionment Schedules,”
(3) a list of “Cash Managers, Shared Services Entities, [and] Common Paymaster
Entities” and (4) copies of “Prior Audits or [Voluntary Disclosure Agreements].”16
(v) employed a method of estimation where characteristics that favored liability were replicated across the whole, but characteristics that reduced liability were ignored; and (viii) subjected plaintiff to multiple liability”). 12 12 Del. C. § 1171(1), (2). 13 12 Del. C. § 1171(3). 14 12 Del. C. § 1171(4). 15 Compl. ¶ 9, Ex. A. 16 Compl., Ex. B.
5 After Univar did not respond to the document request to the State’s satisfaction, the
State issued the administrative subpoena at issue on October 30, 2018, directing
Univar to provide the requested documents by December 3, 2018.17 Rather than
respond to the subpoena, Univar sued the Secretary of Finance, State Escheator and
assistant director of the Department of Finance on December 3, 2018, in federal
court.18 The gravamen of that complaint is that the New Law is unconstitutional on
its face and as applied to Univar.19
The State filed this action to enforce the subpoena on December 7, 2018.20
I granted Univar’s motion to stay in favor of the first-filed federal action on April 8,
2019, after concluding that Univar’s constitutional challenges to the New Law,
including the State’s subpoena power, should be decided before I addressed the
State’s enforcement action on the merits.21 The federal court granted in part and
17 Compl. ¶ 13, Ex. C. 18 Compl. ¶ 14; Def.’s Opening Br. in Supp. of Mot. to Dismiss or Stay (D.I. 7), Ex. A (“District Court Compl.”). 19 District Court Compl. at 35–37 (seeking in its Prayer for Relief, among other things, a declaration that the New Law, on its face and as applied to Univar, violates the Fourth Amendment’s search and seizure clause and the Fourteenth Amendment’s due process clause). 20 (D.I. 1). 21 Dep’t of Fin. v. Univar, Inc., C.A. No. 2018-0884-JRS (Del. Ch. April 18, 2019) (ORDER) (D.I 32); Dep’t of Fin. v. Univar, Inc., C.A. No. 2018-0884-JRS (Del. Ch. Apr. 8, 2019) (TRANSCRIPT) (D.I. 35).
6 denied in part the State’s motion to dismiss on September 17, 2019.22 The court then
stayed the federal action to allow this Court to decide whether the subpoena is
enforceable as a matter of Delaware law.23 After I lifted the stay of this action,
Univar moved to dismiss again, this time on ripeness grounds.24 In a Letter Opinion
dated May 21, 2020, I determined that the State had well pled a justiciable claim for
enforcement of the subpoena and denied the motion to dismiss.25
The State moved for judgment on the pleadings on July 10, 2020. That motion
has been argued and submitted for decision.26
22 Univar, Inc. v. Geisenberger, 409 F. Supp. 3d, 273, 273 (D. Del. 2019). 23 Id. at 284–85. 24 Def.’s Opening Br. in Supp. of Mot. to Dismiss Pl.’s Verified Compl. (D.I. 51) at 2. 25 Dep’t of Fin. v. Univar, Inc., 2020 WL 2569703, at *5 (Del. Ch. May 21, 2020) (“Univar MTD”). 26 Dep’t of Fin. v. Univar, Inc., C.A. No. 2018-0884-JRS (Del. Ch. Aug. 10, 2020) (TRANSCRIPT) (D.I. 86.) (“JOP Tr.”).
7 II. ANALYSIS
The State’s motion invokes Court of Chancery Rule 12(c).27 Judgment on the
Pleadings is appropriate “where there are no material issues of fact and the movant
is entitled to judgment as a matter of law.”28 “On a Rule 12(c) motion, the Court
may consider documents integral to the pleadings, including documents
incorporated by reference and exhibits attached to the pleadings, and facts subject to
judicial notice.”29 Here, even though the Complaint is light on facts, as explained
below, the State’s request for relief is not fact intensive, and the few facts that are
relevant to the determination of whether to enforce this subpoena are not subject to
“reasonabl[e] question[].”30
As noted, Univar has argued the State improperly seeks to enforce the New
Law retroactively and cannot, in any event, ensure that the documents it obtains will
27 Because the State has not promulgated rules or regulations regarding the procedure to be followed in subpoena enforcement actions under 12 Del. C. § 1171(4), I previously determined that the Court of Chancery rules will apply to all aspects of these proceedings. Dep’t of Fin. v. Univar, Inc., C.A. No. 2018-0884-JRS, at 22 (Del. Ch. June 23, 2020) (TRANSCRIPT) (D.I. 75.); see also State ex rel Koster v. Charter Commc'ns, Inc., 461 S.W.3d 851, 853 (Mo. Ct. App. 2015) (ordering trial court to enter judgment on the pleadings enforcing administrative subpoena issued by the state Attorney General); Houston Indus. v. Kaufman, 1996 WL 580418, at *1–2, 4–5 (S.D. Tex. Mar. 7, 1996) (granting judgment on the pleadings to enforce a DOJ administrative subpoena). 28 Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 136 (Del. Ch. 2009). 29 Jiménez v. Palacios, 2019 WL 3526479, at *8 (Del. Ch. Aug. 2, 2019). 30 D.R.E. 201(b) (codifying Delaware’s judicial notice doctrine).
8 be properly protected from dissemination. I address these threshold issues first
before turning to the enforceability of the subpoena under Delaware law.31
A. The State is Not Retroactively Applying the New Law
Univar argues the State has no authority to issue the subpoena because
Section 1171(3), which authorizes the subpoena, was not in effect when the State’s
examination began.32 The State acknowledges the New Law was enacted after it
commenced its examination of Univar, but notes that its subpoena was issued well
after the New Law went into effect.
At Sections 1172(b) and 1172(c), the New Law makes clear that the
procedures outlined in the statute are available for examinations authorized prior to
31 The State argues that Univar has waived its England reservation as relates to its federal constitutional claims by asserting those claims (or defenses) here. England v. Louisiana State Board of Medical Examiners, 375 U.S. 411 (1964); Pl.’s Opening Br. in Supp. of J. on the Pleadings (“OB”) (D.I. 74) at 43. The so-called England doctrine, in simplified terms, allows a party who brings state claims in state court to reserve its related federal claims (including constitutional claims) for adjudication in federal court without waiving those claims. Id. at 422. I previously held in this case, and reiterate here, that the State’s waiver and abstention arguments, principally based on federal law, are best left for the federal court to decide. Univar MTD, 2020 WL 2569703, at *5 (“[T]hat decision is properly left to the District Court.”). Not surprisingly, “the State has pointed to no authority where a Delaware state court took it upon itself to decide whether a party had preserved constitutional arguments for presentation in a federal court.” Id. Moreover, I disagree that Univar has presented constitutional claims or defenses here, and, as will be evident, my decision is based entirely on Delaware law. 32 12 Del. C. § 1171(3).
9 July 22, 2015, and February 2, 2017, respectively.33 These provisions reveal that the
General Assembly intended that the State could issue subpoenas in aid of
examinations that predated enactment of the New Law. Moreover, a statute may not
be applied retroactively only to the extent it “change[s] the legal consequence of acts
completed before it[s] effective date.”34 It is indisputable that the State had the
power to issue administrative subpoenas before the New Law went into effect, albeit
under a differently worded, and perhaps less precise, statute.35 Thus, there is no
retroactivity problem here.36
33 12 Del. C. § 1172(b) (“for any examination authorized by the State Escheator on or before July 22, 2015 . . .”); § 1172(c) (“For any examination authorized by the State Escheator before February 2, 2017 . . .”); see also 12 Del. Admin. C. § 104-2.3 (“The effective date of these Regulations shall be the date they are adopted, and the standards contained therein shall apply to all examinations commenced after that date. To the extent practical, the Regulations shall apply to any ongoing examinations that commenced prior to the effective date of these Regulations. . . .”) (emphasis added). 34 Miller v. Florida, 482 U.S. 423, 430 (1987). 35 See 12 Del. C. § 1155 (2015) (“The State Escheator may at reasonable times and upon reasonable notice examine the records of any person or business association or organization to determine whether the person has complied with any provision of this chapter and may by summons require the attendance of any person having knowledge in the premises, and may take testimony and require proof material for the investigation, with the power to administer oaths to such person or persons . . . .”). 36 Univar cites In re McGowen in support of its argument that “a subpoena based on statutory authority that was not in force when the investigation commenced could never be sufficiently grounded in statutory authority as required by law.” AB at 16–17 (citing In re McGowen, 303 A.2d 645, 647 (Del. 1973)). McGowen does not say that. Rather, the court determined an administrative subpoena issued by the Attorney General was unenforceable because it was technically defective (it was returnable to a police officer not the Attorney 10 B. The State Meets the New Law’s Confidentiality Requirements
From the outset of this litigation, Univar has maintained that the State, and
more particularly its hired auditor, Kelmar, will not keep its sensitive business
information confidential should the Court order Univar to comply with the subpoena.
According to Univar, because Kelmar represents other states in their unclaimed
property examinations of Univar, the Kelmar auditors assigned to the Delaware
examination will likely share the information they obtain through the Delaware
subpoena with auditors examining Univar on behalf of other states.37 This, in turn,
may result in the dissemination of Univar’s sensitive information since many states
lack the privacy protections that are featured in Delaware’s New Law.38 According
to Univar, under these circumstances, the State cannot demonstrate that it will
comply with the confidentiality requirements set forth in Sections 1174 and 1189 of
the New Law and, thus, cannot meet the statutory prerequisites for enforcement of
the subpoena.39
General) and because it was not issued to further an Attorney General’s or grand jury investigation. Id. The court said nothing of retroactivity. 37 AB at 26 (“Kelmar’s receipt of confidential information in the Examination is synonymous with and identical to that information [being] provided to all of the [seventeen] states that Kelmar represents . . . .”). 38 AB at 27. 39 AB at 21–28; 12 Del. C. § 1174(1) (emphasizing that records obtained in an unclaimed property examination are “subject to the confidentiality and security provisions of § 1189 of this title”); 12 Del. C. § 1174(2) (providing that records obtained in a Delaware 11 Univar’s concerns are well-founded.40 Kelmar represents various states in
unclaimed property examinations throughout the country and there is no evidence in
the record regarding how Kelmar staffs its audits or whether Kelmar allows auditors
conducting an examination in one state to work on an examination of the same
subject entity in another state. Nor is there any indication that the other states that
might examine Univar, through Kelmar, impose the same statutory privacy
protections that are in place in Delaware under the New Law. Notwithstanding these
legitimate concerns, I am satisfied this Court possesses the authority to require that
Univar provide the requested material to the State subject to a confidentiality order
that requires the State Escheator and her designated auditor to follow Delaware
confidentiality laws.41
examination may be shared with examiners in another state only if such examiners are required to maintain records confidential to the same extent required by § 1189); 12 Del. C. § 1189 (imposing detailed requirements upon the State Escheator to maintain the confidentiality of documents obtained in examinations). 40 AB at 24 (“(1) Kelmar is conducting an audit of Univar on behalf of seventeen states, including Delaware; (2) Kelmar is acting as agent for all seventeen states simultaneously; (3) Kelmar will conduct the Examination using the same audit team; (4) the same audit team from Kelmar will receive confidential information on behalf of all seventeen states; and (5) the same audit team from Kelmar will review and analyze the confidential information it is provided on behalf of seventeen states.”); id. (“Kelmar cannot ‘unsee’ confidential information obtained from the Examination.”). 41 Univar MTD, 2020 WL 2569703, at *4 (“This Court has the authority, backed by its inherent contempt powers, to order that any books and records Univar produces in response to the subpoena be subject to a confidentiality order that complies with (and imposes) Delaware law.”).
12 Apparently recognizing the Court was inclined to impose confidentiality
conditions whether the State agreed or not, in submissions to the Court in support of
this motion and again at the hearing on the motion, the State represented that
“the Kelmar people now who are working on the Delaware-only audit, will not be
working on the audit for any other state, and will, in fact, wall themselves—an
ethical walling off of what they are doing for Delaware from anybody else.”42 This
arrangement, coupled with a court order that will require everyone involved in the
Delaware examination of Univar to comply with Delaware’s confidentiality laws,
answer the concerns Univar has raised about confidentiality.43
C. The Subpoena is Enforceable Under Powell
As a general matter, Delaware courts look to the factors laid out by the United
State Supreme Court in United States v. Powell when deciding whether to enforce
42 JOP Tr. at 30–31 (“I’m going to say this is a representation that the State is making in this case, that this is what they and Kelmar will do in this case.”); Letter from Martin Lessner to Vice Chancellor Slights 4 (Aug. 7, 2020) (D.I. 83) (“Kelmar will maintain ethical walls to insulate its personnel working on the Delaware-only Univar examination from working on a Univar examination for another state.”). I note that the State has maintained throughout these proceedings that there is no ongoing multi-state examination of Univar. See OB at 38; Pl.’s Reply Br. in Supp. of J. on the Pleadings (“RB”) (D.I. 80) at 23; Univar MTD, 2020 WL 2569703, at *3. Given the protections that will be imposed by my implementing order, I need not inquire whether the State has accurately portrayed the existence or extent of other states’ examinations of Univar’s compliance with their respective unclaimed property regimes. 43 See 12 Del. C. § 1189(d) (“Any violation of this section shall be a misdemeanor, punishable upon conviction by a fine not to exceed $1,000, or imprisonment not to exceed 6 months, or both.”).
13 an administrative subpoena.44 In Powell, the Court addressed the enforceability of
an administrative subpoena issued by the Internal Revenue Service and held that an
agency’s subpoena will be enforced when it demonstrates: (1) “the investigation will
be conducted pursuant to a legitimate purpose,” (2) “the inquiry may be relevant to
the purpose,” (3) “the information sought is not already within the [agency’s]
possession” and (4) “the administrative steps required . . . have been followed.”45
If the agency issuing the subpoena meets these elements, then the burden
shifts to the objecting party to show that enforcement of the subpoena would be an
abuse of the Court’s process.46 “Such an abuse would take place if the summons
had been issued for an improper purpose, such as to harass . . . or for any other
purpose reflecting on the good faith of the particular investigation.”47 This
necessarily involves a consideration of reasonableness, such as whether the requests
are specified with “reasonable particularity,” “are relevant to the investigation” and
do not “cover an unreasonable amount of time.”48
44 United States v. Powell, 379 U.S. 48, 57–58 (1964); Univar MTD, 2020 WL 2569703, at *4 (applying Powell); AT&T, 2020 WL 3888310, at *14 (same); Bob’s Discount Adult Books, Inc. v. Att’y Gen., 1983 WL 471443, at *2–3 (Del. Super. Mar. 24, 1983) (same). 45 Powell, 379 U.S. at 57–58. 46 Id. at 58. 47 Id. 48 In re Blue Hen Country Network, 314 A.2d 197, 201 (1973); see also AT&T, 2020 WL 3888310, at *16 (“This decision therefore concludes that Delaware law contemplates 14 The subpoena at issue here seeks four categories of documents. I take up each
category in turn to assess whether the State has demonstrated its entitlement to the
documents under Powell.
1. Category 1: “Returns”
The State has directed Univar to “[p]rovide the following sections of the 2014
filed Federal Form 1120 for Univar, Inc. If Univar files multiple Federal Form 1120s
or separate partnership returns, provide the requested corresponding information for
each 2014 filing.”49 The request then narrows the documents within this category to
six specific forms or financial records: (a) “Form 1120, pp. 1 to 5.”; (b) “Form 1125-
A Cost of Goods Sold.”; (c) “Form 851 Affiliations Schedule.”; (d) “Consolidating
Income Statement . . . .”; (e) “Consolidating Balance Sheet . . . .”; and
(f) “Consolidating Cost of Goods Sold schedule . . . .”50
an inquiry into the reasonableness of an administrative subpoena under the Escheat Law, albeit one that is deferential to the State Escheator.”); Okla. Press Pub. Co. v. Walling, 327 U.S. 186, 209 (1946) (explaining that the consideration of reasonableness “cannot be reduced to formula”). The New Law embraces this reasonableness inquiry in other contexts by providing that a subpoena may be issued “at reasonable times and on reasonable notice.” 12 Del. C. § 1171. 49 Compl., Ex. C. 50 Id.
15 Univar has not directly addressed Category 1 in its brief, and for good
reason.51 The request for basic financial information in this category easily satisfies
the Powell elements. An examination of compliance with the Escheat Law is a
legitimate purpose, as evidenced by the fact that it is expressly authorized by statute.
And, as explained by the State, the documents within this category will allow the
State Escheator “to identify legal entities that are likely to have unclaimed property
reportable to Delaware.”52 The State does not appear to have any of these documents
in its possession, the request targets a single year (2014) and the State has followed
proper steps to secure the information.53
2. Category 2: “Detailed State Apportionment Schedules”
In the second request, the State directs that Univar:
Provide the consolidated sales, property, and payroll state tax apportionment detail for all states for Univar, Inc. and affiliates for tax year 2014 (used in preparation of the corporate state income tax returns). Provide the applicable apportionment factor amounts by legal entity, by state, in electronic format. This information should segregate and identify all corporate entities as well as those disregarded for federal/state tax purposes.54
51 AB at 29. 52 OB at 27. 53 Id. at 31. 54 Compl., Ex. C.
16 Here again, there is no suggestion the State already possesses the requested
information. Thus, the question of enforceability turns on relevancy and
reasonableness. According to the State, this request will “allow [it] to identify legal
entities that are likely to have unclaimed property reportable to Delaware” and
“allow Delaware to narrow the scope of the examination in order to eliminate any
entities unlikely to have reportable property.”55 Univar counters that because the
request applies to “apportionment detail[s] for all states,” it is overly broad and
irrelevant.56 I disagree. First, it is important for the State Escheator to understand
whether the address of a property owner is known by Univar in order to assess
Delaware’s position of priority with respect to the property.57 Second, contrary to
Univar’s suggestion, both federal and Delaware cases establish that there is no
requirement that the issuing agency demonstrate probable cause, or some similar
standard of proof, to justify the request for documents. The agency need only
demonstrate that the documents “may be relevant to the purpose of the inquiry.”58
55 OB at 27. 56 AB at 29–30 (emphasis in original). 57 Texas v. New Jersey, 379 U.S. 674, 682 (1965). 58 See Powell, 379 U.S. at 57 (“Reading the statutes as we do, 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.”); Blue Hen, 314 A.2d at 201 (“Blue Hen fails to point to any case that would support its position that subpoenas duces tecum must be supported with probable cause.”); AT&T, 2020 WL 3888310, at *18 (“A statute certainly could require an agency to provide some 17 Finally, the Court’s order will ensure that Kelmar will preserve the Delaware
examination’s confidentiality even as the State seeks information that may be of
relevance to examinations conducted by other states. Because this request seeks
relevant information, the second Powell factor is satisfied.
Enforcing this request is also reasonable. Like the first request, this second
request is stated with particularity. Substantively, it is clear what is being requested,
and temporally, the request seeks documents limited to a single tax year. There is
no indication of bad faith or an improper purpose. The simple fact that this request
seeks information “for all states” does not make it unreasonable—meaning there
would be no abuse of the Court’s process if the subpoena seeking this information
were enforced.59
3. Category 3: “Cash Managers, Shared Services Entities, Common Paymaster Entities”
The State’s third request directs that Univar:
Provide a list of all legal entities from the corporate organizational chart which pay liabilities (e.g., A/P, payroll, rebates, or refunds) on behalf of other legal entities. For each entity identified, provide a list of all entities involved in the arrangement, and the date that each entity began participating in the arrangement.60
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.”). 59 Compl., Ex. C; see Blue Hen, 314 A.2d at 201. 60 Compl., Ex. C.
18 Similar to the second category of documents, this third request also turns on
relevancy and whether enforcement would be an abuse of this Court’s process. As to
relevancy, the State explains that “sophisticated entities frequently consolidate
payroll, accounts payable and receivables in a single shared service entity.”61
“If Univar has a shared service entity, the State may be able to narrow any
subsequent requests for information to that shared service entity.”62 This clearly is
connected to the State’s chief goal of determining Univar’s compliance with the
Escheat Law.
Given the request’s limited scope, it would likewise not abuse this Court’s
process to require Univar to provide responsive documents. While Univar argues
this request is “not sufficiently limited in time,” I disagree.63 The plain language of
the request makes clear that Univar need not produce documents about legal entities
that no longer exists. The State expects “only [] information about cash management
and shared services as it exists now.”64 Because this request is temporally and
substantively specific, relevant and not a product of bad faith, it is reasonable.
61 OB at 27–28. 62 Id. at 28. 63 AB at 31. 64 OB at 29.
19 4. Category 4: “Prior Audits or [Voluntary Disclosure Agreements]”
Request four directs Univar to “[p]rovide copies of reports and work papers,
including demands for payment and release agreements, from any prior unclaimed
property audits or Voluntary Disclosure Agreements with the state of Delaware.”65
While the request implies an indefinite time period, as explained below, it is cabined
by the Escheat Law.
The State maintains that information related to prior audits and voluntary
disclosure agreements (“VDAs”) is relevant because it “will assist the State
(and Univar) by eliminating periods of time for which liability has already been
determined and assessed.”66 “It may also eliminate certain Univar entities from
review, particularly if the corporate structure has changed over time through
acquisitions or spinoffs.”67 Particularly at this early stage, that type of information
is sufficiently tied to the purpose of determining compliance to meet the relevancy
requirement.
Univar asserts the request is irrelevant to the extent the statute of limitations
in the Old Law time-bars the underlying claims. While the State assumes the New
Law’s 10-year statute of limitations period applies, that may well not be correct.
65 Compl., Ex. C. 66 OB at 28. 67 Id.
20 The “current examination” start date governs the statutory period since
“the commencement of the investigation would toll the statute of limitations.”68
Here, the State’s examination of Univar began in 2015, well before the General
Assembly enacted the New Law.69
Beyond pegging the statute of limitations analysis to the Old Law, however,
it is difficult at this stage to proceed further in that analysis without more
information. The Old Law tied the imposition of the statute of limitations to the
filing of annual reports, only permitting the State to recover unreported unclaimed
property if the State Escheator issued a notice of deficiency for an annual report.70
A three-year statutory period applied for the State to issue a notice of deficiency,
extended to six-years 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
68 AT&T, 2020 WL 3888310, at *20. 69 Compl. ¶ 9. At first glance, there might appear to be inconsistency in my determination that the State may rely upon the New Law’s subpoena authority but may not rely upon the New Law’s statute of limitations. On closer inspection, however, there is no inconsistency. The New Law clarified but did not alter a right belonging to the State Escheator that already existed. The New Law’s statute of limitations is just that—new. The State’s authority to examine a subject for compliance with the Escheat Law must be governed by the statute of limitations in effect at the time the examination was commenced. See AT&T, 2020 WL 3888310, at *20–21. Here, given that the Old Law was in effect when the State began its investigation of Univar in 2015, that law’s statute of limitations controls. 70 12 Del. C. § 1142 (2015); 73 Del. Laws ch. 417, § 1 (2002); AT&T, 2020 WL 3888310, at *19.
21 property disclosed in [the] report.”71 Given the early stage of the examination here,
no information has been provided as relates to the filing of annual reports or their
alleged deficiencies.72
The abandonment period, or period of dormancy, is likewise unclear. The
period of dormancy dictates at what point the property becomes escheatable; only
when the property is deemed abandoned does the statutory period begin to run.73
In AT&T, Vice Chancellor Laster noted that, as relevant to the stage of that
examination, the checks and rebates the State sought to claim had a five-year
statutory period.74 Here, it is uncertain at this stage of the examination precisely
which types of unclaimed property the State might identify.
More to the point, even if the statutory limitations period was clear, there is
no “bright-line limitation on an agency’s authority to conduct an investigation based
71 73 Del. Laws ch. 417, § 1 (2002); AT&T, 2020 WL 3888310, at *19. 72 In AT&T, decided at a more advanced stage of the examination, Vice Chancellor Laster was able to observe that it “appears correct there are reports covering years for which the Old Statute of Limitations would bar the State Escheator from seeking to recover escheatable property.” AT&T, 2020 WL 3888310, at *21. Given that this examination, while years old, is still in its nascent stages, I cannot make that observation here. 73 12 Del. C. § 1198(9) (2016) (“‘Period of dormancy’ means the full and continuous period . . . during which an owner has ceased, failed or neglected to exercise dominion or control over property . . . .”). 74 AT&T, 2020 WL 3888310, at *20 n.6. Importantly, the period of dormancy is different depending on the unclaimed property at issue. For example, a traveler’s check is not presumed abandoned until 15 years after it was issued, but a money order is presumed abandoned after 5 years. 12 Del. C. §§ 1133.
22 on the running of the statute of limitations that would apply if the agency sought a
remedy.”75 While the statute of limitations issue can certainly prove relevant in
assessing whether the State abused the court’s process, it is not determinative as to
the relevancy of the State’s request.76 In contrast to the court’s thorough analysis in
AT&T, I am unable to discern at this stage of the State’s examination whether
“the State Escheator could reach property from a given year.”77 Before such a
determination could be made, the State Escheator (and the Court) would require the
information the State seeks here.78
Finally, Univar argues that prior audit and VDA information must already be
in the State’s possession since it would have been supplied in connection with past
examinations.79 The State counters that it still needs this information to help Univar
by “confirm[ing] whether and to what extent the holder has resolved historical
liability in a prior exam or VDA and [] verify[ing] that the State has complete
75 Id. at *21; see also EEOC v. Del. State Police, 618 F. Supp. 451 (D. Del. 1985) (“It 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.”). 76 AT&T, 2020 WL 3888310, at *22. 77 Id.; see also id. at *27 (“The Department seems to be pursuing information about property that it knows it cannot recover . . . .”). 78 Univar does not dispute that the documents requested here had already been produced in AT&T. JOP Tr. at 54 (“There was never a dispute about it.”). 79 AB at 31 n.108.
23 records, should remediation become necessary.”80 It further notes that the Secretary
of State has administered a VDA program since 2013, separate and apart from the
Department of Finance, and therefore there may be VDA records outside of the State
Escheator’s reach.81 Finally, the State asserts that in its transition from paper to
digital information in 2015, it is possible that certain records regarding past
examinations were not retained. Since the point of this request is to ensure that the
State Escheator acts with knowledge of past examinations when conducting this
examination, the production of these records inures to Univar’s benefit.82
While it is true that Powell requires the Court to consider the extent to which
information sought in a subpoena may be available to the state agency from other
sources, in this instance, I am satisfied this factor should not be dispositive. The
State has demonstrated the information it seeks in this fourth category will assist the
State Escheator in ensuring that the State acts consistently with past examinations of
Univar and that it does not unnecessarily expand the scope of this examination. The
request is not overly burdensome and I see no reason to conclude it is the product of
bad faith.
80 RB at 15 n.2. 81 Id. According to the State, access to information possessed by other state agencies would be shielded from the State Escheator by “ethical walls.” RB at 14. 82 RB at 15 (“[I]t is only to Univar’s benefit to provide any information about other audits or VDAs.”).
24 *****
The four requests, when considered together, are enforceable and lack any
semblance of abusing this court’s process. Only the second category’s request for
information from all states and the fourth category’s lack of time boundaries could
even conceivably create an aura of unreasonableness. Whether considered together
or individually, neither triggers the concerns that animated the Court’s concerns in
Powell.
D. Univar’s Concerns Regarding Future Abuses Do Not Justify Denying Enforcement of this Subpoena
As noted, the examination at issue in AT&T had progressed significantly
further than the State’s examination of Univar at issue here. Indeed, AT&T had
already produced most, if not all, of the information the State seeks from Univar by
the time the State sought to enforce its subpoena against AT&T. 83 In a
demonstration of perhaps understandable pessimism, Univar argues that it “will be
subjected in the near future to the overly broad and irrelevant Kelmar-inspired
83 AT&T, 2020 WL 3888310, at *2; JOP Tr. at 54 (“In AT&T, the documents that Univar’s complaining that they’re not going to produce, [the same documents] were already produced much earlier in the [AT&T] examination.”).
25 requests that were imposed on AT&T.”84 That may or may not prove true.85 In this
case, I must set my focus on the subpoena the State seeks to enforce now.
For reasons stated here, that subpoena complies with our law and is enforceable.
III. CONCLUSION
For the foregoing reasons, the State’s Motion for Judgment on the Pleadings
is GRANTED, with the understanding that the implementing order will include the
strict confidentiality protections outlined above. The parties shall confer and submit
a proposed implementing order, or competing proposed orders, within ten (10) days.
Once entered, the effect of that Order will be stayed pending the resolution of
Univar’s claims in federal court.
84 AB at 33. 85 For what it is worth, should the State issue to Univar the kind of subpoena it directed to AT&T, and then seek to enforce that subpoena in the same posture it presented the AT&T subpoena to Vice Chancellor Laster, it will likely meet the same result.