The US Supreme Court Tuesday released a unanimous opinion holding that certain abandoned financial instruments that are similar to money orders may be recovered by the state in which they were purchased. In Delaware v. Pennsylvania, the court ruled that these abandoned financial instruments, worth hundreds of millions of dollars, fell under the definition of “money order” in the Disposition of Abandoned Money Orders and Travelers Checks Act of 1974 (Federal Disposition Act or FDA), which regulates the escheatment of unclaimed money orders.
The case centered on a dispute between Delaware and 30 other states involving MoneyGram Payments Systems, a money transfer company incorporated in Delaware. MoneyGram’s services included selling “official checks” to customers for the face value of the check plus a transaction fee. The customer could then cash the check at a bank, which MoneyGram reimburses. However, if the check is never cashed, MoneyGram retains the funds as unclaimed property. Until now, MoneyGram operated under the assumption that the FDA did not apply to these instruments and transferred the unclaimed funds to Delaware.
Pursuant to the FDA, “a money order… or other similar written instrument (other than a third party bank check)” should generally escheat to the state in which it was purchased. However, under common law, abandoned funds that do not fit this definition escheat to the state in which the company holding the funds is incorporated.
A group of 30 other states claimed the FDA applied to MoneyGram’s products and thus the abandoned proceeds should escheat to the state where the financial instruments were purchased. Delaware argued that the funds were not money orders or similar instruments and should go to them as MoneyGram’s state of incorporation.
Previously, a special master concluded that the financial instruments were “third party bank check[s]” and therefore excluded by the FDA. The court disagreed. In her first opinion since joining the court in June 2022, Justice Ketanji Brown Jackson sided with the 30 states. She concluded that the financial instruments were covered by the FDA because they were similar to money orders. That is, they operated in a similar manner to money orders, which are “prepaid (or “purchased’) financial instrument[s] used to transmit money to a named payee.” Justice Jackson wrote:
When a financial product operates like a money order—i.e., when it is a prepaid written instrument used to transmit money to a named payee—and when it would also escheat inequitably solely to the State of incorporation of the company holding the funds under our common-law rules due to recordkeeping gaps, then it is sufficiently “similar” to a money order to fall presumptively within the FDA.
Unclaimed property represents a large source of revenue for states. The total value of MoneyGram official checks purchased outside of Delaware is estimated to be around $400 million.