Marathon Petroleum Corp. v. Secretary of Finance Ex Rel. Delaware
876 F.3d 481
| 3rd Cir. | 2017Background
- Marathon Petroleum and Speedway (Delaware corporations with Ohio principal places of business) were audited by Delaware’s State Escheator (via third-party auditor Kelmar) for unredeemed stored-value gift cards issued by their Ohio-incorporated subsidiaries.
- Contracts between the companies and the Ohio subsidiaries recited that the Ohio subsidiaries were solely liable for card values; the subsidiaries had no Delaware presence and purchaser addresses were not collected.
- Delaware expanded a multi-year audit to probe whether the gift-card funds were held by the parent companies (potentially escheatable in Delaware); Kelmar threatened referral to the Attorney General if cooperation failed.
- Marathon and Speedway sued in federal court seeking declaratory and injunctive relief, arguing Delaware’s audit and escheat scheme are preempted by federal common law escheat-priority rules (the Texas trilogy) and thus Delaware lacks authority to audit; they also raised a Fourth Amendment claim.
- The district court dismissed (holding private parties could not enforce the Texas priority rules), found the dispute ripe; the Third Circuit affirmed private-party standing, clarified ripeness (audit-authority challenge ripe; scope-of-audit challenge unripe), and vacated to make dismissal without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether private parties may invoke the Texas trilogy (federal common law priority) to challenge a state escheat/audit | Marathon/Speedway: private parties have a federal right to enforce the Supreme Court’s priority rules to avoid double liability and protect property rights | Delaware: Texas trilogy governs interstate disputes between states; private parties lack a federal cause of action and holders have no property interest to vindicate | Held: Private parties can bring a federal common-law claim enforcing the Texas priority rules; denying such a cause of action would undermine uniformity and protectees’ rights |
| Ripeness of preemption claim challenging Delaware’s audit authority | Marathon/Speedway: aggressive audit and referral threats create present injury; claim ripe | Delaware: no enforcement compulsion yet; participation is voluntary, so claim not ripe | Held: Two-part answer — challenge to Delaware’s authority to conduct any audit is ripe; challenge to scope/means of the specific audit is not ripe (no formal compulsion yet) |
| Whether Texas trilogy preempts a state’s ability to examine books/records to determine the true holder (parent vs. subsidiary) | Marathon/Speedway: Delaware may not inquire into property that cannot be escheated under the priority rules; contract terms settle holder question | Delaware: State may investigate to determine debtor-creditor relationship and possible alter-ego/substance-over-form issues | Held: Delaware may conduct an appropriate, targeted audit to determine the true holder; the Texas trilogy does not bar reasonable inquiry into corporate separateness; abusive or pretextual audits could be preempted later |
| Remedy / dismissal posture | Marathon/Speedway sought injunctive/declaratory relief to stop audit | Delaware sought dismissal for failure to state a claim | Held: Preemption claim dismissed, but dismissal must be without prejudice so plaintiffs may renew ripe aspects later |
Key Cases Cited
- Texas v. New Jersey, 379 U.S. 674 (established federal common-law priority rules for escheat of intangible property)
- Pennsylvania v. New York, 407 U.S. 206 (reaffirmed Texas rule and rejected ad hoc deviations based on debtor records)
- Delaware v. New York, 507 U.S. 490 (summarized Texas trilogy: creditor’s last known address first, debtor’s state of incorporation second; prevented states from prescribing different priority)
- N.J. Retail Merchs. Ass'n v. Sidamon-Eristoff, 669 F.3d 374 (3d Cir.) (held states outside Texas trilogy cannot escheat; supported private-party enforcement by implication)
- Plains All Am. Pipeline L.P. v. Cook, 866 F.3d 534 (3d Cir. 2017) (ripeness analysis re: Delaware escheat audits; administrative costs alone typically do not make a claim ripe)
- NE Hub Partners L.P. v. CNG Transmission Corp., 239 F.3d 333 (3d Cir. 2001) (process/result distinction: process may be permissible though a preempted result could later be invalidated)