Temple-Inland, Inc. v. Cook
82 F. Supp. 3d 539
D. Del.2015Background
- Temple-Inland, a Delaware-incorporated holder of payroll and accounts-payable funds, was audited by Delaware for unclaimed property; the audit covered periods back to 1981.
- Temple-Inland produced disbursement records only for payroll (from 2004) and accounts payable (from 2003); Delaware used a statistical estimation method under 12 Del. C. § 1155 to calculate unreported liability and assessed $1,388,573.98 after administrative review.
- Temple-Inland sued Delaware officials seeking declaratory, injunctive, and other relief under federal law, alleging federal preemption, substantive due process, Ex Post Facto, Takings, Commerce Clause, and Full Faith and Credit violations; it moved for summary judgment and sought to enjoin enforcement (standstill stipulated).
- Delaware amended § 1155 in 2010 to authorize estimation where holder records are insufficient; the legislature stated the amendment ratified existing estimation practice and applied it retroactively.
- The district court granted in part and denied in part Delaware's motion to dismiss and denied Temple-Inland’s summary judgment motion, leaving claims for substantive due process, Ex Post Facto, Takings, Commerce Clause/Full Faith and Credit to proceed, but dismissing the claim that federal common law (the Texas line of cases) preempts § 1155.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal common law (Texas line) preempts Delaware’s estimation authority | Texas cases prohibit using statistical surrogates; federal common law governs escheat and thus preempts § 1155 | Texas priority rules govern interstate disputes among States, not State vs. private holder; no preemption | Dismissed: Texas line does not preempt § 1155 as applied here |
| Substantive due process (arbitrary/state abuse) | Estimation produced claims that may duplicate other States’ escheat or target property traceable to identifiable creditors, amounting to arbitrary deprivation | Estimation serves legitimate state interest in safeguarding abandoned assets; rational basis supports statute | Survives dismissal: pleadings sufficiently allege arbitrary/deprivation theories; claim proceeds |
| Ex Post Facto / retroactivity | 2010 amendment applied estimation retroactively to pre-enactment conduct and functions like a punitive penalty for record-keeping failures | Estimation was longstanding practice; § 1155 codified nonpunitive evidentiary practice; estimates must be reasonable | Survives dismissal: factual issues remain whether the statute was codification or a punitive change; summary judgment denied |
| Takings Clause | Seizure of estimated funds may take property without just compensation if Delaware lacks authority to escheat those specific funds | State seizes only abandoned property; ownerless property doctrine and escheat statutes justify transfer | Survives dismissal: plausible property interest alleged; claim proceeds |
| Commerce Clause / Full Faith & Credit | Estimation may cause double escheat, interfere with other States’ exemptions and interstate commerce | Debtor-state may escheat when creditor-state law is silent; assessment targets debtor, not other States; insufficient proof of interstate burden | Survives dismissal: factual record needed; claim not dismissed |
Key Cases Cited
- Texas v. New Jersey, 379 U.S. 674 (Supreme Court) (establishes priority rules for interstate escheat of intangible property)
- Delaware v. New York, 507 U.S. 490 (Supreme Court) (applies Texas framework; rejects statistical surrogate for locating creditors)
- Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (Supreme Court) (seeking injunctive relief from state regulation raising federal question jurisdiction)
- Western Union Telegraph Co. v. Pennsylvania, 368 U.S. 71 (Supreme Court) (double escheat and Full Faith and Credit concerns)
- Texaco Inc. v. Short, 454 U.S. 516 (Supreme Court) (owner’s failure to use property justifies escheat; no taking requiring compensation)
- Penn Central Transportation Co. v. New York, 438 U.S. 104 (Supreme Court) (takings analysis and factors)
- Smith v. Doe, 538 U.S. 84 (Supreme Court) (test for civil statutes implicating Ex Post Facto Clause)
- Johnson v. United States, 529 U.S. 694 (Supreme Court) (requires retroactivity and increased punishment for Ex Post Facto violation)
- Kansas v. Hendricks, 521 U.S. 346 (Supreme Court) (framework for determining whether civil scheme is punitive)
- Pike v. Bruce Church Inc., 397 U.S. 137 (Supreme Court) (balancing test for dormant Commerce Clause challenges)