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Federal Court Delivers Blow to Delaware Unclaimed Property Law

Delaware’s contentious unclaimed property law has been dealt a blow by the United States District Court ruling. The ruling determined that Delaware’s state auditors violated due process rights for Temple-Inland, International Paper Co. subsidiary, by assessing a multi-million dollar fee on the company for failing to turn over uncashed accounts payable and payroll checks between 1986 and 2008. Temple-Inland’s suit argued that Delaware used unfair practices to levy the fee.

According to the ruling, Delaware didn’t establish clear record-retention guidelines, waited 22 years to conduct an audit of Temple-Inland, and used questionable criteria to assess the corporation’s liability “for no obvious purpose other than to raise revenue.”

With more than half of U.S. public companies incorporated in Delaware, the verdict will likely have far-reaching consequences. The state’s aggressive tactics have received strong opposition from many large corporations in the past. Companies such as McKesson Corp. and Staples Inc. have sued Delaware and settled out of court.

Collections from unclaimed property represent the third-largest source of income for the state.

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