The Supreme Court/The Supreme Court.iso/pc/wordperf/1991/91_111a/91_111a.zs

Text File | 1993-03-29 | 8KB | 130 lines

 NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being
done in connection with this case, at the time the opinion is issued.  The
syllabus constitutes no part of the opinion of the Court but has been prepared
by the Reporter of Decisions for the convenience of the reader.  See United                                                                     ______
States v. Detroit Lumber Co., 200 U. S. 321, 337.______    ___________________

                       SUPREME COURT OF THE UNITED STATES

                                    Syllabus

                              DELAWARE v. NEW YORK                                      ____

                    ON EXCEPTIONS TO REPORT OF SPECIAL MASTER

        No. 111, Orig.   Argued December 9, 1992 - Decided March 30, 1993

Most of the funds at issue are unclaimed dividends, interest, and other
 securities distributions held by intermediary banks, brokers, and depositories
 in their own names for beneficial owners who cannot be identified or located.
 New York escheated $360 million in such funds held by intermediaries doing
 business in that State, without regard to the beneficial owner's last known
 address or the intermediary's State of incorporation.  After Delaware
 initiated this original action against New York, alleging that certain of the
 securities were wrongfully escheated, the Special Master filed a report
 recommending that this Court award the right to escheat to the State in which
 the principal executive offices of the securities issuer are located.  Both
 Delaware and New York lodged exceptions to the report.

Held:  The State in which the intermediary is incorporated has the right to_____
 escheat funds belonging to beneficial owners who cannot be identified or
 located.  Pp. 4-17.
   (a)  Under the primary and secondary rules adopted in Texas v. New Jersey,                                                         _____    ___________
 379 U. S. 674, 680-682, reaffirmed in Pennsylvania v. New York, 407 U. S. 206,                                       ____________    _________
 and reaffirmed in this case, the Court resolves disputes among States over the
 right to escheat abandoned intangible personal property in three steps.
 First, the Court must determine the precise debtor-creditor relationship, as
 defined by the law that created the property at issue.  Second, because the
 property interest in any debt belongs to the creditor rather than the debtor,
 the primary rule gives the first opportunity to escheat to the State of the
 creditor's last known address, as shown by the debtor's books and records.
 Third, if the primary rule fails because the debtor's records disclose no
 address or because the creditor's last known address is in a State whose laws
 do not provide for escheat, the secondary rule














                                                                    I           II                            DELAWARE v. NEW YORK                                      ____

                                    Syllabus

 awards the right to escheat to the State in which the debtor is incorporated.
 Pp. 4-7.
   (b)  Because the bulk of the abandoned distributions at issue cannot be
 traced to any identifiable beneficial owner, much less one with a last known
 address, these funds fall out of the primary rule and into the secondary rule.
 P. 7.
   (c)  Intermediaries who hold unclaimed securities distributions in their own
 names are the relevant ``debtors.''  Issuers cannot be considered ``debtors''
 once they make distributions to intermediaries that are record owners, since
 payment to a record owner discharges all of an issuer's obligations to the
 beneficial owner under the Uniform Commercial Code, which is the law in all 50
 States and the District of Columbia.  Instead, an intermediary serving as the
 record owner is the ``debtor'' insofar as it has a contractual duty to
 transmit distributions to the beneficial owner.  Unlike an issuer, it remains
 liable should a "lost" beneficial owner reappear to collect distributions due
 under such a contract.  The Master thus erred in concluding that the issuer is
 the relevant ``debtor,'' and Delaware's and New York's exceptions in this
 regard are sustained.  Pp. 8-12.
   (d)  Precedent, efficiency, and equity dictate rejection of the second major
 premise underlying the Master's recommendation:  his proposal to locate a
 corporate debtor in the jurisdiction of its principal domestic executive
 offices rather than in the State of its incorporation.  This sua sponte                                                              __________
 proposal would change the Court's longstanding practice under Texas and                                                               _____
 Pennsylvania.  Moreover, as the Court recognized in Texas, supra, at 680, the _____________                                       _____________
 proposal would leave too much for decision on a case-by-case basis.  The mere
 introduction of any factual controversy over the location of a debtor's
 principal executive offices needlessly complicates an inquiry made irreducibly
 simple by Texas's adoption of a test based on the State of incorporation.            _____
 Finally, the proposal cannot survive independent of the Master's erroneous
 decision to treat the issuers as the relevant ``debtors.''  The arguably
 arbitrary decision to incorporate in one jurisdiction bears no less on a
 company's business activities than the equally arbitrary decision to locate
 its principal offices in another jurisdiction, and there is no inequity in
 rewarding a State whose laws prove more attractive to firms that wish to
 incorporate.  Thus, Delaware's exception to the Master's proposal in this
 regard is sustained.  Pp. 12-15.
   (e)  New York's exception to the Master's application of the primary rule is
 overruled.  New York contends that many of the disputed funds need not be
 escheated under the secondary rule because a statistical analysis of the
 relevant transactions on the books of the debtor brokers reveals creditor                                                  _______
 brokers, virtually all of whom have                              DELAWARE v. NEW YORK                           III                                      ____

                                    Syllabus

 New York addresses.  This proposal rests on the dubious supposition that the
 relevant ``creditors'' under the primary rule are other brokers, whereas this
 Court has already held that ``creditors'' are the parties to whom the
 intermediaries are contractually obligated to deliver unclaimed securities
 distributions.  Moreover, the exception must fail because the Court rejected a
 practically identical proposal in Pennsylvania, supra, at 214-215.  On remand,                                   ____________________
 however, if New York or one of the other claimant States can prove on a
 transaction-by-transaction basis that the creditors who were owed particular
 distributions had last known addresses within its borders or can provide some
 other proper mechanism for ascertaining those addresses, that State will
 prevail under the primary rule, and the secondary rule will not control.
 Pp. 15-17.
   (f)  To depart from the Court's interstate escheat precedent by crafting
 different rules for the novel facts of each case would generate much
 uncertainty and threaten much expensive litigation.  If the States are
 dissatisfied with the outcome of a particular case, they may air their
 grievances before Congress, which may reallocate abandoned property among them
 without regard to the Court's rules.  P. 17.

Exceptions sustained in part and overruled in part, and case remanded.

 THOMAS, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and
O'CONNOR, SCALIA, KENNEDY, and SOUTER, JJ., joined.  WHITE, J., filed a
dissenting opinion, in which BLACKMUN and STEVENS, JJ., joined.