Legal Document

507 U.S. 490 113 S.Ct. 1550 123 L.Ed.2d 211 State of DELAWARE, Plaintiff,v.State NEW YORK. No. 111, Orig. Argued Dec. 9, 1992. Decided March 30, 1993. Syllabus * Most the funds at issue are unclaimed dividends, interest, and other securities distributions held by intermediary banks, brokers, depositories in their own names for beneficial owners who cannot be identified or located. New York escheated $360 million such intermediaries doing business that State, without regard to owner's last known address intermediary's incorporation. After Delaware initiated this original action against York, alleging certain were wrongfully escheated, Special Master filed a report recommending Court award right escheat which principal executive offices issuer Both lodged exceptions report. Held: The is incorporated has belonging Pp. ____. (a) Under primary secondary rules adopted Texas v. Jersey, 379 674, 680-682, 85 626, 630-631, 13 596 reaffirmed Pennsylvania 407 206, 92 2075, 32 693 case, resolves disputes among States over abandoned intangible personal property three steps. First, must determine precise debtor-creditor relationship, as defined law created issue. Second, because interest any debt belongs creditor rather than debtor, rule gives first opportunity creditor's address, shown debtor's books records. Third, if fails records disclose no whose laws do not provide escheat, awards debtor incorporated. (b) Because bulk traced identifiable owner, much less one with these fall out into rule. P. (c) Intermediaries hold relevant "debtors." Issuers considered "debtors" once they make record owners, since payment owner discharges all an issuer's obligations under Uniform Commercial Code, 50 District Columbia. Instead, serving "debtor" insofar it contractual duty transmit owner. Unlike issuer, remains liable should "lost" reappear collect due contract. thus erred concluding "debtor," Delaware's York's sustained. (d) Precedent, efficiency, equity dictate rejection second major premise underlying Master's recommendation: his proposal locate corporate jurisdiction its domestic This sua sponte would change Court's longstanding practice Pennsylvania. Moreover, recognized Texas, supra, U.S., 680, 630, leave too decision on case-by-case basis. mere introduction factual controversy location needlessly complicates inquiry made irreducibly simple Texas's adoption test based Finally, survive independent erroneous treat issuers arguably arbitrary incorporate bears company's activities equally another jurisdiction, there inequity rewarding prove more attractive firms wish incorporate. Thus, exception (e) application overruled. contends many disputed need statistical analysis transactions brokers reveals virtually whom have addresses. rests dubious supposition "creditors" whereas already parties contractually obligated deliver distributions. fail rejected practically identical Pennsylvania, 214-215, S.Ct., 2079-2080. On remand, however, claimant can transaction-by-transaction basis creditors owed particular had addresses within borders some proper mechanism ascertaining those addresses, will prevail rule, control. (f) To depart from interstate precedent crafting different novel facts each case generate uncertainty threaten expensive litigation. If dissatisfied outcome may air grievances before Congress, reallocate them rules. Exceptions sustained part overruled part, remanded. THOMAS, J., delivered opinion Court, REHNQUIST, C.J., O'CONNOR, SCALIA, KENNEDY, SOUTER, JJ., joined. WHITE, dissenting opinion, BLACKMUN STEVENS, Dennis G. Lyons, Washington, DC (argued), plaintiff. Jerry Boone, Albany, NY defendant Bernard Nash, DC, support Sp. Master. Justice THOMAS Court. 1 In action, we resolve dispute assert competing claims property. proposed awarding Adhering announced (1965), (1972), 2 involves securities. Such payments often channeled through financial reach owners. By arrangement frequently owners; "record owners," intermedi aries fully entitled receive securities.1 holding "nominee name" "street facilitates offering customized services cash management accounts,2 brokerage margin accounts,3 discretionary trusts,4 dividend reinvestment programs.5 Street name accounts also permit changes ownership effected book entries unwieldy physical transfer certificates. See Brown, Shareholder Communication Rules Securities Exchange Commission: An Exercise Regulatory Utility Futility?, J.Corp.L. 683, 688-691 (1988). economies scale attained modern industry epitomized depository, large institution holds only "participant" banks serves clearinghouse participants' transactions. depository retains securities, effectively "immobilizes" certificates possession allowing participants trade traded Stock immobilized fashion. App. Report B-2. Cf. Commission, Division Market Regulation, Progress Prospects: Depository Immobilization Use Book-Entry Systems 4 (1985). 3 unable distribute small portion owners.6 When so held, become escheatable.7 Between 1985 1989, years N.Y. Abandoned Property Law § 511 (McKinney 1991). 10, n. 9. Alleging sought 1988 initiate York. We granted file complaint, 486 1030, 108 2011, 100 600 (1988), appointed Master, 488 990, 109 550, 102 578 Texas' motion complaint intervening plaintiff, 489 1005, 1109, 103 174 (1989), every party proceeding Columbia intervene. January 28, 1992, recommendation. report, four motions intervene been Court.8 now sustain two entirety, exceptions. grant pending briefs amici curiae, overrule remand further proceedings II 5 sovereigns take custody assume title bona vacantia, process commonly (though somewhat erroneously) called escheat.9 See, e.g., Christianson King County, 239 356, 365-366, 36 114, 118, 60 L.Ed. 327 (1915); Cunnius Reading School Dist., 198 458, 469-476, 25 721, 724-727, 49 1125 (1905); Hamilton 161 256, 263-264, 16 585, 587-588, 40 691 (1896). No serious arise between seeking "tangible property, real personal," "it always unquestioned jurisdictions located escheat." 677, 628. hand, "is matter map," ibid., single claim uncontested 6 discharged "our responsibility exercise our jurisdiction" "the separately constitutional power . settle." Ibid.10 intended "settle question allowed [abandoned] property." Ibid. "[S]ince creditor, debtor," reasoned, "fairness requires accorded records." Id., 680-681, 630 (footnote omitted). virtue "involv[ing] easy resolve," even simpler resort "last technical legal concepts residence domicile." 681, 630. It achieved rough "tend[ed] escheats proportion commercial residents." recognized, could "property persons (1) all, (2) does them." 682, 631. For situations, "State domicile," subject "a superior escheat" characterized scheme fairest, apply, long run most generally acceptable States." 7 (1972). involved relatively "disclaimed interest" "various debts ha[d] never appeared 676, 675, 628, 627. contrast, Western Union Company proceeds left was payee money order refund sender drafts issued negotiated. 208-209, 2076-2077; Telegraph Co. 368 71, 72-73, 82 199, 199-200, 139 (1961). did "regularly creditors," rarely incorporation—Western Union's "corporate domicile" —would "receive larger share funds" 214, 2079. response perceived injustice, advocated place purchase" nevertheless adhered Texas. "only arguable" difference orders lay fact "involve higher percentage unknown addresses." reasoned neither distinction nor resulting "likelihood 'windfall' " incorporation justify "carving [of an] rule." 8 therefore following relationship creates These "authority [ourselves] questions pertain" States, Kentucky Indiana, 281 163, 176, 275, 278, 74 784 (1930), supersede purporting prescribe priority state law. III 9 None contests recommendation "where domicile unlocatable recipient known, finding distributions." 56-57 omitted).11 issue, address. Consequently, concludes, first, and, second, "principal offices" State. reject both recommendations. 10 "[W]here recipient's undeterminable (no address), but originator distribution known," recommended originator's awarded "whether back right." 57. he construed use terms "creditor" merely "descriptive attempt identify parties" "prescriptive commands," id., 29, funds, sense person asset appropriately reflected net worth entity question," 32. exception, argues Report's comport ordinary meaning words 'debtor' 'creditor,' inconsistent universally-accepted common principles area where settled." Brief Plaintiff E-4. objects failure "ascrib[e] relevance [intermediaries'] status security holders," "fundamental error" treats "as paying agents." E-5. likewise term 'shorthand' 'debtor attributes' obligor debt." Defendant 52. agree 11 relied definitions descriptive convenience. Rather, grounded positive rise framing State's look binds honor rights. "Property interests, course, Constitution," "by existing understandings stem source law." Board Regents Colleges Roth, 408 564, 577, 2701, 2709, 33 548 Accord, Bishop Wood, 426 341, 344-347, 96 2074, 2077-2079, 48 684 (1976); Paul Davis, 424 693, 710-712, 1155, 1164-1166, 47 405 (1976). Barnhill Johnson, 503 ----, 112 1386, 1389, 118 39 (1992) ("In absence controlling federal law, 'property' 'interests property' creatures law"). Furthermore, necessarily defines relationships ("debtors") discharge others ("creditors"). 12 define ha[s] [his] worth," 32, convert rich prescriptive content little description bookkeeping phenomena. Funds funds—precisely opposite having asset." cases upholding neglected bank deposits. Charters, bylaws, contracts deposit give retain deposits, requiring delivery deposits affects bank. Security Savings Bank California, 263 282, 285-286, 44 108, 109-110, 68 301 (1923); Provident Institution Malone, 221 660, 665-666, 31 661, 663, 55 899 (1911). "deposits bank," "protect interests depositors" assuming "inactive presumptively abandoned." Anderson Nat. Luckett, 321 233, 241, 64 599, 603, 88 692 (1944) (emphasis added). "disposition function state," sovereign "exercise regulatory power" private inherent Standard Oil 341 428, 436, 71 822, 827, 95 1078 (1951). Our regarding severed creditor-debtor relationships. examination holder's escheatable carefully "creditors." 675-676, 4, 627-628, 4; 213, 2076-2077, noted duties separate creditors. negotiable draft sender's payee; failed order, company bound sender. 2076-2077. Correspondingly, might either sender: unpaid draft, refund," "whose underpaid error." 2079 (internal quotation marks 14 developed reflect traditional view sovereignty owned persons. flowed common-law "concept 'mobilia sequuntur personam, ' according found owner." 10. 217-218, 2081 (Powell, dissenting). Blodgett Silberman, 277 1, 410, 414, 72 749 (1928) ("[I]ntangible personalty situs domicil owner"). recognizing creditor," permits escheating protect resided there. Reasoning "debts by" holder "are it, liability," concluded strange liability when decides Cognizant Conversely, determined protects remaining transaction. Unless "permit rights cut off adversely affected forum continuing proceedings." Connecticut Mut. Life Ins. Moore, 333 541, 549-550, 687, 863 (1948) (upholding insurance benefits policies upon lives then resident therein insured continues beneficiary maturity"). avoided conundrum resolving relationships; clear connection escheat. reference perform task. 15 From perspective, registered shareholders, appear debtors pay obligations. 8-207(1) Columbia, .may exclusively powers Payment extinguishes U.C.C. 8-207, comment 2C U.L.A. (1991). acknowledged much, see 25, none otherwise. liabilities contract intermediary. equating issuers' agents, owe bear obligation "return after period time." B-6. street nominee alone, issuers, legally B disposition rested premise: entity's incorporation." explicitly 631; 210-211, 212, 223-224, 2077-2078, 2078, 2880. admission, relying "change[s] [this Court's] practice." 50. innovation sponte; alteration settled excepts "[d]epart[ure] "inconsistent precedents, fundamental jurisprudence defining citizens." E-4 Finding "heavy burden" attends request "to reconsider prior decisions" borne, Walker Armco Steel Corp., 446 740, 749, 1978, 1985, 659 (1980), exception. 17 [the debtor's] located." Although "this probably foremost giving economy come existence," "would raise sometimes difficult 'main office' 'principal business' whatever designated Even formulated looked instead As find determining efficient way debtor. Exclusive reliance taking judicial notice. general office [may] see[m] burdensome [n]or complex," 49, embrace "rule leaving basis," 18 endorse redefinition location, doubt fulfill promise [more] fairly various jurisdictions." counteract happenstance larger, publicly-traded, enterprises lion's standard disproportionately state." 47. His initiative, decided simply Delaware, incorporated, offices. A officers' remembered refer predominant detect 19 proposal. accordingly adhere IV 20 turn, finally, contention all. concedes distributions" custodian unknown." 81. argues, "reconstruct[ion]" brokers' transactions" lead "creditor purchased 80 amount time resources required reconstruct overpayment very considerable," "has suggested sampling recorded 21 initial matter, brokers. Accordingly, extent "creditors," inapposite. 22 indulge fail. correctly observed: "[N]othing suggest[s] making showing 'most' [creditor-brokers'] York." 67. York's. identity stood plaintiff urged us "presumption purchase." Like proposal, surrogate That dissent's reasonable approximation." 221, 2083 (opinion Powell, J.). object cost difficulty culling creditors' records,12 expressly refused vary [primary] adequacy 215, 2080. And decline here. 23 Despite refusal adopt invitation enter judgment findings. 85. establish debtors' retai[n] itself until comes forward proof 2077-2078. offer V 24 Only adhering fair manner. repeatedly declared unwillingness "either decide devise new apply ever-developing categories facts." 679, 629. craft "so litigation lose expenses gain escheats." Congress. body Congress overrode passing specific statute concerning traveler's checks, §§ 601-603, Stat. 1525, U.S.C. 2501-2503, ultimately settle similar legislation. e 26 consistent preparation appropriate decree. 27 So ordered. 28 STEVENS join, dissenting. 29 my view, violence precedents approach equitable result I Report, findings conclusions, decree accordance therewith. syllabus constitutes prepared Reporter Decisions convenience reader. United Detroit Lumber Co., 200 321, 337, 287, 499. individual investor opts directly issuer. concern sort. account, broker distributes dividends paid customer's customer withdraws check-like instrument receives typically rate offered passbook savings negotiable-order-of-withdrawal accounts. collateral generated stock market Dividends credited broker. trust, trustee enjoys discretion current income accumulate investment. program, authorizes purchase additional shares fractional shares. Approximately 0.02% distributed low substantial Trust Company, "do entitlement payments, accounted for." Midwest Philadelphia Amici Curiae 2. depositories' "entitlement excess rules" us. 3. joint brief, Michigan, Maryland, Nebraska, "At appropriation vacantia. 240, (1944). W. Holdsworth, History English 495-496 (2d ed. 1937). opinions, understood "escheat" encompassing broad sense. 75, 201, (1961); 443, 831, argument Part below. anticipated prevented difficulties stemming incomplete records, nothing decisions "prohibits [debtors] keep adequate

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