AT&T Challenges Delaware Unclaimed Property Audit as Unconstitutional

On December 6, 2019, AT&T filed an action in the U.S. District Court of Delaware asserting than an unclaimed property audit initiated by the Delaware Department of Finance and conducted by its third-party contingent audit firm Kelmar Associates LLC violates the company’s rights under the U.S. Constitution.

Specifically, Univar claims the audit impinges the company’s rights under the Fourth, Fifth and Fourteenth Amendments. Univar seeks declaratory judgment and injunction relief. The complaint may be viewed here.

This case is appearing to extend the issues raised in both UNIVAR, Inc. v. Geisinger Case 1:18-cv-01909-UNA and Plains All American Pipeline L.P v Cook 866 F. 3d 534.

In both Univar and Plains, the plaintiffs made similar procedural due process claims that this same District Court rejected as not yet ripe. In Plains, the Court reasoned that the audit had not yet started and in Univar, the Court has delayed the proceeding asking the Delaware Chancery Audit to rule on an administrative audit. AT&T has asserted that its case is ripe based on the standard set forth in Plains.

AT&T also objects to Delaware and Kelmar’s demand for it to produce records of over 60 million transactions over 27 years covering almost $100 billion of spend. AT&T asserted it would take 23.6 years to research the transactions and repeatedly requested that Delaware consider an alternative statistical sampling approach to review the data. They claim that Delaware rejected that request and instead ejected the company from the state’s expedited audit program. It further asserts that it has a large staff responsible for unclaimed property compliance and has remitted over $400,000,000 to the states collectively over the last 15 years.

Delaware unclaimed property law assigns responsibility for initiating and managing the unclaimed property voluntary disclosure agreement (VDA) program to the Department of the Secretary of State and assigns responsibility for managing the unclaimed property audit program to the Department of the Finance. Corporations may not be audited until they have been invited to the VDA program and have failed to respond. Delaware has mailed approximately 600 letters in 2019.

The Duff & Phelps Unclaimed Property and Tax Risk Advisory team will continue to monitor and advise on both the actions of the Department of Secretary of State and the Department of Finance as well as provide updates on this important litigation.

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