Monday, December 15, 2014

Another Audit-Related Delaware Lawsuit

Earlier this summer Temple-Inland commenced a lawsuit against the State of Delaware, challenging the findings of a Kelmar-initiated unclaimed property audit, especially as to how estimated liabilities are calculated.  In particular, Temple-Inland alleges that Delaware made an audit demand in excess of $1 million for estimated historical unclaimed property liabilities after having identified only about $150 in actual liability.  Delaware promptly moved to dismiss that litigation, and that motion is still pending in a Delaware federal court.

Now, it looks like Delaware has another lawsuit on its hands.  Late last week, Osram Sylvania, filed suit against Delaware in the same federal court arising out of another Kelmar audit.  This time, according to the allegations of the complaint, Delaware seeks in excess of $2.2 million on an actual liability of less than $22,000.  As in the Temple-Inland case, Osram alleges that Delaware's audit and liability estimation methods violate holders' due process rights and the Supreme Court's holding in Texas v. New Jersey as to both the mechanics and the retroactive nature of that process.

One notable item in the filing is an allegation as to the fees Kelmar earns from auditing holders.  According to the complaint, Delaware earned in excess of $53 million from Delaware from unclaimed property.  Since most audits are conducted on a "contingent fee" basis - that is, the auditor's fee is a portion of property collected.  That's a lot of (presumably, other peoples') money.


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