507 U.S. 490, 113 S. Ct. 1550 (1993)
Delaware initiated this original action against New York in 1988 after New York escheated substantial sums from unclaimed securities distributions held by intermediaries.1 The Supreme Court granted Delaware leave to file its complaint and appointed a Special Master to oversee the proceedings.2 Texas subsequently moved to intervene as a plaintiff, and all remaining states along with the District of Columbia sought leave to participate as intervenors.3
The property in dispute consists of unclaimed dividends, interest, and other distributions on securities that intermediaries such as banks, brokers, and depositories hold in their own names as record owners for beneficial owners who cannot be identified or located.4 These street name arrangements allow for efficient book-entry transfers and customized financial services, with most New York Stock Exchange equity securities immobilized in depositories.5 Between 1985 and 1989, New York took custody of $360 million in such funds from intermediaries doing business within the state, applying its abandoned property law without regard to the beneficial owners' last known addresses or the intermediaries' states of incorporation.6
On January 28, 1992, the Master filed his report and recommendation.7 Delaware and New York both filed exceptions to portions of the report, as did several other parties whose intervention motions remained pending at that time.8 The Master’s report concludes, first, that the issuer of securities is the relevant “debtor” and, second, that the State in which the debtor’s “principal executive offices” are located should be considered the debtor’s State.9
The procedural history includes the Court's grant of intervention to Texas in 1989 and the subsequent filing of exceptions by multiple states after the Master's report.10 All pending motions to intervene were ultimately granted by the Court in conjunction with its resolution of the exceptions.11
Whether the issuer of the securities or the intermediary record owner is the debtor for unclaimed securities distributions held by intermediaries in street name?12
Under the secondary rule of Texas v. New Jersey and Pennsylvania v. New York, the debtor is the party contractually obligated to deliver the unclaimed distributions to the beneficial owner, which requires identifying the debtor-creditor relationship according to the positive law that creates the property interest.13
No. The established facts show that intermediaries such as banks, brokers, and depositories hold the securities in street name as record owners and remain liable to beneficial owners who reappear, whereas issuers discharge all obligations upon payment to record owners under Uniform Commercial Code section 8-207.14 The Special Master erred by treating issuers as the debtors and equating intermediaries with paying agents who merely return funds to issuers.15 Because the property consists of unclaimed dividends and distributions held by intermediaries doing business in New York between 1985 and 1989, the intermediaries alone qualify as the debtors whose state of incorporation receives the secondary escheat right.
The debtor is the intermediary record owner, not the issuer of the securities.16
Related opinions on this issue
Justice White dissented from the majority opinion in this case.17 In his view, the Special Master did no violence to the precedents set forth in Texas v. New Jersey and Pennsylvania v. New York.18 He concluded that the Special Master has a much superior approach and more equitable result than does the Court.19
Therefore, White would have overruled all of the exceptions to the Special Master’s Report, adopted his recommended findings and conclusions, and issued a decree in accordance therewith.20
Whether the debtor's state under the secondary escheat rule is the state of incorporation or the state where the debtor maintains its principal executive offices?21
The secondary rule awards the right to escheat unclaimed intangible property to the debtor's state of incorporation, a test that permits resolution by judicial notice and avoids case-by-case factual disputes over the location of principal executive offices.22
No. The established facts indicate that the Special Master recommended locating debtors at their principal executive offices, a departure from Texas and Pennsylvania that the Court rejected because it would transfer funds from Delaware, where many intermediaries are incorporated, to New York, where many maintain principal offices.23 The Court sustained Delaware's exception on this point, holding that the state of incorporation remains the proper location even when the creditor's last known address cannot be determined.24
The debtor's state under the secondary escheat rule is the state of incorporation, not the state of principal executive offices.25
Related opinions on this issue
Justice White would have accepted the Special Master's recommendation to locate the debtor at its principal executive offices rather than its state of incorporation.26 He viewed the Master's overall approach as superior to the majority's strict adherence to the incorporation test from Texas v. New Jersey and Pennsylvania v. New York because it better reflected economic realities and business activities.27 White would have overruled all exceptions to the report and adopted the Master's recommended findings and conclusions in full, issuing a decree accordingly.28
Whether a state may use statistical sampling of debtor records to establish that creditors' last known addresses lie within its borders under the primary escheat rule?29
The primary rule requires proof of the creditor's last known address from the debtor's books and records on a transaction-by-transaction basis; statistical sampling or presumptions based on place of purchase cannot substitute for that direct evidence.30
No. The established facts show that New York proposed statistical sampling to demonstrate that most creditor brokers recorded on debtor brokers' books had New York addresses.31 The Court overruled this exception, following Pennsylvania v. New York, which refused to vary the primary rule according to the adequacy of records or to permit a statistical surrogate for actual addresses.32 Although New York escheated $360 million without regard to addresses, it cannot prevail under the primary rule without transaction-specific proof from the debtors' records.33
A state may not use statistical sampling to establish creditors' last known addresses under the primary escheat rule.34
Whether the primary escheat rule may be satisfied by showing addresses of other brokers recorded as creditors on the books of debtor brokers?35
The primary rule applies only to the beneficial owners who are the true creditors to whom intermediaries owe contractual duties to deliver distributions; addresses of intermediate brokers do not satisfy the rule.36
No. The established facts demonstrate that New York argued reconstruction of debtor brokers' transactions would reveal underpaid creditor brokers with New York addresses.37 The Court rejected this theory because beneficial owners are the true creditors to whom intermediaries owe contractual duties to deliver distributions, not other brokers.38 Even assuming many creditors were New York brokers, the primary rule still demands actual last-known-address evidence from the records rather than a showing of broker-to-broker addresses.39 On remand New York may still attempt to prove specific addresses, but the broker-address theory itself fails.40
The primary escheat rule may not be satisfied by showing addresses of other brokers recorded as creditors on the books of debtor brokers.41