BRIEF IN OPPOSITION FOR RESPONDENT NEW JERSEY FOOD COUNCIL

Transcription

1 No IN THE Supreme Court of the United States ANDREW P. SIDAMON-ERISTOFF, Treasurer, State of New Jersey, and STEVEN R. HARRIS, Administrator of Unclaimed Property, State of New Jersey, v. Petitioners, NEW JERSEY FOOD COUNCIL, NEW JERSEY RETAIL MERCHANTS ASSOCIATION and AMERICAN EXPRESS PREPAID CARD MANAGEMENT CORPORATION, Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT BRIEF IN OPPOSITION FOR RESPONDENT NEW JERSEY FOOD COUNCIL EDWARD T. KOLE Counsel of Record CHRISTINE D. PETRUZZELL DANIEL J. KLUSKA WILENTZ, GOLDMAN & SPITZER, P.A. 90 Woodbridge Center Drive Woodbridge, New Jersey (732) ekole@wilentz.com Counsel for Respondent New Jersey Food Council A (800) (800)

2 i QUESTIONS PRESENTED Whether the Third Circuit Court of Appeals properly applied the settled priority rules governing the escheat of intangible property previously established by this Court in Texas v. N.J., 379 U.S. 674 (1965), and reaffirmed in Pennsylvania v. N.Y., 407 U.S. 206 (1972) and Delaware v. N.Y., 507 U.S. 490 (1993) in determining that Chapter 25 and the related Treasury Guidance are each preempted by the Texas line of cases because they unconstitutionally permit New Jersey to escheat intangible property where the State s only connection to the parties to the transaction is as the place of purchase of the property, and to infringe upon the States sovereign right not to escheat intangible property.

3 ii CORPORATE DISCLOSURE STATEMENT The New Jersey Food Council has no parent corporations. There are no publicly held companies that own 10% or more of the New Jersey Food Council s stock.

4 iii TABLE OF CONTENTS QUESTIONS PRESENTED CORPORATE DISCLOSURE STATEMENT... TABLE OF CONTENTS TABLE OF CITED AUTHORITIES Page i ii iii vi INTRODUCTION STATEMENT OF THE CASE I. New Jersey s Unclaimed Property Act And The Controlling Precedent Of This Court On Escheat Of Intangible Property II. The Amendments To The Act Adopted By New Jersey In June 2010 And The Subsequent Treasury Guidance Conflict With This Court s Established Precedent.. 5 III. The Litigation And The Injunction That Was Properly Issued Against Enforcement Of Subsection 5c Of The Act And The September Guidance IV. New Jersey Further Amends The Act, And, Inter Alia, Repeals The Place-Of-Purchase Presumption Of Chapter

5 iv Table of Contents Page REASONS FOR DENYING THE PETITION I. The Court Of Appeals Properly Held That Chapter 25 And The September Guidance Are Preempted Under The Texas Line Of Cases A. Chapter 25 Is Preempted Under The Texas Line Of Cases Because The Place- Of-Purchase Presumption Directly Contradicts The Secondary Rule Established In Texas B. The September Guidance Is Preempted Under The Texas Line Of Cases This Court Has Made It Clear That Only Two Priority Rules Shall Govern The Escheat Of Intangible Property, Regardless Of The Facts Or Circumstances, For Purposes Of Equity And Ease Of Administration This Court Has Flatly Rejected The Adoption Of A Priority Rule Based On The Place Of Purchase Of The Intangible Property

6 v Table of Contents Page 3. The Texas Priority Rules Are Applicable To All Escheat Disputes Regardless Of The Parties; Nevertheless, The September Guidance Does In Fact Create A Conflict Between States II. New Jersey Is Not A Better Custodian Of The SVC Funds And The Fact That SVC Issuers May Retain Such Property Was And Remains Immaterial To This Court s Considerations III. Contrary To New Jersey s Assertion, New Jersey Is The Only Party That Would Benefit Fortuitously In Receiving SVC Funds Under The Third Priority Rule IV. New Jersey May Air Its Grievance Before Congress CONCLUSION

7 vi TABLE OF CITED AUTHORITIES CASES Page American Express Travel Related Servs. Co. v. Sidamon-Eristoff, 755 F. Supp. 2d 556 (D.N.J. 2010) passim American Petrofina Co. of Texas v. Nance, 697 F. Supp (W.D. Okla. 1986) American Petrofina Co. of Texas v. Nance, 859 F.2d 840 (10th Cir. 1988) Delaware v. N.Y., 507 U.S. 490 (1993) passim Geier v. Am. Honda Motor Co., 529 U.S. 861 (2000) International Paper Co. v. Ouellette, 479 U.S. 481 (1987) New Jersey Retail Merchants Ass n. v. Sidamon-Eristoff, 669 F.3d 374 (3d Cir. 2012) passim Pennsylvania v. N.Y., 407 U.S. 206 (1972) passim Provident Inst. for Sav. v. Malone, 221 U.S. 660 (1911)

8 vii Cited Authorities Page Teamsters, Chauffeurs, Warehousemen-Helpers v. Lucas Flour Co., 369 U.S. 95 (1962) Texas v. N.J., 379 U.S. 674 (1965) passim Western Union Tel. Co. v. Pennsylvania, 368 U.S. 71 (1961) , 20 CONSTITUTION, STATUTES AND RULES U.S. Const. art. VI, cl Uniform Unclaimed Property Act, N.J. Stat. Ann. 46:30B-1 et seq , 10, 20, 24 N.J. Stat. Ann. 46:30B N.J. Stat. Ann. 46:30B N.J. Stat. Ann. 46:30B N.J. Laws 1989, ch P.L. 2010, ch passim P.L. 2012, ch

9 1 INTRODUCTION Review of the controlling cases demonstrates that Petitioners have presented no compelling reasons for the grant of the Petition for a Writ of Certiorari, nor do such compelling reasons exist. The Third Circuit s January 5, 2012 Opinion in this matter affirming the District Court s decision does not conflict with a decision of this Court or another Court of Appeals, nor has the Third Circuit decided an important federal question that has not been settled by this Court. To the contrary, the Third Circuit s opinion is entirely consistent with and correctly applies well-established precedent of this Court to the facts of this case. In reviewing the Petition, this Court will undoubtedly experience a well-founded sense of déjà vu, for the issues that Petitioners raise regarding the escheat of unclaimed intangible property have been addressed and dispositively settled by this Court in three prior cases. In Texas v. N.J., 379 U.S. 674 (1965), this Court established the priority rules settling the question of which States have the opportunity to escheat unclaimed intangible property. This Court then unequivocally reaffirmed these priority rules in Pennsylvania v. N.Y., 407 U.S. 206 (1972) and Delaware v. N.Y., 507 U.S. 490 (1993). In these three prior decisions, this Court created two -- and only two -- priority rules explicitly designed to resolve these issues once and for all by a clear rule to which all States may refer with confidence in the interests of ease of administration and of equity, as opposed to creating a test requiring this Court to devise new rules of law based on ever-developing new categories of facts. In so

10 2 doing, this Court emphasized that only the States with the strongest connection to the parties to the transaction would have the opportunity to escheat unclaimed property to prevent intangible property rights from being cut off by a State with no clear connection to the parties. As a result, this Court determined that the only two States that have such a sufficiently strong connection and thus would have an opportunity to escheat unclaimed intangible property are: (1) the State where the creditor resides because the creditor (i.e., the property owner) has the primary interest in the property, and (2) the State where the debtor is incorporated in order to protect the debtor State s interest as sovereign over the remaining party to the transaction. In direct conflict with this Court s settled precedent and declaration that it had no intention of revisiting its priority rule scheme, Petitioners now seek review of the Third Circuit s Opinion properly enjoining New Jersey from adopting a third priority rule granting the State where the property was purchased the right to escheat the unclaimed intangible property. This third priority rule is not recognized or permitted under this Court s two priority rule scheme and defeats this Court s reiterated intention of establishing a priority rule scheme that is easy to follow and apply, and equitable to all parties. Additionally, this Court has squarely rejected the adoption of a priority rule based on the place of purchase of the property because such a State lacks a sufficiently clear connection to the creditor or debtor of the transaction and infringes upon States sovereign rights not to escheat certain types of unclaimed property.

11 3 Petitioners contention that the established Texas line of cases does not apply here because that law applies only to disputes between states is without merit in light of this Court s clear and repeated declarations that its priority rules apply to all situations involving escheat of intangible property, regardless of the facts or claimants. That is concretely demonstrated by the decisions of the Third Circuit and Tenth Circuit, which both applied the Texas priority rules to actions filed by private parties against States and rejected the States amendments to the respective unclaimed property laws in actions brought by private parties. Petitioners similarly ignore the fact that New Jersey s third priority rule impermissibly creates a conflict between New Jersey and those States that do not provide for the escheat of certain types of intangible property. In that instance, such other States would be negatively impacted by New Jersey s third priority rule because it would supersede the right of a State not to exercise custodial escheat. Consequently, this Petition does not warrant this Court s attention given that the issues presented here are controlled by established precedent of this Court, and because the Petition asks this Court to modify rules that this Court previously declared not once -- but three times -- that it will not do. Petitioners have not satisfied, nor can they satisfy, their burden of demonstrating that compelling reasons exist for this Court to exercise discretionary review. The Petition for a Writ of Certiorari should be denied.

12 4 STATEMENT OF THE CASE I. New Jersey s Unclaimed Property Act And The Controlling Precedent Of This Court On Escheat Of Intangible Property In 1989, the State of New Jersey enacted its version of the Uniform Unclaimed Property Act, N.J. Stat. Ann. 46:30B-1 et seq. (the Act ), which was aimed at revising New Jersey escheat law to conform with the Uniform Unclaimed Property Act (1981), promulgated by the National Conference of Commissioners on Uniform State Laws. N.J. Laws 1989, ch. 58. The Act addresses the disposition of unclaimed property, and governs unclaimed property held by an original obligor on behalf of one having a legal or equitable interest in the property. N.J. Stat. Ann. 46:30B-7. Such property is presumed abandoned under certain circumstances, and is subject to the State s right to escheat the property as unclaimed provided that delineated conditions are satisfied. N.J. Stat. Ann. 46:30B-9, -10. The stated goal of the Act is to return this property to the rightful owner and/or heirs. State of New Jersey, Dep t of the Treasury, available at (last viewed Sept. 25, 2012). This Court has long recognized the unquestioned right and power of states to enact legislation mandating that property deemed to be abandoned be escheated to the State for preservation until its owner claims it. Provident Inst. for Sav. v. Malone, 221 U.S. 660, 664 (1911). However, it is fundamental that New Jersey s ability to escheat unclaimed property under the Act is subject to and controlled by this Court s settled priority rules for escheat established nearly fifty years ago in Texas v. N.J., 379

13 5 U.S. 674 (1965). Specifically, through the priority rules for escheat announced in and applied by Texas, this Court held that the State of the creditor s (i.e., property owner s) last known address has the first opportunity to escheat the unclaimed property (the Primary Rule ). Where the property owner s address is unknown, or where the laws of the State of the property owner s address do not provide for escheat of property presumed abandoned, the State in which the debtor (i.e., issuer) of the property is incorporated has the final opportunity to escheat the unclaimed property (the Secondary Rule ). These priority rules remain controlling today. In fact, although several years later this Court was presented twice with challenges seeking exceptions to and modifications of its announced priority rules, this Court declined to change or modify the priority rules, citing the need to have established principles that are fair and easy to apply to all escheat cases regardless of the facts. Pennsylvania v. N.Y., 407 U.S. 206, 215 (1972); Delaware v. N.Y., 507 U.S. 490, 510 (1993) (citing Texas, 379 U.S. at 679). Consequently, under established mandate, this Court s priority rules control the disposition of this matter. II. The Amendments To The Act Adopted By New Jersey In June 2010 And The Subsequent Treasury Guidance Conflict With This Court s Established Precedent In June 2010, New Jersey amended the Act to make additional property subject thereto by providing, for the first time, for the escheat of stored value cards ( SVCs ) SVCs are defined to encompass gift cards, including those redeemable for merchandise or services only. Pet. App. 171a.

14 6 The amended legislation was adopted in a matter of six days, resulting in sweeping changes to the Act, approved as P.L. 2010, ch. 25 ( Chapter 25 ) on June 30, 2010, which change[d] the legal landscape in New Jersey. Pet. App. 54a. Chapter 25, as initially enacted, 2 provided that [a] stored value card for which there has been no stored value card activity for two years is presumed abandoned. Pet. App. 171a. Once subject to escheat, the holder of the abandoned card would be required to pay the entirety of the card s present value to the State in cash. Id. Additionally, Chapter 25 applied both retroactively and prospectively, as it applied to SVCs outstanding on and after the [sic] July 1, 2010, including, but not limited to, those outstanding instruments issued before July 1, C.A.J.A Significantly, Section 5c of Chapter 25 ( Subsection 5c ) contravened this Court s priority rule scheme by improperly replacing the Secondary Rule -- recognizing the debtor s State of incorporation as the secondary state with the opportunity to escheat -- with a priority rule referenced as the place-of-purchase presumption. That rule required gift card issuers to pay abandoned gift card funds not to the debtor s State of incorporation, as required by this Court s Secondary Rule, but instead to New Jersey if the address of the property s owner was unknown and if the SVC was sold or issued in New Jersey. Pet. App. 172a. 2. Chapter 25 was substantially amended through legislation approved in June 2012 after the Court of Appeals affirmed the District Court s decision enjoining enforcement of Chapter 25 s relevant sections. The amendments are discussed in detail infra.

15 7 Recognizing that the place-of-purchase presumption of Chapter 25 violated the established priority rules of this Court, just one week before Chapter 25 was to become effective, the Treasurer issued Treasury Announcement FY , a Guidance on Implementation and Notice of Exemption from Certain Provisions of L.2010, c.25 on September 23, 2010 (the September Guidance ), which interpreted Subsection 5c in a manner that modified its requirements. AmEx Opp. App. 3a-5a. 3 The September Guidance first set forth principles consistent with this Court s two priority rules, but then, through an additional priority rule, stated that where the issuer is domiciled in a State that exempts SVCs from its unclaimed property statute, the issuer must escheat abandoned gift card funds to New Jersey if the cards were issued or sold in New Jersey. AmEx Opp. App. 4a. The September Guidance thereby interpreted Subsection 5c as establishing a third priority rule not recognized or sanctioned by this Court. The members of Respondent New Jersey Food Council (the NJFC ) -- an alliance of food retailers and their supplier partners united to provide vision and leadership to advance the interest of its members, see New Jersey Food Council, available at com (last viewed Sept. 25, 2012) -- were impacted by the enactment of Chapter 25 and subsequent issuance of the September Guidance. The NJFC s members issue a type of gift card known as a closed loop card that can only be redeemed for merchandise or services (not for cash) at and by the retailer who issued the card. Pet. App. 49a. 3. AmEx Opp. App. refers to the Appendix submitted by Respondent American Express Prepaid Card Management Corporation in opposition to the Petition.

16 8 These gift cards satisfy the statutory definition of SVCs. Pet. App. 171a. Thus, under Chapter 25 and the September Guidance, the NJFC s members were required to report and deliver certain unclaimed SVC funds to New Jersey. III. The Litigation And The Injunction That Was Properly Issued Against Enforcement Of Subsection 5c Of The Act And The September Guidance On October 5, 2010, the NJFC, and on September 30, 2010 and October 11, 2010, respectively, other SVC issuers -- the New Jersey Retail Merchants Association and American Express Prepaid Card Management Corporation -- filed separate complaints with the District Court for the District of New Jersey against Petitioners Andrew P. Sidamon-Eristoff, in his official capacity as Treasurer of the State of New Jersey ( Treasurer ), and Steven R. Harris, in his official capacity as Administrator of Unclaimed Property for the State of New Jersey (collectively, New Jersey ). With their complaints, the Food Council and other SVC issuers filed Orders to Show Cause seeking a preliminary injunction enjoining enforcement of Chapter 25 and the September Guidance. The NJFC and other SVC issuers ultimately sought a declaration that Chapter 25 and the September Guidance were unconstitutional as violative of several constitutional provisions, and void as preempted by federal common law established by this Court in Texas. On November 13, 2010, the District Court entered an Order and Opinion issuing a preliminary injunction. Pet. App. 44a-166a. The District Court held that both the placeof-purchase presumption set forth in Subsection 5c and the third priority rule set forth in the September Guidance

17 9 contravened this Court s priority rules governing the escheat of unclaimed intangible property. Pet. App. 70a-153a. The District Court further held that Chapter 25 violated the Contract Clause of the United States Constitution to the extent that it applied retroactively. Pet. App. 75a-78a, 153a-157a. Therefore, the District Court preliminarily enjoined New Jersey from enforcing the place-of-purchase presumption in Subsection 5c and the September Guidance, and from enforcing Chapter 25 retroactively against issuers of SVCs with existing SVC contracts that obligate issuers to redeem SVCs solely for merchandise or services. Pet. App. 166a. On December 8, 2010, the Food Council and other SVC issuers filed motions seeking clarification and construction of the District Court s November 13, 2010 Order as encompassing that provision of Subsection 5c of Chapter 25 setting forth a requirement that they collect and maintain the zip codes of all SVC purchasers. On January 14, 2011, the District Court entered an Order and Opinion denying the relief addressed to the November 13, 2010 Order sought by the Food Council and other SVC issuers. C.A.J.A , New Jersey and the NJFC filed cross-appeals from the District Court s November 13, 2010 and January 14, 2011 Orders and Opinions with the United States Court of Appeals for the Third Circuit. On January 5, 2012, the Court of Appeals affirmed the District Court s decisions in all respects. Pet. App. 1a-43a. As relevant to New Jersey s Petition, the Court of Appeals agreed with the District Court that the place-of-purchase presumption of Subsection 5c was preempted because it conflicts with the Secondary Rule established in Texas to the point

18 10 that it creates situations where compliance with both the Secondary Rule and the place-of-purchase presumption is impossible. Pet. App. 26a-27a. The Court of Appeals likewise agreed that the September Guidance was also preempted under Texas because it allows New Jersey, as the State of purchase, to escheat abandoned property where, by merely being the place of purchase, the State does not have a sufficiently clear connection with the parties to the transaction (the creditor or debtor), and because the attempted rule infringes upon other States sovereign power not to exercise custodial escheat. Pet. App. 27a-34a. IV. New Jersey Further Amends The Act, And, Inter Alia, Repeals The Place-Of-Purchase Presumption Of Chapter 25 On May 14, 2012, while this litigation was pending, legislation was introduced in New Jersey proposing certain amendments to Chapter 25 and the Act. The proposed legislation was thereafter modified, and substantial amendments were approved on June 29, 2012 as P.L. 2012, ch. 14 ( Chapter 14 ). AmEx Opp. App. 1a-2a. Chapter 14 amended Chapter 25 to repeal the place-ofpurchase presumption of Subsection 5c. AmEx Opp. App. 2a. Additionally, Chapter 14, among other things, amended Chapter 25 to extend the period of presumed abandonment of SVCs from two to five years, and to provide that SVC issuers are now required to turn over sixty percent of the value, rather than the full value, of SVCs presumed to be abandoned. AmEx Opp. App. 1a.

19 11 REASONS FOR DENYING THE PETITION The decision by the Court of Appeals affirming the District Court s decision is entirely consistent with this Court s long-standing decisions in Texas, Pennsylvania and Delaware and does not confl ict with the relevant decisions of this Court or any Court of Appeals; nor does it implicate a question of federal law that has not already been settled by this Court. Accordingly, Petitioners cannot demonstrate, nor do there exist, any compelling reasons warranting the grant of the Petition for a Writ of Certiorari. I. The Court Of Appeals Properly Held That Chapter 25 And The September Guidance Are Preempted Under The Texas Line Of Cases The Supremacy Clause of the United States Constitution declares that the Laws of the United States... shall be the supreme law of the Land. U.S. Const. art. VI, cl. 2. Accordingly, [s]tate laws are preempted to the extent they conflict with federal common law set out in a decision based upon the Supreme Court s original jurisdiction and rendered for the purpose of national uniformity. American Petrofina Co. of Texas v. Nance, 697 F. Supp. 1183, 1187 (W.D. Okla. 1986) (citing Teamsters, Chauffeurs, Warehousemen-Helpers v. Lucas Flour Co., 369 U.S. 95, (1962)), aff d, 859 F.2d 840 (10th Cir. 1988). In that regard, state law is preempted under the doctrine of implied conflict preemption where it is impossible for a private party to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Geier v.

20 12 Am. Honda Motor Co., 529 U.S. 861, 899 (2000). A state law is also preempted if it interferes with the methods by which the federal statute was designed to reach this goal. International Paper Co. v. Ouellette, 479 U.S. 481, 494 (1987). Chapter 25 and the September Guidance are preempted under the federal common law, more particularly, the two priority rules first enunciated by this Court in Texas. The Texas Court established a Primary Rule, and a Secondary Rule, summarized in Delaware as follows: (1) where the last known address of the creditor (i.e., owner of the intangible personal property) is known, the State in which that address is located has the right to escheat ( Primary Rule ); and (2) where the last known address of the owner is unknown, or in a state that does not provide for escheat of the property owed, the State in which the debtor is incorporated is awarded the right to escheat subject to the superior right of the creditor s state should the creditor s state submit proof of the owner s address ( Secondary Rule ). Delaware, 507 U.S. at 499. This Court, in creating the priority rules, intended to definitively settle the question of which State will be allowed to escheat this intangible property. Texas, 379 U.S. at 677. This Court provided that the two priority rules

21 13 are the fairest... easy to apply, and in the long run... the most generally acceptable to all the States. Texas, 379 U.S. at 683. This Court emphasized the definitive nature of these controlling rules by declaring that no State may supersede [the rules] by purporting to prescribe a different priority under state law. Delaware, 507 U.S. at 500. These priority rules also further the purpose of escheat laws: to provide for the safekeeping of abandoned property and then reunite the property with its owner, American Express Travel Related Servs. Co. v. Sidamon-Eristoff, 755 F. Supp. 2d 556, 565 (D.N.J. 2010), by awarding the opportunity to escheat to the only two states with a clear connection to the creditor and debtor. The rules developed in Texas and Pennsylvania reflect the traditional view of escheat as an exercise of sovereignty over persons and property owned by persons. Delaware, 507 U.S. at 503. [T]he primary rule permits the escheating State to protect the interest of a creditor [i.e., property owner] last known to have resided there. Id. Conversely, when a creditor s last known address cannot be determined or the laws of the creditor s State do not provide for escheat, the secondary rule protects the interests of the debtor s State as sovereign over the remaining party to the underlying transaction so as to protect intangible property rights [from being] cut off or adversely affected by state action... in a forum having no continuing relationship to any of the parties to the proceedings. Id.

22 14 A. Chapter 25 Is Preempted Under The Texas Line Of Cases Because The Place-Of-Purchase Presumption Directly Contradicts The Secondary Rule Established In Texas New Jersey s enactment of the place-of-purchase presumption of Chapter 25 impermissibly supersedes this Court s priority rules by blatantly ignoring this Court s Secondary Rule and instead grants the State in which the purchase of an SVC occurred a higher priority than the State in which the SVC issuer is incorporated. The District Court correctly held that [t]his presumption, on its face, clearly violates the second priority rule by ignoring the right of the debtor s state of incorporation to escheat in the event that the owner s last known address was not retained. AmEx, 755 F. Supp. 2d at 600. The Court of Appeals also correctly held that the place-of-purchase presumption of Chapter 25 is preempted because, in cases where the address of the purchaser for an SVC purchased in New Jersey is unknown, New Jersey would escheat the property under Chapter 25; however, under the secondary rule in Texas, the SVC Issuer s state of incorporation would escheat the property. New Jersey Retail Merchants Ass n v. Sidamon-Eristoff, 669 F.3d 374, 393 (3d Cir. 2012). It is axiomatic, however, that two different states cannot both escheat the same abandoned property. Western Union Tel. Co. v. Pennsylvania, 368 U.S. 71, 82 (1961). Accordingly, the place-of-purchase presumption of Chapter 25 is preempted under Texas.

23 15 B. The September Guidance Is Preempted Under The Texas Line Of Cases 1. This Court Has Made It Clear That Only Two Priority Rules Shall Govern The Escheat Of Intangible Property, Regardless Of The Facts Or Circumstances, For Purposes Of Equity And Ease Of Administration The Treasurer issued the September Guidance and its third priority rule in flagrant disregard of this Court s fi nding that only two priority rules govern escheat of unclaimed intangible property and its rationale for limiting its scheme to just two rules. This Court in Texas, and again in Pennsylvania and Delaware, had ample opportunity to establish as many priority rules as it deemed appropriate based on several different relationships to the property or parties proposed by numerous states, and it elected instead to create only two priority rules that it determined were adequate to address all situations. In particular, this Court did not find it necessary to create additional rules for escheat in a situation where the Secondary Rule (i.e., looking to the law of the debtor s State of incorporation) does not result in escheat of the intangible property under the law of the other jurisdiction, as New Jersey now attempts with the third priority rule. The Texas Court was cognizant of the fact that certain States do not provide for escheat of intangible property. See Texas, 379 U.S. at 682 (stating that the Primary Rule leaves questions as to where a person s last known address is in a State which does not provide for escheat of the property owed them ). Nevertheless, with this knowledge, this Court still did not create a third priority

24 16 rule to address the situation where the Secondary Rule State does not provide for escheat. That it made no similar concession in connection with the secondary rule further suggests that no third priority was envisioned by the Court, and it is not the province of New Jersey to create that rule. AmEx, 755 F. Supp. 2d at 607. In short, had this Court wanted to create a rule for escheat in this situation, it would have done so having had numerous opportunities. New Jersey cannot ignore this precedent and, by adopting a third priority rule, do what this Court has chosen not to do. New Jersey s Petition seeking review and acceptance of the third priority rule is the precise type of application that this Court has stated on several occasions it has no interest in entertaining, emphasizing repeatedly that the two rules adopted as the Texas priority rules are the sole controlling rules in determining matters of escheat, and recognizing that this is a question which should be settled once and for all by a clear rule which will govern all types of intangible obligations like these and to which all States may refer with confidence. Texas, 379 U.S. at 678. This Court definitively settled that question in Texas and confirmed that fact in Pennsylvania and then in Delaware. In short, the priority rules declared by this Court were deliberately established to create principles that would apply to all possible situations. The Primary Rule was adopted because it involves a factual issue simple and easy to resolve, and leaves no legal issue to be decided, Texas, 379 U.S. at 681, and the Secondary Rule adopted because it seems to us conducive to needed certainty. Id. at 682. This Court acknowledged that the issue is fundamentally a question of ease of administration and

25 17 of equity. We believe that the rule we adopt is the fairest, is easy to apply, and in the long run will be the most generally acceptable to all the States. Id. at 683. This Court reiterated these points in Delaware: Only by adhering to our precedent can we resolve escheat disputes between States in a fair and efficient manner. We have repeatedly declared our unwillingness either to decide each escheat case on the basis of its particular facts or to devise new rules of law to apply to ever-developing new categories of facts. To craft different rules for the novel facts of each case would generate so much uncertainty and threaten so much expensive litigation that the States might find that they would lose more in litigation expenses than they might gain in escheats. Delaware, 507 U.S. at 510 (quoting Texas, 379 U.S. at 679). The Court of Appeals recognized that permitting states such as New Jersey to institute a third priority rule based on the place of purchase would offend the Supreme Court s intent to use the two priority rules to resolve disputes among states with administrative ease and equity because it would result in competing state claims to abandoned property. N.J. Retail, 669 F.3d at In other words, if New Jersey implemented the third priority rule, and other States adopted their own third priority rules, the [i]ncompatible third priority rules would unquestionably undermine the Supreme Court s focus on ease of administration. AmEx, 755 F. Supp. 2d at 607. To allow otherwise would likely open

26 18 Pandora s box and lead to the very torrent of lawsuits that this Court has repeatedly sought to avoid. 2. This Court Has Flatly Rejected The Adoption Of A Priority Rule Based On The Place Of Purchase Of The Intangible Property The third priority rule uses a premise rejected by this Court, for it gives New Jersey the opportunity to escheat solely because the SVC was purchased in New Jersey, and where New Jersey thereby has no clear connection to the parties to the transaction of the SVC purchase. Despite the fact that this Court in Pennsylvania squarely rejected the assertion made there by New Jersey and other States that the place of purchase should be the state with priority to unclaimed intangible property if the address of the creditor of the intangible property is unknown, Pennsylvania 407 U.S. at 212, New Jersey now improperly continues to champion a place-of-purchase priority rule. In Pennsylvania, the Special Master rejected the placeof-purchase rule suggested by Pennsylvania because it would improperly cut off intangible property rights, for the place of purchase was a forum having no continuing relationship to any of the parties to the proceedings, id. at 213; the Special Master therefore recommended application of the Texas rules to the money orders at issue. This Court adopted the Special Master s Report, thereby rejecting the place of purchase as the appropriate basis of a priority rule for escheat of intangible property, in furtherance of the Texas Court s warning to avoid decid[ing] each escheat case on the basis of its particular facts or to devise new rules of law to apply to everdeveloping new categories of facts. Id. at

27 19 Subsequently, in Delaware, this Court quoted from the Special Master s Report in Pennsylvania, and reiterated that Texas and Pennsylvania held that only a State with a clear connection to the creditor or the debtor may escheat, Delaware, 507 U.S. at 504, further finding this not satisfied by a State whose only connection to the transaction is that it is the State in which the property was purchased. The courts below properly applied the fi ndings in Pennsylvania and Delaware in striking down the third priority rule based on the place of purchase. New Jersey, as the State in which the SVC was purchased, does not have a sufficient connection with any of the parties to the transaction to claim a right to escheat the abandoned property. N.J. Retail, 669 F.3d at 394. New Jersey s proposed priority rule would do exactly what [this] Court sought to prevent. It would permit New Jersey to fabricate an interest where it otherwise does not have one by presuming that the place of purchase is the creditor s last known address, and by usurping the right of the debtor s state of incorporation to rule over the debtor. AmEx, 755 F. Supp. 2d at The Texas Priority Rules Are Applicable To All Escheat Disputes Regardless Of The Parties; Nevertheless, The September Guidance Does In Fact Create A Conflict Between States New Jersey erroneously contends that the Texas line of cases does not preempt the September Guidance because the Texas line of cases applies only to escheat disputes between States, and not to disputes between

28 20 a State and a private party. To the contrary, this Court never limited its holding to only such situations, but has stated that its two priority rules will govern all types of intangible obligations, Texas, 379 U.S. at 678, and that this Court has no interest to either [] decide each escheat case on the basis of its particular facts or to devise new rules of law to apply to ever-developing new categories of facts. Delaware, 507 U.S. at 510; Pennsylvania, 407 U.S. at 215; Texas, 379 U.S. at 679. The two Courts of Appeals that have addressed disputes between a State and a private party regarding unclaimed intangible property -- the Tenth Circuit and the Third Circuit below -- have both held that Texas applies under the circumstances present here. In American Petrofina Co. of Texas v. Nance, 859 F.2d 840 (10th Cir. 1988), the Court of Appeals affirmed the District Court s holding that amendments to Oklahoma s Unclaimed Property Act were preempted by federal common law established in Texas and were thus violative of the Supremacy Clause. There, the plaintiffs were corporations challenging the amendments requiring them to report and deliver certain intangible property deemed to be abandoned to the State of Oklahoma. Likewise, in this case, the Court of Appeals below held that Chapter 25 and the September Guidance were preempted by federal common law where private parties impacted by the amendments to the Act commenced suit. See also Western Union Tel. Co. v. Pennsylvania, 368 U.S. 71, 73 (1961) (where Western Union challenged Pennsylvania s right to take ownership of [the abandoned property] for itself ). Based on this authority, there is no doubt that the Texas line of cases is applicable to this matter.

29 21 Moreover, New Jersey overlooks the inherent conflict between the September Guidance s third priority rule, which provides for escheat of the intangible property to New Jersey where the debtor s State of incorporation does not provide for escheat, and the debtor s State of incorporation, which, in exercise of its sovereign right, determines not to have the property escheat. In establishing a two priority rule scheme, this Court intended that a state s decision, regarding the exercise of custodial escheat under the secondary rule, would be respected under the principle of sovereignty. N.J. Retail, 669 F.3d at 395. In other words, a State s ability to escheat necessarily entails the ability not to escheat; otherwise, a State could be forced to escheat against its will, leading to a result inconsistent with the basic principle of sovereignty. Id. The third priority rule, however, contravenes this Court s intent because it allows New Jersey to infringe on the sovereign authority of other states by interfering with a State s right not to escheat. Id. This Court did not intend such a result, which would give states the right to override other states sovereign decisions regarding the exercise of custodial escheat. Id. New Jersey also ignores the inherent conflicts that would exist in the event that different states enacted third priority rules that were not compatible with New Jersey s third priority rule. AmEx, 755 F. Supp. 2d at 607. Moreover, the interest of a State determining not to escheat intangible property, which must be respected, is substantial and compelling: because companies might find the absence of state custodial escheat attractive, states may want to incentivize companies to incorporate in their jurisdiction by choosing not to escheat abandoned property. Id. States that receive the

30 22 benefit of corporations incorporating there may thereby lose that benefit if corporations are ordered to turn over unclaimed property to New Jersey under a third priority rule because their incentive to incorporate there has been diminished or eliminated. As this Court recognized in Delaware, there is no inequity in rewarding a State whose laws prove more attractive to firms that wish to incorporate. Delaware, 507 U.S. at 507. Finally, New Jersey s prediction that the Court of Appeals application of Texas to disputes between States and private parties will set the stage for numerous battles across the country concerning unclaimed property priorities that apply to newer forms of property is unfounded. This Court has definitively declared that it would not be changing the priority rules that it previously established based on new facts, which would include the type of intangible property at issue. Given this, there is simply no degree of uncertainty over the fact that the Texas priority rules apply to any dispute over the escheat of intangible property. II. New Jersey Is Not A Better Custodian Of The SVC Funds And The Fact That SVC Issuers May Retain Such Property Was And Remains Immaterial To This Court s Considerations New Jersey s contention that the third priority rule should be allowed to stand because it is a better custodian of the SVC funds than the SVC issuer, and because other states have adopted a similar third priority rule, is without merit. New Jersey s argument ignores the established mandates of this Court: that there are two -- and only two -- priority rules governing the escheat of unclaimed

31 23 intangible property, and this Court s categorical rejection of a priority rule based on the place of purchase. Nor is it appropriate to adopt a third priority rule simply because other States have done so, particularly since New Jersey has not produced any evidence demonstrating that the third priority rules enacted in other states have been enforced there or have been the subject of and survived lawsuits such as that filed by the NJFC in this matter. The fact that NJFC members may be permitted to retain a portion of SVC funds in the absence of a third priority rule, as New Jersey contends, is immaterial because this Court has made it clear that no set of facts warrants a modification of the two priority rule test. Even if New Jersey were correct that there is any potential of a windfall for the SVC Issuers that are incorporated in states that do not escheat abandoned property -- which it is not -- that would not merit departing from the established priority rules. N.J. Retail, 669 F.3d at 395. Emphasizing that fact, a departure from the Texas priority rules here would require us to do precisely what [this Court] said should be avoided that is, to decide each escheat case on the basis of its particular facts or to devise new rules of law to apply to ever-developing new categories of facts. Id. (quoting Delaware, 507 U.S. at 215). Furthermore, were New Jersey permitted to escheat under the third priority rule, it is likely that it would retain those funds in perpetuity. Indeed, despite New Jersey s repeated assertion that any State with a superior right of escheat is free to claim the property at any time, it is highly unlikely that any such State will ever come forward. The only conceivable circumstance in which a

32 24 claim could be made is if either the creditor s state of last known address [(if known at all)] or the debtor s State of incorporation subsequently amends its laws to provide for escheat. AmEx, 755 F. Supp. 2d at 605. Where New Jersey has such a tenuous connection to the transaction, there is no reason it should be permitted to hold the property until, if at all, that unlikely possibility occurs. Id. For this reason, the purpose of the Act to return this property to the rightful owner and/or heirs is clearly not furthered by the third priority rule. III. Contrary To New Jersey s Assertion, New Jersey Is The Only Party That Would Benefit Fortuitously In Receiving SVC Funds Under The Third Priority Rule New Jersey repeatedly contends that a third priority rule is necessary to stop SVC issuers from benefiting from the mere fortuity of incorporating in states that do not provide for escheat of SVCs. This assertion is without merit, and has no relevance to proper application of the Texas priority rules. It is well recognized that corporations analyze many factors in choosing where it is more beneficial to incorporate, and one such factor may be whether its State of incorporation does not apply its unclaimed property laws to SVC funds. The benefit of incorporating where intangible property does not escheat becomes even clearer when contrasted with, as in New Jersey, the obligation to pursue a complicated process to not only report and deliver the funds being escheated, but to later seek to reclaim from the State the funds that are ultimately spent by the creditor when presenting the SVC. Indeed, if any party is fortuitous in obtaining abandoned SVC funds, it is New Jersey because it would

33 25 receive such funds under the third priority rule simply because of the chance fact that it is the State where the SVC was purchased, without any clear connection to the parties to the transaction. IV. New Jersey May Air Its Grievance Before Congress Confirming its determined unwillingness to entertain actions seeking modifications of the Texas rules, this Court has stated that [i]f the States are dissatisfied with the outcome of a particular case, they may air their grievances before Congress. Delaware, 507 U.S. at 510. That body may reallocate abandoned property among the States without regard to this Court s interstate escheat rules. Id. The Court in Delaware noted that Congress had since overridden Pennsylvania in part by enacting a specific statute concerning abandoned money orders, the type of property at issue in Pennsylvania; New Jersey can similarly present a request to Congress to address the Court of Appeals decision concerning SVCs if it so desires. New Jersey, however, may not take it upon itself to modify the entrenched rules pronounced by this Court.

34 26 CONCLUSION As amply demonstrated by the foregoing, Petitioners Andrew P. Sidamon-Eristoff and Steven R. Harris have not presented any compelling reasons for this Court to grant the Petition for a Writ of Certiorari, nor do any such compelling reasons exist. Therefore, Respondent respectfully requests that this Court deny the Petition for a Writ of Certiorari. Respectfully submitted, EDWARD T. KOLE Counsel of Record CHRISTINE D. PETRUZZELL DANIEL J. KLUSKA WILENTZ, GOLDMAN & SPITZER, P.A. 90 Woodbridge Center Drive Woodbridge, New Jersey (732) ekole@wilentz.com Counsel for Respondent New Jersey Food Council