Key takeaways
- The Delaware General Assembly introduced and adopted Senate Substitute 1 for SB 266 in lieu of the original version of SB 266
- SB 266 would provide the Delaware state escheator with control over whistleblower actions, while maintaining substantial incentives for whistleblowers and significant consequences for holders of unclaimed property
- Senate Substitute 1 for SB 266 clarifies this process and the respective roles of the attorney general, state escheator, and secretary of state in actions under the Delaware False Claims and Reporting Act for failure to comply with reporting requirements under the Delaware Unclaimed Property Law (UPL). It also provides that a whistleblower is entitled to payment if a holder subsequently escheats property pursuant to a voluntary disclosure agreement.
As described in our Client Alert of April 29, 2024, the Delaware General Assembly has proposed a bill impacting how the state enforces its unclaimed property law. Senate Bill 266 (“SB266”) would provide the Delaware state escheator with more control over whistleblower actions and would limit the ability of private parties to bring such actions. On June 12, 2024, the Senate passed Senate Substitute 1 for SB 266 (the “Substitute Bill”). The Substitute Bill differs from the original version of SB 266 in that it sets forth specific criteria that must be satisfied for the attorney general to bring an action under the UPL. Specifically, the attorney general may bring an action only if:
- The attorney general has provided written notice to the secretary of the department of Finance and the state escheator setting forth the allegations intended to be pursued;
- Either (i) 120 days have passed since the date of such notice; or (ii) the state escheator has consented in writing to the institution of the action;
- There is no ongoing examination by the state escheator concerning the allegations in the attorney general’s complaint; and
- The defendant in such action did not initiate a voluntary disclosure to address the issues in the complaint prior to attorney general becoming aware of those issues.
The Substitute Bill also includes confidentiality provisions related to the written submission of the whistleblower and clarifies how a whistleblower is to be awarded based on that information. The Substitute Bill would require the state to pay a whistleblower an award when a holder remits property as a result of entering into a voluntary disclosure agreement following the report of information by the whistleblower. In particular, the state is required to award the whistleblower 30% of the first $5 million of unclaimed property remitted and 20% of unclaimed property remitted over $5 million, if any.
In sum, the Substitute Bill limits the ability of a private party or even the state attorney general to independently litigate a qui tam action against a holder related to alleged unclaimed property noncompliance. Instead, it places control over such litigation firmly in the hands of the state escheator. Furthermore, the Substitute Bill appears to base whistleblower compensation on the amount of unclaimed property recovered on behalf of owners (as opposed to funds owed directly to the state). It will not surprise many that the recent proposals serve to expand the department of finance's power and treat unclaimed property as if it were Delaware’s own revenue.
The Reed Smith Unclaimed Property team will continue to monitor developments related to the Substitute Bill and SB 266 closely.
Client Alert 2024-131