Dine Brands: Michigan Unclaimed Property Act’s Ten-year Statute of Limitations is Not Tolled by Examination
On January 19, 2023, the Michigan Court of Appeals issued a published opinion in the Dine Brands case in favor of the holder regarding the construction of the unclaimed property statute of limitations. In that case, Michigan opened examinations on Dine Brands to determine their compliance with the Unclaimed Property Act. The auditors then issued a determination against Dine Brands for an amount due to the State. Dine Brands argued that the amount due was barred by the ten-year statute of limitations and that the start of the examination did not toll the statute of limitations.
The statute in Michigan provides that “an action or proceeding shall not be commenced by the administrator with respect to any duty of a holder under this act more than 10 years… after the duty arose.”2 In response to the taxpayer’s arguments, the Department argued that under the language of the statute, an examination fell under the meaning of an “action or proceeding” which tolls the statute of limitations.
The Michigan Court of Appeals affirmed the lower courts in holding for Dine Brands. The Court focused on statutory interpretation and found that the statutory language of “action or proceeding” was not intended to include examinations for tolling the statute of limitations. The Court noted that “examination” was used in other portions of the statutes and “action or proceeding” continually referred to judicial actions and proceedings. The Court emphasized that based on the reading of the entire Unclaimed Property Act, the Legislature omitted the word "examination" from the tolling statute purposefully.
Therefore, the Michigan Court of Appeals held that the start of an audit conducted by the Michigan Treasury does not toll the statute of limitations for years exposed to audit.
Treasurer Files for Leave to Appeal Dine Brands and Motion to Stay
Following the Michigan Court of Appeals decision, the Treasurer filed an application for leave to appeal to the Michigan Supreme Court on March 2, 2023. Typically, it takes the Michigan Supreme Court several months to resolve an application for leave to appeal, and if the Court does grant the application for leave to appeal, it could take upwards of a year for a final decision. During that time of waiting for resolution, the Court of Appeals decision in Dine Brands has precedential effect.
The Treasurer has filed a motion to stay the decision in Dine Brands in order to avoid following Dine Brands in ongoing audits while her application for leave to appeal is pending,3 The Treasurer argues in the motion to stay that the Court of Appeals’ decision has “an immediate and significant economic and administrative impact” on the Treasurer’s ability to audit holders. The Treasurer interprets the decision to mean that each unclaimed property audit in Michigan must be initiated with a lawsuit rather than the typical administrative process, and argues that this interpretation interferes with the Treasurer’s ability to participate in multistate audits. In her motion to stay, the Treasurer has suggested that if the Court denies the motion to stay then she will need to file a lawsuit against every holder with a pending unclaimed property audit.
Dine Brands and the Treasurer’s motion for a stay have the potential to impact every holder that is under audit by Michigan. At this point, holders should take the time to evaluate the effect of the recent litigation developments in Dine Brands and to determine what steps they need to take to protect their statutory and constitutional rights.
As the Treasurer noted in its motion for stay, the Treasurer may need to file lawsuits against holders with pending unclaimed property audits if the Court denies the motion to stay. However, even if the Court grants the motion to stay, the Treasurer may still need to file lawsuits or enter into statute waivers to preserve its ability to audit years for which the statute of limitations could close while the Dine Brands litigation is ongoing. This means that all holders with pending Michigan audits face the risk of litigation. Accordingly, holders with pending unclaimed property audits in Michigan should consider consulting with counsel to determine the impact of Dine Brands and to prepare a strategy to defend a lawsuit, if necessary.
- Dine Brands Global, Inc. v. Rachael Eubanks, No. 360293, slip op. (Mich. Ct. App., Jan. 19, 2023).
- See MCL 567.250(2)
- Dine Brands Global, Inc. v. Rachael Eubanks, Supreme Court No. 165391 (Mar. 28, 2023).
Client Alert 2023-084