Delaware v. New York, 507 U.S. 490 (1993)

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on exceptions to report of special master

No. 111, Orig. Argued December 9, 1992—Decided March 30, 1993

Most of the funds at issue are unclaimed dividends, interest, and other securities distributions held by intermediary banks, brokers, and depositories in their own names for beneficial owners who cannot be identified or located. New York escheated $360 million in such funds held by intermediaries doing business in that State, without regard to the beneficial owner's last known address or the intermediary's State of incorporation. After Delaware initiated this original action against New York, alleging that certain of the securities were wrongfully escheated, the Special Master filed a report recommending that this Court award the right to escheat to the State in which the principal executive offices of the securities issuer are located. Both Delaware and New York lodged exceptions to the report.

Held: The State in which the intermediary is incorporated has the right to escheat funds belonging to beneficial owners who cannot be identified or located. Pp. 497-510. (a) Under the primary and secondary rules adopted in Texas v. New Jersey, 379 U. S. 674, 680-682, reaffirmed in Pennsylvania v. New York, 407 U. S. 206, and reaffirmed in this case, the Court resolves disputes among States over the right to escheat abandoned intangible personal property in three steps. First, the Court must determine the precise debtor-creditor relationship, as defined by the law that created the property at issue. Second, because the property interest in any debt belongs to the creditor rather than the debtor, the primary rule gives the first opportunity to escheat to the State of the creditor's last known address, as shown by the debtor's books and records. Third, if the primary rule fails because the debtor's records disclose no address or because the creditor's last known address is in a State whose laws do not provide for escheat, the secondary rule awards the right to escheat to the State in which the debtor is incorporated. Pp. 497-500. (b) Because the bulk of the abandoned distributions at issue cannot be traced to any identifiable beneficial owner, much less one with a last known address, these funds fall out of the primary rule and into the secondary rule. P. 500. (c) Intermediaries who hold unclaimed securities distributions in their own names are the relevant "debtors." Issuers cannot be considered "debtors" once they make distributions to intermediaries that are record

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