CA, Inc.'s Answer and Counterclaim - Reed Smith

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From the state tax library of Reed Smith LLPwww.reedsmith.com/DEtaxfor other related documents, please email ksollie@reedsmith.com158. The State has no right or ability to escheat credits allegedly owed to theBusinesses that have not sought to enforce or establish their rights with respect to those credits.159. The Statute purports to remove applicable statute of limitations as a bar for theescheatment of property, stating that "[t]he expiration of any period of time specified by lawduring which an action or proceeding may be commenced or enforced to secure payment of aclaim for money or recovery of property shall not prevent any money or property from beingdeemed abandoned property …."160. Such a statutory provision is unenforceable and unconstitutional, and stands inconflict with the statutes of Delaware and other states, which have valid and enforceable statuteof limitations provisions.161. Such a provision unlawfully changes the contractual and legal relationshipbetween Holders and their customers and business partners by effectively extending the statuteof limitations indefinitely and creating liquidated liabilities where only contingent liabilitiesexisted before, particularly but not exclusively to the extent that customers and business partnersthat previously could take no title or interest to credits now may seek those credits from theState.The State’s Arbitrary and Capricious Look-Back Period162. The Statute does not establish the earliest date for which the State may "lookback" when auditing companies for their alleged failure to comply with the Statute.163. The Division of Revenue and the State Escheator have the authority to promulgaterules and regulations for unclaimed property that are necessary to implement their powerspursuant to 12 Del. C. § 1154.164. The State has not promulgated a regulation or a rule regarding the appropriatelook-back period for abandoned property audits.- 66 –
From the state tax library of Reed Smith LLPwww.reedsmith.com/DEtaxfor other related documents, please email ksollie@reedsmith.com165. Despite the fact that the State did not adopt its current compliance process until2001, the State has arbitrarily and capriciously decided, without following its own policies,procedures, regulations or laws, that the State may "look back" to 1981 when auditing forabandoned property.166. The State has failed at any time to engage in any public process when setting thelook back period as 1981, and such a period is without basis, fact, logic, evidence or reasoning.Among other factors, the period exceeds the period for which reporting is due the State,substantially exceeds accepted document retention periods and, upon information and belief,substantially exceeds the look back period employed by any other state's abandoned propertydivision and by other divisions within the State government.167. The State has never offered any reason or explanation for its defined look backperiod, and such a period is arbitrary and capricious, including at least to the extent that the Stateis aware that Holders do not typically preserve their books and records for that period of time.The State's Efforts to Claim Property Rights Greater thanThe Rights of the Property Owners168. The State's rights to abandoned and unclaimed property under the Statute arederivative in nature, in that the State may only take subject to the rights of the Owner of theabandoned and unclaimed property.169. During the VDA process, in its proposed second audit and through this litigation,the State has demanded that CA escheat property for which a purported Owner has only acontingent or unperfected right, such as the State's demands for credits where the State has notestablished that the purported Owner's interest in the credit is valid or enforceable.- 67 –
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CA, Inc.'s Answer and Counterclaim - Reed Smith

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