Siemens USA Holdings Inc v. Richard Geisenberger ( 2021 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 20-2991
_____________
SIEMENS USA HOLDINGS Inc; SIEMENS INDUSTRY
INC,
Appellants
v.
RICHARD J. GEISENBERGER, in his capacity as the
Secretary of Finance for the State of Delaware; BRENDA
MAYRACK, in her capacity as the Delaware State Escheator;
MICHELLE M. SULLIVAN, in her capacity as the Assistant
Director of the Office of Unclaimed Property; STATE OF
DELAWARE
_______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1-19-cv-2284)
District Judge: Hon. Maryellen Noreika
_______________
Argued
April 16, 2021
Before: CHAGARES, JORDAN, and SCIRICA, Circuit
Judges.
(Filed: October 28, 2021)
_______________
Diane Green-Kelly [ARGUED]
Reed Smith
10 S. Wacker Drive – 40th Fl.
Chicago, IL 60606
R. Eric Hutz
Reed Smith
1201 Market Street – Ste. 1500
Wilmington, DE 19801
Counsel for Appellant
Mary F. Dugan [ARGUED]
Martin S. Lessner
Melanie K. Sharp
Robert M. Vrana
Young Conaway Startatt & Taylor
1000 N. King Street
Wilmington, DE 19801
Counsel for Appellee
_______________
OPINION OF THE COURT
_______________
2
JORDAN, Circuit Judge.
This appeal centers on the law of escheat, under which
a citizen’s abandoned property may end up in a sovereign’s
treasury. Delaware’s Unclaimed Property Law (“UPL”), Del.
Code Ann. tit. 12, § 1101 et seq., allows the state to escheat
certain types of unclaimed property held by businesses
chartered in the state, if the particular business holding the
property is not the owner of it, and if there has been no contact
with the owner for a specified period of time. See id. § 1133
(stating when property is presumed abandoned); § 1136 (listing
indications of owner interest in property).
Seeking to enforce its escheat law, Delaware initiated
an audit of Siemens USA Holdings, Inc. and Siemens Industry,
Inc. (collectively “Siemens”) and related entities, which are
incorporated under Delaware law. After a near-decade-long
audit process, Siemens brought suit against the state and
Richard Geisenberger, in his capacity as the Delaware
Secretary of Finance, Brenda Mayrack, in her capacity as the
Delaware State Escheator, and Michelle Sullivan, in her
capacity as the Assistant Director of the Office of Unclaimed
Property (collectively, the “Defendants”). Siemens challenges
the constitutionality of the audit and argues that Delaware’s
actions conflict with federal common law limiting the scope of
any state’s escheatment authority. Approximately four months
after filing its complaint, and while a motion to dismiss was
pending, Siemens filed a motion to preliminarily enjoin the
Defendants from enforcing Delaware’s UPL against it. In a
single order, the District Court dismissed the majority of
Siemens’s claims and denied the motion for a preliminary
injunction on the sole surviving claim, which alleged a
violation of procedural due process.
3
Because the District Court erred in concluding that
Siemens failed to show irreparable harm based on its
procedural due process claim, and in dismissing Siemens’s
federal preemption claim as unripe, we will vacate and remand.
I. BACKGROUND
A. Escheat Legal Landscape
Derived from feudal property concepts, “escheat is a
procedure by which ‘a sovereign may acquire title to
abandoned property if after a number of years no rightful
owner appears.’” Univar, Inc. v. Geisenberger, 409 F. Supp.
3d 273, 276 (D. Del. 2019) (quoting Texas v. New Jersey, 379
U.S. 674, 675 (1965)). No longer a tool of the nobility, escheat
remains today a significant legal process, though “the state
[now] steps in the place of the feudal lord, by virtue of its
sovereignty.” Escheat, Black’s Law Dictionary (11th ed.
2019) (quoting James Kent, Commentaries on American Law
*423-24 (George Comstock ed., 11th ed. 1866)); see also
Marathon Petroleum Corp. v. Sec’y of Fin., 876 F.3d 481, 485-
86 (3d Cir. 2017) (quoting the same with approval). Delaware,
like every other state and the District of Columbia, “has a set
of escheat laws, under which holders of abandoned property
must turn such property over to the State ‘to provide for the
safekeeping of abandoned property and then to reunite the
abandoned property with its owner.’” Marathon Petroleum,
876 F.3d at 488 (quoting N.J. Retail Merchs. Ass’n v. Sidamon-
Eristoff, 669 F.3d 374, 383 (3d Cir. 2012)). When the rightful
owner cannot be found, the property stays in the state’s coffers.
“Such property thus escapes seizure by would-be possessors
and is used for the general good rather than for the chance
4
enrichment of particular individuals or organizations.”
Standard Oil Co. v. New Jersey, 341 U.S. 428, 436 (1951).
A great deal of the property subject to escheatment is
intangible and could be subject to claims by more than one
state. 1 The Supreme Court, in a line of cases dubbed the
“Texas trilogy,” has therefore established “a strict order of
priority among states competing to escheat” abandoned
intangible personal property. Marathon Petroleum, 876 F.3d
at 484; see also Texas v. New Jersey, 379 U.S. 674 (1965);
Pennsylvania v. New York, 407 U.S. 206 (1972); Delaware v.
New York, 507 U.S. 490 (1993). That order of priority is as
follows:
First, we must determine the precise debtor-
creditor[2] relationship as defined by the law that
creates the property at issue.
1
Such property typically exists in the form of “savings
accounts, checking accounts, stocks, uncashed dividend or
payroll checks, traveler’s checks, unredeemed money orders or
gift certificates, life insurance policies, etc.” Temple-Inland,
Inc. v. Cook, 192 F. Supp. 3d 527, 531 (D. Del 2016).
2
In escheat parlance, the term “debtor” refers to the
“holder” of the unclaimed property (or the person or entity that
has possession of the property and that would be subject to a
state’s escheatment laws). Marathon Petroleum Corp. v. Sec’y
of Fin, 876 F.3d 481, 489-90 (3d Cir. 2017). The term
“creditor” refers to the “owner” of the unclaimed property (or
the person who is entitled to the property). Id.
5Second, 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.”
Finally, if the primary rule fails because the
debtor’s records disclose no address for a
creditor 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.
Delaware, 507 U.S. at 499-500 (citation omitted). In
establishing that analytical framework, “the Supreme Court
emphasized the importance of having bright-lines rules[,]”
Marathon Petroleum, 876 F.3d at 491, and explicitly stated
that “no State may supersede [the priority rules] by purporting
to prescribe a different priority under state law.”3 Delaware,
507 U.S. at 500.
3
Although the Texas trilogy focused on competing state
escheatment claims and involved states as opposing parties, we
have recognized that “the Supreme Court’s precedent does
permit a private cause of action to enforce the priority rules.”
Marathon Petroleum, 876 F.3d at 493, 494 (“It makes little
sense to require a private party to wait to be sued by a state
before that party can assert its rights. If private parties may be
defendants in disputes over the priority rules when their
interests are at stake, they by rights should also be allowed to
6
As a leading domicile for corporations, Delaware has
taken full advantage of the Texas trilogy framework. Plains
All Am. Pipeline L.P. v. Cook, 866 F.3d 534, 536 (3d Cir. 2017)
(“[I]n recent years, state escheat laws have come under assault
for being exploited to raise revenue rather than reunite
abandoned property with its owners. Delaware’s … [UPL] is
no exception; … unclaimed property has become Delaware’s
third-largest source of revenue[.]”). Amended in 2017, 4
Delaware’s UPL requires companies to report abandoned
property to the state annually and authorizes an official called
the “State Escheator” to, inter alia, enforce the UPL and
“[e]xamine the records of a person or the records in the
possession of an agent, representative, subsidiary, or affiliate
of the person under examination in order to determine whether
the person complied with [the escheat law].” Del. Code Ann.
tit. 12, §§ 1144, 1171(1); Marathon Petroleum, 876 F.3d at 486
n.6. The State Escheator may also “[i]ssue an administrative
subpoena to require that [any] records [requested] be made
available for examination” and may “[b]ring an action in the
Court of Chancery seeking enforcement of” such a subpoena.
Del. Code Ann. tit. 12, § 1171(3), (4). The UPL imposes a
sue for enforcement of the priority rules to ensure protection of
those same interests.”).
4
Delaware recently enacted further amendments to the
UPL that do not affect our analysis. See 83 Del. Laws ch. 59,
§ 14 (2021). Except where noted, we cite to the 2017 version
of the law.
7
records retention requirement,5 see id. § 1145, and authorizes
the use of “a reasonable method of estimation” to determine
escheat liability if companies fail to keep the mandated records,
id. § 1176(a). The statute further levies interest and penalties
on those who fail to timely turn over unclaimed property, id.
§ 1183, though it allows the State Escheator to waive some
costs in some situations, see id. § 1185, including when “the
person under examination” elects to “expedite” the audit, see
id. § 1172(c)(1).
If the audited party makes such an election, the “person
conducting the examination,” is required to make “[a]ll
requests for records, testimony, and information” within
eighteen months. Id. § 1172(c)(4). Additionally, if the party
choosing an expedited audit “provides sufficient responses
within the time and in the manner established by the State
Escheator to all” such requests, the State Escheator is required
to “complete the examination and provide an examination
report within 2 years from the date of the acceptance of the
request to expedite[.]” Id. § 1172(c)(3). Determining whether
an expediting party has complied with its side of the bargain –
and, if not, whether to terminate the expediting of the
examination – is at the “complete discretion of the State
Escheator and subject only to the review of the Secretary of
Finance.” Id. § 1172(c)(5).
5
The UPL did not have a records retention requirement
prior to the 2017 amendments.
8
B. Examination of Siemens6
The audit at issue in this case began many years before
the 2017 UPL amendments. On June 2, 2009, Siemens notified
Delaware of its intent to submit a Voluntary Disclosure
Agreement (“VDA”) – a statutorily authorized tool for
informing the state of an intent to comply with the UPL in
exchange for certain limitations on liability and on the scope
of an audit. Four minutes later, the State Escheator rejected
Siemens’s request, stating that “Siemens has been selected for
audit, therefore the VDA request is rejected.” (J.A. at 100
¶ 87.) The contention that the state’s instantaneous denial was
prohibited by Delaware’s own law is woven into Siemens’s
narrative of the Defendants’ alleged wrongdoings, 7 but that
question is irrelevant for purposes of this appeal because the
state and Siemens signed an agreement laying out a mutually
satisfactory path forward for the audit. That agreement granted
Siemens some of the VDA’s benefits, including a shortened
look-back period and a potential waiver of interest and
penalties, in exchange for Siemens’s provision of “a substantial
6
Because the District Court dismissed all but one of
Siemens’s claims on the face of the complaint and decided the
motion for a preliminary injunction without reliance on the
evidentiary record, see infra Section I.C., our summary of the
facts is based on Siemens’s complaint, except where noted.
7
In 2009, Delaware regulations provided that “[a]ny
Holder who wishes to comply with the Delaware Abandoned
or Unclaimed Property Law may file a VDA.” 9 Del. Reg.
Regs. 1502, 1503 (Apr. 1, 2006). A holder was barred from
filing a VDA if it had “received an audit letter or [was]
currently under audit by the State of Delaware[.]” Id.
9
advance deposit against audit liability.” (J.A. at 101 ¶ 92.) If
the advance were to ultimately exceed Siemens’s liability, the
remainder would be refunded; if materially short, however,
Siemens would be subject to adverse consequences. Pursuant
to that agreement, on October 31, 2009, Siemens paid
Delaware a $7.4 million deposit.
Delaware delegated to Kelmar Associates, LLC
(“Kelmar”) – a familiar player in disputes involving
Delaware’s escheatment practices – the authority to conduct
the Siemens audit. 8 The work covered seven entities and
involved an eighteen-year look-back period.9 That is, Kelmar
requested the production of Siemens’s records for periods
8
Delaware has regularly retained Kelmar to conduct the
state’s audits on a contingent fee basis, which has resulted in
“the Delaware Department of Finance pa[ying] Kelmar fees for
auditing services in the amount of $53,494,091” for “fiscal
[year] 2013 alone[.]” (J.A. at 102 ¶ 96; see also id. ¶ 97.) We
have previously observed that “Kelmar’s financial incentive to
claim as much escheatable property as possible taints the entire
process with an appearance of self-interested overreaching.”
Marathon Petroleum, 876 F.3d at 497.
9
The audit may have covered eight entities. The
number of identified entities is actually inconsistent between
Siemens’s complaint and its motion for preliminary injunction.
That discrepancy is not relevant for purposes of this appeal,
however, and we refer to all of the entities together under the
Siemens name.
10
reaching back to 1991.10 Siemens ultimately produced seven
years of records, with two to five of those years later forming
the “Base Period” for Kelmar’s audit findings, depending on
the account. 11 The then-State Escheator suggested that
statistical sampling and estimation were an option to determine
what the remaining “‘historic’ liability ‘might’ have been”
since “there is a very large universe of data to be researched”
and “there may be circumstances where adequate books and
records do not exist” to determine exact liability. (J.A. at 103
¶ 99, 291-92.) He further informed Siemens that “statistical
sampling is an option that is entirely at the request of the
holder” and followed that up with the caveat that “both
Delaware and the Holder should be bound to the result,” should
Siemens “choose to pursue” the sampling option “and
10
The look-back period was eventually shortened to
begin at 1994, in accordance with the 2017 UPL amendments,
which became effective February 2, 2017. See Marathon
Petroleum, 876 F.3d at 486 n.6 (explaining that the 2017
amendments “limit[ed] the look-back period of all audits to ten
years[.]” (citing S.B. 13, 149th Gen. Assemb. (Del. 2017))).
11
The Base Period refers to a period for which records
exist that is chosen to calculate the audited company’s liability.
See 12 Del. Admin. Code § 104.2.19.1 (“If for certain periods
the amount of reportable property cannot be ascertained from
the books and records of the Holder, projection techniques may
be used to determine the reportable amounts for such periods.
Such determination shall be made by first examining records
during periods in which records exist to establish a “Base
Period” of data from which statistical inferences can be made
for periods in which records are incomplete or do not exist.”).
11
Delaware agrees to it[.]” (J.A. at 103 ¶ 99 (emphasis added),
292.) Siemens rejected his suggestion.
Despite that, Kelmar conducted an estimation analysis
anyway. It created populations of presumed abandoned debts
from checks and credits “from five years of records from
sixteen accounts payable disbursements accounts, six payroll
disbursements accounts, accounts receivable agings for four
entities, and [one Siemens entity’s] unapplied cash account for
the purpose of estimating a liability, more than 9,000 items of
which had owner addresses in other states.” (J.A. at 103
¶ 101.)
In 2015, after Kelmar had received and reviewed
voluminous records from Siemens, Siemens objected to
Kelmar’s use of an estimation methodology, particularly one
with data that incorporated items with owner addresses in other
states, since Siemens contends funds belonging to such owners
are not escheatable to Delaware. Delaware informed Siemens
of its intent to continue using that estimation methodology
even after the United States District Court for the District of
Delaware ruled in Temple-Inland, Inc. v. Cook that the
estimation methodology used there violated due process. 192
F. Supp. 3d 527, 550 (D. Del. 2016) (“To put the matter gently,
defendants have engaged in a game of ‘gotcha’ that shocks the
conscience.”).
In December 2017, 12 pursuant to Delaware’s then-
recently enacted, “limited time offer” to expedite certain
12
Although Siemens points to a December 6, 2017,
email as its declaration of intent to seek an expedited audit, an
12
examinations, see Del. Code Ann. tit. 12, § 1172(c), Siemens
elected to expedite its audit.13 (J.A. at 90-91 ¶¶ 57, 60.) At
that point, Siemens alleges that it “had already responded to all
attachment to the subsequently executed expedited audit
examination form lists the date of notice of intent to expedite
as December 11, 2017. (Compare J.A. at 260, 281 with J.A. at
264; see also J.A. at 277 (email from Siemens stating “[I]t is in
Siemens’[s] best interests to conclude this audit as quickly as
possible prior to December 11, 2019[.]”).) That five-day
difference has no effect on our analysis, and we leave it to the
District Court to resolve any factual disputes, as necessary, on
remand.
13
The statute permitted any company whose
“examination [was] authorized by the State Escheator before
February 2, 2017” to elect an expedited examination if, by
December 11, 2017, it provided written notification of its
“intent to expedite the completion of the pending
examination.” Del. Code Ann. tit. 12, § 1172(c)(1) (2017),
amended by Del. Code Ann. tit. 12, § 1172(c)(1) (2021). If
written notification was provided in accordance with paragraph
(c)(1) and the company “respond[ed] within the time and in the
manner established by the State Escheator to all requests for
records, testimony, and information made by the person
conducting the examination,” the State Escheator was
obligated to “complete the examination and provide an
examination report … within 2 years from the date of receipt
of the written notification and … [also to] waive interest and
penalty under §§ 1183 and 1184 of this title.” Id. § 1172(c)(2)
(2017) (emphasis added), amended by Del. Code Ann. tit. 12,
§ 1172(c)(2) (2021).
13
of Kelmar’s information requests and w[as] in the ‘defense’
phase of the audit in which [the company was] researching to
rebut the presumption of abandonment for populations of
uncashed checks and customer credits … so [Siemens]
believed [it] could easily satisfy the requirements of an
expedited audit within the two-year deadline.” (J.A. at 91-92
¶ 60.) The State Escheator accepted Siemens’s election on
January 16, 2018. According to a written schedule attached to
that acceptance, the “Defendants considered [Siemens’s] audit
to be in ‘Phase III[,]’” which, again, Siemens contends is “the
phase of the audit after the auditors have completed data
collection[,]” when the company has “the opportunity to
review, reconcile, remediate and perform remediation outreach
on any items that have been identified as potential unclaimed
property.”14 (J.A. at 105 ¶¶ 106-07 (quoting 12 Del. Admin.
Code § 104-2.22.1), 264, 266, 274.) Siemens’s complaint
acknowledges that it limited its research and remediation
14
According to the Defendants, “[r]emediation is a term
of art that describes the process by which the holder researches
property that is presumed unclaimed based on the holder’s
records.” (Answering Br. at 11 n.6.) See 12 Del. Admin. Code
§§ 104-2.17.6 (“During the pendency of the examination, if
applicable and practicable, the Auditor shall provide to the
Holder in writing … Explanation of the process used to
determine that items are unclaimed property … Explanation of
why documentation provided by Holder is not sufficient to
remediate an item[.]”), 2.17.7 (“Holders shall be given the
opportunity to review, reconcile, remediate and, where
applicable under Delaware law, perform due diligence on any
items that have been identified as potential unclaimed
property.”), 2.22.1 (same).
14
efforts to those “checks and customer credits over which [it
believed] Delaware would have escheat jurisdiction under
federal law[.]” (J.A. at 105 ¶ 108.)
Months later, on June 10, 2019, Kelmar provided
Siemens with two Interim Status Reports, calculating the
results of Siemens’s remediation efforts with respect to two
different audited entities. Both reports were based on
Siemens’s remediation efforts through June 7, 2019, and
neither was a request for payment. One report calculated
$22,406,758.17 of liability, of which $21,280,167.37 was an
estimate, and the other calculated $17,788,691.36 of liability,
of which $16,538,946.61 was an estimate. In other words, the
audit reports “estimated an additional liability of $37.8 million
to Delaware for 7 years where records did not exist based on
checks and credits with owner addresses in other states from
the 5 year[ ] [Base Period], many of which were not
researchable.” (J.A. at 432 (citing J.A. at 74 ¶ 2, 105-06
¶¶ 109, 112).) That means that, under Kelmar’s calculations in
its interim reports, approximately 94% of the total unclaimed
property Siemens was to turn over to Delaware consisted of an
extrapolated guess.15
15
To give an example, Kelmar identified “relatively
few unreported abandoned checks with payee addresses in
Delaware … or lacking an address[.]” (J.A. at 107 ¶ 116.) As
alleged in the complaint, for one Siemens entity, Kelmar only
identified “$161.41 of unreported aged checks with payee
addresses in either Delaware ($83.19) or lacking an address
($78.27) (an average of $32.28/year)[.]” (J.A. at 107-108,
¶ 116.a.) “[Y]et Kelmar estimated a liability of $776,358.99
for five years where records did not exist (an average of
15
On July 15, 2019, Siemens alleges, it informed
Delaware that it “had exhausted all efforts to remediate any
further items, and requested a final report of examination and
Statement of Findings and Request for Payment[.]” (J.A. at
106 ¶ 110.) By Siemens’s telling, the Delaware State
Escheator then threatened to terminate Siemens’s expedited
audit if it “did not remediate the remaining population items
with owner addresses in other states, which she asserted
consisted of at least 6,000 items.” (J.A. at 106 ¶ 110.) The
State Escheator again informed Siemens, on September 30,
2019, of its failure to perform required research on the “more
than 6,000 ‘open’ checks and credits to prove they were not
abandoned property[.]” (J.A. at 449-50 (preliminary
injunction evidentiary record).) Siemens did not challenge the
nature of the property (i.e., its status as “abandoned”), but
instead asserted that the State Escheator had no authority to
require research of those items because “Delaware could not
claim any of those items which all had addresses in states other
than Delaware[,]” and “Siemens had already provided the
payee and customer addresses to Delaware for each item.”
(J.A. at 450 (preliminary injunction evidentiary record).)
The parties’ positions became further entrenched on
October 7, 2019, when Siemens again requested the final
examination report because it “had exhausted its efforts to
$155,271.80/year).” (J.A. at 108, ¶ 116.a.) Similar
discrepancies exist between the actual sums of unclaimed
property for years with records and the estimated liabilities for
years without existing records for numerous entities and
property types included in Kelmar’s audit.
16
research all ‘open’ checks and credits with payee and/or
customer addresses in Delaware, in a foreign country, and/or
where the address was unknown.” (J.A. at 450 (preliminary
injunction evidentiary record).) The Secretary of Finance
informed Siemens that “Delaware cannot provide a final
examination report” until it has obtained the “additional
research of checks and customer credits with owner addresses
in other states to rebut against them being abandoned
property[.]” (J.A. at 450 (preliminary injunction evidentiary
record).) He also stated that “the Interim Status Reports show
the liability calculation based on information Delaware
received” and that “he did not know why the parties could not
negotiate a settlement based on those reports.” (J.A. at 450-51
(preliminary injunction evidentiary record).)
Later, on November 4, 2019, the Secretary of Finance
told Siemens “that Delaware is not obligated to issue a final
examination report and that doing so would allow Siemens to
use the expedited audit process as a vehicle for litigation. [He]
asked Siemens for a settlement offer to ‘advance the ball’ and
indicated that” the state would not change its estimation
methodology. (J.A. at 451 (preliminary injunction evidentiary
record).) Siemens rejected the Secretary’s suggestion and the
Defendants subsequently terminated Siemens’s expedited
audit on December 11, 2019. That termination reverted
Siemens’s audit to the ordinary examination program, putting
interest and penalties back on the table.16 The commencement
of this lawsuit followed on December 17, 2019.
16
It is unclear whether the termination of the expedited
audit also reinstated the parties’ 2009 agreement that originally
governed the Siemens audit and granted Siemens a potential
17
C. Procedural Background
Siemens’s complaint seeks declaratory and injunctive
relief on the basis of four claims. First and foremost, Siemens
contends that Delaware’s escheat laws are preempted by the
Texas trilogy (Count I). Specifically, Siemens alleges that
there is no circumstance under which Delaware may claim all
open items, given the Texas trilogy’s rules of priority. As a
result, because Siemens already provided Delaware with the
records establishing out-of-state owner addresses for all open
items, Delaware has no authority to obtain any other records
regarding those open items. In addition, Siemens alleges
Fourteenth Amendment substantive due process violations
(Count II), Fourteenth Amendment procedural due process
violations (Count III), and Fourth Amendment search or
seizure violations (Count IV).17
Looking particularly at Count III, Siemens argues that
the following conduct by the Defendants violated its right to
procedural due process:
• “Defendants refuse[d] to conclude [Siemens’s] audit by
the statutory deadline, thereby subjecting [Siemens] to
waiver of interest and penalties. But we assume it did not, as
Siemens alleges that it now faces the statutorily mandated
accumulation of interest and penalties during the ongoing
audit.
17
The District Court found it unclear whether Siemens
alleged an unreasonable search or seizure, so it considered both
in its decision to dismiss that claim.
18
mandatory interest and penalties. However, the UPL
does not provide for pre-compliance review by a neutral
arbiter and thus [Siemens was] denied the opportunity
to defend against the refusal to terminate their audit and
the loss of the associated benefits. The Secretary
rubber-stamped the State Escheator’s decision, but
[Siemens was] not afforded an opportunity to present
[its] case to the Secretary.” (J.A. at 119 ¶ 166.)
• “Defendants rely on the use of contingent fee auditors
whose financial self-interest influences the conduct and
results of the audit.” (J.A. at 119 ¶ 167.)
• “Kelmar selected the populations to which to apply the
presumption of abandonment for research (including
items that could not [be] researched due to a lack of
records), made evidentiary determinations, and
calculated estimated liabilities.” (J.A. at 119 ¶ 168.)
Siemens asserts similar allegations in support of Count II, its
substantive due process claim. It emphasizes again the
Defendants’ problematic “use of estimation and reliance on
records that are not researchable[,]” (J.A. at 117 ¶ 153,) and
their reliance “on the use of contingent fee auditors whose
financial self-interest influences the conduct and results of the
audit.” (J.A. at 118 ¶ 161.) Lastly, as to Count IV, Siemens
alleges that the Defendants’ audit process amounted to an
unreasonable search or seizure because the state was holding
hostage its final audit report, thereby increasing the
accumulation of interest and penalties, until Siemens
remediated the remaining 6,000 open items.
The Defendants moved to dismiss the complaint
pursuant to Federal Rules of Civil Procedure 12(b)(1) and
19
12(b)(6), arguing that Siemens’s claims were unripe and that
Siemens failed to state a claim. The Defendants also raised
issues of abstention and comity.
Then, approximately four months after the lawsuit
began and while the motion to dismiss was still pending, the
Defendants sent Siemens a letter stating that “Siemens remains
in the standard examination process” and that “the State
remains committed to completing [that] examination in a
reasonable and timely manner.” (J.A. at 646.) Attached to that
letter was “a consolidated schedule of the current open items
requiring research and remediation[,]” suggesting that
remediation was necessary “to move the examination forward.”
(J.A. at 646.) In response, Siemens filed a motion for
preliminary injunction. It contended that the open items were
for checks and credits that it “had been unable to remediate due
to a lack of records or … were not necessary to research to
determinate a liability to Delaware because they have
addresses outside of Delaware.” (J.A. at 433.) Stated
differently, Siemens argued that the “Defendants have already
identified the most property Delaware can claim and [Siemens]
ha[s] exhausted [its] efforts to rebut any presumption of
abandonments with respect to that property.” (J.A. at 428.) So,
according to Siemens, the “only purpose for continuing to audit
is to pressure [Siemens] to accept an inflated monetary
settlement to end it and to prevent [Siemens] from re-litigating
the conduct in Temple-Inland Inc v. Cook[.]” (J.A. at 428-29.)
On that basis, Siemens sought “to enjoin [the] Defendants from
enforcing the audit, judicially or otherwise, outside this lawsuit
until a final ruling on the merits of [Siemens’s] claims.” (J.A.
at 429.)
20
The District Court addressed the Defendants’ motion to
dismiss and Siemens’s motion for a preliminary injunction in
one opinion. It dismissed all claims against the State of
Delaware, with prejudice, on the basis of sovereign immunity.
It further dismissed, without prejudice, the preemption claim
(Count I) and the substantive due process claim (Count II) as
unripe and the Fourth Amendment claim (Count IV) for failure
to state a claim. As for the procedural due process claim
(Count III), the Court declined to dismiss the portion of it based
on the use of a self-interested third-party auditor but dismissed,
without prejudice, the portion based on the termination of the
expedited audit without pre-enforcement review. Turning to
the motion for preliminary injunction on Siemens’s sole
surviving claim – the “procedural due process claim[] for use
of self-interested third-party auditors” – the Court held that
Siemens had failed to establish that it would suffer irreparable
injury absent an injunction. (J.A. at 54-61.) Siemens has
timely appealed.
II. DISCUSSION
Siemens challenges the District Court’s denial of a
preliminary injunction, contending that the Court’s irreparable
injury analysis erroneously applied our precedent. Using the
denial of preliminary relief as a jurisdictional hook, Siemens
further argues that we may – and should – exercise pendent
jurisdiction to review and reverse the District Court’s dismissal
of the preemption claim and the expedited-audit procedural
due process claim. For the reasons that follow, we agree that
the District Court erred when it concluded that Siemens would
not suffer irreparable injury absent a preliminary injunction.
And because review of the underlying dismissal of Siemens’s
preemption and procedural due process claims is necessary to
21
meaningfully review the denial of the request for a preliminary
injunction, we will exercise pendent jurisdiction to review the
challenged dismissals. 18 While we ultimately agree that the
District Court erred in dismissing the preemption claim as
unripe, we decline to rule on the merits of that claim until there
has been further development of the evidentiary record.
Finally, we will affirm the District Court’s dismissal of the
expedited-audit procedural due process claim for failure to
state a claim.
A. Irreparable injury
We begin with the question that indisputably allows
Siemens to bring this interlocutory appeal:19 Did the District
18
On appeal, Siemens does not challenge the District
Court’s dismissal of all claims against the State of Delaware
on the basis of sovereign immunity or the dismissal of its
Fourth Amendment claim. And, although the District Court
dismissed the preemption and substantive due process claims
as unripe in one combined analysis, Siemens does not
challenge the dismissal of the substantive due process claims.
19
The District Court had jurisdiction under 28 U.S.C.
§§ 1331, 2201, and 2202. We have jurisdiction to review the
District Court’s order denying preliminary injunctive relief
under 28 U.S.C. § 1292(a)(1). “In reviewing a preliminary-
injunction order, findings of fact are assessed for clear error,
legal conclusions are reviewed de novo, and the ultimate
decision to grant relief is reviewed for abuse of discretion.”
Issa v. Sch. Dist. of Lancaster, 847 F.3d 121, 130 (3d Cir.
2017); see also Kos Pharms., Inc. v. Andrx Corp., 369 F.3d
22Court err in denying Siemens’s motion for a preliminary
injunction for lack of irreparable harm? The answer is yes.
A motion for preliminary injunctive relief requires a
district court to consider the following four factors:
(1) the likelihood that the moving party will
succeed on the merits; (2) the extent to which the
moving party will suffer irreparable harm
without injunctive relief; (3) the extent to which
the nonmoving party will suffer irreparable harm
if the injunction is issued; and (4) the public
interest.
Shire US Inc. v. Barr Labs., Inc., 329 F.3d 348, 352 (3d Cir.
2003) (citations omitted). When it comes to the second factor,
irreparable harm, “[t]he law ... is clear in this Circuit: In order
to demonstrate irreparable harm the plaintiff must demonstrate
potential harm which cannot be redressed by a legal or an
equitable remedy following a trial. The preliminary injunction
must be the only way of protecting the plaintiff from harm.”
Campbell Soup Co. v. ConAgra, Inc., 977 F.2d 86, 91 (3d Cir.
1992) (internal quotation marks and citation omitted).
Additionally, “[t]he ‘requisite feared injury or harm must be
irreparable – not merely serious or substantial,’ and it ‘must be
of a peculiar nature, so that compensation in money cannot
700, 708 (3d Cir. 2004) (“Despite oft repeated statements that
the issuance of a preliminary injunction rests in the discretion
of the trial judge[,] whose decisions will be reversed only for
‘abuse,’ a court of appeals must reverse if the district court has
proceeded on the basis of an erroneous view of the applicable
law.” (citation omitted)).
23
atone for it.’” Id. at 91-92 (quoting ECRI v. McGraw-Hill, Inc.,
809 F.2d 223, 226 (3d Cir. 1987)).
In assessing the alleged irreparable harm in this case,
the District Court was guided by our decision in New Jersey
Retail Merchants Association v. Sidamon-Eristoff, 669 F.3d
374 (3d Cir. 2012), which similarly considered a challenge to
the constitutionality of an unclaimed property statute. The
plaintiffs in that case objected to a New Jersey statute and filed
motions for a preliminary injunction to prevent the state from
enforcing it. They argued that it violated the Supremacy
Clause by including a “place-of-purchase presumption.”20 Id.
at 382, 385. The district court granted, and we affirmed, their
requests to preliminarily enjoin the prospective enforcement of
the statute’s place-of-purchase presumption and the regulatory
guidance elaborating on that presumption. Id. at 384-85, 395-
96. In affirming, we concluded that the plaintiff-companies
20
The “place-of-purchase presumption” referred to the
following provision of the challenged statute:
If the issuer of a stored value card does not have
the name and address of the purchaser or owner
of the stored value card, the address of the owner
or purchaser of the stored value card shall
assume the address of the place where the stored
value card was purchased or issued and shall be
reported to New Jersey if the place of business
where the stored value card was sold or issued is
located in New Jersey.
N.J. Retail Merchs. Ass’n v. Sidamon-Eristoff, 669 F.3d 374,
384 (3d Cir. 2012) (quoting N.J. Stat. Ann. § 46:30B–42.1c
(2010)).
24
would suffer irreparable harm absent the issuance of a
preliminary injunction. We reasoned that they “must either
face prosecution and fines for noncompliance or turn over, in
cash, the remaining value of existing gift cards that have not
been redeemed within two years[,]” i.e., the amount presumed
abandoned under the statute, and that “[t]hey would not be
entitled to receive those funds back if [the challenged statute
was] later found to be unconstitutional, due to state sovereign
immunity.” Id. at 388; see also id. at 396.
That dilemma and the resulting inability to later demand
a refund were premised on the prospect of New Jersey’s
enforcement of the challenged statute. Id. at 388 (“If the State
enforces Chapter 25, SVC Issuers must either face prosecution
and fines for noncompliance or turn over, in cash, the
remaining value of existing gift cards that have not been
redeemed within two years.”). Here, the existence of
irreparable harm is even clearer because the enforcement of
Delaware’s statute is not prospective; it is actual and ongoing.
Siemens is under audit and has been for over a decade. 21
Although the District Court considered our decision in New
Jersey Retail Merchants in its irreparable injury determination,
it held that any noncompliance costs are contingent on the
“completion of the audits, which has not occurred” and which
“there is no indication” will occur “imminently.” (J.A. at 57-
58.) On that basis, the District Court concluded that, “in
21
For the same reason, Siemens has standing to sue,
which the Defendants do not dispute. The imminence of
enforcement may be an issue in certain cases with respect to
the ripeness of a claim, but that too is not an issue here, for the
reasons explained infra at Section II.C.
25
contrast to the plaintiffs in N.J. Retail, … [Siemens] [is] not
currently in the position of having to choose between
prosecution or fines for noncompliance versus turning over, at
or by a set date, funds which they cannot recover even if they
succeed on the merits due to state sovereign immunity.” (J.A.
at 58 (citation omitted).) That conclusion, however, fails to
take account of the statutorily mandated accumulation of
interest and penalties during the ongoing audit, regardless of
any specific demand for payment by the Defendants.
The Delaware UPL expressly mandates that “[a] holder
of property presumed abandoned and subject to the custody of
the State Escheator shall file an annual report to the State
Escheator concerning the property[,]” Del. Code Ann. tit. 12,
§ 1142, and “on filing a report under § 1142 … the holder shall
[then] pay or deliver to the State Escheator the property
described in the report.” Id. § 1152. That payment
requirement attaches interest and penalties unless the State
Escheator specifically waives payment or utilizes the expedited
examination process to demand payment. In fact, under title
12, section 1183(a) of the Delaware Code, the interest and
penalties begin accumulating automatically “from the date the
amounts or property were due … until paid.” In other words,
that accumulation does not begin on the date the state demands
payment or the date it submits a final report to Siemens; the
accumulation begins after the property is statutorily presumed
abandoned, which is when the annual report for that property
was due. See id. §§ 1142, 1152, 1183; see also id. § 1144(d)
(acknowledging that the State Escheator may grant an
extension to file a report under § 1142 for good cause;
explaining that, if an extension is granted, a holder’s “payment
or partial payment” of the estimated amount that “ultimately
will be due” will terminate the “accrual of interest on the
26
amount paid”). And the state can collect, in interest, up to
“50% of the amount required to be paid[,]” with that interest
accruing “at 0.5% per month on outstanding unpaid amounts”
from that due date, in addition to collecting overlapping,
similar penalties for payment or report submission delays. Id.
§ 1183. Thus, in considering the audit, the District Court paid
insufficient heed to a holder’s payment obligations under the
statute and the consequences of not meeting those obligations.
The District Court instead focused on what it viewed as
the speculative and contingent nature of the audit’s completion.
But even if enforcement of the UPL in this case could rightly
be viewed as speculative, New Jersey Retail Merchants
suggests that contingency does not prevent a finding of
irreparable injury.22 Indeed, that case did not arise from an
audit or any specific dispute between a company and the state.
22
That does not mean any speculative harm can
constitute irreparable harm. Compare Ohio Oil v. Conway,
279 U.S. 813, 814 (1929) (referring to irreparable injury that is
“certain”), with Brown v. Chote, 411 U.S. 452, 456 (1973)
(referring to the “possibility that irreparable injury would have
resulted”), and Granny Goose Foods v. Bhd. of Teamsters, 415
U.S. 423, 441 (1974) (measuring “likelihood” of irreparable
injury). But, in an instance like this, the irreparability of the
harm can be measured even prior to enforcement. Siemens’s
choice between risking fines for nonpayment and paying non-
refundable money to avoid the potential enforcement of fines
is very real right now, after it has spent more than a decade in
a contentious audit process with Delaware and has lost the
protection against incurring interest and penalties it had as part
of the expedited audit.
27
It arose from a challenge to an escheatment law that the
plaintiffs contended was unenforceable on its face. Yet we
agreed there was irreparable injury, despite the statute not yet
having been enforced against the plaintiffs. N.J. Retail
Merchs. Ass’n, 669 F.3d at 386, 388. The case before us now
presents an even stronger case for acknowledging such harm.
Whether through the completion of an actual audit or
Siemens’s independent duty to make payments, Siemens is
faced with a similar decision as the one at issue in New Jersey
Retail Merchants – between prosecution and fines for
noncompliance or turning over irretrievable cash for property
that the state, through its self-interested third-party auditor,
may have impermissibly categorized as abandoned and
escheatable to Delaware. There is a real, and no doubt
intended, in-terrorem effect to the escalating penalties
provided for in the statute, whether or not the penalties have
been finally assessed as due and owing. The threat of penalties
is meant to push companies to comply, and that threat could
constitute an injury in itself. The District Court thus
erroneously applied our precedent in New Jersey Retail
Merchants.
A flawed irreparable harm analysis does not, however,
automatically mean that the correct application of the rule from
New Jersey Retail Merchants would require a finding of
irreparable harm in this case. The existence and magnitude of
the penalties Siemens faces does not appear in the record,
although there is reason to believe it is commensurate with the
millions of dollars in liability reflected in Kelmar’s interim
reports. Because the matter must in any event be remanded to
address the erroneous dismissal of the preemption claim as
unripe, see infra Section II.C, we will leave it to the District
28
Court to consider whether Siemens has actually established
irreparable harm on the basis of its surviving claims.23
B. Jurisdiction over the dismissal of the
preemption and procedural due process
claims
Siemens next asks us to go a step further and review the
District Court’s dismissal of its preemption and expedited-
audit procedural due process claims. The Defendants contest
our authority to do so, arguing that “Siemens’[s] baseless
23
To aid in that determination, we note that the District
Court was correct when it rejected Siemens’s contention that
“a likelihood for success on the merits of a procedural due
process claim alone is sufficient in the Third Circuit to satisfy
the ‘irreparable harm’ inquiry.” (J.A. at 60.) Our precedent
makes clear that:
In order to obtain a preliminary injunction,
plaintiffs must show both (1) that they are likely
to experience irreparable harm without an
injunction and (2) that they are reasonably likely
to succeed on the merits. A court may not grant
this kind of injunctive relief without satisfying
th[o]se requirements, regardless of what the
equities seem to require.
Adams v. Freedom Forge Corp., 204 F.3d 475, 484 (3d Cir.
2000); see also Campbell Soup Co. v. ConAgra, Inc., 977 F.2d
86, 90-91 (3d Cir. 1992) (“[T]o support a preliminary
injunction, plaintiff must show both a likelihood of success on
the merits and a probability of irreparable harm.” (citation
omitted)).
29
motion for a preliminary injunction should not be permitted to
serve as a Trojan Horse to secure appellate review of
interlocutory orders.” (Answering Br. at 31.) Because
Siemens sought injunctive relief on the basis of all of its claims,
and because the Court ended its consideration of whether
injunctive relief was warranted on the preemption and
expedited-audit procedural due process claims after dismissing
them, it is appropriate to review those rulings to ensure
meaningful review of the appealable order. Accordingly, we
will exercise pendent jurisdiction.
“The doctrine of pendent appellate jurisdiction, in its
broadest formulation, allows an appellate court in its discretion
to exercise jurisdiction over issues that are not independently
appealable but that are intertwined with issues over which the
appellate court properly and independently exercises its
jurisdiction.” E.I. DuPont de Nemours & Co. v. Rhone
Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187,
202-03 (3d Cir. 2001). A “narrow” exception to be used
“sparingly[,]” pendent appellate jurisdiction is properly
exercised to review “inextricably intertwined orders” or when
“review of the non-appealable order … is necessary to ensure
meaningful review of the appealable order.” Id. at 203; see
also O’Hanlon v. Uber Techs., Inc., 990 F.3d 757, 765 (3d Cir.
2021) (“Simply put, if we can adjudicate the appealable order
‘without venturing into otherwise nonreviewable matters, we
have no need – and therefore no power – to examine’ those
matters.” (citation omitted)).
We have previously recognized that when a district
court relies on the dismissal of a claim in denying a preliminary
injunction, we may exercise pendent jurisdiction to review the
dismissal and thereby give full review to the denial of the
30
preliminary injunction. In Allegheny County Sanitary
Authority v. United States Environmental Protection Agency,
the district court dismissed all but one of the claims in ruling
on a motion to dismiss and then denied a preliminary
injunction because the plaintiff was not likely to succeed on the
merits of the remaining claim. 732 F.2d 1167, 1172-73 (3d
Cir. 1984). On appeal from the denial of the preliminary
injunction, we exercised pendent jurisdiction over the motion
to dismiss because “resolution of [the preliminary injunction]
depends to some extent on the correctness of the district court’s
dismissal.” Id. at 1173. We reasoned that “it is not possible to
separate the issue” because “[i]n ruling on the preliminary
injunction, the court did not consider the likelihood of success
on the [claim that] had been dismissed[,]” and thus “if the court
erred in [deciding the motion to dismiss], the denial of the
preliminary injunction might be called into question.” Id.The dismissals of the preemption and expedited-audit
procedural due process claims here are analogous to the
dismissal of the claim in Allegheny County, and therefore an
exercise of pendent jurisdiction over them is warranted to
ensure meaningful review of the District Court’s denial of
Siemens’s motion for a preliminary injunction. The
Defendants’ arguments to the contrary are unpersuasive. They
attempt to distinguish Allegheny County, saying that, unlike the
denial of injunctive relief in that case, which was based on a
failure to show “likelihood of success” on the merits, the merits
of Siemens’s claims “had no bearing on the District Court’s
injunction decision.” (Answering Br. at 32-33.) According to
the Defendants, the District Court “would have reached the
same result even if it had not dismissed” the federal preemption
claim. (Answering Br. at 33.) But there is absolutely nothing
in the record to support that assertion, even if the Defendants
31
were correct in saying that the reasoning in Allegheny County
depended on the “likelihood of success” factor being in play.
And in our view, that premise is false. The other preliminary
injunction factors matter. As discussed above, the District
Court’s application of New Jersey Retail Merchants, and
consequently its irreparable injury determination, were
erroneous. See supra Section II.A. We therefore rightly can,
and will, exercise pendent jurisdiction over the preemption and
expedited-audit procedural due process claims.24
24
Even absent pendent jurisdiction, review of the
District Court’s dismissals may be proper pursuant to 28
U.S.C. § 1292(a)(1) because Siemens explicitly requested a
preliminary injunction on the basis of all of its claims, and the
Court’s single, combined order dismissing some of Siemens’s
claims prior to consideration of the motion for preliminary
injunction had “the same effect as an express refusal” to grant
the injunction. See 16 Charles Alan Wright, Arthur R. Miller
& Edward H. Cooper, Federal Practice and Procedure
§ 3924.1 (3d ed. 2021) (“Refusal of an explicit request for a
preliminary injunction need not be express. … Appeals have
been allowed from orders dismissing a count of the complaint
seeking preliminary and permanent injunctive relief[.]”); see
also Valenti v. Mitchell, 962 F.2d 288, 295 (3d Cir. 1992)
(“When a claim seeking injunctive relief is dismissed on
jurisdictional grounds, it has the effect of denying the ultimate
equitable relief sought by the claimant, and the order is
appealable under section 1292(a)(1).”).
32
C. Ripeness of the preemption claim
With jurisdiction established, we consider whether the
District Court erred in dismissing Siemens’s preemption claim
as unripe.25 Siemens argues that the claim is ripe because the
Defendants’ authority to conduct audits of checks and credits
with owner addresses in other states is limited to records
confirming the owners’ out-of-state addresses, and any further
attempt to audit such records is preempted by the priority rules
of escheatment. Accepting, as we must, all of Siemens’s well-
pled allegations when reviewing a motion to dismiss, we agree
that the District Court prematurely dismissed the preemption
claim as unripe.
At its core, “[t]he ripeness doctrine serves to determine
whether a party has brought an action prematurely and
counsels abstention until such time as a dispute is sufficiently
concrete to satisfy the constitutional and prudential
requirements of the doctrine.” Khodara Envtl., Inc. v. Blakey,
376 F.3d 187, 196 (3d Cir. 2004) (internal quotation marks and
citation omitted). The purpose of the ripeness doctrine “is to
prevent the courts … from entangling themselves in abstract
disagreements over administrative policies, and also to protect
the agencies from judicial interference until an administrative
25
“We exercise plenary review over … a district court’s
dismissal for lack of ripeness[.]” Plains All Am. Pipeline L.P.
v. Cook, 866 F.3d 534, 538 (3d Cir. 2017). “Where, as here,
the defendants move to dismiss a complaint under Rule
12(b)(1) for failure to allege subject matter jurisdiction, we
treat the allegations in the complaint as true and draw all
reasonable inferences in favor of the plaintiff.” Id.
33decision has been formalized and its effects felt in a concrete
way by the challenging parties.” Abbott Labs. v. Gardner, 387
U.S. 136, 148-49 (1967), abrogated on other grounds by
Califano v. Sanders, 430 U.S. 99 (1977); accord Plains, 866
F.3d at 539.
While the “contours of the ripeness doctrine are
particularly difficult to define with precision whe[re, as here,]
a party seeks a declaratory judgment,” we are guided by three
key factors: “the adversity of the interest of the parties, the
conclusiveness of the judicial judgment[,] and the practical
help, or utility, of that judgment.”26 Marathon Petroleum, 876
F.3d at 496 (second alteration in original) (internal quotation
marks and citations omitted); see also NE Hub Partners, L.P.
v. CNG Transmission Corp., 239 F.3d 333, 341 (3d Cir. 2001)
(describing ripeness as “a matter of degree whose threshold is
26
The first factor, the adversity of interests, asks us to
consider whether “the claim involves uncertain and contingent
events, or presents a real and substantial threat of harm,” the
former being likely unripe and the latter likely ripe. NE Hub
Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333, 342
n.9 (3d Cir. 2001). Under the conclusiveness factor we
consider whether “issues are purely legal (as against factual),”
in which case they are likely ripe, or whether “further factual
development would be useful,” in which case they may be
unripe. Id. Finally, the practical utility factor requires us to
consider the “[h]ardship to the parties of withholding”
judgment or whether “the claim involves uncertain and
contingent events.” Id. Again, the more real and immediate
the harm, or the less contingent it is, the more likely the case is
to be ripe for decision.
34
notoriously hard to pinpoint”). When assessing those three
considerations in the context of escheat challenges, we have
differentiated between two types of claims. The first are
challenges to the scope of an escheat audit, which may not be
ripe until the state formally demands compliance with the audit
or makes a final determination. See Marathon Petroleum, 876
F.3d at 496-97 (holding that a claim focusing on the scope and
intensity of the audit would not be ripe because “[t]he
[plaintiffs’] challenge is predicated on the speculative
assumption that Delaware will ultimately attempt to escheat
property that it is not entitled to escheat”); Plains, 866 F.3d at
542 (“[Plaintiff] does not argue that Delaware lacks the
authority to conduct its audit; rather, [plaintiff’s] preemption
claim is directed at the statute’s estimation provisions. And[,]
… Kelmar’s audit has not yet begun[.]”). That is so because,
prior to the conclusion of an audit, a scope challenge may well
have within it jurisdiction-defeating problems related to each
of the three ripeness factors. It may lack adversity because the
alleged harms of an incorrect outcome or an illegal
methodology are uncertain (i.e., it is still unknown whether the
state will actually reach an erroneous calculation or employ an
unlawful method). Marathon Petroleum, 876 F.3d at 497;
Plains, 866 F.3d at 541. It may lack conclusiveness because,
even when the issue is a facial challenge to a state statutory
provision, further factual development may be useful to
understand how the statute is interpreted and put into operation
by the state whose law it is. Plains, 866 F.3d at 543. And,
finally, assuming the suspension of penalties and interest, the
suit may lack practical utility because the state’s calculation of
unclaimed property liability using a challenged methodology
does not necessarily require any further action from the audited
company, and thus the audited company may suffer no
35
hardship by waiting until the audit is complete to bring the
claim. Id. at 544.
The second type of escheat challenge is to a state’s
auditing authority. That type has better odds of being ripe
before an audit is complete. See Marathon Petroleum, 876
F.3d at 499. Anchoring our analysis again to the three ripeness
factors, we have held there is sufficient adversity in an
auditing-authority challenge when a state has actually
requested information and the request is itself the claimed harm
(i.e., the challenged actions of the state during the audit have
already occurred). Id. at 498-99; NE Hub, 239 F.3d at 343-44.
We have said conclusiveness exists because a holding that the
state lacks authority to use a challenged audit process is a legal
determination that would definitively determine the parties’
rights with respect to the continuation of the challenged
process. Marathon Petroleum, 876 F.3d at 498-99; NE Hub,
239 F.3d at 344. And we have also said practical utility exists
if a ruling clarifies the parties’ rights with respect to the
continuation of the audit and would inform the parties’
decisions about compliance and enforcement. Marathon
Petroleum, 876 F.3d at 498-99.
Here, the District Court viewed Siemens’s preemption
claim as a scope challenge and held that there was a lack of
adversity, and so a ripeness problem, because the Defendants
had yet to conclude their audit. (J.A. at 31-33 (“[Siemens]
do[es] not, however, challenge [the] Defendants’ authority to
audit them generally or [the] Defendants’ authority to audit any
of their entities. In other words, like the plaintiff in Plains but
unlike those in Marathon, [Siemens] challenge[s] only the
scope of the audit to which [it] may be subjected, not whether
[it] may be subject to any unclaimed property audit ‘at
36
all.’”).)27 Affording Siemens all “favorable inferences to be
drawn from the complaint[,]” NE Hub, 239 F.3d at 341, and
recognizing that the distinction between scope and authority
challenges may at times be very thin, we disagree with the
District Court and read Siemens’s complaint as a challenge to
the Defendants’ audit authority as well.
Put simply, Siemens’s preemption claim alleges that
after an eleven-year saga, it has provided all records necessary
for the Defendants to determine whether they may escheat
property pursuant to the Texas trilogy. Nevertheless, says
Siemens, in an attempt to inflate the amount owed to Delaware
and to pressure Siemens into a settlement, the Defendants have
refused to issue a final report unless they get additional
information on property that is not escheatable to Delaware
under federal common law. In other words, according to
Siemens, “no further legitimate auditing can change the
liability to Delaware” because “Kelmar already identified all
potential abandoned property and because Siemens’[s] records
showed owner addresses in other states, [so] ‘the audit is
effectively at an end.’” (Opening Br. at 39 (quoting Marathon
27
The District Court did acknowledge that Siemens
“challenge[s] [the] Defendants’ authority to audit certain of
their records and to use those records as a basis for an
estimation.” (J.A. at 33 (emphasis added).) Indeed, before the
District Court Siemens argued that it was “challeng[ing] [the]
Defendants’ authority to audit property Delaware cannot claim
under federal law[.]” (J.A. at 334; see also J.A. at 338 (“Here,
Plaintiffs challenge Defendants’ authority to audit 6,000
checks and credits Delaware cannot claim under the Texas
Trilogy.”).)
37
Petroleum, 876 F.3d at 499).) Accepting that allegation as
true, the preemption claim is ripe. “When the claimed injury
‘is the process itself,’ in the manner it is here, then the interests
of the parties are clearly adverse.” Marathon Petroleum, 876
F.3d at 499 (citation omitted). The conclusiveness and
practical utility considerations likewise weigh in favor of
ripeness because any judgment issued on Siemens’s
preemption claim “definitively would decide the parties’
rights” and would inform the parties’ decisions about
compliance and enforcement. NE Hub, 239 F.3d at 344.
To the extent that Siemens’s preemption claim presents
an objection to the Defendants’ use of estimation, something
that has arisen in a previous scope challenge, Plains, 866 F.3d
at 540-41, that aspect of the claim is here part and parcel of the
audit-authority challenge too. The Defendants acknowledge
that they have “asked Siemens to research and remediate
property that is not escheatable to Delaware under the Texas
priority rules … so the State may reasonably and lawfully
estimate property escheatable to Delaware for years in which
Siemens has no records.” (Answering Br. at 53.) Because
Siemens has at least arguably already complied to the fullest
extent Delaware can require of it under the Texas trilogy, the
harm Siemens seeks to avoid is an unlawful extension of the
audit process itself. 28 That the Defendants’ reason for
28
See 13B Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 3531.16 (3d ed. 2020) (“The
most promising approach to defining the ‘claim’ in
determining the scope of standing may be to begin with injury
in fact, the core element of Article III standing theory. Once a
party is properly in court to challenge a particular injury-
38
extending the audit may end up defeating Siemens’s
preemption claim does not change the prevailing nature of that
claim. Accordingly, because the preemption claim satisfies the
ripeness requirements, we will vacate the District Court’s
dismissal of that count.
D. Failure to state a procedural due process
claim based on the lack of review before
termination of the expedited audit
We next consider whether the District Court properly
dismissed the claim that the Defendants violated Siemens’s
Fourteenth Amendment procedural due process rights when
they terminated their expedited examination of Siemens’s
records even though there had been no “pre-compliance review
by a neutral arbiter[.]”29 (J.A. at 119.) The District Court held
causing event, the range of permissible argument may properly
be measured by prudential concerns. The court need not
consider arguments that are not suitable for reasons similar to
ripeness analysis. … But the court should be free to consider
the arguments that seem to provide the most secure basis for
decision without undue concern for the conceptual nexus
between argument and injury.”).
29
Again, Siemens’s complaint alleges that:
Defendants refuse to conclude Plaintiffs’ audit
by the statutory deadline, thereby subjecting
Plaintiffs to mandatory interest and penalties.
However, the UPL does not provide for pre-
compliance review by a neutral arbiter and thus
Plaintiffs were denied the opportunity to defend
39
that Siemens failed to state a claim because the benefit of an
expedited review is not a protected entitlement over which
Siemens may assert it has rights.30 Instead, the Court noted,
the State Escheator and Secretary of Finance are by statute
explicitly afforded “complete discretion” to terminate the
expedited proceedings. (J.A. at 49.) We agree and will
therefore affirm the dismissal of that claim.
“The Fourteenth Amendment protects against
deprivation of an individual interest in property without the due
process of law.” McKinney v. Univ. of Pittsburgh, 915 F.3d
956, 960 (3d Cir. 2019) (alterations omitted) (internal
quotation marks and citations omitted). “Core to the existence
of an individual property interest is the requirement that the
plaintiff have ‘a legitimate claim of entitlement to’ the interest
at issue that stems from ‘an independent source such as state
law’ or ‘rules or understandings that secure certain benefits.’”
Id. (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S.
564, 577 (1972)). The Supreme Court has made clear “that a
against the refusal to terminate their audit and the
loss of the associated benefits. The Secretary
rubber-stamped the State Escheator’s decision,
but Plaintiffs were not afforded an opportunity to
present their case to the Secretary.
(J.A. at 119.)
30
“We exercise plenary review over a district court’s
grant of a motion to dismiss, pursuant to Federal Rule of Civil
Procedure 12(b)(6), for failure to state a claim.” St. Luke’s
Health Network, Inc. v. Lancaster Gen. Hosp., 967 F.3d 295,
299 (3d Cir. 2020).
40
benefit is not a protected entitlement if government officials
may grant or deny it in their discretion.” Town of Castle Rock,
545 U.S. at 756.
Here, Siemens’s alleged property interest stems from
Delaware’s UPL. While that statutory scheme does provide to
a holder an expedited examination if the holder “responds
within the time and in the manner established by the State
Escheator to all requests for records, testimony, and
information made by the person conducting the examination,”
Del. Code Ann. tit. 12, § 1172(c)(2), it also makes clear that
granting any such review is effectively within the State
Escheator’s discretion. Section 1172(c)(2)’s mandatory
language – requiring the State Escheator to complete and
provide an examination report within two years, in addition to
waiving interest and penalties – is conditioned on the time and
manner of the property holder’s response. And those time and
manner conditions are both established and evaluated by the
State Escheator. Id. § 1172(c)(2), (c)(4). In the language of
the statute, the determination of whether the holder has met the
conditions “shall be within the complete discretion of the State
Escheator and subject only to the review of the Secretary of
Finance.” Id. § 1172(c)(4) (emphases added). Moreover, any
“resulting determination to terminate expediting the [holder’s]
examination” if the holder has not met that condition is equally
within the State Escheator’s “complete discretion[,] … subject
only to the review of the Secretary of Finance.” Id. Taken
together, those limitations make clear that the state has
reserved to its officers broad discretion to expedite the
examination process, or not, thereby undermining Siemens’s
claim to a constitutionally protected property interest. See
Tundo v. County of Passaic, 923 F.3d 283, 287 (3d Cir. 2019)
(stating that a plaintiff has “no protected interest in a benefit if
41
the government has ample discretion to deny that benefit”
where that discretion is “enough that there is no mutually
explicit understanding that the benefit will continue”).
Despite the clear text of section 1172(c), Siemens insists
that it held a “property interest in an expedited audit that would
conclude by December 6, 2019 and waive interest and
penalties” because “the only determination over which the
State Escheator has discretion” is whether Siemens responded
to “information requests during the expedited audit in the ‘time
and manner requested[.]’” (Opening Br. at 48 (emphasis
omitted) (quoting Del. Code Ann. tit. 12, § 1172(c)(2)).)
According to Siemens, that single factual condition had already
been met before it elected to expedite the examination because
“Siemens had already answered all [of the] requests” relevant
to the State Escheator’s discretion. (Opening Br. at 49.) In
Siemens’s view, the “Defendants shoehorned into that UPL
provision Siemens’[s] refusal to defend [itself] concerning
items outside [the] Defendants’ legal authority.” (Opening Br.
at 49 (emphasis omitted).) But even accepting the well-pled
facts of the complaint, as we must when reviewing a motion to
dismiss, it is clear that the UPL reserves to the discretion of the
State Escheator the determination of whether an audited party
has responded to all of the state’s requests in the time and
manner requested. See Del. Code Ann. tit. 12, § 1172(c)(4).
Consequently, Siemens’s attempt to allege a constitutionally
protected property right fails as a matter of law and so does its
procedural due process claim arising from the termination of
the expedited audit. See Olim v. Wakinekona, 461 U.S. 238,
250 (1983) (noting that a substantive interest must be at issue
to raise any due process claims because “[p]rocess is not an end
in itself” but instead has a “constitutional purpose … to protect
42
a substantive interest to which the individual has a legitimate
claim of entitlement” (citation omitted)).
E. Further development of the evidentiary
record concerning the preemption claim
Finally, Siemens asks us to decide its preemption claim
on the merits and remand for entry of a permanent injunction.
We decline to do so because further development of the
evidentiary record is needed. It is true that, “if a district court’s
ruling rests solely on a premise as to the applicable rule of law,
and the facts are established or of no controlling relevance, that
ruling may be reviewed even though the appeal is from the
entry of a preliminary injunction.” OFC Comm Baseball v.
Markell, 579 F.3d 293, 299 (3d Cir. 2009) (quoting
Thornburgh v. Am. Coll. of Obstetricians & Gynecologists,
476 U.S. 747, 757 (1986)). But that is not the situation we are
faced with here. The parties vigorously dispute whether
Siemens has provided the Defendants with sufficient
information to calculate Siemens’s obligation under the UPL.
(See Oral Arg. Tr. at 19 (Q: “[S]o when [Siemens] says, we
gave them … [everything they need] [it’s] just flat wrong?” A:
“It’s incorrect, Your Honor.”), 21 (“[I]f the state were to
answer today, many of the allegations in the complaint would
be met with denials.”).) And although preemption is a legal
issue, we cannot say with certainty whether Siemens is entitled
to declaratory and injunctive relief absent a more complete
understanding of the manner in which Delaware has been
conducting the audit, including what information they have,
what information they are seeking, and why they are seeking
43
it.31 Cf. 13B Charles Alan Wright, Arthur R. Miller & Edward
H. Cooper, Federal Practice and Procedure § 3532.6 (3d ed.
2021) (“The factors that weigh against review of incomplete
agency proceedings are even more pronounced if a federal
court is asked to interfere with a state agency. In this setting,
challenges based on anticipated agency action should be
treated with special skepticism.”). Because we cannot glean
such an understanding from the existing evidentiary record
offered in support of the motion for a preliminary injunction,
we will remand the case to the District Court for further
proceedings.
We do, however, take note that the parties’ dispute is
based, at least in part, on competing interpretations of the
Texas trilogy, and so endeavor to resolve that legal issue now.
At oral argument, Siemens asserted that the last portion of the
Texas trilogy framework – the portion that gives priority to the
state of the debtor’s incorporation when the creditor’s last
known address is in a state whose laws do not provide for
escheat – is no longer relevant because all fifty states and the
District of Columbia now have escheat laws. According to
Siemens, that portion of the rule only mattered when some
states had no escheat laws at all. And because all states have
since enacted some form of escheat regime,32 individual state
31
Siemens directs us to excel spreadsheets listing open
items which the Defendants assert need to be remediated
before the audit can be completed. Absent additional
development of the evidentiary record, however, we are unable
to decipher the legal significance of those spreadsheets.
32
Those state regimes often differ from one another.
44
sovereignty must be respected such that even if the state of the
creditor’s last known address does not provide for escheat of a
specific property type, the state of the debtor’s incorporation is
not permitted to use its own broader escheat law to claim
priority. That position, however, cannot be squared with the
language of the Texas trilogy, which focuses on whether
specific property is escheatable, not whether a regime exists.
In its original articulation of the rule, the Supreme Court
stated that “where the State of the last known address does not,
at the time in question, provide for escheat of the property[,]”
the “State of corporate domicile could escheat the property,
subject to the right of the State of the last known address to
recover it if and when its law made provision for escheat of
such property.” Texas, 379 U.S. at 682 (emphasis added).
Given that focus on the specific property type, we disagree
with Siemens’s narrow interpretation of the trilogy. In other
words, we reject an interpretation foreclosing the state of
corporate domicile from claiming priority simply because the
state of the creditor’s last known address has an escheat regime,
For example, business-to-business transactions and gift
certificates are exempt from several states’ escheatment laws.
See Douglas L. Lindholm & Ferdinand S. Hogroian, The Best
and Worst of State Unclaimed Property Laws: Cost
Scorecard on State Unclaimed Property Statutes, COUNCIL
ON ST. TAX’N 4-5 (Oct. 2013),
https://www.cost.org/globalassets/cost/state-tax-resources-
pdf-pages/cost-studies-articles-reports/cost-scorecard--the-
best-and-worst-of-state-unclaimed-property-laws-october-
2013.pdf. Both of those categories are property captured by
the Delaware UPL. Id. at 9.
45
regardless of whether that regime would take the property type
at issue.33 We instead read the Texas trilogy to state that, even
if the state of the creditor’s last known address has an escheat
regime, if it does not provide for escheat of the specific
property type at issue, then the state of corporate domicile can
still claim priority if its broader escheat laws do provide for
escheat of that specific property type. See Texas, 379 U.S. at
682.
On the overall question of whether Siemens will prevail
on its preemption claim, however, we cannot now say.
Standards of review matter, and while a party is allowed to rely
on well-pled factual allegations to survive a motion to dismiss,
we agree with the Defendants that Siemens cannot “snatch
complete victory from the jaws of defeat” in the absence of an
33
We also do not read our decision in New Jersey Retail
Merchants to suggest otherwise. That case dealt with New
Jersey’s ability to escheat property when it was neither the state
of the debtor’s incorporation nor the state of the creditor’s last
known address. N.J. Retail Merchs. Ass’n, 669 F.3d at 392-94(“New Jersey … adopts a place-of-purchase presumption,
which … allows the State to escheat abandoned property by
virtue of the fact that the property was purchased in New
Jersey. But New Jersey, as the state in which the [property]
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.”) Our understanding of the Texas trilogy
does not raise similar concerns where the state of the debtor’s
incorporation is already one of the two states the Supreme
Court has authorized to exercise the power of escheat.
46
adequately developed evidentiary record. (Answering Br. at
35.)
III. CONCLUSION
For the foregoing reasons, we will vacate the District
Court’s order dismissing Siemens’s preemption claim as
unripe and denying Siemens’s motion for a preliminary
injunction. We will also affirm the District Court’s order
dismissing Siemens’s expedited-audit procedural due process
claim for failure to state a claim. The matter will be remanded
for further proceedings consistent with this opinion.
47