This week, a federal court judge dismissed the Plains All-American Pipeline LP v. Cook lawsuit, saying that the case was not ripe for judicial relief.
In October 2014, Delaware notified Plains All-American Pipeline that it intended to conduct an unclaimed property audit of its books and records through third-party auditor Kelmar Associates. Plains All-American, having seen the discussions about audit practices by the state and its auditors, preemptively sued the state to prevent the atrocities that other corporations have encountered through the audit process. The company challenged Delaware's authority to conduct an audit, use a third-party auditor who has a financial interest in the outcome of the audit, and the use of estimation to determine the company's liability.
The Court noted that it is "entirely speculative" whether Delaware will use estimation in an audit of the company. However, the Court relied heavily on the recent decision in Temple-Inland v. Cook, a scathing decision on Delaware's audit practices. In effect, the Court basically told Delaware that if it does in fact employ estimation in an audit of Plains All-American, the estimation would need to be reasonable and balance the interests of the parties. The Court noted that being subject to the administrative process is not harm, but rather a burden of living under government. Of course, the Court has not been subject to a nine year audit like Marathon Oil.
The Court also said that the company could challenge the enforceability of a future subpoena by refusing to comply with such subpoena. The Court said that generally, cases challenging future subpoenas are not ripe for review until an agency files an enforcement action. Such a case is currently pending in Delaware Chancery Court in Delaware v. Blackhawk.
This decision is only a temporary setback for Plains All-American. Delaware has the authority to perform the audit, but Plains All-American will still be able to use the court process when actual harm occurs. If the state does in fact use estimation, Barganier expects to see Plains All-American back in the federal courts.
Barganier recommends that companies continue to file annual compliance reports and prepare for future unclaimed property audits. The companies, like Temple-Inland and Select Medical, that are winning the recent court cases and unpublished audits are doing so based on their compliance programs, planning, and record availability. Please contact us If you would like to review your compliance program with the audit professionals at Barganier.
It is not a matter of if, but rather when your company will be subject to an audit.