Publications

Greetings, Court Fans!

It seems the Nine may finally be settling into a practice of actually issuing decisions in argued cases. This week witnessed two more relatively minor decisions, including one with a first-of-its-kind lineup. Read on for summaries of Delaware v. Pennsylvania (No. 145, Orig.),in which the Court unanimously held that that the First State can’t hog all the MoneyGram payments that go unclaimed each year, and Bittner v. United States (No. 21-1195), in which Justices Gorsuch and Jackson teamed up as part of a 5-4 majority narrowly reading the Bank Secrecy Act.

First up, a collision on I-295, where Pennsylvania (on behalf of other states) bested Delaware in an original-jurisdiction fight over abandoned MoneyGrams.

Ordinarily, a state may take custody of abandoned property, through the delightfully named process of “escheatment.” (You can prevent your property from escheating to Connecticut by checking out the “CT Biglist.”) But when it comes to abandoned intangible property (abandgible property?), it’s not so clear what state it should escheat to. The Court first confronted this question over fifty years ago, establishing a common-law rule of priority: Abandgible property escheats first to the state of its owner’s (or creditor’s) last known address; but if that information is unavailable (generally because the company holding the funds doesn’t keep those records), then the property escheats to the state of incorporation of the company holding the funds (or debtor). The common-law rule proved unsatisfactory (at least to 49 states) because a whole lot of abandgible property consisted of Western Union money orders, which ended up escheating to New York, Western Union’s state of incorporation. This led Congress to pass the Federal Disposition Act (“FDA”), which partially abrogated the common-law rule of priority. It provides that “a money order … or other similar written instrument (other than a third party bank check)” should generally escheat to “the State in which such … instrument was purchased,” rather than the state of incorporation of the company holding the funds.

This brings us to MoneyGrams, a Delaware corporation that sells a variety of financial products, including “Agent Checks” and “Teller’s Checks,” through banks and retail stores. The purchaser prepays the face value of the instrument plus any fee, and MoneyGram holds that money until the intended recipient claims it. Although the instruments all operate in essentially the same way, MoneyGram treated some of these instruments as “money orders” or “travelers checks” subject to FDA escheatment rules, but others it treated differently and applied the common-law rule of priority (which just happened to benefit its home state of Delaware). A number of other states, led by Pennsylvania, invoked the Court’s original jurisdiction to allege that the abandoned proceeds of these disputed instruments should be classified as “similar written instrument[s]” subject to the escheatment rules of the FDA, rather than the common-law Delaware-wins rule. A Special Master initially concluded that all the instruments were covered by the FDA, but then revised his conclusion and recommended that some be treated as “third party bank check[s]” subject to the common-law rule.

The Supreme Court unanimously concluded that the Special Master was right the first time: All the disputed instruments are sufficiently “similar” to a money order to fall under the FDA’s rules. As Justice Jackson explained, by its plain language, the FDA applies not only to “money order[s]” and “traveler’s check[s]” but also “similar written instrument[s].” Reviewing several dictionary definitions of “money order” from the time the FDA was enacted, Justice Jackson noted the common features of prepayment and transmittal to a named payee. Those features also lined up with how the Court had described Western Union money orders in its earlier decision and appeared to mirror the way that the MoneyGram instruments worked. Justice Jackson observed that the MoneyGram situation had caused an inequitable distribution of abandoned property that echoed the situation the Court had tried to address with its common-law rule and Congress had tried to fix with the FDA: MoneyGram was not collecting adequate records about creditors’ addresses, so an inordinate proportion of abandoned MoneyGram instruments were escheating to its home state, Delaware. That contravened both the language and the purpose of the FDA.

Delaware raised several counterarguments, only one of which merited serious attention: As the Special Master observed, some MoneyGram instruments were similar to “third party bank check[s],” which are expressly excluded from the FDA’s reach. But Justice Jackson noted that the FDA does not define the term “third party bank check.” While a number of possible definitions were proffered by the parties and the Special Master over the course of the litigation, Justice Jackson ultimately declined to adopt any of them, concluding that none had a basis in the language of the statute. Whatever “third party bank check” might mean, it did not cover the MoneyGram instruments. These were clearly similar to “money orders” and there was no reason why Congress would use an amorphous term to describe well-known financial products. Justice Jackson supported this portion of her opinion with some nods to the FDA’s legislative history, which tended to show that the exclusion for “third party bank check[s]” was not intended to create a special category of financial instruments that were carved out from the statute’s reach. Needless to say, Justices Thomas, Gorsuch, and Barrett could not deign to join that part of the opinion, and neither (this time, anyway) could Justice Alito.

Justices Gorsuch and Jackson were more aligned in Bittner v. United States (No. 21-1195), where they (along with the Chief, and Justices Alito and Kavanaugh) agreed that the Bank Secrecy Act’s $10,000 maximum penalty for nonwillful reporting violations accrues on a per-report basis. We’ll explain what that means in a moment, but first, let’s take a moment to mark Bittner as a first-of-its kind lineup, which also includes a sort of libertarian “epic handshake,” in a section where Gorsuch and Jackson alone extolled the rule of lenity in criminal cases.

The case concerns the Bank Secrecy Act (“BSA”), which (through implementing regulations) requires “U.S. persons” with financial interests in foreign bank accounts to file an annual report of their “foreign bank and financial accounts.” The purpose of these reports is to help the government identify potentially taxable income and trace foreign funds that might be used for illicit purposes. While there are criminal penalties for willful violations, the statute sets a $10,000 maximum penalty for nonwillful violations. But there arises the question: Does this 10k penalty accrue for each report that includes nonwillful violations? Or does each violation within a report yield its own penalty? Alexandru Bittner, a dual Romanian-U.S. citizen, decided (nonwillfully) to find out. Bittner failed to file reports for several years before learning of his obligation to do so. He then submitted reports covering five years, but the government deemed them deficient because they did not address all the accounts for which he was either a signatory or had a qualifying interest. Bittner then filed corrected reports providing information for each of the accounts (dozens each year, 272 in all). The government conceded that the omissions were not willful, but assessed Bittner a $10,000 fine for each one, totaling $2.72 million. Bitner challenged the penalty in court, but the district court and Fifth Circuit ruled against him.

The Supreme Court, however, reversed, holding 5-4 that the $10,000 maximum penalty applied on a per-report, and not per-account basis. Writing for the majority, Justice Gorsuch began (of course) with the text of the particular statutory provisions at issue—one delineating the obligations of individuals under the BSA, and the other describing the penalties for violations. Section 5314 imposes a number of obligations both on the Secretary of the Treasury and  individuals with foreign accounts. But while it describes the legal duty to file reports, and the information that must be obtained in them, it says nothing about “accounts” or their number. In other words, a violation of Section 5314 is “binary”—you either file a report containing the information required, or you don’t. Meanwhile, Section 5321 authorizes the IRS to impose a civil penalty up to $10,000 for “any violation” of Section 5314. It, too, does not speak in terms of “accounts,” but rather “violation[s],” and it makes clear that a “violation” occurs when an individual fails to file a report as required by Section 5314. This all suggests that the penalties accrue on a per-report, not a per-account basis. What’s more, Section 5321 does tailor penalties to accounts when it comes to willful violations, for which the IRS can impose a penalty of either $100,000 or 50% of “the balance in the account at the time of the violation.” Though the government argued that this suggests Congress intended per-account penalties across the board, Justice Gorsuch concluded that it in fact suggests the opposite. Under expression unius est exclusion alterius, since Congress explicitly mentioned accounts with respect to willful violations, it apparently intended not to tie nonwillful violations to accounts.

After addressing a number of other “contextual clues pressing against the government’s theory,” Justice Gorsuch (joined here only by Justice Jackson) turned to “a venerable principle” that would resolve any remaining ambiguity: the rule of lenity. Gorsuch has long been a fan of this rule, under which statutes imposing criminal penalties are to be strictly construed against the government and in favor individuals. And, as he explained here, there is no reason why the rule would not apply in this related (if not strictly criminal) context. After all, the rule is intended in part to promote the Due Process Clause’s requirement of fair notice to individuals of what is and is not unlawful. Particularly given inconsistent guidance from the IRS, there is simply no way an individual like Mr. Bittner would appreciate that he was subjecting himself to a $2.72 million penalty when he nonwillfully failed to file proper reports. While Justice Jackson nodded along with this reasoning, it appears that the other members of the majority were not willing to endorse the extension of the rule of lentiy to civil cases—or perhaps were unwilling to endorse it here, where they otherwise agreed that the statute clearly imposes per-report, and not per-account penalties.

Of course, four justices (led by Justice Barrett) saw it the other way, arguing that “the most natural reading of the statute establishes that each failure to report a qualifying foreign account constitutes a separate reporting violation,” subject to separate penalties. Justice Barrett zeroed in on the language of Section 5314, which requires an individual like Bittner to “file reports” when he “maintains a relation … with a foreign financial agency.” The subject matter of the required reports, she maintained, is “a relation” with a foreign financial agency, which is just another way of saying an “account” with a foreign bank. “In other words, each relation with a foreign bank triggers the requirement to file reports. And because each relation is a matter of distinct concern under the statute, each failure to report an account violates the reporting requirement.”

So, a fairly un-notable case, with a notable line-up. Some grist for the speculation mill to start your weekend.

Enjoy it!

Tadhg and Dave