A federal appeals court has ruled that Marathon Petroleum Corp., corporate owner of the Speedway gas station chain, can challenge the state of Delaware's escheatment interest in unclaimed store-value gift card funds held by its Ohio-based subsidiaries, although not in the way the companies initially intended.

In Marathon Petroleum v. Secretary of Finance for the State of Delaware, the U.S. Court of Appeals for the Third Circuit overturned a lower court's dismissal of the case. The district court had held that private parties like Marathon and Speedway cannot invoke the escheatment priority and pre-emption rules laid out in U.S. Supreme Court precedent.

Marathon and Speedway sued the state over its right to conduct an audit on whether the card funds were held by the two companies, instead of its Ohio subsidiaries, and thus eligible for escheatment. Marathon and Speedway are incorporated in Delaware and are headquartered in Ohio.

Third Circuit Judge Kent A. Jordan wrote in the Third Circuit's 43-page opinion that “the district court treated this case with due care and admirable skill but, in the end, we disagree with its conclusion that private parties cannot invoke federal common law to challenge a state's authority to escheat property.”

However, Jordan also said the plaintiffs' challenge was premature and the case was sent back to the district court only so it could clarify that the case was dismissed without prejudice, and Marathon and Speedway could refile.

The companies argued that money left unclaimed by owners of the cards is held by the Ohio subsidiaries and Delaware can have no escheatment claim to the funds, according to Jordan. Delaware argued the claim was not ripe because no enforcement action had been taken to enforce compliance with the audit.

“We see two ways to construe Marathon's and Speedway's arguments. Viewed one way, their claim is ripe; viewed the other, it is not. More specifically, to the extent the companies are challenging Delaware's authority to initiate an audit in the first instance, the claim is ripe but wrong. The notion that the state cannot conduct any inquiry into abandoned property to verify a Delaware corporation's representations regarding abandoned property lacks merit,” Jordan said.

“But, to the extent the companies are challenging the scope or means of the examination in this case, the claim is not ripe, since the state has taken no formal steps to compel compliance with the audit,” he continued. “Either way, the pre-emption claim was rightly subject to dismissal. Nevertheless, we will vacate the order of dismissal so that the district court can clarify that dismissal is without prejudice, which may allow Marathon and Speedway to bring their claim again at a later date, if appropriate.”

Diane Green-Kelly of Reed Smith in Chicago argued the case on behalf of the petroleum companies said, “I thought the opinion did a lot to guide the state with any continuing audit.”

Delaware's counsel, Steven Rosenthal of Loeb & Loeb in Washington, D.C., said on Monday, “[The state] is pleased with the decision. It vindicates what we have said all along, which is that these cases were not ripe.”

A federal appeals court has ruled that Marathon Petroleum Corp., corporate owner of the Speedway gas station chain, can challenge the state of Delaware's escheatment interest in unclaimed store-value gift card funds held by its Ohio-based subsidiaries, although not in the way the companies initially intended.

In Marathon Petroleum v. Secretary of Finance for the State of Delaware, the U.S. Court of Appeals for the Third Circuit overturned a lower court's dismissal of the case. The district court had held that private parties like Marathon and Speedway cannot invoke the escheatment priority and pre-emption rules laid out in U.S. Supreme Court precedent.

Marathon and Speedway sued the state over its right to conduct an audit on whether the card funds were held by the two companies, instead of its Ohio subsidiaries, and thus eligible for escheatment. Marathon and Speedway are incorporated in Delaware and are headquartered in Ohio.

Third Circuit Judge Kent A. Jordan wrote in the Third Circuit's 43-page opinion that “the district court treated this case with due care and admirable skill but, in the end, we disagree with its conclusion that private parties cannot invoke federal common law to challenge a state's authority to escheat property.”

However, Jordan also said the plaintiffs' challenge was premature and the case was sent back to the district court only so it could clarify that the case was dismissed without prejudice, and Marathon and Speedway could refile.

The companies argued that money left unclaimed by owners of the cards is held by the Ohio subsidiaries and Delaware can have no escheatment claim to the funds, according to Jordan. Delaware argued the claim was not ripe because no enforcement action had been taken to enforce compliance with the audit.

“We see two ways to construe Marathon's and Speedway's arguments. Viewed one way, their claim is ripe; viewed the other, it is not. More specifically, to the extent the companies are challenging Delaware's authority to initiate an audit in the first instance, the claim is ripe but wrong. The notion that the state cannot conduct any inquiry into abandoned property to verify a Delaware corporation's representations regarding abandoned property lacks merit,” Jordan said.

“But, to the extent the companies are challenging the scope or means of the examination in this case, the claim is not ripe, since the state has taken no formal steps to compel compliance with the audit,” he continued. “Either way, the pre-emption claim was rightly subject to dismissal. Nevertheless, we will vacate the order of dismissal so that the district court can clarify that dismissal is without prejudice, which may allow Marathon and Speedway to bring their claim again at a later date, if appropriate.”

Diane Green-Kelly of Reed Smith in Chicago argued the case on behalf of the petroleum companies said, “I thought the opinion did a lot to guide the state with any continuing audit.”

Delaware's counsel, Steven Rosenthal of Loeb & Loeb in Washington, D.C., said on Monday, “[The state] is pleased with the decision. It vindicates what we have said all along, which is that these cases were not ripe.”