In a rare Court of Chancery action addressing enforcement of administrative subpoenas for Delaware escheat investigations, AT&T Inc. will not be required to comply with a subpoena filed by the state's Department of Finance last year as part of an ongoing audit.

Vice Chancellor J. Travis Laster quashed the subpoena July 10, writing that the department hadn't adequately justified its request for millions of AT&T's electronic records to a point that the subpoena as written could be guaranteed not to constitute an abuse of the court's process.

The records in question involved rebates and checks by AT&T and its affiliates dating back to 1992, including those issued in states other than Delaware, a span Laster determined the department hadn't rationalized and was barred by applicable statutes of limitations.

"I think the bottom line, and from a substantive perspective that we want to communicate to the court, is that there are no circumstances, there are no facts that (the department) could allege that would allow them, for example, to review every single check the 34 entities have ever written to, for example, payees in New Jersey," said Sara Lima of Reed Smith in Philadelphia while representing AT&T on June 3 in argument conducted via Zoom. "They are authorized to evaluate compliance with Delaware law."

In 2012, the Department of Finance told AT&T, which is headquartered in Dallas, it would be examining its books and records to ensure it was complying with Delaware escheat law and used Kelmar as its agent for the review. Beginning in 2012 and over the course of several years, Kelmar sent AT&T document requests.

in November 2019, when the company had provided to the department information in all but two requested categories, the department issued its subpoena for the remaining requested information. AT&T then filed a federal case in the District of Delaware alleging state officials' actions violated federal law. In response, the Department of Finance filed its Court of Chancery action, which AT&T moved to stay in favor of the federal action. AT&T also argued other parties should be joined in the state action for it to proceed and asked for the subpoena to be either quashed or modified.

Martin S. Lessner of Young Conaway Stargatt & Taylor said in his June argument that although applicable precedent hadn't been set in a Delaware court, the subpoena as submitted met the criteria established by the U.S. Supreme Court in 1964 by United States v. Powell, which determined the Internal Revenue Service did not have to establish probable cause of fraud in order to summon records as part of an investigation.

The existing legal framework involving enforcement of administrative subpoenas, Laster wrote, requires that the Department of Finance, as the agency filing the subpoena, first has the burden of proving it has the authority to bring the subpoena. The burden then fell on AT&T to prove enforcement of the subpoena would violate criteria established by United States v. Powell. The exception to that burden of proof, Laster wrote, would be if AT&T were to prove the subpoena was "so broad, unreasonable, or otherwise infirm that it would constitute an abuse of the court's process to enforce it."

Laster determined the subpoena's broad nature; the case's role amid recent speculation that states might not be properly trying to reunite escheat property with its owner, instead collecting revenue; and the fact that the subpoena was prepared by Kelmar, which is compensated by the state contingent by the amount of escheat revenue it generates all factored into his decision that enforcing the subpoena could constitute an abuse of power. Without a narrowed alternative subpoena, he wrote, quashing the subpoena entirely was the preferred route.

Attorneys involved in the case did not immediately respond to requests for comment Monday.