Plains All American Pipeline L.P. v. Cook et al

Filing 49

MEMORANDUM OPINION regarding the Motions to Dismiss (D.I. 25 and D.I. 29 ). Signed by Judge Richard G. Andrews on 8/16/2016. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

PLAINS ALL AMERICAN PIPELINE, L.P.,
Plaintiff;

v.
THOMAS COOK, in his capacity as the
Secretary of Finance for the State of Delaware;
DAVID M. GREGOR, in his capacity as the
State Escheator of the State of Delaware;
MICHELLE M. WHITAKER, in her capacity
as the Audit Manager for the State of
Delaware, and KELMAR ASSOCIATES,
LLC,

Civil Action No. 15-468-RGA

Defendants.
MEMORANDUM OPINION
Bradford J. Sandler, Esq., Colin R. Robinson, Esq., Pachulski, Stang, Ziehl & Jones LLP,
Wilmington, DE; Phillip B. Dye, Jr., Esq. (argued), Brock R. Skelley, Esq., Deborah C. Milner,
Esq., Vinson & Elkins LLP, Houston, TX, attorneys for Plaintiff Plains All American Pipeline,
.L.P.
Jennifer R. Noel, Esq., Caroline Lee Cross, Esq., Edward K. Black, Esq., Delaware Department
of Justice, Wilmington, DE; Steven S. Rosenthal, Esq. (argued), John D. Taliaferro, Esq., Marc
S. Cohen, Esq., Loeb & Loeb LLP, Washington, D.C., attorneys for Defendants Thomas Cook,
David M. Gregor, and Michelle M. Whitaker.
Marc J. Phillips, Esq., Jason A. Cincilla, ·Esq., Manion, Gaynor & Manning LLP, Wilmington,
DE; Ryan P. McManus, Esq. (argued), Stephen W. Kidder, Esq., Hemenway & Barnes LLP,
Boston, MA, attorneys for Defendant Kelmar Associates, LLC.

AugustJk_, 2016

1

.

. f) JMl/}ti~

.. ANDru{~l;TRICT JUDGE:
Presently before the Court are two motions to dismiss filed by Defendants. (D.I. 25, 29).

Mr. Cook, Mr. Gregor, and Ms. Whitaker (collectively "the Delaware Defendants") move
pursuant to Fed. R. Civ. P. 12(b)(l) and 12(b)(6). Kelmar moves pursuant to Fed. R. Civ. P.
12(b)(l), 12(b)(6), and 12(b)(7). The issues have been fully briefed. (D.I. 26, 30, 33, 35, 36,
38). The Court heard oral argument. (D.I. 45). For the reasons stated herein, the Delaware
Defendants' motion to dismiss is GRANTED, and Kelmar's motion to dismiss is GRANTED.

I.

BACKGROUND
This dispute concerns the enforcement of Delaware's unclaimed property laws.

"Unclaimed" or "abandoned" property is property held, but not owned, by a business, where
there has been no contact with the owner for a "dormancy period." Del. Code Ann. tit. 12, §
1198. That person or organization is deemed the "holder" of the property, while the owner is
"any person ... having the legal or equitable title to the property .... " Id. Every business
which holds unclaimed property must, each year, "file [a report] with the State Escheator,"
which must include certain information about the property and its possible owner. Del. Code
Ann. tit. 12, § 1199. The State Escheator of Delaware is authorized to conduct unclaimed
property examinations "to determine whether the person [or business] has complied with any
provisions" of the Delaware unclaimed property laws. 1 Del. Code Ann. tit. 12, § 1155(a). This
is commonly called an "audit" and is conducted by an "Audit Manager." In situations where
business records "are insufficient to permit the preparation of the report, the State Escheator may
require the holder [of unclaimed property] to report and pay to the State the amount ... that the
State Escheator reasonably estimates to be due .... " Del. Code Ann. tit. 12, § 1155(b).

1

"The State Escheator may [also] contract with a person to conduct an examination in accordance with
this chapter .... " Del. Code Ann. tit. 12, § 1155(b).

2

'

If the Audit Manager "determines that a holder has underreported abandoned or
unclaimed property" which it owes, the Audit Manager must inform the holder, who .then has
sixty days to file "a written protest" with the Audit Manager, identifying "the specific grounds
upon which the protest is based." Del. Code Ann. tit. 12, § 1156(a)-(b). While the Audit
Manager only considers the issues set out in the protest, "[t]he holder may submit additional
documentation and written submissions ... in support of the protest." Del. Code Ann. tit. 12, §
1156(c)-(d). If the Audit Manager makes an adverse determination, the holder may appeal that
determination to the Secretary of Finance. Del. Code Ann. tit. 12, § l 156(f)-(g). The Secretary
of Finance "shall ... appoint a person ... to act as an independent reviewer to consider the ,
appeal of the Audit Manager's findings" under a de nova standard. Del. Code Ann. tit. 12, §
1156(g)-(h). 2 After the independent reviewer's determination is made, "[e]ither the holder or the
Secretary of Finance may ... appeal [that] determination to the Court of Chancery." Del. Code
Ann. tit. 12, § l 156(i). That review "shall be limited to whether the independent reviewer's
determination was supported by substantial evidence on the record." Id.
On October 22, 2014, the Delaware Defendants informed Plaintiff that Delaware "would
be conducting an examination of [Plaintiffs] 'books and records,' and the 'books and records' of
[Plaintiffs] 'Subsidiaries and Related Entities."' (D.I. 21if53). In late November, the thirdparty auditor, Kelmar, delivered to plaintiff an examination guide, a copy of its Confidentiality &
Non-Disclosure Agreement, and its initial document requests. (Id. ifif 56-58). Plaintiff refused to
submit to the audit, and communicated a number of objections to both Kelmar and Ms. Whitaker,
the Audit Manager. (Id. ifif 59-66, 70-73). These objections included Kelmar "having a financial

2

The independent reviewer cannot be "currently employed by the Department of Finance" and must "be a
former member of the Delaware judiciary, an individual who has been previously appointed and served as
a master of any Delaware court, or an attorney licensed in the State who is qualified by experience or
training to serve." Del. Code Ann. tit. 12, § 1156(g).

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stake in the Audif's outcome," "Kelmar's insistence on a multistate audit in which it is given
authorization to share [Plaintiffs] confidential information with other states," "the breadth and
rational[ e] of Kelmar' s initial document requests," and "Kelmar' s use of' estimation."' (Id.

if

60). Ms. Whitaker, in her March 30, 2015 response, stated that Delaware would "not agree to a
bar on the use of estimation techniques" and refused Plaintiffs request that Delaware sign a _
confidentiality agreement. (Id.

iii! 70-71 ).

At the conclusion of her letter, Ms. Whitaker

"directed [Plaintiff] to fully cooperate with Kelmar, produce the records requested, and schedule
an opening conference." (Id.

if 73).

Plaintiff, on June 5, 2015, filed this action. (D.I. 1). On August 17, 2015, Plaintiff filed
the Amended Complaint, alleging violations of the Fourth Amendment, substantive due process,
procedural due process, the void for vagueness doctrine, the Ex Post Facto Clause, the Takings
Clause, and the Equal Protection Clause. (D.I. 21). Plaintiff also asserts conspiracy and
preemption claims. (Id.). Plaintiff seeks declaratory relief, injunctive relief, and attorneys' fees.
(Id.). On September4, 2015, Kelmar and the Delaware Defendants moved to dismiss. (D.I. 21,

25, 29).
It should be noted that, while these motions to dismiss were pending, this Court issued an

opinion relevant to some of the issues raised by Plaintiffs Amended Complaint. See TempleInland, Inc. v. Cook, 2016 WL 3536710 (D. Del. June 28, 2016) (Sleet, J.). In that case,

Delaware assessed liability on the plaintiff through the use of estimation. Id. at *6. The liability
assessed to the plaintiff was reduced by the Audit Manager, and further reduced by the
independent reviewer. Id. Instead of filing an appeal with the Court of Chancery, as
contemplated by the statute, the plaintiff filed an action in district court, challenging the
constitutionality of the audit. Id. At summary judgment, the court concluded that Delaware's

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audit had violated substantive due process. Id. at *8, *16. The court, however, "defer[red] its
decision on the subject of an appropriate remedy until another day." Id. at *17.

II.

LEGAL STANDARD
Rule 8(a) requires "a short and plain statement of the claim showing that the pleader is

entitled to relief." Fed. R. Civ. P. 8(a)(2). When reviewing a motion to dismiss pursuant to Fed.
R. Civ. P. 12(b)(6), the court must accept the complaint's factual allegations as true, but may
disregard any legal conclusions. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir;
2009). The factual allegations do not have to be detailed, but they must provide more than
labels, conclusions, or a "formulaic recitation" of the claim elements. Bell At/. Corp. v. Twombly,
550 U.S. 544, 555-56 (2007) ("Factual allegations must be enough to raise a right to relief above
the speculative level ... on the assumption that all the allegations in the complaint are true (even
if doubtful in fact)."). There must be sufficient factual matter to state a facially plausible claim
to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The facial plausibility standard is satisfied
when the complaint's factual content "allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Id. ("Where a complaint pleads facts that are
merely consistent with a defendant's liability, it stops short of the line between possibility and
plausibility of entitlement to relief." (quotation marks omitted)).
Ripeness challenges, NE Hub Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333,
341 (3d Cir. 2001), and motions to dismiss for lack of standing, Constitution Party of
Pennsylvania v. Aichele, 757 F.3d 347, 357 (3d Cir. 2014), are properly brought pursuant to Rule
12(b)(1 ). There are two ways a party may attack a complaint for lack of subject matter
jurisdiction pursuant to Rule 12(b)(l). Constitution Pty., 757 F.3d at 357-58. "A challenge to a
complaint for failure to allege subject matter jurisdiction is known as a 'facial' challenge, and

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must not be confused with a 'factual' challenge contending that the court in fact lacks subject
matter jurisdiction, no matter what the complaint alleges .... " NE Hub, 239 F.3d at 341 n.7. In
reviewing a facial challenge under Rule 12(b)(l), the court must accept all factual allegations in
the complaint as true and draw all reasonable inferences in favor of the plaintiff. Id. at 341.
"[T]he court must only consider the allegations of the complaint and documents referenced
therein and attached thereto .... " Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir.
2000).
III.

ANALYSIS
Since Defendants have not answered the complaint, the challenges to subject matter

jurisdiction are facial. See Mortensen v. First Fed. Sav. & Loan Ass 'n, 549 F.2d 884, 891-92,
892 n.17 (3d Cir. 1977). With respect to Kelmar, I find the issue of standing to be dispositive.
As to the Delaware Defendants, only Plaintiff's equal protection claim is ripe. I conclude,
however, that Plaintiff has failed to state a claim under the Equal Protection Clause.
A.

Standing to Sue Kelmar

Standing to sue is a threshold requirement in every federal case. Warth v. Seldin, 422
U.S. 490, 498 (1975). "Absent Article III standing, a federal court does not have subject matter
jurisdiction to address a plaintiffs claims, and they must be dismissed." Taliaferro v. Darby

Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006). To establish standing, "the party asserting
jurisdiction must demonstrate (1) an 'injury in fact,' (2) that the injury is 'fairly traceable' to the
action or actions complained of, and (3) that the injury will likely be redressed by a favorable
decision." Duquesne Light Co. v. EPA, 166 F.3d 609, 612 (3d Cir. 1999) (quoting Lujan v.

Defenders a/Wildlife, 504 U.S. 555, 560-61 (1992)). An "injury in fact" is an "invasion of a
legally protected interest which is (a) concrete and particularized, and (b) 'actual or imminent,

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not conjectural or hypothetical.'" Lujan, 504 U.S. at 560 (citations and internal quotatfons
omitted) (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)). "The causation ·
requirement is only satisfied where the injury is 'fairly traceable to the challenged action of the
defendant .... '" Duquesne, 166 F.3d at 613 (quotingBennettv. Spear, 520 U.S. 154, 167
(1997)). To establish redressability, "it must be 'likely,' as opposed to merely 'speculative,' that
the injury will be 'redressed by a favorable decision."' Lujan, 504 U.S. at 561 (quoting Simon v.
E. Ky. Welfare Rights Org., 426 U.S. 26, 41-42 (1976)).
In Young America Corp. v. Affiliated Computer Services (ACS), Inc., 424 F.3d 840 (8th

Cir. 2005), the Eighth Circuit confronted a situation similar to this one. There, forty-one states
authorized ACS to audit Young America's records. Id. at 842. Each state informed Young
America, by letter, that ACS had been authorized to perform the audit. Id. Six states "advised
Young America that state law provide[ d] for assessments, including interest, penalties, fines, and
examination costs, for failing to perform certain duties under the statute, or for failing to report
or deliver property within the prescribed time." Id. "Young America refused to submit to an
audit and filed [suit] against ACS and [an ACS-affiliated individual], seeking declaratory and
injunctive relief." Id. ACS moved to dismiss for lack of standing. Id.
The Eighth Circuit concluded that Young America had failed to allege injury in fact. Id.
at 844. The court noted that the audit demand "letters simply authorize[ d] an audit," rather than
"threaten[ing] enforcement action if Young America refuse[d] to submit." Id. Even ifthe letters
had threatened enforcement action, the complaint did not allege that "ACS itselfha[d] attempted
or intend[ed] to attempt to seek enforcement of its audit demand." Id. In fact, "ACS ha[d]
neither issued any subpoenas to compel the production of records nor sought judicial
enforcement of its audit demand." Id. Further, there was no "indication [that] ACS ha[d] the

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authority" "to litigate on the states' behalf." Id. Therefore, the court concluded, Young America
had failed to adequately allege injury. Id.
The present case is indistinguishable from Young America. Kelmar has made no attempt
to seek judicial enforcement of any examination. Kelmar has neither issued any subpoenas, nor
.sought judicial enforcement of its audit demand. Kelmar does not appear to have any authority
to litigate on any state's behalf. "Without any indication [Kelmar] has the authority to force
[Plaintiff] to submit to an audit, [Plaintiffs] alleged threat of enforcement is insufficient to
· establish an injury in fact." Id.
As in Young America, Plaintiff has also failed to establish causation. "Even if [a] state[]
[could] penalize [Plaintiff] for failing to submit to an audit, [Plaintiff] [has] failedto allege
[Kelmar] has the authority to litigate on [any] states' behalf." Id. In other words, even if
Plaintiff could show some actual or threatened injury, there is no indication that such injury
would be fairly traceable to Kelmar.
Lastly, Plaintiff has not established redressability. In Young America, the court
concluded that "it [was] speculative, at best, whether a judgment in th[ at] case would bind the
states, because there [was] no indication ACS ha[ d] authority to represent and bind the states in
th[e] action." Id. at 845. Here, Plaintiff"does not contend that states other than Delaware would
be bound by a judgment in this case." (D.I. 35 at 14). Further, Plaintiff has not explained how a
judgment against Kelmar-rather than one against the Delaware Defendants-would redress its
proposed injury.
Therefore, Plaintiff has failed to satisfy any of the standing requirements. The claims
against Kelmar are therefore dismissed for lack of standing.

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B.

Ripeness of Declaratory Relief Against the Delaware Defendants
"Ripeness is a separate doctrine from standing, but both doctrines originate from the

same Article III requirement of a case or controversy." Free Speech Coalition, Inc. v. Attorney

Gen. U.S., -F.3d-, 2016 WL 3191474, at *11 n.15 (3d Cir. June 8, 2016). "The function of
the ripeness doctrine is 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." Peachlum v. CUy of York, 333 F.3d
429, 433 (3d Cir. 2003) (citations omitted). "A claim is not ripe for adjudication if it rests upon
'contingent future events that may not occur as anticipated, or indeed may not occur at all."'

Texas v. United States, 523 U.S. 296, 300 (1998) (quoting Thomas v. Union Carbide Agric.
Prods~

Co., 473 U.S. 568, 580-81 (1985)). Since declaratory judgments are "'typically sought

before a completed injury has occurred,"' courts "apply a somewhat 'refined' test" to determine
ripeness in the declaratory judgment context. Khodara Envtl., Inc. v. Blakey, 376 F.3d 187, 196
(3d Cir. 2004) (quoting Pie-A-State Pa. Inc. v. Reno, 76 F.3d 1294, 1298 (3d Cir. 1996)). In the
Third Circuit, courts analyze three factors: "first, the adversity of the parties' interests; second,
the probable conclusiveness of a judgment; third, the practical utility to the parties of rendering a
judgment." NE Hub, 239 F.3d at 342. "Basically, the question in each case is whether the facts
alleged, under all the circumstances, show that there is a substantial controversy, between parties
having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a
declaratory judgment." Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941).

i. Adversity
"For there to be an actual controversy the defendant must be so situated that the parties
have adverse legal interests." Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643, 648 (3d

9

Cir. 1990) (quoting lOA Charles Alan Wright et al., Federal Practice and Procedure§ 2757 (2d
ed. 1983)). "[I]t is necessary that there be a substantial threat ofreal harm and that the threat
'must remain real and immediate throughout the course of the litigation."' Presbytery ofNJ. of
Orthodox Presbyterian Church v. Florio, 40 F.3d 1454, 1463 (3d Cir. 1994) (internal quotation.

marks omitted) (quoting Salvation Army v. Dep 't ofCmty. Affairs, 919 F.2d 183, 192 (3d Cir.
1990)). "Courts have found insufficient adversity for ripeness where the chance of the defendant
acting against plaintiff is but a 'contingency."' NE Hub, 239 F.3d at 343.
Plaintiffs claims are, at their core, premised on contingencies. The Delaware Defendants
have not determined whether Plaintiff will be assessed any liability. In fact, the audit processwhich may be followed by several stages of review-has hardly begun. Plaintiff's claims, aside
from those pertaining to equal protection and the Fourth Amendment, are directed to ways in
which the. audit process may be undertaken and what the ultimate result of that process may be.
Thus, the claims here are distinguishable from those at issue in NE Hub. There, "the process
itself [was] the alleged harm." NE Hub, 239 F.3d at 343. The plaintiff argued that the federal
Natural Gas Act preempted a state permit process. Id. at 339. Since the state Environmental
Hearing Board sought to continue its permit process, and "preemption [would] operate to spare
[the plaintiff] from that very process," the Third Circuit concluded that the plaintiffs interests
were sufficiently adverse to the Board's. Id. at 342. Here, by contrast, Plaintiff's claims are
directed to the particular ways in which the audit may be conducted. For instance, Plaintiff's
preemption claim is based on a theory that the estimation procedures the Delaware Defendants
will use violate the priority rules set forth in Texas v. New Jersey, 379 U.S. 674, 680-82 (19p5).
See NJ Retail Merchs. Ass'n v. Sidamon-Eristoff, 669 F.3d 374, 392 (3d Cir. 2012). Plaintiff's

claims pertaining to the Takings Clause, the Ex Post Facto Clause, vagueness, substantive due

10

process, and procedural due process

simil~ly

focus, in large part, on estimation. It is entirely

speculative whether the Delaware Defendants will use estimation in this particular audit. 3 To the
extent that Plaintiff's claims do not relate to estimation, they relate to procedural details of the audit process. (See, e.g., D.I. 21iii!113-17). These are not challenges to the audit process itself.
In short, Plaintiff does not challenge the undertaking of the investigation, but particular aspects
of that investigation.
As for Plaintiff's Fourth Amendment claim, other Courts of Appeals have concluded that
in cases '"[w]here an agency must resort to judicial enforcement of its subpoenas, courts
generally dismiss anticipatory actions filed by parties challenging such subpoenas as not being
ripe for review because of the availability of an adequate remedy at law if, and when, the agency
files an enforcement action."' Mobil Expl. & Producing US., Inc. v. Dep 't of Interior, 180 F .3d
1192, 1200 (10th Cir. 1999) (quoting In re Ramirez, 905 F.2d 97, 98 (5th Cir. 1990)). Here, the
Delaware Defendants have yet to seek enforcement of their document request. 4 If Plaintiff
wishes to "challenge the enforceability of [a future] ... subpoena," it should "refuse[] to comply

3

Plaintiff repeatedly references a letter written by the Audit Manager, Michelle Whitaker. (See D.I. 42,
Ex. A). This letter, Plaintiff argues, indicates that the Delaware Defendants will use estimation in the
event that Plaintiff fails to cooperate. In the letter, after responding to the objections raised by Plaintiff,
Ms. Whitaker directed Plaintiff to "fully cooperate with Kelmar, produce the records requested, and
schedule an opening conference." (Id. at p. 3). Additionally, Ms. Whitaker stated that Plaintiff should
"note that the State will consider the level of [Plaintiff's] cooperation when determining whether penalties
should be assessed, or whether any other statutorily available actions should be taken, in connection with
any past-due unclaimed property that is identified as a result of the examination." (Id.). This clearly does
not refer to estimation. First, the only statutorily authorized penalties are found in Del. Code Ann. tit. 12,
§ 1159. Second, and relatedly, Delaware does not treat estimation as a penalty, but as an "amount of
abandoned or unclaimed property that should have been but was not reported that the State Escheator
reasonably estimates to be due ...." Del. Code Ann. tit. 12, § l 155(a). Third, the letter refers to
"statutorily available actions ... in connection with" property which is "identified," rather than estimated.
Therefore, this letter does not suffice to show an immediate threat of real harm.
4
My understanding is that there is litigation pending in a different audit that might soon offer an
opportunity for a state court opinion on issues relating to enforceability. (D.I. 47 at 2).

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with the subpoena and await[] any enforcement action." Ramirez, 905 F.2d at 99. Until then,
there is no adversity.
Plaintiffs equal protection claim is different, since it has little-if anything-to do with
the actual audit process. Plaintiff premises its equal protection claim on the Delaware
Defendants' having targeted Plaintiff and other wealthy entities. (D.I. 21

'i!'il 148-50).

For

purposes of this claim, once the targeting has taken place, the supposed unlawful conduct is
complete. By simply initiating the process, the parties became adverse.
Plaintiffs claims, aside from equal protection, are directed to conduct which the
Delaware Defendants may or may not undertake, which may or may not result in harms to
Plaintiff at some later point in time. Far from a "real and immediate" threat, Plaintiffs claimed
harms are tenuous and uncertain.
ii. Conclusiveness
"Conclusiveness is a short-hand term for whether a declaratory judgment definitively
would decide the parties' rights." NE Hub, 239 F.3d at 344. "Any contest must be based on a
'real and substantial controversy admitting of specific relief through a decree of a conclusive
character, as distinguished from an opinion advising what the law would be upon a hypothetical
state of facts."' Step-Saver, 912 F.2d at 649 (quotfogAetna Life Ins. Co. v. Haworth, 300 U.S.
227, 241 (1937)). "[T]he need for a concrete set of facts is greater in some instances than
others." Armstrong World Indus., Inc. v. Adams, 961F.2d405, 412 (3d Cir. 1992). For instance,
"an 'actual factual setting' is 'particularly important in cases raising allegations of an
unconstitutional taking of private property.'" Id. (quoting Hodel v. Va. Surface Mining &
Reclamation Ass 'n, 452 U.S. 264, 294-95 (1981)). "On the other hand, ... [it] is not as
important where the question presented is 'predominantly legal,' such as one of federal

12

preemption." Id. (quoting Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev.
Comm 'n, 461 U.S. 190, 201 (1983)).

This is a dispute where an "actual factual setting" is particularly important. Plaintiff
raises substantive due process and takings challenges. In analyzing substantive due process
challenges to estimation procedures, "[c]ourts have routinely upheld the government's use of
statistical sampling as a valid audit tool provided it was properly performed." Temple-Inland,
2016 WL 3536710, at *15 (collecting cases). "An estimation is properly performed when it is
based on the principle that the unclaimed property in the reach-back years has 'all the same
qualities and characteristics' as unclaimed property in the base-years." Id. (quoting United
States v. Mehta, 594 F.3d 277, 283 (4th Cir. 2010)). As the detailed analysis in Temple-Inland

illustrates, the determination of whether the use of estimation-if employed-violates
substantive due process is an inquiry which would benefit greatly from a robust factual record.
Plaintiffs takings claim presents a similar problem. "Estimation is properly employed
when it balances the competing interests between an unlawful taking by the state and improper
windfall for holders." Temple-Inland, 2016 WL 3536710, at *17. "[A] reasonable estimation ..
. is not an unconstitutional taking." Id. (citing Duquesne Light Co. v. Barasch, 488 U.S. 299,
307 (1989)). Whether the estimation that might be employed in this audit would be reasonable,
as is required by § 1155, is an issue that requires a factual record. Indeed, the Supreme Court has
recognized that an "actual factual setting" is "particularly important in cases raising allegations
of an unconstitutional taking of private property." Hodel, 452 U.S. at 294-95.
The questions presented here are not "predominantly legal," such that "the need for
complete factual development is not absolutely essential." Travelers Ins. Co. v. Obusek, 72 F.3d
1148, 1155 (3d Cir. 1995). Plaintiffs claims pertaining to the Takings Clause, the Ex Post Facto

13

Clause, preemption, vagueness, and-to a large extent-substantive due process and procedural
due process, all focus on the practice of "estimation" authorized by§ 1155(a). Since the
Delaware Defendants have not yet employed estimation to assess any liability, nothing is known
about the estimation procedure which may be undertaken. This presents significant practical
problems, since the permissibility of estimation, in all of these contexts, hinges on factual
specifics. Even Plaintiffs preemption claim is directed to a particular method of estimation,
which, if employed, might violate the principles set forth in the Texas cases.
In opposition, Plaintiff argues that it has raised facial challenges, which require less

factual development. "[F]acial challenges are disfavored and should be considered sparingly."
CMR D.N Corp. v. City ofPhiladelphia, 703 F.3d 612, 624 (3d Cir. 2013). "In a facial
challenge, the plaintiff does not seek to establish that the law cannot be applied to him; rather, he
or she must show that 'no set of circumstances exists under which the [challenged] Act would be
valid."' Id. at 623 (alteration in original) (quoting United States v. Mitchell, 652 F.3d 387, 405
(3d Cir. 2011) (en bane)). Pleading facial challenges 5 cannot save Plaintiff's claims. A facial
challenge is not a free ticket to federal court. The presence of an actual case or controversy is a
prerequisite to every action, from which no plaintiff is exempt. Armstrong, 96 l F .2d at 421.
Plaintiff describes speculative harms flowing from events which may not transpire. Plaintiff's
facial challenges do not "make[] up for the contingent nature of the[] complaint." Id. at 422.

5

Plaintiff purports to raise both facial and as-applied challenges. Generally, Plaintiffs allegations relate
to the particulars of its past and prospective 'interactions with the Delaware Defendants. (See, e.g., D.I. 21
'if'il 102-05, 109-12). Further, most of Plaintiffs requests for relief demonstrate that Plaintiff"seeks to
vindicate ... [its] own rights," rather than "those of others who may also be adversely impacted .... "
City of Chicago v. Morales, 527 U.S. 41, 55 n.22 (1999). For purposes ofthis motion, however, I will
assume that Plaintiff has adequately raised facial challenges to the use of estimation_ on grounds of
vagueness, procedural due process, and preemption. (D.I. 21'if'il117-18, 123-24, 138).

14

Again, Plaintiff's equal protection claim is different. The conduct to which Plaintiff
objects has already occurred. Future actions undertaken by the Delaware Defendants will have
no impact on Plaintiff's equal protection claim. Thus, no further factual development would be
helpful.
In short, nothing has happened. Whatever does eventually happen will not happen

imminently. If and when it does happen, it is unknown how it will happen. This is particularly
problematic since, for these claims, an actual factual setting is crucial. Any decision rendered by
the Court would thus be based on some hypothetical set of facts, and would therefore constitute
an impermissible advi1;1ory opinion.
iii. Practical Utility

"Practical utility goes to 'whether the parties' plans of actions are likely to be affected by
a declaratory judgment,' and considers the hardship to the parties of withholding judgment." NE
Hub, 239 F.3d at 344-45 (citations omitted) (quoting Step-Saver, 912 F.2d at 649 n.9). "One of

the primary purposes behind the Declaratory Judgment Act was to enable plaintiffs to preserve
the status quo .. ., and a case should not be considered justiciable unless 'the court is convinced
that [by its action] a useful purpose will be served."' Step-Saver, 912 F.2d at 649 (alteration in
original) (quoting Edwin Borchard, Declaratory Judgments 29 (1941)).
Plaintiff argues that, absent judicial intervention, it will be compelled to undergo a long
and expensive audit process. Ordinarily, "the burden of participating in further administrative
and judicial proceedings ... do [es] not constitute sufficient hardship for the purposes of
ripeness." Fla. Power & Light Co. v. EPA, 145 F.3d 1414, 1421 (D.C. Cir. 1998). Indeed, "in
all but the most complex and burdensome cases where the administrative process itself is at
issue, administrative expenses do not constitute a hardship to support ripeness." Kushi v.

15

Romberger, 543 F. App'x 197, 201 (3d Cir. 2013) (citing NE Hub, 239 F.3d at 345-46). The

Supreme Court has held that "the expense and annoyance of litigation is 'part of the social
burden ofliving under government."' FTC v. Standard Oil Co. of Cal., 449 U.S. 232, 244
(1980) (quoting Petroleum Exp!., Inc. v. Pub. Serv. Comm 'n, 304 U.S. 209, 222 (1938)). "There
is no basis for treating the expense and annoyance of administrative audits and investigations any
differently." Univ. ofMed. &Dentistry ofNJ v. Corrigan, 347 F.3d 57, 70 (3d Cir. 2003).
Therefore, withholding judgment will not present the sort of hardship contemplated by this
factor.
Additionally, Plaintiff does not raise a constitutional challenge to the Delaware
Defendants' authority to undertake an audit. Rather, Plaintiff challenges certain aspects of an
audit which has yet to occur, including a possible method of assessing liability. Therefore, any
opinion would simply offer general pronouncements about what may or may not be
constitutional under some hypothetical sets of facts. In other words, the fact that "any ...
opinion would not be grounded in facts arising from a dispute between parties renders the
'practical utility' even more remote." Constitution Pry. of, Pa. v. Cortes, 712 F. Supp. 2d 387,
400 (E.D. Pa. 2010), aff'd, 433 F. App'x 89 (2011).
Plaintiff's equal protection claim, as contrasted with its other claims, is based entirely on
the Delaware Defendants' targeting of Plaintiff. Since the Delaware Defendants have already
selected Plaintiff for an audit, there is some practical utility in assessing whether that targeting
deprived Plaintiff of its constitutional rights.
To summarize, Plaintiff seeks a declaration that actions the state has yet to undertakewhich it may never undertake---will, if done in a certain way, deprive Plaintiff of its

16

constitutional rights. Having considered the three Step-Saver factors, I conclude that, aside from
the equal protection claim, Plaintiff has not demonstrated a ripe controversy.

C.

Equal Protection
No state may "deny to any person within its jurisdiction the equal protection of the laws."

U.S. Const. amend. XIV,§ 1. The Equal Protection Clause is "essentially a direction that all
persons similarly situated should be treated alike." City of Cleburne v. Cleburne Living Ctr., 473
U.S. 432, 439 (1985). "As a general matter, economic and social legislation is subject to rational
basis review, under which a law need only be 'rationally related to a legitimate state interest."'

Schumacher v. Nix, 965 F.2d 1262, 1266 (3d Cir. 1992) (footnote omitted) (quoting City ofNew
Orleans v. Dukes, 427 U.S. 297, 303 (1976) (per curiam)). When legislation creates "a
classification [that] trammels fundamental personal rights or is drawn upon inherently suspect
distinctions such as race, religion, or alienage," Dukes, 427 U.S. at 303, however, "it is subject to
· strict scrutiny and will pass constitutional muster only if it is narrowly tailored to serve a
compelling state interest." Maldonado v. Houstoun, 157 F.3d 179, 184 (3d Cir. 1998).
Plaintiff argues that the Delaware Defendants have violated the Equal Protection Clause
by focusing auditing efforts on large, wealthy companies. 6 The wealthy are not a suspect class.

See San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 28-29 (1973). Therefore, rational
basis review applies. Plaintiff contends that there is no legitimate justification for targeting the
wealthy. Further, Plaintiff insists that the Delaware Defendants target such individuals to raise
revenue for Delaware's general fund. Raising revenue "is not a legitimate interest," but "as long
as [raising revenue] was not the only legitimate purpose underlying the legislation, [the
legislation] will pass rational basis examination." NJ. Retail Merchs., 669 F.3d at 398. Here, it

6

Since§ 1155(a) provides no criteria for the audit selection process, Plaintiff bases its § 1983 claim on a
practice of constitutional violations undertaken by the Delaware Defendants.

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is entirely legitimate for an agency with limited resources to target entities which are more likely
than others to hold large amounts of unclaimed property. The actions of the Delaware
Defendants are rationally related to that interest. Thus, the audit selection process satisfies
rational basis review.
Count VIII is therefore dismissed for failure to state a claim.

IV.

CONCLUSION
For the reasons set forth above, Kelmar's motion to dismiss (D.1. 25) is GRANTED, and

the Delaware Defendants' motion to dismiss (D.I. 29) is GRANTED. An appropriate order will
be entered.

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