Vice Chancellor Joseph Slights (Courtesy photo) Vice Chancellor Joseph Slights, Delaware Chancery Court (Courtesy photo)

A Delaware Chancery Court judge on Monday criticized the state’s tactics in trying to force an Illinois-based company to comply with an unclaimed-property audit, saying it was trying to have the constitutionality of the state’s escheat laws litigated in two courts at the same time.

Vice Chancellor Joseph R. Slights III, in an 11-page order, said an earlier stay on the state’s enforcement action should remain in place while Univar Inc. proceeds with its federal court  challenge to the state’s ability to subpoena corporate records going back decades.

In his ruling, Slights said the Department of Finance had waited until Univar filed its lawsuit to bring its Chancery Court enforcement action and then refused to seek expedited resolution of threshold constitutional and preemption issues in the U.S. District Court for the District of Delaware.

“Rather than prosecute that motion, however, the state continues to press its strategy of having two courts litigate the same constitutional challenges to the same Delaware statutes at the same time,” Slights said. “The inefficiencies of this approach are apparently lost on the State. They are not lost on the court.”

The ruling came in response to Delaware’s application for a fast-tracked review of Slight’s order last month, which granted Univar’s motion to stay the Chancery Court case. The maneuver, known as interlocutory appeal, aimed to send the issue straight to the state’s five justices, on the grounds that it raised a novel issue of Delaware law and challenged the constitutionality of state statute.

Attorneys for the Department of Finance argued that a provision of state law charged the Chancery Court with “expeditiously” hearing enforcement actions arising under Delaware’s unclaimed property collection laws and that Slight’s order, for the first time, touched on the question of whether such actions could be stayed.

The stay, they argued, improperly would allow a federal judge to decide constitutional questions that ought to be left to the state court.

“The order also results in the district court, rather than this court, having the first opportunity to determine the constitutionality, construction, and application of the escheats law, even though the plain language of the statute at issue vests jurisdiction for enforcement actions in the Court of Chancery and requires expeditious consideration by the court,” the state’s Loeb & Loeb and Young, Conaway, Stargatt & Taylor wrote in their application.

Slights, however, said the state’s arguments “ring hollow when considered against its audit and litigation strategies.”

According to Slights’ ruling, the state had initiated its audit of Univar, a global chemical and ingredients distributor, in 2015, and first sought the records in 2016. At the time, Slights said, officials knew about Univar’s constitutional objections but waited nearly two years to issue its subpoena last October.

It wasn’t until after Univar sued in December that the state decided to “rush” to the Court of Chancery to file its enforcement action, he said.

“Even though it knew Univar challenged the statute upon which the subpoena was issued on constitutional grounds, the state did not promptly initiate an action to enforce its subpoena,” Slights wrote.

A spokeswoman from the Department of Finance did not respond Tuesday afternoon to a call seeking comment on the ruling, and an outside attorney for the state was not immediately available to comment.

Univar, in its federal lawsuit, has claimed that audit is an unreasonable search and seizure, which subjects the company to an unconstitutional taking by the government and deprives it of its due-process rights under the Fourteenth Amendment.

The state is represented in the enforcement action by Caroline Lee Cross and Elizabeth R. McFarlan of the Delaware Department of Justice, as well as Steven S. Rosenthal, Tiffany R. Moseley and John David Taliaferro of Loeb & Loeb in New York and Melanie K. Sharp, Martin S. Lessner, Mary F. Dugan and James M. Deal of Young Conaway in Wilmington.

Univar is represented by Michael P. Kelly, David A. White and Matthew J. Rifino of McCarter & English and Jameel S. Turner and James G. Ryan of Bailey Cavalieri in Columbus, Ohio.

The enforcement action, filed in the Court of Chancery, is captioned State of Delaware v. Univar.