Preserving the Business-to-Business Exemption under the Massachusetts Abandoned Property Act
This case arose out of an audit of Biogen initiated by the Massachusetts Treasurer in 2003 for the purpose of determining whether Biogen had complied with the reporting and property surrender requirements of the Massachusetts Abandoned Property Act, G. L. c. 200A, § 5, (“MAPA”). At issue was the scope of the so-called “business-to-business” exemption under the Act, which excludes from MAPA’s purview “any outstanding credit balances” between businesses arising in the ordinary course of business. During the audit of Biogen in 2004, State Treasurer Cahill issued “emergency” regulations reversing regulations promulgated in 2001 that had applied the exemption to “credits either current or past that are or were owing to a vendor or commercial customer . . . .” The new regulations redefined “credit balances” narrowly to include only “[o]utstanding balances that are recorded as current accounts receivable or accounts payable of a holder.” (emphasis added). Applying the the new regulations, the Treasurer concluded that Biogen should have reported as abandoned property, and turned over to the Commonwealth, over $780,000 in uncashed accounts payable checks for the period 1984-2004. Biogen appealed the Treasurer’s determination on the ground that the new regulations were invalid and Judge Allan van Gestel, sitting in the Business Litigation Session of the Massachusetts Superior Court, allowed Biogen’s motion for judgment on the pleadings, declining to apply Treasurer Cahill’s regulation retroactively to Biogen. Judge van Gestel further noted that the 2001 regulations “best comport” with the apparent intent and purpose of the statutory exemption and rejected Treasurer Cahill’s contrary interpretation on the ground that it would “hobble the statute’s effectiveness.” Treasurer Cahill appealed the Superior Court decision and the SJC took the case sua sponte for direct appellate review.
NELF, joined by the Associated Industries of Massachusetts, filed an amicus brief in support of Biogen. In its brief NELF argued, inter alia, that the ordinary meaning and legislative history of the business-to-business exemption demonstrate that it was intended to apply generally to debts between businesses arising in the ordinary course of business and that Treasurer Cahill has erroneously used technical accounting definitions to restrict the exemption’s scope. NELF’s brief further argued that Treasurer Cahill’s new regulatory definition impermissibly rendered the statutory exemption virtually meaningless. Property is not deemed abandoned under the Act until the passage of three years, while “current liabilities” are those due for payment within the business’s operating cycle, which is generally one year,. “Current” accounts payable are therefore not abandoned property and require no exemption. Finally, NELF’s amicus brief explained that, to the extent Biogen’s financial records reflect undelivered, canceled checks, MAPA does not even apply. Those canceled checks do not establish an obligation to pay on the part of Biogen.
In affirming the trial court’s decision, the SJC chose not to deal with these challenges to Treasurer Cahill’s amended regulations, but affirmed simply based on its determination that the original 2001 regulations (under which Biogen would not be liable for uncashed accounts payable checks) were reasonable and that, under the circumstances, Treasurer Cahill’s amended regulations could not be applied retroactively.
This case arose out of an audit of Biogen initiated by the Massachusetts Treasurer in 2003 for the purpose of determining whether Biogen had complied with the reporting and property surrender requirements of the Massachusetts Abandoned Property Act, G. L. c. 200A, § 5, (“MAPA”). At issue was the scope of the so-called “business-to-business” exemption under the Act, which excludes from MAPA’s purview “any outstanding credit balances” between businesses arising in the ordinary course of business. During the audit of Biogen in 2004, State Treasurer Cahill issued “emergency” regulations reversing regulations promulgated in 2001 that had applied the exemption to “credits either current or past that are or were owing to a vendor or commercial customer . . . .” The new regulations redefined “credit balances” narrowly to include only “[o]utstanding balances that are recorded as current accounts receivable or accounts payable of a holder.” (emphasis added). Applying the the new regulations, the Treasurer concluded that Biogen should have reported as abandoned property, and turned over to the Commonwealth, over $780,000 in uncashed accounts payable checks for the period 1984-2004. Biogen appealed the Treasurer’s determination on the ground that the new regulations were invalid and Judge Allan van Gestel, sitting in the Business Litigation Session of the Massachusetts Superior Court, allowed Biogen’s motion for judgment on the pleadings, declining to apply Treasurer Cahill’s regulation retroactively to Biogen. Judge van Gestel further noted that the 2001 regulations “best comport” with the apparent intent and purpose of the statutory exemption and rejected Treasurer Cahill’s contrary interpretation on the ground that it would “hobble the statute’s effectiveness.” Treasurer Cahill appealed the Superior Court decision and the SJC took the case sua sponte for direct appellate review.
NELF, joined by the Associated Industries of Massachusetts, filed an amicus brief in support of Biogen. In its brief NELF argued, inter alia, that the ordinary meaning and legislative history of the business-to-business exemption demonstrate that it was intended to apply generally to debts between businesses arising in the ordinary course of business and that Treasurer Cahill has erroneously used technical accounting definitions to restrict the exemption’s scope. NELF’s brief further argued that Treasurer Cahill’s new regulatory definition impermissibly rendered the statutory exemption virtually meaningless. Property is not deemed abandoned under the Act until the passage of three years, while “current liabilities” are those due for payment within the business’s operating cycle, which is generally one year,. “Current” accounts payable are therefore not abandoned property and require no exemption. Finally, NELF’s amicus brief explained that, to the extent Biogen’s financial records reflect undelivered, canceled checks, MAPA does not even apply. Those canceled checks do not establish an obligation to pay on the part of Biogen.
In affirming the trial court’s decision, the SJC chose not to deal with these challenges to Treasurer Cahill’s amended regulations, but affirmed simply based on its determination that the original 2001 regulations (under which Biogen would not be liable for uncashed accounts payable checks) were reasonable and that, under the circumstances, Treasurer Cahill’s amended regulations could not be applied retroactively.
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