Randy,
I think (it's been a while since I did this problem) that the energy
goes into I^2*R heating of the connecting wires.
If you discharge a single capacitor through a resistor, you can show
that all the stored energy goes into heating the resistor. However, in the
calculation, the resistance value is not a factor (it can't be if you think
about it). So, no matter how small the R value, you have the same
conclusion as to the energy transfer.
Connecting the two capacitors in your problem is just another version
of the same problem.