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9/25/18 8:32 AM

Retailer Found Guilty In Gift Card Case

On September 21, 2018, a Delaware jury found Overstock.com guilty of failing to report and remit nearly $3M in unredeemed gift card balances that should have been reported to the State of Delaware as unclaimed property.
The verdict is the latest in a series of on-going cases that has already resulted in the payment to Delaware of over $25 million in unpaid gift cards and penalties from other retail card issuers who settled before trial.

Under Delaware law, gift card issuers are required to turn over unredeemed gift card balances to the state after a period of 5 years.  However, this and other lawsuits has exposed a common practice in the gift card industry, where significant numbers of cards go unredeemed and issuers keep these balances.

In the Overstock case (The State of Delaware ex. rel. William Sean French v. Overstock.com, Inc. [Superior Court of Delaware C.A. No. N13C-06-289 PRW CCLD]), the defendant declared that it had transferred unredeemed gift card balances to an Ohio-based business, CardFact Ltd (now known as Card Compliant).  As Ohio does not require the escheatment of unused gift card balances, this transfer allowed CardFact and Overstock to keep these balances.

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Topics: Delaware, gift cards, U.P. Law

3/7/17 3:21 PM

Reporting Unclaimed Card Balances

It can be difficult for holders to understand the intricacies of reporting stored value cards, payroll cards, reloadable cards and gift certificates. It’s not surprising when you take into consideration variations in card types, regulations and technology advances.  With the rapid growth in the card industry, this property category is getting more attention. In fact, the 2016 RUUPA includes several new card specific definitions that holders with a card program should be aware. As stated in our RUUPA blog post many states have adopted or are in the process of adopting the new act. Key definitions included in the act are gift card, loyalty card, net card value, payroll card, and stored-value card.

Legislative activity specific to cards and certificates is off to a fast start in 2017. For example:

  • Oregon SB 113 provides that person identified in a gift card as providing goods or services shall transfer to the Department of State Lands any remaining balance of a gift card that a cardholder has not used within five years after the date of the last transaction using the gift card.

  • New Hampshire House Bill 473 increases the threshold from $100 to $250 above which merchants can sell gift cards with expiration dates. The bill further provides that gift certificates of $250 or less shall not be considered abandoned property.

Accurate escheatment of card balances relies upon a variety of functions. Here are some of the crucial functional areas.

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Topics: Compliance, Reporting, gift cards

1/27/17 10:37 AM

Delaware Approves Legislation to Overhaul Their Unclaimed Property Laws

On January 27, 2017, the Delaware House of Representatives passed Delaware Senate Bill 13 (“S.B. 13”), finalizing Delaware’s legislative body’s fast-track effort to overhaul the state’s unclaimed property laws.  The bill will now be sent to Governor John Carney, who has indicated he will sign it. The legislature’s approval of S.B. 13 is a much anticipated development in the unclaimed property world, as Delaware attempts to address the scrutiny it has endured over the last few years, which culminated in July 2016 with the critical decision in the Temple-Inland case.  Although S.B. 13 addresses many of the areas on which corporations and unclaimed property practitioners have been seeking guidance, a few key issues in the current Delaware act have yet to be addressed.  Following are some of the key changes for those areas the Senate Bill has definitively addressed.

Look-Back Periods, Statute of Limitations, and Record Retention

One of the main areas of contention with Delaware’s escheat act has been its audit look-book period and statute of limitation provisions.  As Delaware’s act is currently written, a holder may be subject to a reach-back period of 20+ years, which is especially problematic because such a lengthy audit reach-back period typically far exceeds generally accepted corporate document and data retention policies.  In recognition of this clear misalignment, S.B. 13 stipulates a 10 year look-back period for ongoing and future audits.  The look-back period is based on the calendar year in which the Delaware audit notice was mailed to the holder.  Accordingly, the look-book period for holders already subject to a Delaware audit will vary depending on the age of the specific audit.  To ensure consistency, the look-back for the Voluntary Disclosure Agreement (“VDA”) program will also be amended to 10 years.  We note that this change for VDA’s merely represents a codification of what occurred administratively this past summer following the Temple-Inland decision.

Under S.B. 13, the statute of limitations increases to 10 years from 3 years (or 6 years in cases where a report contained an omission of unclaimed property that was more than 25% of the value disclosed in the report).  This 10-year statute is tolled if a holder is placed under audit or if the Delaware State Escheator determines that the report contained a fraudulent or willful misrepresentation.

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Topics: Delaware, Compliance, Due Diligence, ULC, Reporting, Audit, Recordkeeping, Voluntary Disclosure Agreements, gift cards, U.P. Law

4/7/16 10:19 AM

Updated RUUPA: What’s Next in Unclaimed Property Law?

Highlights of ULC Discussion at UPPO

In February, the Uniform Law Commission submitted a new draft of the Revised Uniform Unclaimed Property Act (RUUPA) after months of discussing, negotiating and adjusting. As with other drafts, this version of the RUUPA was prepared after receiving input from unclaimed property stakeholders across the industry.

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Topics: ULC, gift cards

2/4/16 12:53 PM

Delaware’s Qui Tam Litigation: What it Means for Unclaimed Property Holders

In the course of a recent qui tam whistleblower lawsuit, the Delaware Superior Court released a preliminary decision related to requests for dismissal by the defendants — 30 retailers and a retail association.

Even though the case still has a long way to go before resolution, this early decision and some of the judge’s comments contain clues for holders to help them determine the best way to manage gift-card-related unclaimed property to stay out of court. Because other states sometimes follow Delaware’s lead, this decision could eventually influence unclaimed property law in other states.

Case background: State of Delaware ex rel. French v. Card Compliant LLCet al.

In May of 2014, a false claims (qui tam) action was brought by the State of Delaware against a third-party gift card issuer/manager, 30 of its retail gift card clients, and the National Retail Federation, which had helped promote the services in question. The action was based on the original filing by a former employee of the third-party issuer, Card Compliant (previously Card Fact, LLC).

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Topics: Delaware, Reporting, gift cards

4/24/15 9:51 AM

Much Ado about Gift Cards: 3 Steps to Get you Started

Many holders don’t understand the intricacies of reporting stored value cards, payroll cards, reloadable cards and gift certificates. It’s not surprising. Due to advances in technology, this property category is getting more attention. Requirements constantly evolve. Reporting unused balances (breakage) of gift cards can be quite complex.

Challenges of reporting unclaimed gift card value

Gift Card Challenge #1:
54 unclaimed property reporting jurisdictions

Holders of all unclaimed property must navigate laws in every state and territory. Nearly every jurisdiction's laws include verbiage related to gift cards, stored value cards or gift certificates. More than 30 states offer specific gift-card-related exemptions.

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Topics: Reporting, gift cards