Mintz Levin recently published a Litigation Alert titled The Case That Could Significantly Disrupt How Companies Manage Their Gift Card Programs and Could Create Billions of Dollars in Exposure. This Alert analyzes a recently unsealed qui tam complaint filed in Delaware, and should be essential reading for any company with a gift card program.
The complaint is premised on the following two fundamental allegations:
- Numerous Delaware corporate defendants violated the Delaware False Claims and Reporting Act by failing to pay unredeemed gift card balances to the State of Delaware
- These companies remained the actual “holders” of the unredeemed gift cards for purposes of the Delaware Unclaimed Property law despite the fact they had all contracted with a third-party gift card manager to own the unredeemed balances
The legal theory pursued in this case will likely have an impact on all Delaware corporations with gift card programs as well as corporations with gift card programs that are incorporated in states with similar unclaimed property laws as the ones in Delaware.
Companies should assess their potential exposure, monitor this litigation, consider options for restructuring card programs, prepare for potential state audits, and consider existing administrative options for potentially reducing potential exposure in this area.