Keane's Unclaimed Property Blog

New Jersey Gift Card Escheatment Update: Third Circuit Rejects “Place of Presumption” Provision

On January 5, 2012, the United States Court of Appeals for the Third Circuit issued its opinion in the case of New Jersey Retail Merchants Association v. Sidamon-Eristoff which concerns several plaintiffs’ challenges against NJ A3002, the bill passed on June 30, 2010.  The bill featured major changes to New Jersey’s approach to unclaimed gift certificates, stored value cards, and gift card escheatment; beginning with the requirement that they be reported, which was previously not the case in New Jersey.  Also, holders were to record the zip code of gift card purchasers and, if the address of the purchaser was unknown, holders were to report those cards to New Jersey on the basis of a “place of purchase” presumption.

As previously discussed here, Keane had described how the District Court in New Jersey held that the “place of purchase” presumption ran afoul of the priority rules outlined in the United States Supreme Court opinion of Texas v. New Jersey and granted the plaintiffs’ motion for a preliminary injunction, and now the Third Circuit has affirmed that decision of the District Court.

While the Third Circuit agreed with the District Court that the “place of purchase” presumption was invalid, the Third Circuit upheld New Jersey’s right to require holders to collect zip codes from gift card purchasers.  The District Court had granted the preliminary injunction against the zip code collection requirement, also referred to as the data collection requirement, on the basis that its only purpose was to facilitate the escheatment of gift cards pursuant to the “place of purchase” presumption.  The Third Circuit held that the zip code collection requirement was severable from the “place of purchase” presumption.  The Third Circuit stated that this data collection is consistent with the Supreme Court holdings in Texas v. New Jersey and other decisions because those decisions have consistently allowed for states to escheat pursuant to the last known address of the purchaser.  The opinion of the Third Circuit is vague as to whether or not the Third Circuit considered a zip code as solely sufficient to establish an address to report unclaimed property under the first priority rule in Texas v. New Jersey.

The Third Circuit also considered the application of New Jersey’s new gift card escheatment provisions.  The original law had attempted to apply retroactively to gift card and stored value card property.  The Third Circuit agrees with the District Court that the law cannot be applied retroactively as it infringes on contractual relationships of the issuers of the stored value cards.  However, the Third Circuit did uphold New Jersey’s ability to apply its two-year dormancy for gift cards prospectively.  The state’s basis for the law had been challenged as it was alleged that raising revenue was the sole motivation behind the bill.  The Third Circuit stated that as long as raising revenue was not the only legitimate purpose, the legislation passes the rational basis test and is therefore constitutional.

To summarize, the Third Circuit’s decision prevents New Jersey from enforcing its “place of purchase” presumption which violates Texas v. New Jersey, but New Jersey has been given clearance to enforce its zip code collection requirement and its new two-year dormancy provision for stored value cards and gift card escheatment.  While holders should certainly begin their preparations to comply with the surviving portions of New Jersey’s new gift card and stored value card law, the Third Circuit’s decision is an important installment in the legacy of Texas v. New Jersey and the courts’ willingness to adhere to the priority rules.  Keane is available to guide you and your company through any issues with complying with the new law, and will be monitoring any further developments should they arise.

Dormancy Periods, Gift Card Escheatment, State Escheatment, Unclaimed Property Reporting

I'm looking for information on...