Keane's Unclaimed Property Blog

A(nother) Victory for Holders of Unclaimed Merchandise Credits

New Jersey Superior Court rules that unclaimed merchandise credits and certificates issued by Bed Bath & Beyond are exempt from New Jersey Unclaimed Property Law.

On September 21, 2017, in an opinion reminiscent of the California Superior Court’s March 2016 decision in Bed Bath & Beyond v. Chiang (“Chiang”)[1], the appellate division of the New Jersey Superior Court found in favor Bed Bath & Beyond (“BB&B”) in a decision involving two consolidated appeals, holding that certificates issued by BB&B prior to July 1, 2010 to customers who returned merchandise to the store for credit without a receipt were exempt from New Jersey’s unclaimed property law[2].

As to the second appeal, the court found that these same certificates, issued by BBB-VSI, a wholly owned subsidiary of BB&B, on and after July 1, 2010, constituted store value cards under the unclaimed property law, as amended in 2010, and did not constitute credit memoranda as argued by the Treasury Department’s Unclaimed Property Administration (“UPA”).[3]

In May 2015, BB&B appealed the UPA’s denial of a refund for the value of unclaimed merchandise return certificates (totaling $939,341.16), issued to customers who returned merchandise to the store without a receipt prior to January 1, 2010, which had been reported as credit memoranda.  BB&B asserted that it had erred in reporting the certificates because they did not represent obligations to pay cash and were not property within the scope of the unclaimed property law. The UPA alleged that the certificates were properly escheated as credit memoranda because they involved the return of sold goods and were not original sales, and that BB&B had an expectation of paying cash in these transactions.

In arriving at its decisions, the court looked to the history of the unclaimed property law and to a prior decision by the same court (the “1996 Determination”), which held that the categories of intangible property expressly covered under the statute were claims for the payment of money[4]. Because gift certificates had not been included in the definition of property, the court found that they were intentionally omitted from the unclaimed property law.

Moreover, because the gift certificates could only be redeemed for merchandise, the legislature presumably had not intended to include them as a type of intangible personal property subject to escheat[5].  Alluding to the derivative rights doctrine, the court in the 1996 Determination determined that the law was not intended to impose a different obligation from the one undertaken to the original owner.

Similarly, in Chiang,  the California Superior Court upheld the principles of the derivative rights doctrine, stating that a merchandise credit, redeemable for merchandise only, “could not [be] escheated and operate as cash available to a consumer when the consumer was never entitled to cash.”[6]

New Jersey Gift Card Law & History

The New Jersey unclaimed property statute was amended, effective July 1, 2010, to include stored value cards as property, defined to include gift cards outstanding on or after July 1, 2010, including those issued prior to July 1, 2010. Two years later, it was amended to add a cash back provision for customers who redeemed their stored value cards with a refund balance of less than $5. However, the provision did not extend to stored value cards that were not purchased, but were instead provided to customers in lieu of refunds for returned merchandise. The amount presumed abandoned was set at 60% of the value of the card. The court likened the merchandise certificates to the gift certificates in the 1996 determination, holding that those certificates issued prior to July 1, 2010 were only redeemable for merchandise and were not claims for the payment of money. Therefore, they were not subject to escheat.

The second decision, BBB-VSI appealed the UPA’s denial of a request for a refund in the amount of $244,552.57, alleging that it had erred in escheating certificates issued between July 1, 2010 to June 30, 2011 as credit memoranda. BBB-VSI contended that because the certificates constituted stored value cards under the unclaimed property law, as amended, they should not have been presumed abandoned until after 5 years of inactivity and had thus been prematurely escheated at the 3 year mark as credit memoranda.

Further, they claimed that the amount presumed abandoned should have been 60% of the value of the cards, not 100%.  The UPA again argued that the certificates had been properly escheated as credit memoranda. The court agreed with BBB-VSI, holding that the certificates were stored value cards within the meaning of the 2010 amendment and issued for non-monetary consideration. The 2012 amendment confirmed their interpretation that stored value cards could include cards provided in lieu of a refund for returned merchandise.

Impact to the Retail & Gift Card Industry?

Although these recent decisions may rest on the specific facts of each case, and on the unclaimed property law at the time of the reporting of the funds, the wins are nevertheless important to the holder community and retailers alike because they illustrate that the courts are consistently taking a narrow view with respect to the escheatment of gift cards and similar instruments, and upholding the principles of the derivative rights doctrine.

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[1] Bed Bath & Beyond v. Chiang (No. 37-2014 (Sup. Ct. San Diego, CA)

[2] Bed Bath & Beyond v. New Jersey Treasurer (Sup. Ct NJ, App. Div., No. A-4880-14T3)

[3] BBB Value Services, Inc. v. New Jersey Treasurer (Sup. Ct NJ, App. Div., No. A-2973-14T3)

[4] In re the Nov. 8, 1996, Determination of State, Dep’t. of Treasury, Unclaimed Prop. Office, 309 N.J. Super. 272, 276 (Sup. Ct., App. Div. 1998)

[5] Id at 278.

[6] Chiang, p. 2-3.

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