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Appeals Court Allows Office Depot Audit to Proceed, Priority Rules Claim Not Yet Ripe

Wednesday, January 24, 2018   (0 Comments)
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On Jan. 22, 2018, a Third Circuit U.S. Court of Appeals panel of judges vacated a lower court’s opinion in Office Depot’s lawsuit against Delaware. The appeals court was asked to consider whether Delaware may conduct an audit examining who holds the money paid for gift cards issued by its subsidiary – Office Depot, which is incorporated in Delaware, or the subsidiary, which is incorporated in Virginia. Office Depot argued that the federal common law priority rules should preempt the state’s audit.

 

The court acknowledged that the case was nearly identical to Marathon Petroleum Corp. v. Secretary of Finance, and the court’s ruling would be the same. In its written opinion, the court explained that the state has the ability to conduct an audit to the extent necessary to determine whether the subsidiary is legitimate. Going beyond that scope, the priority rules may be triggered. However, because Delaware has not yet begun an enforcement proceeding, Office Depot and its subsidiary do not yet have a viable claim.

 

As such, the court vacated the lower court’s judgment and dismissed Office Depot’s preemption claim without prejudice, permitting the retailer to again raise the preemption claim after the state begins an official enforcement action.   


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