US 3rd Circuit Court of Appeals Issues Decision on NJ Gift Card Litigation

New Jersey Gift Card Litigation Court Decision
Prepared by GRAC Committee Members
Kendall Houghton, Maryann Luongo and Marcella Easly
January 6, 2012

For the last 15 or so months, UPPO's Government Relations and Advocacy Committee (GRAC) members have been tracking and reporting on the New Jersey litigation that was commenced to challenge the New Jersey law that attempts to retroactively require reporting of gift cards and to impose a "place of purchase presumption” for reporting purposes. UPPO filed an Amicus Curiae on this issue last year (Jan. 25, 2011).  Below is the decision handed down this morning by the U.S. Third Circuit Court of Appeals in Philadelphia reviewing the decision of the District Court of New Jersey in New Jersey Retail Merchants Ass’n et al. v. State of New Jersey et al.

The Third Circuit has affirmed the District Court's decision on all issues, including the constitutionality and enforceability of the data collection requirement contained in section 5c of the New Jersey Act.

Specifically, in its 45-page opinion (see below for complete copy), the Third Circuit:

• Affirms the District Court's decision that retroactive application of Chapter 25 violates the Contracts Clause of the U. S. Constitution and its injunction prohibiting retroactive application of the law
• Affirms the District Court's decision that the escheat of unredeemed card balances after 2 years of inactivity is not pre-empted by the provisions of the federal CARD Act requiring issuers of gift cards to honor them for at least 5 years
• Affirms the District Court's decision that the New Jersey statute meets a "rational basis” standard of review with respect to legitimate state interests in enactment of the statute, even if raising revenue was the primary reason the statute was enacted
• Affirms the District Court’s determination that the place-of-purchase presumption in Chapter 25 conflicts with the priority rules established by the Supreme Court in Texas v. New Jersey and is therefore unenforceable. The opinion also concludes that guidance issued by the Treasurer, including New Jersey’s intention to enforce so-called "third priority” rule claims to unredeemed balances on gift cards sold in New Jersey by issuers who are domiciled in states that exempt gift card balances from their own escheat laws, violates the priority rules established by the Supreme Court and would be unconstitutional. Like the District Court's opinion, the Third Circuit’s opinion strongly supports our long-held belief that the "third priority rule” is unconstitutional.
• However, the Third Circuit also affirms the District Court’s determination that the data collection requirement contained in section 5c of the New Jersey statute is severable from the place-of-purchase presumption and may be enforced by New Jersey even without the place-of-purchase presumption.

COMPLETE COPY OF THE DECISION

The GRAC members will continue to study the Court’s opinion and New Jersey’s likely response insofar as enforcement of the Act’s data collection provisions. Please let us know if you have any questions about this decision and its potential impact on your operations.

This and many other important unclaimed property issues will be discussed at the 2012 UPPO Annual Conference, March 11-14, in Orlando.  Registration is now open and early bird rates will be expiring soon!

The analysis and opinions expressed herein are those of the authors and do not necessarily represent the views of the Unclaimed Property Professionals Organization or its officers, directors or members. This summary document provides background information and is not intended as a substitute for legal advice.