Join now!   |   Subscribe   |   Pay an Invoice   |   Sign In
Unclaimed Property Focus
Blog Home All Blogs
UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

Search all posts for:   

 

Top tags: Unclaimed Property  Compliance  Education  UPPO  Audits  Delaware  Due Diligence  litigation  Advocacy  Reform  Members  ULC  fall reporting  legislation  RUUPA  UPPO Annual Conference  UP101  Gift Cards  Reporting  UP Laws  Uniform Law Commission  california  Holders Seminar  UPPO Asks  VDAs  Canada  securities  Service Providers  Uniform Unclaimed Property Act  VDA 

Litigation update: Motions in Card Compliant whistleblower case raise noteworthy issues

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, November 3, 2016

The State of Delaware, Plaintiff, and William Sean French, Plaintiff-Relator, v. Card Compliant LLC, et al., Defendants (Superior Court of the State of Delaware)

 

Background

Delaware ex rel. French v. Card Compliant LLC et al. (Card Compliant) is a qui tam case—a suit brought when a whistleblower exposes alleged fraud against the government with the incentive of receiving a portion of the recovery as a reward. The defendants include Card Compliant LLC, a third-party company that some defendants used to issue gift cards and assume certain gift card responsibilities, and numerous other defendants. Among the various allegations, the plaintiffs claim that some defendants didn’t account for the transfer of liability in the manner its contracts specified. According to the state’s allegations, the liability wasn’t truly transferred and, thus, defendants had the obligation to remit unclaimed property to Delaware but didn’t do so.

 

Motions to Dismiss

The Card Compliant case currently has approximately 80 defendants. As indicated in a recent order in the case, there are generally two main types of entities created by defendants in the case that are being closely examined. First, there are non-Delaware card issuers, which include card issuers affiliated with the Delaware retailers with which they contracted, which the order refers to as “giftcos.” Second, there are card issuers (including card companies, banks and financial institutions) not affiliated with the Delaware retailer with which it contracted, which the order refers to as “cardcos.” Some defendants have filed Motions to Dismiss and/or Motions of Summary Judgment, raising several issues:

  • Before this suit was brought, some defendants were the subjects of Delaware audits or voluntary disclosure agreements (VDAs). Thus, they believe they should be dismissed from the case under the Administrative Proceedings Bar in the Delaware False Claims and Reporting Act (DFCRA), which generally precludes parties from seeking liability based on transactions that have been the subject of a state-involved administrative proceeding. They argue that audits and VDAs fall within the established definition of “administrative proceeding” and, thus, should not be parties in this suit.
  • Under the DFCRA, the state is generally required to make an independent investigation of whistleblower claims before defendants are included in a qui tam action. Defendants point out that arguably the state did not make such an investigation. As such, the defendants argue that they should be dismissed from the case.
  • Before the action, it is alleged that certain Delaware officials generally held the position that unredeemed gift cards that emanated from out-of-state entities were not escheatable to the state. Thus, defendants don’t believe the state can claim they committed fraud, as they operated under the same position as the state.

 

Status

On Oct. 17, 2016, Judge Wallace ordered Delaware to produce all documents from 2001 forward related to Delaware VDAs or audits that indicate, among other things, the state’s prior positions on how gift cards were treated. Although unconfirmed, we have heard from reputable sources that the court has engaged the services of a mediator in an effort to resolve the pertinent issues in the Card Compliant case. 

 

This suit is one of the more interesting unclaimed property cases currently working its way through the court system. While it will likely be some time before the suit is either settled or decided, interested parties anxiously await the court’s resolution of the issues raised by recent defendant motions. UPPO will continue to monitor and report on developments in this case.

 

About the contributor

Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association and American Bar Association.    

 

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

 

Tags:  Card Compliant  Delaware  gift cards  litigation  qui tam  unclaimed property  whistleblower 

Share |
PermalinkComments (0)
 

Litigation update: Delaware remains in the litigation hot seat

Posted By Emily Lee, UPPO, Thursday, September 1, 2016
Updated: Tuesday, September 6, 2016

Litigation continues to take aim at Delaware’s controversial unclaimed property practices. In addition to the recently settled Temple-Inland lawsuit, three cases involving Delaware have recently taken the spotlight.

 

Office Depot v. Cook

Like many retailers, Office Depot established and continues to use a special purpose entity for oversight and management of its gift cards and gift certificates. The gift card management company, North American Card and Coupon Services (NACCS), was incorporated in 2002 in Virginia, which exempts gift cards from unclaimed property reporting. NACCS does not collect names and addresses of gift card or certificate purchasers.

 

As part of an audit that began in 2013, Delaware’s third-party auditor, Kelmar, requested information from Office Depot that included detailed records regarding NACCS transactions. Office Depot declined to provide this information, arguing that NACCS transactions fall outside of Delaware’s jurisdiction under the priority rules established by the U.S. Supreme Court in Texas v. New Jersey.

 

As a result of Office Depot’s refusal to turn over requested NACCS documentation, Kelmar subsequently referred the issue to Delaware’s attorney general for “enforcement action.”

 

On July 18, 2016, Office Depot and NACCS filed suit against Delaware unclaimed property officials, seeking a declaratory judgment that the state’s unclaimed property practices violate the Fourth Amendment and federal common law. The plaintiffs argue that:

  • The defendants’ information request amounts to unreasonable search and seizure.
  • Delaware’s unclaimed property laws violate the priority rules established in Texas v. New Jersey.

Marathon Petroleum v. Cook

Issues similar to the Office Depot case are at play in Marathon Petroleum v. Cook. Marathon uses a gift card management company incorporated in Ohio, another state that exempts such property from escheatment. After Marathon objected to an $8 million estimated liability for gift certificates for which the company said it had issuance and redemption records, Kelmar—on behalf of Delaware—requested records related to the gift card company’s creation and operations.

 

Among the information requested were contracts, meeting minutes, vendor agreements and accounting records. Marathon refused, arguing that such request is outside of Delaware’s jurisdiction. Again, Kelmar suggested it would turn over the issue to the attorney general for enforcement action.

 

In February, Marathon filed suit. Like in the Office Depot case, the plaintiffs argue violation of the federal priority rules and the Fourth Amendment. The Marathon case also takes issue with the state’s estimation practices.

 

According to Delaware Law Weekly, Delaware argued on Aug. 10, 2016, that the Texas v. New Jersey applies only to disputes between states, not audits of private entities. The defendants also reportedly argued that Marathon’s claims are premature, as they would have their chance to make their case in state court if they continued to resist turning over requested documents. Attorneys for Marathon took issue with the state’s interpretation of federal law and compared the nine-year audit of the company to a “fishing expedition.”

 

Plains All American v. Cook

A limited partnership incorporated in Delaware, Plains All American Pipeline, received notification in 2014 that Kelmar would be conducting an audit of the company on behalf of Delaware. Plains objected to the initial information request, claiming, in part, that the company was being audited not because of any suspicion of wrongdoing, but rather because of its profitability. When Delaware dismissed the company’s objections, Plains filed suit.

 

Among the complaint’s allegations, Plains argues that Kelmar’s request for information about subsidiaries organized outside of Delaware constitutes illegal search and seizure under the Fourth Amendment. The company argued that the state and its agent have no right to that information and, if they did, they would need to have reasonable grounds to search for it. The complaint also directly challenged Delaware’s right to use estimation.

 

On Aug. 16, 2016, the U.S. District Court for the District of Delaware dismissed the lawsuit. In part, the court said the plaintiffs brought their suit based on potential threats and not actual threats. For example, Plains challenged the state’s right to use estimation before it had done so, as the lawsuit was brought immediately following Kelmar’s initial information request. Regarding the Fourth Amendment claim, the court said the state’s decision to examine businesses based on their profitability was legitimate, as those companies are logically more likely than others to hold large amounts of unclaimed property.

 

About the contributor

Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association and American Bar Association.    

 

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

Tags:  audits  Delaware  gift cards  litigation  unclaimed property 

Share |
PermalinkComments (0)
 

RadioShack settlements address bankruptcy, gift card and rebate issues

Posted By Administration, Thursday, May 26, 2016

On Feb. 5, 2015, RadioShack filed for Chapter 11 bankruptcy protection. The electronics retailer’s case raised questions about the treatment of unredeemed gift cards and rebates as unclaimed property. Multiple states sued RadioShack in an attempt to ensure outstanding gift cards were given priority during bankruptcy, maximizing their value and escheating to the states on behalf of consumers.

 

In a separate lawsuit, the state of Illinois battled RadioShack and its third-party rebate fulfillment partner, Global Fulfillment Services, over $140,000 in uncashed customer rebates owed to more than 5,000 Illinois residents. 

 

Gift Cards

The U.S. Bankruptcy Code doesn’t address how unused gift cards should be treated under Chapter 11 reorganizations. How companies in bankruptcy handle gift cards varies, often depending on whether a company remains in business or liquidates.

 

Often, companies that go through bankruptcy will still honor their gift cards, to the extent that they are still operating. However, in some cases, retail stores have continued operating under the pre-bankruptcy name but under new owners who purchased only the company’s assets. This can leave customers confused when they attempt to redeem a gift card at a store carrying the same name and logo, only to be told it is no longer valid.

 

In June 2015, the Texas attorney general filed suit against RadioShack, requesting that the balance of outstanding gift cards be turned over to the appropriate state. Texas argued that RadioShack sold gift cards under the premise that they would not expire. As part of the company’s bankruptcy filing, RadioShack obtained an order of the court setting a deadline by which gift cards needed to be redeemed.

 

“While it is not all that unusual to see a state attorney general appear in a retail bankruptcy case to advocate positions for the benefit of consumers, what is unique here is that the states sought standing to file proofs of claim on behalf of the owners of unredeemed gift cards and to take custody of those funds on their behalf,” says Donna Culver of Morris, Nichols, Arsht & Tunnell, LLP.  

 

According to the suit, consumers weren’t given notice of the deadline and, thus, didn’t have a reasonable opportunity to redeem their gift cards before the expiration deadline. The suit also claimed that RadioShack continued to sell gift cards while knowing it would soon be filing for bankruptcy protection.

 

Several other states joined the Texas lawsuit.

 

The bankruptcy judge approved a settlement between the states and RadioShack in September 2015. Rather than turning over funds, estimated at $46 million, to the states, the agreement gave consumers in all 50 states a full year to file claims for the full value of gift cards they purchased. Gift cards distributed as part of store promotions and for merchandise returns, however, were not covered as part of the agreement. Owners of those gift cards would be considered unsecured creditors without a priority claim, so they would likely receive little, if any, compensation.

 

Rebates

On April 26, 2016, Illinois Treasurer Michael Frerichs announced a settlement with RadioShack, which agreed to turn over $140,000 to the state as unclaimed property. The amount represented dormant, uncashed rebates earned by consumers between 2002 and 2008.

 

The state’s auditors discovered that rebates had not been escheated to the state as unclaimed property if they were not claimed within five years, as required under state law. Rather, RadioShack allowed its third-party rebate processor, Global Fulfillment Services, to keep unclaimed funds as revenue, under their contractual agreement. Illinois argued that keeping the funds violated the Illinois Uniform Disposition of Unclaimed Property Act.

 

Upon RadioShack’s bankruptcy filing, Illinois filed a proof of claim on behalf of Illinois residents with dormant, uncashed rebates, notifying the court it wished to assert its right to receive payment from the bankruptcy estate.

 

“The state apparently had fairly detailed information as to the identities and amounts owed to Illinois residents,” Culver says. “In many cases, states do not have that kind of detailed information and do not pursue debtors for unclaimed property liabilities, perhaps fearing that they will quickly get bogged down in the claims litigation process where distributions may be only pennies on the dollar.” 

 

The April settlement allows Illinois consumers to claim their rebates—typically valued between $20 and $100—through the state’s unclaimed property website.

 

For additional information about noteworthy unclaimed property cases, check out UPPO’s govWATCH website.

 

Tags:  bankruptcy  gift cards  litigation  rebates  unclaimed property 

Share |
PermalinkComments (0)
 

The Gift That Keeps on Giving: Understanding Gift Card Reporting and Compliance

Posted By Susan Han, principal, Abandoned and Unclaimed Property Practice – Ryan, Tuesday, September 3, 2013
Updated: Tuesday, September 3, 2013
Navigating the complex field of unclaimed property can be difficult for holders. The issue of reporting various forms of stored value – better known as gift cards or gift certificates, but also potentially encompassing other more cutting edge forms of stored value – can be particularly problematic due to the grey area surrounding these unique and highly popular instruments.

 

Unlike other forms of intangible personal property, such as uncashed checks or credit balances, which are more straight-forward from an unclaimed property compliance and reporting perspective, gift cards compliance often requires a more in depth analysis to determine reporting obligations under the jurisdictional (or "priority”) rules. In fact, more than 30 states have specific exemptions for gift cards under their unclaimed property statutes, but it’s important for holders to know the limitations of each exemption to ensure they are reporting gift card balances correctly.

In states without exemptions, gift cards and other forms of stored value are generally considered escheatable property and must be reported to the states under the priority rules established by the U.S. Supreme Court in Texas v. New Jersey – first priority being the state of the owner’s last known address as reflected on the holder’s books and records and the second priority being the state where the issuing company is incorporated or organized (assuming owner unknown property). With a large majority of gift card transactions (issued at the point of sale directly or through a third party), names and addresses are rarely collected as part of the transaction because they are purchased by cash or credit card. As a result, for such gift card transactions where names and addresses are not collected and retained, reporting generally reverts to the second priority, which is the state of incorporation of the gift card issuing entity.

Many gift card issuers are either already organized in one of the 30-plus states that have statutory gift card exemptions or choose to organize a wholly owned special purpose entity in one of the gift card friendly states. But in states without gift card exemptions, holders who may retain name/address information on a certain population of gift cards (i.e. potentially certain online gift cards) often incorrectly report gift cards or perhaps even over-report unredeemed gift cards to states that already have statutory exemptions. There are other complexities to reporting gift cards that should also be considered in conjunction with a consultant or legal counsel, such as states that allow holders to retain their "profit margin” and how this profit margin should be calculated or measured.

Many retailers are now working with third-party companies to handle all aspects of gift card issuances, redemptions, escheatment issues, and accounting processes. These companies are typically organized in states with broad statutory gift card exemptions.

Holders that do not already have gift card planning in place (i.e. gift card special purpose entities) and do actually retain name/address information need to consider the best course of action and have a plan in place to properly report gift cards to the appropriate state(s) and take advantage of statutory exemptions where they are applicable.

UPPO has multiple resources online for holders to learn more about unclaimed property compliance and reporting. Please view the member resources or unclaimed property links for additional information. UPPO also addresses this topic at its regional and annual events, and provides regular updates about state legislative changes related to gift cards and other property types in its weekly govWATCH briefing, available exclusively to UPPO members. Not a member of UPPO? Join and start receiving valuable resources today!

Susan Han is a principal with the Abandoned and Unclaimed Property practice group at Ryan, offering global tax services in North America. Ryan is a member of UPPO and Susan is also a member of UPPO’s Government Relations and Advocacy Committee.

OTHER RESOURCES

UPPO News


Tags:  Gift Cards  intangible personal property  retail  unclaimed property 

Share |
PermalinkComments (0)
 

Legislative & Regulatory UP-date - Second Quarter

Posted By Guest Author - Marcella Easly, GRAC member, Sunday, July 7, 2013
Updated: Sunday, July 7, 2013

UPPO’s Government Relations and Advocacy Committee (GRAC) provides a brief Regulatory UP-Date approximately once per quarter. The first post for calendar year 2013 was posted May, 2013 – Regulatory UP-Date, the Story So Far. The following a brief list of the legislative activity for April – June.

UPPO members receive the latest Unclaimed Property Legislative and Regulatory information on a weekly basis through their member benefit, govWATCH.  

DEVELOPMENTS FOR INSURERS

Alabama HB192 - Under existing law, certain insurers are required to search the death master file and notify the State Treasurer of any unclaimed life insurance benefits or unclaimed retained asset accounts, plus interest, to the State Treasurer. This bill requires certain insurers to search the death master file shall apply only to life insurance policies, annuity contracts, and retained asset accounts issued and delivered in this state and which are issued or entered into on or after January 1, 2016.

Montana SB34 - Creates unclaimed life insurance benefits act; requiring insurers to search the death master file. Effective January 1, 2014

Nevada AB226 - Enacts provisions governing certain policies of insurance, annuities, benefit contracts and retained asset accounts. Requires an insurer to notify the State Treasurer upon the reversion by escheat of a benefit under a policy of life insurance or an annuity and transfer to the State Treasurer the unclaimed benefit as soon as practicable after providing notice. Effective July 1, 2014

New Mexico SB312 - Requires insurers to make good faith efforts to locate beneficiaries and provide claim materials; provides that unclaimed benefits escheat to the state; clarifies that certificates of property or casualty insurance are not insurance policies; specifies terms for certificates of property or casualty insurance. Effective July 1, 2013

North Dakota HB1171 - Establishes Unclaimed Life Insurance Benefits Act, requiring insurers to search the death master file. Lowers dormancy period from three years to one year for unclaimed life insurance policies or annuity contracts. Effective August 1, 2012.

Vermont HB95 - Establishes payment and escheatment of life insurance benefits. Effective July 1, 2013

STORED VALUE AND GIFT CARDS

Connecticut SB912- Prohibits linked prepaid cards from expiring unless specific disclosures are clearly stated. Effective July 1, 2013

Indiana HB1081 - Exempts stored value cards, credit cards or debit cards issued by state or federally chartered financial institution from unclaimed property reporting requirements. Effective July 1, 2013

Texas HB3068 - Prohibits surcharges on debit or stored value cards. Effective September 1, 2013

BANKING AND FINANCIAL INSTITUTIONS

Indiana SB222 - As amended, provides that certain property left unclaimed in a safe deposit box for three years (down from five years) is presumed abandoned. Permits electronic submission of certain documents in connection with unclaimed property, and permits the attorney general to determine the manner in which payment or delivery of certain property is made. Authorizes the attorney general to deduct certain expenses from proceeds of property paid to the owner. Effective July 1, 2013

Louisiana HB348 - Limits time to bring an action against an FDIC insured holder of unclaimed property; limits the time an FDIC insured holder is required to maintain unclaimed property reports. Effective June 12, 2013

MINERAL RIGHTS

South Dakota HB1002 and HB1006 - Creates trust account for lost mineral interest owners. Effective July 1, 2013

Texas HB724 - Creates commission to study unclaimed land grant minerals proceeds. Requires escheatment to the state. Effective September 1, 2013

PROCESS AND PROCEDURE

Florida SB492 - Requires property held by fiduciaries under trust agreements to be reported as unclaimed after 2 years dormancy. Effective October 1, 2013

Hawaii SB1265 - Limits unclaimed property finder fees to 25% of the total property value. Effective October 1, 2013

OTHER RESOURCES
UPPO govWATCH
2013 HOLDERS SEMINAR - CHICAGO, August 14-15


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.

Tags:  Advocacy  Compliance  Gift Cards  Insurance  UP Laws 

Share |
PermalinkComments (0)
 
Page 2 of 3
1  |  2  |  3
Membership Software Powered by YourMembership  ::  Legal