Third Circuit Issues TRO in Gift Card Matter

On February 9, 2011, the United States Court of Appeals for the Third Circuit granted a temporary restraining order preventing the State of New Jersey from requiring retailers to collect zip codes from the purchasers of gift cards. This was in response to the New Jersey Retail Merchants Association’s (“NJRMA”) January 20, 2011 filing of an emergent motion for a stay pending appeal with the court. This action by the court is latest in a series of rulings related to the NJRMA lawsuit regarding the proposed gift card requirements. In September 2010, Genova Burns initiated a suit on behalf of the New Jersey Retail Merchants Association (“NJRMA”) against Andrew P. Sidamon-Eristoff, in his official capacity as Treasurer of the State of New Jersey, and Steven R. Harris, in his official capacity as Administrator of Unclaimed Property for the State of New Jersey, in the United States District Court, District of New Jersey. The Complaint alleged that the State’s recent adoption of a statute, which amended New Jersey’s Unclaimed Property Law to provide for the custodial escheat of unredeemed balances of gift cards issued by the retail industry violated various provisions of the United States and New Jersey Constitutions, including the Takings, Contract and Due Process Clauses. The Complaint also alleged that the statute was preempted by federal law, as set forth in United States Supreme Court decisions. Section 5 of the Statute provided that a gift card for which there is no activity for two years is presumed abandoned, and the proceeds presumed abandoned equate to the full value of the card, in money, on the date the gift card is presumed abandoned. Section 5(c) contained a “registration” requirement. It imposed on retailers the obligation to obtain the name and address of every “purchaser or owner” of a gift card, and to maintain at least the zip code of every purchaser or owner of a gift card. Section 5(c) further stated that if the issuer of a gift card does not have the name and address of the purchaser or owner of the gift card, the address of the owner or purchaser of the gift card shall be deemed to be the place where the gift card was purchased or issued. Pursuant to Section 9 of the statute, the amendments were to have an effective date of July 1, 2010, and were to apply retroactively to all instruments, including gift cards that were outstanding at that time, not just those issued on or after the date it took effect. By various Treasury Guidances issued by the State, the statute’s enactment date was delayed until November 1, 2010. On November 13, 2010, the Honorable Freda L. Wolfson, U.S.D.J. preliminarily enjoined Section 5(c) of the statute which provided for the method of escheat of gift cards, as well as the retroactive application in Section 9. The Court held that those portions of the statute were preempted by federal law, and violated the Contracts and Takings Clauses. Despite the injunction, on November 23, 2010 and November 24, 2010, the New Jersey Treasurer issued Treasury Announcement FY 2011-05 and Treasury Announcement FY 2011-06 respectively, each of which stated that subsection 5c’s requirement that gift cards issuers collect and maintain the zip code of gift card purchasers remained in effect. After seeking clarification and an injunction from the Court in this regard, Judge Wolfson denied NJRMA’s request to enjoin the requirement that retailers register zip codes on January 14, 2011. That denial led to the NJRMA emergent motion filing on January 20, 2011 and the court’s latest issuance. For more information please contact Jennifer Borek at jborek@genovaburns.com.