Third Circuit rules on 'special value cards'

Michael P. Tremoglie Jan. 13, 2012, 11:23am

PHILADELPHIA (Legal Newsline) - A three-judge panel of the U.S. Court of Appeals for the Third Circuit, Philadelphia, ruled last week on the constitutionality of an escheat law regarding "special value cards," the successors to gift certificates.

The court heard a consolidated appeal from the U.S. District Court of New Jersey about unclaimed property.

The appellants were New Jersey Retail Merchants Assoc., American Express Prepaid Card Management and New Jersey Food Council.

The U.S. Chamber of Commerce filed an amicus brief in the case. Legal Newsline is owned by the Institute for Legal Reform, an affiliate of the Chamber.

New Jersey passed a law in 2010 that provided for the escheat of SVCs, which include "closed loop" cards, "open loop" cards redeemable only for merchandise or services, and "open loop" cards redeemable only for cash. The state did not escheat gift certificates prior to its passage.

The appellants objected to the law, saying it violated the Contracts Clause, the Substantive Due Process Clause, the Supremacy Clause, the Takings Clause and the Commerce Clause of the U.S. Constitution.

The district court granted the motion for a preliminary injunction against the state in part and denied it in part. The Third Circuit affirmed the district court.

The Third Circuit ruled Jan. 5 that the appellants "met their burden of showing a reasonable likelihood of success on the merits of their Contract Clause claim and satisfied the remaining preliminary injunction factors; accordingly, we affirm the District Court's order preliminarily enjoining Chapter 25's retroactive application with respect to existing SVCs redeemable for merchandise or services."

The court also said the appellants were able to establish that certain aspects of the New Jersey law will likely be preempted by federal common law.

They then affirmed the district court's "grant of preliminary injunction with respect to the prospective application of the place-of-purchase presumption and the accompanying Treasury Guidance."

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