Delaware's case against alleged gift card scheme to continue

By Charmaine Little | May 16, 2018

WILMINGTON, Del. (Legal Newsline) – A Delaware Superior Court has denied a defendant's motion for summary judgment in an April 30 opinion in a lawsuit involving an alleged gift card scam.

The Superior Court denied Card Compliant's motion for summary judgment after the State of Delaware and retailer William Sean French sued several gift card companies.  

Plaintiffs Delaware and French claimed the defendants, along with Card Compliant and its predecessor CardFact LTD, had an illegal plan that would take hundreds of millions from the state of Delaware. The state was said to legally own the money via the Delaware’s Abandoned and Unclaimed Property Law (DUPL). 

The unclaimed property in this case refers to unclaimed balances on gift cards that retailers issued to clients. The DUPL states “holders” of the abandoned property have to file a report with Delaware and are ordered to give the state escheator the unclaimed property listed in the report.

Delaware and French claimed the defendants deliberately tried to find a loophole in the law and developed “shell” companies in other states that do not require a state escheat for unclaimed balances on gift cards. The opinion states a card company and the retailer would partner and give gift cards from the other states to the “shell” company so the retailer would not owe Delaware.

The defendants argued that the companies outside of Delaware were indeed valid, so the retailers should not have to pay the balance on the unredeemed gift cards. They filed a motion for summary judgment in hopes of convincing the court to dismiss the claims.

The Superior Court denied the claims for several reasons. It first stated the plaintiffs should be allowed to go before a jury to provide evidence that the defendants were fully aware about the alleged fraudulent scam and “purported bad faith.” It also pointed out defendants have not proven their claims that the prior ruling was in error due to an incomplete record.

Instead, it said the sole “change in circumstance” that the defendants used was the notion that Delaware “took the position that gift cards assigned before dormancy to a non-Delaware giftco were not subject to the Delaware Escheat Laws.” The Superior Court said this was not enough for the defendants to prove their case.

The Superior Court also added the relationship between the defendant card companies and retailers “remains heavily disputed.”

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