In 2013, a whistleblower, Sean French, filed a lawsuit in Delaware state court against a variety of retailer defendants and their service provider Card Compliant. The complaint alleges that the Retailers, with the help of Card Compliant, setup a fraudulent gift card scheme, intending to keep all the breakage of the gift card programs instead of remitting it to the State of Delaware. The Retailers and Card Compliant entered into contracts whereby Card Compliant stated that it was the holder of the gift cards in exchange for annual fees from the Retailers. The complaint alleges that the contracts were a sham, without substance, as the Retailers continued to be in possession of the cash from gift cards that were sold but not redeemed.
The State of Delaware intervened in the lawsuit in March 2014. This lawsuit, originally under seal, was made public in April 2014. Shortly thereafter, in May 2014, the defendant retailers removed the case to Federal Court. This month, a federal judge has ordered the case back to state court, after the State of Delaware filed a motion to remand.
The Retailers argued that the case could be removed from State Court to Federal Court based on Constitutional issues that the case presents. However, the judge rejected the retailers' arguments, stating that it is the Defendants' defenses that implicate federal common law, not the Plaintiffs' claims. Instead, the Plaintiffs' claims are "creatures of state law." Since the judge determined that the Court lacked subject matter jurisdiction, the case is now being sent back to state court.
The case will proceed in the Castle County, Delaware Superior Court.
Barganier and Associates will continue to monitor this case for developments as gift cards remain an important part of many companies' unclaimed property compliance programs. Check back for more updates.