Third Circuit Affirms District Court Decision On New Jersey Unclaimed Property Requirements Relating To Third Priority Rule And Data Collection

On January 5, 2012, the U.S. Court of Appeals for the Third Circuit affirmed the decision of the U.S. District Court of the District of New Jersey ("District Court") with respect to 2010 N.J. Laws Chapter 25 ("Chapter 25"), which amended New Jersey's unclaimed property statute. The decision affirmed the current priority rules for remitting unclaimed property, but upheld New Jersey's requirement that issuers of stored value cards ("SVC") collect address information from purchasers.

The decision expressed the likelihood that the enactment of a "third priority rule" – requiring issuers to remit unclaimed property in the state where a transaction occurs if the issuer does not have the address of the owner and the issuer's state of domicile does not escheat the particular type of property – is preempted by federal common law.

Issuers of SVC, however, will be required to comply with Chapter 25's requirement that issuer's collect address information from purchasers (and maintain zip codes). The data collection requirements will, in New Jersey, eliminate the common practice by issuers of not collecting purchaser address information in order to simplify their unclaimed property reporting obligations and only remitting to the issuer's place of domicile. By requiring an issuer to collect data information, issuers will be required to report and remit unused balances on SVC to the state of the owner's last known address that was collected at the time of purchase if the issuer has no other address for the owner.

BACKGROUND

On June 29, 2010, New Jersey enacted Assembly Bill 3002 – Chapter 25, which substantially revised the state's unclaimed property laws.1 Three of the revisions, in particular, directly impact issuers of "stored value cards," a category that broadly includes paper gift certificates, gift cards, rebate cards and other products.2 First, Chapter 25 requires issuers of SVCs to "obtain the name and address of the purchaser or owner of each stored value card issued or sold and shall, at a minimum maintain a record of the zip code of the owner or purchaser."3 Second, Chapter 25 creates the presumption that "the address of the place where the stored value card was purchased or issued"4 is the address of the owner if an issuer does not have the name and address of the purchaser or owner. Third, Chapter 25 requires issuers to report and remit to the state of New Jersey the value on a SVC for which there has been no activity for two years.5 An issuer of SVC is the issuer or seller of the SVC who has the obligation to accept and redeem the SVC and has the obligation to report and remit unclaimed funds.6

Shortly after enactment of Chapter 25, retailers sued New Jersey claiming, among other things, that the place of purchase presumption was preempted by federal common law, which determines the priority of states to escheat unclaimed property from holders. The U.S. Supreme Court has established two jurisdictional rules (called "priority rules") that define which states may have jurisdiction to escheat unclaimed property, and in what order the states may do so. In Texas v. New Jersey, the Supreme Court held that unclaimed or abandoned intangible property "is subject to escheat only by the state of the last known address of the creditor, as shown by the debtor's books and records."7 The court went on to create the second priority for escheat of abandoned intangible property, granting jurisdiction to the state of corporate domicile of the debtor in such instances where (i) there "is no record of any address at all" and (ii) where the creditor's state does not at such time provide for the escheat of such property.8 Chapter 25 purports to create a third priority, granting jurisdiction to New Jersey if the transaction occurred in New...