Third Circuit Court Of Appeals Allows New Jersey To Require Stored Value Card Issuers To Collect Purchasers' Zip Codes; Preliminarily Enjoins 'Place-Of-Purchase' Provision

The Third Circuit Court of Appeals has affirmed a U.S. District Court of New Jersey decision to preliminarily enjoin provisions of New Jersey's recently amended unclaimed property statute (Chapter 25). Importantly, one of the enjoined provisions would have created an assumption that, if the issuer sold the card in New Jersey and did not have the address of the owner or purchaser, the address of the owner or purchaser of the card would be the New Jersey place of purchase. The injunction prevents both the retroactive enforcement of Chapter 25 and the prospective enforcement of a place-of-purchase presumption provision and corresponding guidance from the New Jersey Treasury. In contrast, the decision denies the request for preliminary injunction with respect to a data collection provision, which requires issuers to collect at least the zip code of the owner or purchaser of the card, and the two*year abandonment period provided in Chapter 25.

Background

Stored value cards (SVCs), often referred to as gift cards, come in either closed loop or open loop form. Closed loop cards can only be redeemed for merchandise or services from the retailer that issued the card, while open loop cards can be redeemed at stores or internet sites not affiliated with the issuer of the card. Some open loop cards are redeemable for cash, though most are only redeemable for merchandise and services.

All fifty states and the District of Columbia have a set of unclaimed property laws, or escheat laws, most of which are based on the Uniform Unclaimed Property Act ("UUPA"). Under the UUPA, property deemed to be abandoned is required to be transferred by the "holder" of the property to the state, which will act as a custodian of the property until it can be returned to the original property owner (which maintains actual ownership of the abandoned property).

In a series of cases, notably Texas v. New Jersey,1 the U.S. Supreme Court established two priority rules to resolve conflicts over competing state claims to unclaimed property:

The jurisdiction of the owner's last known address is entitled to custody of the unclaimed property; and The jurisdiction in which the holder is domiciled (incorporated) presides as custodian when the owner's address is unknown. In New Jersey, legislation governing SVCs and their potential treatment as unclaimed property was adopted in 2010 as Chapter 25 of the New Jersey Unclaimed Property Code.2 In the case of abandoned SVCs, the "holder" is the issuer...