A Delaware lawsuit over consumer gift cards could have national implications. The Delaware Department of Justice joined in a lawsuit in late April with a group of whistleblowers. The group alleges that many prominent national companies incorporated in Delaware, including Ralph Lauren, Shell Oil, Netflix, and California Pizza Kitchen, have undertaken an elaborate scheme to deprive the state of revenues. The suit alleges that companies sold gift cards to consumers, and then failed to turn over the unused balances on the cards to the State Department of Revenue. Delaware law allows the state to collect gift card balances as unclaimed property after five years.
The complaint specifically alleges that the companies “conspired” to conceal gift card revenues from the state of Delaware, thereby violating the Delaware False Claims and Reporting Act, by retaining an Ohio-based intermediary company, CardFact, the holder of all unredeemed gift card balances, in order to keep the revenue out of Delaware.
The lead plaintiff in the case is a former auditor who worked for one of the intermediary card provider companies. After a lengthy internal investigation by state auditors, the state decided to join the suit. Wrote the defendants, “The consequences of this lawsuit could be significant for the named defendants and the entire gift card industry. Delaware has been extremely aggressive and unfriendly [to business] when it comes to auditing for unclaimed gift cards.”
Any business incorporated in Delaware that offers gift cards should strongly consider how those balances are handled and verify that their card provider is turning over unused balances appropriately.
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