Hands Off! Pending Fight Over Abandoned Gift Cards Heats Up

Delaware law expressly includes gift cards in its abandoned property law. Under Delaware law, if a gift card has been abandoned or unclaimed for a period of five years, then the remaining balance must be turned over to the state if certain criteria are met. The unclaimed property must be turned over to Delaware if the unclaimed property is located in the state, if the owner who abandoned the property has a last known address in Delaware, or if the owner’s identity and last known address are unknown but the property is held by a business incorporated in Delaware.

While the lawsuit was originally filed by a private party in June 2013, the State of Delaware later joined the case seeking its share of the unclaimed property. The suit alleges that the defendants hired third-party shell companies to serve as holder of the gift card balances to avoid turning over the unclaimed property to the State of Delaware. The merchants and restaurants rebutted this claim by arguing that although they are incorporated in Delaware that they do not “hold” the abandoned property under Delaware law. Rather, the unclaimed balances are held by third-party companies incorporated in states that do not include gift cards in their definition of unclaimed property. Therefore, the unclaimed balances are not due to the state of Delaware. In a later filing, the merchants and restaurants argued that the lawsuit was unconstitutional for a number of reasons, including that it violates established legal precedent from the Supreme Court setting out guidance for which state may claim unclaimed property. The case remains pending in federal court.

This case is an example of a state using its regulatory power under its abandoned property law to secure previously untapped revenue streams and, if decided in favor of the State of Delaware, could require companies incorporated in Delaware to turn over large sums of unpaid gift card balances.