Breaking News: New Jersey Gift Card Decision - 3rd Circuit Affirms District Court

Update: January 6, 2012: Alert to client and friends from Barganier relating to the Third Circuit Opinion is available here.

The Third Circuit issued a decision in New Jersey Retail Merchants Association v. Sidamon-Eristoff today, January 5, 2012. The case is the consolidated appeal of several cases all relating to the New Jersey statute on the escheat of unused gift cards bought in New Jersey. Today, the Third Circuit affirmed the District Court's decision on (1) the retroactive application of gift cards sold in New Jersey prior to the new statute; (2) the place of purchase presumption for gift cards sold in New Jersey; and (3) the collection of the purchaser's name and address at the time of sale of new gift cards. The Court affirmed the decision to issue a preliminary injunction on the retroactive application and the place of purchase presumption while denying the injunction for the new data collection requirements.

Full Third Circuit Opinion

The New Jersey law requires stores to collect the purchaser's name and address, or at a minimum the zip code, at the time of sale of a gift card. In the absence of a purchaser provided zip code, the store's location was to be used. After two years of dormancy, the unused portion of the gift cards sold to New Jersey residents is to be escheated to New Jersey. The law applied retroactively to cards sold in New Jersey.

Quickly, retailers in New Jersey reacted to the proposed statute and upon it becoming law, sued New Jersey to enjoin enforcement and to decide the constitutionality of the new statute. Issues in the cases included Supremacy Clause, Due Process, Commerce Clause, Contracts Clause, and the Takings Clause of both the U.S. and New Jersey constitutions.

In November 2010, the District Court enjoined the retroactive portion of the statute, as well as the place-of-purchase presumption (using the store's location) under the statute. The other provisions of the law remained.

The Court of Appeals agreed with the District Court on the preliminary injunctions from November 2010. The preliminary injunction from the retroactive application of the statute to gift cards sold in New Jersey stands, as the retailers would lose their bargained for contractual benefits if the law would stand (the expected profit from the sale of merchandise using the gift cards). Moreover, injunction on the place of purchase presumption also stands as it is in conflict with standing Supreme Court precedent on the priority among states to claim unclaimed property from holders. The Court of Appeals also affirmed the District Court's denial of the injunction on the prospective collection of the purchaser's name and address, or at a minimum their zip code, as the new data collection requirement would be valid under current U.S. Supreme Court precedent.

This case is not yet over. The District Court, affirmed by the Court of Appeals, ruled only on preliminary injunctions related to the escheat of gift cards in New Jersey. It is expected that both the retailers and the state will continue to fight over the validity of this statute.

It is also worth noting that there is legislation pending in New Jersey that would reverse the new law, no longer making gift cards subject to escheat in New Jersey.