SoulCycle Gift Card Lawsuit Moves Forward

In August 2015, a SoulCycle customer filed a lawsuit against the spin class provider alleging that its Series Certificate contained an impermissible expiration date under various state and federal gift card laws. This week, a federal court judge denied most of SoulCycle's motion to dismiss, permitting the case to move forward. In an interesting twist, the Court also applied a choice of law notwithstanding purported contractual terms of a different state.

SoulCycle argued that its Series Certificates were not gift certificates or gift cards under federal or state law, thus it is not prohibited from expiration dates on the Series Certificates. The SoulCycle certificates are sold for classes up to a certain value and may not be used for classes above that value. On Monday, January 11, 2016, Chief Judge George H. King of the Central California District determined otherwise. The Court concluded that the "class purchases are sold for a specified value, and can only be used for classes equal to or less than that value" and thus meet the EFTA's, as modified by the CARD Act, definition of a gift certificate. The Court also determined that for purposes of the Motion to Dismiss, where the facts are construed in the non-moving party's favor, that the certificates are not reloadable and that purchases of new certificates does not reset the expiration date on the older purchases.

The Court also applied California law over New York law, which the company argued should apply. The SoulCycle website terms and condition say that New York applies; however, the Court decided that the New York law was contrary to the fundamental policy of California. Generally, New York permits expiration dates if they are conspicuously disclosed to the purchaser, a direct conflict with California's prohibition against expiration dates. The Court weighed in favor of the in-state consumer protection statute over the out-of-state corporate protection statute for a company that voluntarily does business in the state of California.

The past year has been tough for gift card issuers in California. In July 2015, Google was sued for not providing cash refunds on unused gift cards with small balances to California consumers. Food and entertainment company Dave and Buster's was hit with the same lawsuit in August 2015. Since then, Barganier has seen California attorney advertisements, where the attorneys are looking for new clients who have been denied similar cash refunds on any gift card.

In other gift card news, proposals are being floated in Australia to reform the gift card system there. The collapse of retailer Dick Smith, who has so far not honored unused gift cards, has angered many, including lawmakers. One proposal includes holding gift card amounts in escrow, allowing gift card owners to have a higher priority as creditors, and make company directors personally liable for the value of the cards.

See Also:
Delaware Sues Blackhawk/Parago Over Rebate Audit
Manitoba Nixes Gift Card Inactivity Fees
Federal Judge Sends Gift Card Case Back to State Court