State of Delaware ex. Rel. French v. CardCompliant, et. al., N13C-06-289 FSS (Del. Super. Ct. June 28, 2013)
On March 26, 2014, almost a year after it was originally filed, State of Delaware ex. Rel. French v. CardCompliant, et. al., a Delaware court unsealed the whistleblower lawsuit against Card Fact, LLC (“CardFact”). CardFact, which was later acquired by CardCompliant, LLC (“CardCompliant”), provides gift card issuance and management services to retailers. The allegations against it involved the failure to report and remit as unclaimed property the value of unredeemed gift cards to the state of Delaware. The action was initiated when William Sean French, a former CardFact employee, filed a false claims action in Delaware alleging that the company and its retailer clients concocted a scheme to avoid remitting unclaimed gift card funds to Delaware.
On November 23, 2015 the judge in the case issued a memorandum opinion granting some, but not all, of the defendants’ Motion to Dismiss. Although the court’s holding only allows Delaware to continue its claim against CardCompliant, it doesn’t necessarily indicate the ultimate outcome of the case. Currently, discovery is moving forward and the case is scheduled for trial in January 2018.
CardFact LLC was created in 2003 and purchased by CardCompliant, a competitor, in 2009. CardCompliant continued business as usual under the CardFact name while the original owners continued to do business under a new name, Vacation Properties United, Ltd. On June 28, 2013, French brought a qui tam action against CardCompliant, asserting two claims under Delaware’s False Claims and Reporting Act:
The remaining 86 defendants in the case listed below (“Defendants”) fall into the following groups:
Motions to Dismiss
On February 4, 2015, the Defendants were granted leave to file a motion to dismiss. t the outset, the court stated: “One overarching concept bears emphasis. The property at issue does not belong to the Retailers, much less CardFact. They do not even have a residual claim to it”. After reviewing the fact, the court granted and denied the following Motions to Dismiss:
In addition to the holdings on the various Motions to Dismiss, the judge’s analysis of the facts and application of law resulted in some legal conclusions that are worth noting:
What This Means to Your Company
The court’s opinion granting some, but not all, of the defendants’ Motion to Dismiss means that Delaware’s push to claim unredeemed gift cards can continue to move forward. As a result, all Delaware companies that issue gift cards should take this as a signal to review their gift card programs and be aware of the following:
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