The United States District Court for the District of New Jersey was recently asked to determine whether to uphold a New Jersey law requiring merchants to collect zip code information from purchasers of gift cards – which are also known as “stored value cards” (“SVC”).  New Jersey Retail Merch. Assoc. v. Sidamon-Eristoff, No. 10-5059. The purpose of collecting this information was to establish that the card was purchased in New Jersey. Having established that, if the card were not redeemed within a certain period, it would become the property of the State of New Jersey by the legal principle known as, escheat.

A group of plaintiffs led by the New Jersey Retail Merchants Association sued Andrew Sidamon-Eristoff, the Treasurer of the State of New Jersey on the grounds that the law placed an unfair burden on merchants.  The plaintiffs sought a temporary restraining order preventing the State from enforcing the portion of the law requiring merchants to collect zip code information from purchaser of SVCs at the time of sale (the “data collection provision”).  A different portion of the law – which presumed that if no zip code information was available, the presumption would be that it was purchased in New Jersey (the “place-of-purchase presumption”) – was held unconstitutional by the same District Court in an earlier proceeding.  The plaintiffs argued that the data collection provision was similarly unconstitutional on the grounds that it was so interrelated to the place-of-purchase presumption that the two could not be severed.

The District Court held that the requirement to obtain zip code information was “entirely independent from what presumption is applied when no zip code is actually obtained, and the place-of-purchase presumption is applied.”  Id. at *11.  The court reasoned that removing the place-of-purchase presumption placed the focus on the residence of the purchaser/owner of the SVC rather than on the location where the SVC was purchased.  The court also reasoned that upholding the data collection provision furthered the objective of the law, which was to reunite purchasers/owners with their abandoned property.  The court determined that the collection of zip code information assisted in fulfilling that objective.

The District Court also examined decisions of the United States Supreme Court and determined that the Supreme Court consistently held that it is the purchaser’s last known address that determines which state has the right to “escheat” – acquire title to property for which there is no owner – and “the data collection provision focuses on that key location.”  Id. at *16.  The District Court noted that in the cases it analyzed, the Supreme Court refused to permit other states – such as Pennsylvania and Delaware – to presume that all property purchased in the state had been purchased by a state resident even when no address was on record.  The Supreme Court created a method to govern the escheat of intangible property by creating the Texas priority scheme, beginning with its decision in Texas v. New Jersey, 85 S.Ct. 626 (1965).

The Texas priority scheme has two rules.  The “primary rule” states that, “the right and power to escheat the debt should be accorded to the State of the creditor’s last known address as shown by the debtor’s books and records.”  The “secondary rule” states that, “where the creditor’s last known address is unknown, or where the last known address is in a state that does not provide for the escheat of the abandoned property . . .  the right to escheat [goes] to the debtor’s State of corporate domicile.”  Per the court, the Texas line of cases clearly authorized states to require issuers of intangible property to collect the last known address of the purchaser and to rely on that address in reuniting the purchaser with her abandoned property.

In conclusion, the District Court held that the data collection provision was entirely severable from the place-of-purchase presumption and that there was no interdependence between the two provisions.  The District Court also held that “collection of the purchaser’s last known address has been sanctioned by the United States Supreme Court and is integral to the Texas priority scheme.”  Id. at *17.  As a result, the District Court denied the plaintiffs’ motion for a temporary restraining order.


© 2011 Nissenbaum Law Group, LLC

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