After remaining under seal for close to a year, an unusually exciting – well, exciting for lawyers, anyway – whistleblower (“qui tam”) case involving unclaimed gift cards in Delaware has now been unsealed and released to the public after Delaware state prosecutors independently investigated the claims and joined the case in March 2014. The lawsuit was originally filed in June 2013 by William Sean French, a former officer of the primary defendant, Card Compliant LLC, against the company and 33 major retailers, including Ulta, Houston’s, The Apple-American Group, Homeaway.com, Il Fornaio, and Benihana, as well as the National Restaurant Association.
The allegations in the complaint state that the defendants violated the Delaware False Claims and Reporting Act (“DFCRA”) by knowingly failing to report and remit the value of unredeemed gift card balances in an effort to deprive the State of Delaware of hundreds of millions of dollars due to the State under its unclaimed and abandoned property laws. Allegedly, in establishing the gift card avoidance scheme, the defendants created “sham” contracts identifying Card Compliant as the holder of the gift cards in exchange for an annual fee, when in reality the gift cards were always in the possession, custody and control of the card-issuing companies. According to the allegations, Card Compliant and the shell corporations it purportedly created in Ohio and Florida were never the holders or issuers of the gift cards, and if unredeemed gift cards were never issued or held in an exempt state like Florida, Ohio or Virginia and names and addresses of each holder were not maintained, then the unredeemed balances were reportable to each company’s state of incorporation.