The U.S. Supreme Court has refused to review a U.S. Circuit Court decision regarding the controversial New Jersey gift card law. Specifically, on October 29, 2012, the Supreme Court refused to take up New Jersey’s appeal of a Third Circuit decision that limited New Jersey’s law allowing the transfer of unused gift card balances to the State through New Jersey’s Unclaimed Property Administration.

In a recent case that was argued up to the Supreme Court of the United States, the New Jersey Treasury Department battled with the New Jersey Food Council, the New Jersey Retail Merchant Association and a major gift card distributor (Retailers) over a 2010 New Jersey law that required the issuers of unused gift cards (referred to in the law as “stored value cards”) to transfer any remaining value on the card after a two-year dormancy period to the State of New Jersey for safekeeping. Under the 2010 law, the unredeemed balances can then be claimed by the purchaser through New Jersey’s Unclaimed Property Administration. Prior to this law, New Jersey had no escheatment requirement for gift cards and the unclaimed values would, therefore, rest with the issuers.

Once the law was enacted, the Retailers primary concerns with the law’s provisions related to stored value cards were (1) the fact that New Jersey wanted the law to act retroactively, applying to cards already in the market; (2) the law’s “place-of-purchase” presumption whereby any card for which no purchaser address was provided and that was purchased from or issued by a merchant in the State of New Jersey was presumed to be covered by the law; (3) the requirement that issuers collect the last known address of purchasers; and (4) the constitutionality of the two-year abandonment period. In the hopes of preventing the State from implementing the new law, they brought their initial challenge in the U.S. District Court for the District of New Jersey.

The District Court partially agreed with the Retailers, and granted a preliminary injunction as to enforcement of parts of the law covering (1) stored value cards purchased prior to the law’s enactment, and (2) those cards purchased in New Jersey by and from parties domiciled outside the State. However, the District Court disagreed with the Retailers’ arguments concerning (3) the invalidity of the law’s data collection provision, and (4) the constitutionality of the two-year abandonment period. The District Court’s decisions on these issues were then appealed to the Third Circuit, with the State of New Jersey appealing lower court decisions regarding issues (1) and (2) and the Retailers appealing decisions as to issues (3) and (4). The Third Circuit affirmed all of the District Court decisions. After the Third Circuit decision and despite petitions from New Jersey and its Treasury Department, the Supreme Court passed on reviewing the Third Circuit’s decision in the case.

As you may recall from our previous alert, this gift card law has been the subject of much debate. All companies that distribute gift cards in New Jersey or to New Jersey residents should be aware of this law. Currently, the New Jersey Treasury Department is working to issue a compliance date as well as guidance regarding collection practices. While these recent decisions have clarified some portions of the law, it still remains to be seen how a lot of the issues surrounding this law will pan out.

Arent Fox is continuing to monitor this issue and will provide additional information as the matter progresses. Please contact the listed attorneys for additional information.