A court in Delaware has held organizations that are in possession of unredeemed gift cards that are more than five years old and have not paid the government for the value of the cards are subject to liability under the False Claims Act, according to a National Law Review report.
Delaware, like many other states, has escheatment laws that require abandoned property to be handed down to the state. The law states property that is not claimed after five years is deemed abandoned.
In the case of Delaware ex rel. French v. Card Complaint, LLC, the defendant organizations were in possession of unredeemed gift cards that were more than five years old. The defendant organizations had a gift card program manager with whom they had entered into agreements with indicating the program manager was the "holder" of the unused gift cards, according to the report.
Despite the agreements between the organizations and their gift card program manager, the court held the defendant organizations had violated the state's false claims act, which mirrors the federal False Claims Act, by failing to pay the balances on the unused gift cards to the state, according to the report.
The court held the unused funds on the gift cards belonged to Delaware, as they were deemed abandoned property, and the organizations had committed a "reverse false claim" by failing to pay money due to the government rather than using fraudulent means to obtain money from the government, according to the report.
The Delaware court's holding could have a significant impact outside of the state, as organizations, including hospitals, in states with similar unclaimed property laws could face a new type of false claims exposure.
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