Am. Express Travel Related Serv. Co. Inc. v. Sidamon–eristoff

• Decision Date: 13 November 2010
• Docket Number: Civil No. 10–5123(FLW),Civil No. 10–4890 (FLW),Civil No. 10–5059(FLW),Civil No. 10–5206(FLW)
• Citation: 755 F.Supp.2d 556
• Parties: AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Plaintiff,v.SIDAMON–ERISTOFF, et al., Defendants.New Jersey Ret. Merch. Assn., Plaintiff,v.Sidamon–Eristoff, et al., Defendants.Aff.New Jersey Food Council, Plaintiff,v.State of New Jersey, et al., Defendants.Amer. Exp. Prepaid Card Mgmt. Corp., Plaintiff,v.Sidamon–Eristoff, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

755 F.Supp.2d 556

AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Plaintiff,

v.SIDAMON–ERISTOFF, et al., Defendants.New Jersey Ret. Merch. Assn., Plaintiff,

v.Sidamon–Eristoff, et al., Defendants.Aff.New Jersey Food Council, Plaintiff,

v.State of New Jersey, et al., Defendants.Amer. Exp. Prepaid Card Mgmt. Corp., Plaintiff,

v.Sidamon–Eristoff, et al., Defendants.

Civil Nos. 10–4890 (FLW), 10–5059(FLW), 10–5123(FLW), 10–5206(FLW).

United States District Court, D. New Jersey.

Nov. 13, 2010.Opinion Clarifying Prior Opinion Jan. 14, 2011.

OPINION TEXT STARTS HEREWest CodenotesHeld UnconstitutionalN.J.S.A. 46:30B–42.1(c) Louis Smith, Philip R. Sellinger, Greenberg Traurig, LLP, Florham Park, NJ, for Plaintiff.Robert T. Lougy, Livision of Law & Public Safety, Trenton, NJ, for Defendants.

OPINION

FREDA L. WOLFSON, District Judge.

On November 15, 2010,¹ New Jersey's recent amendment to its Unclaimed Property Law, 2010 N.J. Laws Chapter 25 (“Chapter 25” or “the Act”), will take effect. Chapter 25, inter alia, amends New Jersey's unclaimed property statute, N.J. S.A. 46:30B–1, et seq. (“Unclaimed Property Act”), modifying the presumptive abandonment period for travelers checks from fifteen years to three years, and, for the first time, Chapter 25 provides for the custodial escheat of stored value cards. See Chapter 25, §§ 2, 5. Plaintiffs American Express Travel Related Services Company, Inc. (“Amex”), New Jersey Retail Merchants Association (“Retail Merchants”), New Jersey Food Council (“Food Council”), and American Express Prepaid Card Management Corporation (“AMEX Prepaid”) (collectively, “Plaintiffs”) ², bring this action to enjoin Defendants Andrew P. Sidamon–Eristoff (“the Treasurer”), Treasurer of the State of New Jersey, Steven R. Harris, Administrator of Unclaimed Property of the State of New Jersey, and the State of New Jersey (collectively, “Defendants,” “State of New Jersey” or “State”) from enforcing Chapter 25.³ In their respective complaints, Plaintiffs raise several constitutional challenges under the doctrines of federal preemption, the Contract Clause, the Takings Clause, Substantive Due Process, the Commerce Clause, and the Full Faith & Credit Clause.

In the instant matter, Plaintiffs move to preliminarily enjoin Defendants from implementing Chapter 25 during the pendency of these cases.⁴ In response, Defendants oppose the motion and move to dismiss the complaints on the grounds of immunity and abstention.⁵ Because the issues raised by the parties involve similar legal and factual analysis, the Court will address them in this Consolidated Opinion. For the reasons stated herein, the Court grants in part and denies in part Plaintiffs' requests for a preliminary injunction. Specifically, the Court enjoins the State of New Jersey from enforcing the place-of-purchase presumption found in Chapter 25 and Guidances issued by the Treasurer. The Court further enjoins the State from enforcing Chapter 25 retroactively against issuers of stored value cards with existing stored value card contracts that obligate the issuers to redeem the cards solely for merchandise or services.

BACKGROUND AND PROCEDURAL HISTORY

Since the parties' motions raise constitutional challenges to Chapter 25, the Court will only recount uncontroverted facts of this case insofar as they provide an understanding of the instant disputes.

I. Travelers Cheques by Amex

Amex's Travelers Cheques (“TCs”) are preprinted “checks,” each bearing a serial number, in fixed amounts, ranging from $20–$100. Amex is the sole issuer of travelers checks. On its face, a TC states that it will never expire, and therefore, it is not subject to dormancy charges and, until cashed or used, always retains its full face value. Amex sells TCs for the face amount without charging any fee. See Campbell Decl. at ¶¶ 13–16. When a TC is sold, the seller transmits the funds to Amex, and provides Amex with the serial number of the TC, its amount, and the date and place of the sale, but does not provide the name, address, or any other identifying information about the purchaser. When Amex sells TCs directly to consumers, it retains only the same information that it receives from third party sellers. Id. at ¶ 20.

According to Amex, it has been able to sell TCs without charging a fee based on its contractual relationship with TC owners, which gives Amex the right to retain, use and invest funds from the sale of TCs from the date of sale until the date the TCs are cashed or used. Amex submits that it invests the funds in instruments with varying maturities to obtain the highest yield. Id. at ¶ 21. Amex further asserts that it relies on these invested funds, which are integral to the contract between TC and Amex, to remain profitable in the TC business. Id. at ¶ 21.

Because TCs never expire, Amex maintains that it cannot be relieved of its contractual obligation to honor TCs presented for payment after the amount has been paid as “presumed abandoned” to a state. In other words, when used, a TC becomes a negotiable instrument, which Amex pays upon presentation regardless of whether it has been paid to the state as unclaimed property.

II. Stored Value Cards

SVCs are a relatively recent form of electronic payments. SVCs come in two varieties: “closed loop” and “open loop” cards.⁶ Closed loop cards may be redeemed only for merchandise or services at and by the retailer who issued the card. An example of such a card would be a gift card issued by a bookstore and redeemable only at that bookstore for books or other merchandise. These sorts of cards are issued by members of Plaintiff New Jersey Retail Merchants Association and Plaintiff New Jersey Food Council. Open loop cards, also referred to as gift cards, may be redeemed at a host of brick-and-mortar and internet-based locations not affiliated with the issuer of the card. “In the current economic climate, stored-value products are particularly important, as they enable the unbanked and underbanked to have access to the payment system and thus to have access to internet transactions.” Juliet M. Moringiello, Survey of the Law of Cyberspace, 65 Bus. Law. 227, 227–28 (2009). These sort of cards are issued by Plaintiff American Express Prepaid Card Management Corporation. Happ Decl. at ¶¶ 3–4. While some open loop cards are redeemable for cash, most of the open loop cards issued by AMEX Prepaid are redeemable solely for goods or services. Id. at ¶ 6.

Under New Jersey law, gift cards are defined as

a tangible device, whereon is embedded or encoded in an electronic or other format a value issued in exchange for payment, which promises to provide to the bearer merchandise of equal value to the remaining balance of the device. “Gift card” does not include a prepaid telecommunications or technology card, prepaid bank card or rewards card;

N.J.S.A. 56:8–110c (emphasis added). According to Plaintiff Retail Merchants, the funds for gift cards are not necessarily stored on the card itself, but are “held in a bank account maintained by the card issuers.” Rowe Afft. at ¶ 12. Other issuers maintain their gift card balances in a database. Watson Decl. at ¶ 12. Some issuers issue the cards directly, while others use subsidiaries or cooperatives to issue and process the cards. “Once the retail gift card is used to make a purchase, each [issuer] recognizes a profit based on the difference between the [issuer's] cost of acquiring the goods or of offering the services, and the retail price paid by the customer to purchase the goods or services.” Rowe Afft. at ¶ 17.

III. New Jersey's Unclaimed Property Law

Each of the 50 fifty states, including New Jersey, and the District of Columbia has a set of unclaimed property laws or escheat laws. These laws require that after property has been deemed “abandoned,” the holder of the property, e.g., banks, belonging to a property owner, e.g., consumers, pay that property to the state. The laws of most states are based upon a version of the Uniform Unclaimed Property Act (“UUPA”). The Court notes that the purpose of enacting these escheat laws is to provide for the safekeeping of abandoned property and then reunite the abandoned property with its owner. In the usual course, when property is deemed abandoned, the holder of most types of property is required to attempt to contact the owner, using the name and last known address, and if possible, return the property. If the attempt is unsuccessful, the holder turns over the abandoned property to the state and provides the state with the name and last known address of the owner. Upon such payment, the holder is relieved of any liability to the owner. The state, in turn, makes the effort to reunite the owner with his/her property. New Jersey's Unclaimed Property Act is a custodial escheat statute. That is, when funds are turned over the State, the rightful owner may file a claim to recover the property at any time.

A. Travelers Checks

With respect to travelers checks, the issuer, Amex, does not obtain the name or address of purchasers of these checks. Thus, any requirement under state law to send notice to an apparent owner at the last known address before paying such property to the State does not apply to Amex. See N.J.S.A. 46:30B–5. In addition, in New Jersey, travelers checks issuers are exempted from the requirement to include the owner's name and last known address on unclaimed property reports. See N.J.S.A. 46:30B–47. Rather, when travelers checks are sent to the state as unclaimed property, only the serial number, the amount and date of sale are reported. Indeed, New Jersey also exempts travelers checks from being published in a mandated notice by the Treasurer. See N.J.S.A. 46:30B51, –56. After a travelers check is cashed, Amex determines whether that particular check has been paid to any state as abandoned property. If it has, Amex seeks to reclaim those funds from that state. In New Jersey, while the time for processing such a claim is disputed, it is not...