New York Court Rejects Consumer Claims against Gift Card Issuers Relating to Split Transactions

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[author: Emily Haus]

A federal court in New York recently dismissed with prejudice a purported class action against the issuers of general, non-reloadable gift cards sold at supermarkets and drugstores, asserting claims against the gift card issuers under New York’s consumer protection law (N.Y.G.B.L § 349), as well as claims for conversion, unjust enrichment and breach of implied duty of good faith and fair dealing, relating to so-called split transactions – using the remaining funds on a gift card to pay for a portion of a purchase and then using an alternate form of payment for the remainder. In Preira v. The Bancorp Bank, No. 11-CV-1547, 2012 WL 3541702 (S.D.N.Y. Aug. 17, 2012), plaintiff, the purchaser of a card, alleged that, after being unable to make purchases through split transactions, she was left with an unused balance on her gift card – in other words, that the gift card was difficult to empty and therefore she could not receive the full value of her bargain. On defendants’ motion, the court dismissed the putative action, holding that plaintiff had failed to state a claim under the state consumer protection law because should could not allege that she suffered an actual injury.

Defendants moved to dismiss the complaint for failure to state a claim, arguing that plaintiff could not allege an actual injury because: (1) balances on these gift cards never expire, (2) some merchants do allow split transactions so that holders can use the full value of their cards, and (3) holders can always return the gift card and receive a check for the remaining value. The court agreed.

Although New York’s consumer protection law does not require justifiable reliance or an intent to deceive, it does require actual injury. The court held that plaintiff’s inability to complete a split transaction with every merchant that accepted the gift card did not equate to actual injury, especially given that the cardholder agreement disclosed this to be the case. Moreover, even if no merchants accepted split transactions, plaintiff could always send in her card and receive the unused balance by mail.

The terms and conditions of the gift card, as well as when and how these terms and conditions were disclosed to consumers, significantly impacted the outcome of this case. The back of the gift card packaging stated that TERMS AND CONDITIONS APPLY and that the terms inside the packaging should be provided to the recipient. The packaging also stated that the gift cards could be used with any merchant that accepted the issuer’s debit cards, provided a website and a toll-free number to call for card information, the card holder agreement, or to request a replacement card, that an expired card would be replaced upon request and that card funds never expire. The Agreement inside the packaging advised that some merchants would not allow split transactions and that the cardholder could cancel the Agreement by returning the gift card to the issuer and any remaining balance would be sent to the cardholder by check.

The court rejected plaintiff’s argument that her claim was not based on lost value, but rather on false and misleading statements that the gift cards could be used like the issuer’s debit cards. According to the court, plaintiff never alleged that debit cards could be used for split transactions at all retailers. Nor did the complaint allege what happened to a debit card holder when making a purchase for an amount greater than her available balance. In fact, noted the court, both debit cards and the gift cards at issue required a second step to obtain remaining funds when split transactions were not available: in the case of debit cards, the holder has to reload the card; in the case of the non-reloadable gift card, the holder has to mail in the gift card.

The court also found that plaintiff had failed to plead sufficiently her claim under the consumer protection law because her alleged injury was identical to the alleged deception. “Because [p]laintiff has failed to allege, for example, that the cost of the gift card ‘was inflated as a result of [defendants'] deception’ or that [p]laintiff attempted, without success, to recoup the balance of the funds on her gift card, [p]laintiff's claim ‘sets forth deception as both act and injury’ and, thus, ‘contains no manifestation of either pecuniary or ‘actual’ harm.”

The court likewise dismissed plaintiff’s unjust enrichment and conversion claims, holding that she had failed to allege that defendants benefitted to her detriment or that defendants had exercised dominion over plaintiff’s property – plaintiff could recoup the remaining funds on her gift card at any time. Similarly, plaintiff’s breach of implied good faith and fair dealing claim failed because she pleaded no facts that defendants acted in a manner that deprived plaintiff of her right to receive the benefit of her gift card.