Business Victorious in Unclaimed Gift Card False Claims Case

McDermott Will & Emery
Contact

McDermott Will & Emery

The Delaware Supreme Court gave Overstock.com a win in a False Claims Act (FCA) suit alleging the retailer failed to remit unclaimed gift card funds to the state. Overstock.com Inc. v. the State of Delaware and French, DE Sup. Ct., No. 327,2019 (June 25, 2020). A jury previously found Overstock liable for approximately $7.3 million. The Delaware Supreme Court, interpreting the FCA statute in effect for the years at issue, determined the trial court judge improperly instructed the jury that the knowing failure to file unclaimed property reports was the making of a false statement as required to succeed on an FCA claim. Contrary to the trial judge’s instructions, the Supreme Court determined that to meet the FCA standard in effect for the years at issue, some document incorporating the alleged false claim must have been provided to the government. Failure to file a report was by definition not a false record or statement because there was not record or statement.

Based on this interpretation of the FCA statute, the jury verdict was reversed because Overstock did not file any unclaimed property reports with Delaware. Absent a filed report, there was no false claim. The plaintiffs alleged other documents were sufficient to meet the submission of a “false record or statement” element of the relevant FCA: (a) Overstock’s books and records and (b) statements to the SEC. The Supreme Court rejected these arguments. Overstock’s books and records were not sufficient because these documents were not submitted to the State and the SEC filings were not submitted in order to avoid the alleged unclaimed property liability.

Delaware, like many states, adopts the same language as the federal FCA statute. The federal government made amendments in 2009 to include language imposing liability if someone “knowingly conceals or knowingly and improperly avoids or decreases an obligation.” Delaware amended its FCA statute in 2013 to include this language.

Practice Note:
This win does not provide any guidance on the substantive issue asserted by the plaintiffs at trial regarding whether and under what facts contracting with another entity to issue gift cards imposes unclaimed property obligations on the issuer rather than the retailer. This is a narrow victory as it applies to a prior version of Delaware’s FCA statute. However, companies confronted by FCA suits – for both unclaimed property and tax liability, should look at when or if the state at issue amended the FCA to adopt the modern version and whether they have a filing history. It is interesting that a company that did not file any report is potentially better off under the historic FCA language than one who did. While this a victory based on a narrow issue, a victory is a victory.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McDermott Will & Emery | Attorney Advertising

Written by:

McDermott Will & Emery
Contact
more
less

McDermott Will & Emery on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.