United States: Gift Card Alert - Delaware Rewrites Its Unclaimed Property Law

Last Updated: February 22 2017
Article by Gregory T. Parks and Anne Marie Estevez

Retail Did You Know?

After a federal court dealt a significant blow to Delaware's unclaimed property law in June 2016, Delaware responded by entirely rewriting its unclaimed property law. This edition of Morgan Lewis Retail Did You Know? describes the requirements of the new law and details some of the significant ways it may impact retailers, particularly with respect to gift card programs.


Various state escheat laws require companies to annually report and pay unclaimed property to states in certain circumstances. This may include customer credits, uncashed payroll checks, and balances on gift certificates or gift cards. Although this money is supposed to be held in trust by the state and returned to its owners, most escheated funds are never returned and become an important source of revenue for states. Because the rules that dictate which state is entitled to the unclaimed property emphasize the company's place of incorporation, Delaware has come to depend heavily on unclaimed property as its third-largest source of revenue. The state has historically pursued aggressive enforcement through third-party audits that involve the use of "estimation" to calculate abandoned property liability going back decades.

Delaware's ability to collect unclaimed funds was dealt a significant blow last year, however, when a federal judge ruled in Temple-Inland, Inc. v. Cook that Delaware's application of its unclaimed property law to estimate companies' abandoned property liability where such records were absent violated due process. Among the problematic features of Delaware's law were

  • a lack of notice that companies needed to retain unclaimed property records,
  • application of the estimation provision of the statute retroactively,
  • a "look back" liability period that stretched over two decades, and
  • an estimation method that emphasized characteristics favoring liability.

The court concluded that Delaware "engaged in a game of 'gotcha' that shocks the conscience." With the Temple-Inland decision, Delaware's ability to obtain significant funds through audits and voluntary disclosure agreements (VDAs) was seriously jeopardized.

The New Delaware Bill

Against that backdrop, the Delaware legislature has now rewritten the Delaware unclaimed property law to try to address the problems identified in Temple-Inland and to bring Delaware more in line with the Uniform Unclaimed Property Audit Act used by other states. In addition, the legislature appears to have designed the new statute to help accelerate Delaware's collection of unclaimed property by providing incentives to companies who agree to resolve pending audits in the near term.

The new law includes a number of changes and new provisions that are notable for retailers' unclaimed property compliance and planning programs:

  • "Gift cards" are expressly included as abandoned property. Although sometimes interpreted more broadly, the previous version of the law only applied to "gift certificates." Helpfully, the law also clarifies that promotional gift cards—defined as "a record given without consideration under an award, reward, benefit, loyalty incentive, rebate, or promotional program"—are exempt.
  • The definition of abandoned property now includes any "customer's overpayment," security deposits, refunds, and unused tickets. However, layaway account deposits are excluded.
  • Significantly, the law also makes clear that liability for unclaimed property can be assigned to a "parent, subsidiary or affiliate" of the company, which appears to be an endorsement of subsidiaries used to issue gift cards in states that do not require their escheat, often called "GiftCos."
  • The new law adopts a record retention requirement running 10 years after a report is due, and specifies certain information that companies need to maintain.

Retailers under audit with the State of Delaware should also be aware that they may be impacted by some of the new law's significant changes. First, the law purports to correct a number of the problems identified by the Temple-Inland court such that the state may now be able to pursue estimation theories that increase the potential liability in audits. This includes a requirement that the state issue detailed rules on its estimation methods by July 1, 2017. Second, the new law decreases the look-back period for audits and VDAs to 10 years (previously, audits would look back to 1986). Third, the law increases and essentially makes interest mandatory on unclaimed property that has not been timely remitted to the state, which could significantly change the potential liability for companies under audit.

Recognizing the significance of the changes and encouraging collection of funds through pending audits, the new law also gives most companies under current audit the ability to elect to obtain a waiver of interest and penalties by (a) converting their audits to VDAs, which would require giving up the right to judicial review; or (b) requesting expedited reviews, which would require completion of the requests on Delaware's own schedule. Companies can also elect, within 60 days of the state's issuing its new estimation guidelines, to continue with their current audits.

These are just a few of the notable changes to the statute, which includes many revisions throughout and deserves careful review and consideration.

Practical Implications

The new Delaware law has many implications for retailers, with substantial near-term impact on those currently under audit with Delaware and changes that will also impact retailers' unclaimed property planning. The other significant changes regarding Delaware's treatment of unclaimed property, including the handling of gift cards and other forms of property common in the retail setting, also deserve attention. The changes to the law regarding imposition of interest also raise the potential costs of noncompliance.

How We Can Help

Morgan Lewis regularly advises retailers on unclaimed property law compliance and represents retailers in audits, VDA proceedings, and litigation regarding abandoned property. In addition to assisting with compliance obligations, we often work with our clients to structure their consumer and commercial relationships and internal business practices to limit or prevent unclaimed property liability from even occurring. We can apply our experience and knowledge to help efficiently analyze how a retailer's practices and policies might be impacted by unclaimed property laws across the country.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions