August 9, 2020

Volume X, Number 222

August 07, 2020

Subscribe to Latest Legal News and Analysis

August 06, 2020

Subscribe to Latest Legal News and Analysis

Business Victorious in Unclaimed Gift Card False Claims Case

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.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 179

TRENDING LEGAL ANALYSIS


About this Author

Counsel

Diann Smith is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  Diann focuses her practice on state and local taxation with an emphasis on tax challenges relating to compliance, controversy, planning and legislative activity.   

202-756-8241
Stephen P. Kranz Lawyer McDermott Will
Partner

Stephen P. Kranz is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  He engages in all forms of taxpayer advocacy, including audit defense and litigation, legislative monitoring, and the formation and leadership of taxpayer coalitions.  Steve is at the forefront of state and local tax issues, including developments arising in the world of cloud computing and digital goods and services.  He assists clients in understanding planning opportunities and compliance obligations for all states and all tax types.  His approach to taxpayer advocacy brings strategic thinking together with skills for the courtroom and the statehouse.

202-756-8180
Eric Carstens Tax Attorney McDermott Will Emery
Associate

Eric D. Carstens is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office. He focuses his practice on state and local tax matters.

Eric assists clients with state tax controversy, compliance and multistate planning across all states for a variety of tax types and unclaimed property. He engages in all forms of taxpayer advocacy, including litigation, legislative monitoring and audit defense. He works closely with several of the Firm’s taxpayer coalitions focused on specific state tax...

202 756 8353