The National Football League’s Buffalo Bills, no strangers to disappointment on the field, are now a cautionary tale for mobile marketers. Last week, a federal judge in the Middle District of Florida approved a class settlement agreement over alleged violations of the Telephone Consumer Protection Act (“TCPA” 47 U.S.C. §227, et seq.), stemming from text messages sent by the Bills to fans who had explicitly signed up to receive texts from the team.
According to the complaint filed in October 2012, Bills fan Jerry Wojcik visited the Bills website to read news about the team and learned about the Bills text alerts program, under which fans could sign up to receive team news by text message. The program was explicitly opt-in; only fans who signed up would receive text messages. Further, subscribers could cancel their subscriptions at any time. The program description was quite specific, reading, in part: “You will be opted in to receive 3-5 messages per week for a period of 12 months. Text STOP to cancel.”
Mr. Wojcik signed up for the text program and began receiving texts. One week, he allegedly received 6 messages. Another week, he allegedly received 7. Noting that the program terms had stated that he would receive 3-5 messages per week, he sued, on behalf of himself and all others similarly situated, alleging a massive violation of the TCPA and seeking damages of up to $1500 for every text above the permitted 5/week. A year and a half later, the parties have agreed to a settlement potentially worth as much as $3 million (depending on the number of claimants who come forward), including approximately $500,000 in attorneys’ fees and costs for Wojcik’s lawyers.
Wednesday, April 23, 2014
Monday, April 14, 2014
Danger on the Horizon: Gift Card Companies and Unclaimed Property Laws
There are approximately twenty states that require issuers and holders of gift cards to pay to their state treasury the balances of any unredeemed gift cards, which is otherwise known as “breakage.” (For purposes of this article, I refer to gift cards in the broad sense, including gift certificates, gift cards, and stored value cards). The larger states—New York, New Jersey, Massachusetts, and Delaware—provide, however, for the escheat of gift cards. (Technically the required payment of unredeemed gift card balances is based on unclaimed property or abandoned property laws rather than escheat, but the underlying principles of the state taking funds on behalf of its citizens are the same). A majority of state unclaimed property laws do not escheat unredeemed gift card balances.
For legitimate business reasons with the result of reducing payment of breakage, many retailers with gift card programs have entered into agreements with third parties such as Card Compliant in which the third party forms a special purpose gift card entity to issue the gift cards. Other retailers, without use of a third party, have set up their own gift card subsidiaries to issue their gift cards. The gift card companies are formed in states such as Ohio or Florida, which do not require the payment of breakage to the states. Under the priority rules established by a line of U.S. Supreme Court decisions and embodied in the various state unclaimed property statutes, if the records of the holder (i.e. issuer) of the gift card do not identify the last known address of the owner of the gift card, then the state for payment of the unredeemed gift card balances is the state of incorporation of the holder. Thus, since the gift card company is incorporated in a state with favorable laws regarding gift cards, and because the gift card companies do not maintain the addresses of the owners of the gift cards, the gift card company (and the retailer, which is not the holder) are not liable for payment of breakage. In other words, the theory is that the states with laws that require the escheat of gift cards—even if it is the state of incorporation of the retailer— cannot enforce its laws to require payment of the breakage against either the retailer or the gift card company.
The theory has now run up against the reality of a qui tam suit brought by a noted plaintiff’s securities fraud law firm on behalf of the State of Delaware and a relator (the individual who sues on behalf of the state in a qui tam suit) against Card Compliant, its special purpose gift card entities, and various retailers that caused their gift cards to be issued by these Card Compliant entities.
For legitimate business reasons with the result of reducing payment of breakage, many retailers with gift card programs have entered into agreements with third parties such as Card Compliant in which the third party forms a special purpose gift card entity to issue the gift cards. Other retailers, without use of a third party, have set up their own gift card subsidiaries to issue their gift cards. The gift card companies are formed in states such as Ohio or Florida, which do not require the payment of breakage to the states. Under the priority rules established by a line of U.S. Supreme Court decisions and embodied in the various state unclaimed property statutes, if the records of the holder (i.e. issuer) of the gift card do not identify the last known address of the owner of the gift card, then the state for payment of the unredeemed gift card balances is the state of incorporation of the holder. Thus, since the gift card company is incorporated in a state with favorable laws regarding gift cards, and because the gift card companies do not maintain the addresses of the owners of the gift cards, the gift card company (and the retailer, which is not the holder) are not liable for payment of breakage. In other words, the theory is that the states with laws that require the escheat of gift cards—even if it is the state of incorporation of the retailer— cannot enforce its laws to require payment of the breakage against either the retailer or the gift card company.
The theory has now run up against the reality of a qui tam suit brought by a noted plaintiff’s securities fraud law firm on behalf of the State of Delaware and a relator (the individual who sues on behalf of the state in a qui tam suit) against Card Compliant, its special purpose gift card entities, and various retailers that caused their gift cards to be issued by these Card Compliant entities.
Tuesday, April 8, 2014
Did Wyoming Just Become an Internet Affiliate Nexus State?
We have written often about state Internet “click through” nexus laws, including the New York affiliate nexus statute unsuccessfully challenged by Amazon.com and Overstock.com, and the Illinois Internet affiliate nexus law stuck down by the Illinois Supreme Court in response to a suit brought by the Performance Marketing Association (for which Brann & Isaacson served as counsel). In most states, meaningful risk of Internet affiliate nexus for an out-of-state seller arises only after the legislature adopts a statute that, like New York’s law, creates a rebuttable presumption of “click through” nexus. In our view, even such a rebuttable presumption suffers from serious constitutional failings. Thus, an even more aggressive position, such as asserting that an Internet affiliate relationship, by itself, can create nexus for an out-of-state vendor without providing any opportunity to rebut the presumption, is plainly at odds with the Constitution.
On April 3, 2014, the Wyoming Supreme Court waded into the “click through” nexus arena and raised the possibility that, under Wyoming case law, the mere existence of an Internet affiliate relationship with an in-state website may be deemed sufficient to create nexus for an out-of-state retailer. See Travelocity.com et al. v. Wyoming Department of Revenue, 2014 WY 43 (Apr. 3, 2014). The case is one in an extensive series of cases around the country involving challenges to state tax assessments brought by online travel companies. At issue typically in these cases is the question of whether online travel companies (“OTCs”) are subject to a state sales/use tax collection obligation on the portion of their charge to consumers that is not paid to the hotel that provides the room (as to which tax is often collected by the OTC, paid to the hotel, and remitted remitted to the state). The OTCs have argued that the portion of the charge not paid to the hotel is a service fee collected by the OTCs, not a part of the charge to the consumer for the room.
The OTC cases raise numerous issues under both state sales and use tax law and federal constitutional principles, including substantial nexus. Since nexus requires a sufficient connection between the state and both the seller and the activity/transaction being taxed, see Complete Auto Transit Inc. v. Brady, 430 U.S. 274, 279 (1977), the OTCs have argued that nexus is lacking with regard to the transaction in question, since their sales occur on servers located outside the state in which the room is provided. In other words, the OTCs assert that the state lacks nexus with the activity being taxed, regardless of whether there is sufficient nexus with the OTCs themselves as sellers.
On April 3, 2014, the Wyoming Supreme Court waded into the “click through” nexus arena and raised the possibility that, under Wyoming case law, the mere existence of an Internet affiliate relationship with an in-state website may be deemed sufficient to create nexus for an out-of-state retailer. See Travelocity.com et al. v. Wyoming Department of Revenue, 2014 WY 43 (Apr. 3, 2014). The case is one in an extensive series of cases around the country involving challenges to state tax assessments brought by online travel companies. At issue typically in these cases is the question of whether online travel companies (“OTCs”) are subject to a state sales/use tax collection obligation on the portion of their charge to consumers that is not paid to the hotel that provides the room (as to which tax is often collected by the OTC, paid to the hotel, and remitted remitted to the state). The OTCs have argued that the portion of the charge not paid to the hotel is a service fee collected by the OTCs, not a part of the charge to the consumer for the room.
The OTC cases raise numerous issues under both state sales and use tax law and federal constitutional principles, including substantial nexus. Since nexus requires a sufficient connection between the state and both the seller and the activity/transaction being taxed, see Complete Auto Transit Inc. v. Brady, 430 U.S. 274, 279 (1977), the OTCs have argued that nexus is lacking with regard to the transaction in question, since their sales occur on servers located outside the state in which the room is provided. In other words, the OTCs assert that the state lacks nexus with the activity being taxed, regardless of whether there is sufficient nexus with the OTCs themselves as sellers.
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