Thursday, November 19, 2009

$4.8 Million Gift Card Controversy Sent Back to State Court

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Because the amount in controversy in a lawsuit on behalf of New Jersey purchasers of Landry's Restaurants gift cards was at most $4.8 million, the federal district court in Trenton sent the case back to New Jersey state court, where it had been filed.

Landry's had removed the case to the federal court, asserting that the amount in controversy met the $5 million threshold for federal jurisdiction under the Class Action Fairness Act (CAFA).

Dormancy Fees for Nonuse

The purchaser of a $25 card alleged that Landry’s gift cards purchased by New Jersey residents between April 2006 and March 2009 imposed a “dormancy fee” after 12 months of nonuse. The purchaser sought to represent other New Jersey residents who purchased the cards.

The gift cards allegedly violated the New Jersey Gift Certificate Law (Sec. 56:8-110 of the Consumer Fraud Act), which prohibited imposition of dormancy fees on gift certificates and cards within 24 months after the date of sale.

The purchaser also alleged that the gift cards violated the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act, a law prohibiting a consumer contract or notice stating that any of its provisions are void or unenforceable without specifying the provisions that are void or unenforceable in New Jersey.

Based on the documents produced in discovery, the maximum number of unlawful gift cards sold was 9,269. Given undisputed maximum damages of $520 per potential class member, the amount in controversy was at most $4,819,880. Therefore, it appeared to a legal certainty that CAFA’s requisite jurisdictional amount in controversy of $5 million was not met.

The opinion in Delaney v. Landry’s Restaurants, Inc. will be reported at CCH Advertising Law Guide ¶63,655.

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