Store credits not redeemable for cash are not unclaimed property under California's Unclaimed Property Law (UPL). In Bed Bath & Beyond Inc. v. Chiang, Case No. 37-2014-12491 (Super Ct. San Diego, Cal. Mar. 4, 2016), the Superior Court issued summary judgment in favor of the national retail chain, Bed Bath & Beyond Inc., holding that merchandise credits not redeemable for cash are not subject to the UPL and also qualify for an exemption under the UPL for gift certificates that do not expire.
BB&B had issued store credits when customers returned merchandise without a receipt. The store credits had no expiration date, but were redeemable only for merchandise, not cash. BB&B therefore relied on the derivative rights doctrine, which provides that California has no greater rights over unclaimed property than the owners of such property, to argue that it was the "owner" of the cash amount it remitted to the state as store credits and thus entitled to refunds of the same amount. BB&B filed a refund claim with California for $1.8 million in store credits it had escheated to the state between 2004 and 2011.
California denied BB&B's refund claim, arguing the store credits were escheatable as "intangible property" under the catchall provision of the UPL, which requires the escheat of "all intangible personal property" "held or owing in the ordinary course of the holder's business" that "has remained unclaimed by the owner for more than three years after it became payable or distributable" and that is not otherwise excluded under the UPL. Cal. Code Civ. Proc. § 1520.
The Court, however, held that the BB&B store credits were never "ow[ed]" within the meaning of the UPL because they were not redeemable for cash. They were therefore not subject to escheat. The Court also held that the BB&B store credits were analogous to gift certificates provided under a loyalty or promotional program, and therefore fell under the UPL's exemption for gift certificates. The Court therefore held that BB&B could seek a refund of the unclaimed store credits if it claimed an ownership interest in them.
The implications of this decision are broad. First, and most apparent, retailers like BB&B may no longer be required to escheat the value of their issued but unredeemed store credits to California.
Second, because the Court based its decision on the conclusion that “store credits” are analogous to “gift certificates” as defined under Civil Code § 1749.45 (which also includes “gift cards” issued by and valid only at an individual retailer), store credits, gift certificates, and gift cards redeemable only for store merchandise and lacking an expiration date are not subject to escheat under this decision and may all therefore be the basis for a retailer’s claim for refund. Thus, retailers similarly situated to BB&B, who may also have escheated the value of their unredeemed store credits to the state, should consider filing refund claims for those store credits — and non-expiring gift certificates and gift cards — especially in California.
Third, the decision in Bed Bath & Beyond Inc. v. Chiang may also serve as a roadmap for other courts considering the question of how to treat store credits under their respective state’s unclaimed property laws, potentially teeing up a nationwide change in the law with real monetary implications for the retailers and states involved on either side of the issue.