Catch of the Week — Overstock.com Ordered to Pay $7.27M in Whistleblower’s Unused Gift Card Case
In a final order made public this week, a Delaware judge ordered internet retailer Overstock.com to pay $7.27 million in treble damages and civil penalties for failing to report and transfer to the state nearly $3 million in unredeemed gift card balances.
Update, July, 2020: Interpreting the Delaware False Claims Act, on June 26, 2020, the Delaware Supreme Court issued an order reversing the judgment of the trial court.
In September 2018, a jury found that Overstock had violated Delaware’s unclaimed property law, which requires gift card issuers to remit unused card balances to the state after five years, a doctrine known as escheatment. Businesses may be subject to false claims liability for misrepresenting, failing to report, and failing to transfer (or escheat) unclaimed property to the government. Successful whistleblowers who report escheatment schemes may be entitled to share in any government recovery.
State escheatment laws differ significantly, and companies can take advantage of these variations to improperly retain assets, cheating the state and its taxpayers. At trial, Overstock claimed it had transferred the unclaimed funds at issue to an Ohio-based company then called CardFact. Because remaining gift card balances are not subject to escheatment in Ohio, Overstock argued CardFact was legally entitled to keep the funds. The jury disagreed.
Former CardFact employee William Sean French blew the whistle on the scheme, reporting it under Delaware’s False Claims and Reporting Act (DFCRA). The state’s Department of Justice subsequently joined French’s whistleblower suit.
This week, nearly a year after the jury returned its verdict for Delaware and the whistleblower, the court published an order requiring Overstock to pay triple damages, rejecting the online retailer’s argument the damages were “both inappropriate and excessive.” “In this case, Overstock was found to have engaged in not just a single violative act or omission under DFCRA; Overstock’s was a years-long pattern of activity. And while Overstock may give short shrift to the economic impact of its false claims violations, wrongfully withholding millions from escheatment deprived all Delaware citizens the opportunity to derive the benefits from the funds it retained. The trial evidence convincingly demonstrated that Overstock did this not for the rightful owners of its unredeemed gift cards, but for its own economic gain,” the court said.
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