In an important win for companies that issue gift cards in California, a United States District Court recently threw out a class action complaint alleging that it was a violation of California law to refuse to redeem a gift card for cash. The plaintiff had sued under California’s notorious Unfair Competition Law, which allows a plaintiff to sue for any “unlawful” business practice by “borrowing” violations of other laws, even if the underlying law does not provide for a private right of action. The law that plaintiff “borrowed” to try to support his claim was California Civil Code section 1749.5(b)(1), which provides that “any gift certificate…is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.”
The Defendant, a consumer product company that issues gift cards, filed a motion to dismiss, and the court granted it for two reasons. First, the court rejected plaintiff’s argument that the consumer had the option of either getting cash back or a replacement card, and instead held that the issuer had this option. Second, the court held that even if plaintiff could establish a violation of the statute, he lacked the injury necessary to maintain a claim under the UCL. The court held that plaintiff did not lose any money or property due to the claimed violation, because he still had a gift card with which he could buy merchandise in an amount equal to the full value of his gift card.
The court’s ruling, while not binding on other courts, should nevertheless be helpful to other consumer companies. It resolves in defendants’ favor the previously unresolved question of whether section 1749.5(b)(1) requires companies to essentially act as ATM machines for anyone holding a gift card. And it provides a federal court’s view on an important UCL issue: Whether a person suffers a loss of money or property sufficient to bring a claim under the UCL whenever he parts with money due to a UCL violation, or whether he must also establish what plaintiff could not prove here, which is that he did not receive a product of equal value in return for his money. This issue is currently before the California Supreme Court in Kwikset.
