Wednesday, December 2, 2009

Southern District Rules That a Retailer’s Refusal to Cash Out Gift Cards Is Not An Unlawful Business Practice Under California Law: Rudd v. Borders, Inc.

On November 24, 2009, Judge Barry Ted Moskowitz of the Southern District granted defendant Borders’s motion to dismiss a proposed gift card class action in Rudd v. Borders, Inc., 2009 U.S. Dist. LEXIS 110064 (S.D. Cal. Nov. 24, 2009). The plaintiff’s proposed action challenged an express limitation provision contained on Borders’ gift cards stating that the gift card was “not returnable or redeemable for cash.” Plaintiff’s complaint alleged that this provision was unlawful under California Civil Code Section 1749.5(b)(1), which provides that “[a]ny gift certificate sold after January 1, 1997 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 Court disagreed.

The Court reasoned that Civil Code § 1448 – which states that “[i]f an obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation” – requires that Section 1749.5(b)(1) be read as providing retailers “the option of choosing whether to redeem a gift card for cash or provide a new card to the customer.” See id., at 6-7. The Court further reasoned that plaintiff’s construction would render superfluous 2007 amendments to Section 1749.5 (b)(2), providing that “’[n]otwithstanding paragraph (b)(1), any gift certificate with a cash value of less than ten dollars ($ 10) is redeemable in cash for its cash value.’” See id., at 9-10.

Rudd is an important decision to remember in this holiday season, as it confirms once and for all that nothing says I love you more than cash (even Borders agrees, they don’t want the gift card either).

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