State of Delaware v. Card Compliant, LLC ( 2017 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
THE STATE OF DELAWARE
Plaintiff,
ex rel.
)
)
)
)
)
WILLIAM SEAN FRENCH )
Plaintiff-Relawr, ) C.A. No. N13C-06-289 PRW CCLD
)
)
)
)
)
)
v.
CARD COMPLIANT, LLC, et al.,
Defendants.
Submitted: January 24, 2017
Decided: April 21 , 2017
MEMORANDUM OPIN|ON AND ORDER
Upon Defendants, Ralph Lauren Corp., Ruth ’s Hospitalily Group, Inc., and Shell
Oil Co. ’s Motions to Dismiss or, in the Alternative, for Summary Judgment,
GRANTED.
Thomas E. Brown, Esquire, Edward K. Black, Esquire (argued), Stephen G.
McDonald, Esquire, Deputy Attorneys General, Delaware Department Of Justice,
Wilmington, DE, Attorneys for the State of Delaware.
Stuart M. Grant, Esquire, Mary S. Thomas, Esquire (argued), Diane Zilka, Esquire,
Vivian Upadhya, Esquire, Grant & Eisenhoffer P.A., Wilmington, DE, Attomeys
for Plaintiff-Relator William Sean French.
Kenneth K. Nachbar, Esquire, Michael Houghton, Esquire, Matthew R. Clark,
Esquire, Barnaby Grzaslewicz, Esquire, Morris, Nichols, Arsht & Tunnell LLP,
Wilmington, DE, Ethan D. Millar, Esquire, Of Counsel (pro hac vice), J. Andrew
Howard, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Los Angeles,
CA, William R. Mitchelson, Jr., Esquire, Of Counsel (argued) (pro hac vice), Jason
D. Popp, Esquire, Of Counsel (pro hac vice), Alston & Bird LLP, Atlanta, GA,
Attorneys for Defendants Ralph Lauren Corporation and Ruth’S Hospitality Group,
Inc.
Colm F. Connolly, Esquire, Jody C. Barillare, Esquire, Morgan, Lewis & Bockius
LLP, Wilmington, DE, Gregory T. Parks, Esquire, Of Counsel (pro hac vice), Ezra
D. Church, Esquire, Of Counsel (pro hac vice) (argued), Morgan, LeWis &
Bockius, Philadelphia, PA, Attorneys for Defendant Shell Oil Company.
WALLACE, J.
I. INTRODUCTION
The State of Delaware and a foreign private citizen charge that dozens of
Delaware’s corporate citizens collectively attempted to cheat Delaware out of its
portion of unused gift card balances via use of out-of-state “shell” entities devised
to hold these funds. Plaintiff-Relator William Sean French (“French”) first
brought this action in June 2013 pursuant to Delaware’s False Claims and
Reporting Act, alleging violations of Delaware’s Abandoned and Unclaimed
Property Law.] The State of Delaware (for ease of reference referred to hereinafter
as “the State,” both individually and collectively with French) filed a Motion to
Intervene on March 26, 2014.2
Before the Court are three Defendants’ - Ralph Lauren Corporation (“Ralph
Lauren”), Ruth’s Hospitality Group, Inc. (“Ruth’s”), and Shell Oil Company
(“Shell”) - Motions to Dismiss, or in the Alternative, for Summary Judgment.
They allege this Court has no subject matter jurisdiction over the State’s claims
because its (adopted) Complaint is precluded by 6 Del. C. § 1206(b), the DFCRA’s
l See Pls.’ Compl. 11 1, State ex rel. French v. Cara' Compliant LLC, C.A. No. N13C-06-
289 PRW CCLD (Del. Super. Ct. June 28, 2013) (D.I. 1); DEL. CODE ANN. tit. 6, §§ 1201-1211
(2012) (Delaware False Claims and Reporting Act) [hereinafter “DFCRA”]; DEL. CODE ANN.
tit. 12, §§ 1130_1190 (2012) (Delaware’s Unclaimed Property Law) [hereinafter “DUPL”].
2 See Pls.’ Compl. & St.’s l\/Iot. to Intervene, State ex rel. French v. Card Compliant LLC,
C.A. No. N13C-06-289 PRW CCLD (Del. Super. Ct. Mar. 26, 2014) (D.I. 1, 4).
_3_
Administrative Proceedings Bar.3 Even if subject matter jurisdiction exists,
Defendants urge dismissal because, in their view, the State failed to adequately
comply with its statutory obligation to investigate the factual allegations of its
(adopted) Complaint.
Defendants argue that the State’s case is precluded by the Administrative
Proceedings Bar because its Complaint’s claims are “substantially based upon
allegations or transactions which are the subject of’ the State’s previous or current
audits or inquiries of the Defendants. The Court agrees. Because the State’s case
is “substantially based upon transactions” that are, and have long been, the subject
of ongoing State administrative proceedings, these three Defendants’ motions to
dismiss are GRANTED.
II. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff-Relator William Sean French resides in Columbus, Ohio. He
claims to be an “original source” with personal knowledge of non-public facts
central to the State’s case.4 This means that he claims to have “direct and
3 DEL. CODE ANN. tit. 6, § 1206(b) (2012) (“In no event may a party bring an action under
this chapter which is substantially based upon allegations or transactions which are the subject of
a civil suit or an administrative proceeding in which the Government is already a party.”)
[hereinafter “Administrative Proceedings Bar”]. Because French’s Complaint was filed on June
28, 2013, all parties agree this version of the Administrative Proceedings Bar, extant from June
30, 2000, to July 23, 2013, is applicable here.
4 Pls.’ Compl. 11 12; DEL. CODE ANN. tit. 6, § 1206(c) (2012) (“For purposes of this
subsection, “original source” means an individual who has direct and independent knowledge of
the information on which the allegations are based and has voluntarily provided the information
_4_
independent knowledge of the information on which the allegations are based.”5
French claims to have, at some time, maintained the alleged out-of-state “shell”
entities’ books and records. He claims to have copies of the entities’ marketing
materials, contracts, and correspondence with the Defendants. This includes, most
importantly here, reports of amounts of unredeemed gift card values.6 But it
appears that well prior to French’s involvement, the State had already begun
actions to investigate or audit Ralph Lauren, Ruth’s, and Shell.
In June 2008, the State employed Kelmar Associates LLC (“Kelmar”), an
auditing company with expertise in unclaimed property, to institute Audit
proceedings against Shell to see if it was in compliance with Delaware’s escheat
laws.7 This Audit was to include gift cards.8 French was offered employment with
Kelmar, the State’s auditing company, more than three years later, on July 25,
to the Attorney General before filing an action under this chapter that is based on the
information.”).
5 DEL. CODE ANN. tit 6, § 1206(¢) (2012).
6 See Pls.’ Compl. 11 12.
7 Def. Shell Oil Co.’s Op. Br. in Support of Its Mot. to Dismiss for Lack of Subject Matter
Jurisdiction or in the Altemative for Summ. J. at 3, EX. l (Letter from Mark Udinski, Dir./St.
Escheator, St. of Del. Dep’t of Fin., to Peter R. Voser, Chief Fin. Offlcer, Royal Dutch Shell
PLC (June 19, 2008)), State ex rel. French v. Cara’ Complz``ant, LLC, et al., C.A. No. N13C-06-
289 PRW CCLD (Del. Super. Ct. Aug. 26, 2016) (D.I. 459) [hereinafter “Shell Br.”].
“ Id.
2011.9 He began to work at Kelmar in August 2011 and was terminated less than
three months later.10
On December 21, 2012, Ruth’s submitted a notification of intent to enter
l
into the Voluntary Disclosure Program with Delaware.l The State countersigned
and accepted the notice of intent, admitting Ruth’s to the Program on January 7,
2013.12 This program included an investigation into all unredeemed gift card
balances.13 And so information relating to gift cards was provided by Ruth’s to the
State on March 28, 2013.14
9 Letter from Matthew R. Clark, Esquire, Morris, Nichols, Arsht & Tunnel, to the Hon.
Paul R. Wallace, Judge, Ex. A (Oct. 25, 2016) (Letter from Michael J. LeBlanc, Kelmar Assocs.
LLC, to William Sean French (July 25, 2011) (offering French employment)).
10 Def. Ralph Lauren Corp.’s Op. Br. in Support of lts Mot. to Dismiss or in the Altemative
for Summ. J. at 3, Ex. 31 (Sean French termination dates), State ex rel. French v. Card
Compliam‘, C.A. No. N13C-06-289 PRW CCLD (Del. Super. Ct. Aug. 25, 2016) (D.I. 454)
[hereinafter “Ralph Lauren Br.”].
ll Def. Ruth’s Hospitality Grp., Inc.’s Op. Br. in Support of Its Mot. to Dismiss or in the
Alternative for Summ. J. at 8, State ex rel. French v. Card Compliant, LLC, et al., C.A. No.
N13C-06-289 PRW CCLD (Del. Super. Ct. Aug. 26, 2014) (D.I. 457) [hereinafter “Ruth’s Br.”].
See generally DEL. CODE ANN. tit. 12, § 1177 (2012) (providing the Secretary of State power to
resolve and compromise claims for property owing to the State Escheator via a voluntary
disclosure agreement); How it Works, DELAWARE.GOV: ABANDONED oR UNCLAlMED PROPERTY
VDA PROGRAM, http://vda.delaware.gov/steps-to-vda/ (last visited Apr. 19, 2017).
'2 Ruth’s Br. at 8 (citing Ruth’s Ans. Ex. A.) (Disclosure & Notice of Intent to Voluntarin
Comply with Abandoned Property Law Pursuant to 12 Del. C. § 1177 (Form VDA-l), Dec. 21,
2012 [hereinafter “Ruth’s VDA”]).
'3 Ruth’s Br. at 8.
'4 Id. at 9.
On February 6, 2013, the State notified Ralph Lauren that it was
commencing an Audit to see if Ralph Lauren was in compliance with Delaware’s
escheat laws.15 This Audit also included gift cards.]6
On June 28, 2013, while the Audits and voluntary disclosure matters were
ongoing, French filed his Complaint under seal. In it, he alleged that, among
others, Ralph Lauren, Ruth’s, and Shell employed various methods to avoid
escheat obligations to the State. In his Complaint, French expressly stated that his
qui iam action was not based on allegations or transactions that were the subject of
an ongoing administrative proceeding.]7 The State intervened and his Complaint
was unsealed on March 26, 2014.18
Prior to intervening, the State did not investigate whether or not any of the
defendants in the qui tam action were undergoing administrative proceedings19
15 Ralph Lauren Br. at 3.
l6 Id
17 Pls.’ Compl. 11 9. See also Ralph Lauren Br. 1; Shell Br. 7; Ruth’s Br. 1.
See generally Pls.’ Compl.
19 Mot. Hr’g Tr. 25_27, Mar. 28, 2016 (rhe Court: “Mr. Black, the first question 1 have for
you is why there was no disclosure by the State in its complaint or through an amended
complaint that these proceedings had started much like it did in Pantry? When the State decided
to intervene, it knew this information; right? It knew that the escheator had already sent the
letters?” Mr. Black: “No.” . . . The Court: “So one arm of the State didn’t know what the other
arm of the State was doing?” Mr. Black: “Correct.” The Court: “You represent them; correct?”
Mr. Black: “Yes, sir.” The Court: “And you didn’t know that they had started administrative
proceedings against some of these very defendants?” Mr. Black: “Correct. . . . [The State]
[s]imply intervened based on the information provided to us by the relator, which was pretty
_7_
The State is under a statutory obligation to investigate these claims prior to
intervening and proceeding with a qui ram complaint.20 The State admits it did not
do so.21 If it had, it would have learned that Ralph Lauren, Ruth’s, and Shell were
all undergoing administrative proceedings nearly identical to those Pantry, Inc. was
subjected to, in which the Court previously found necessitated dismissal of that co-
defendant in this very action.22
Ralph Lauren is a Delaware corporation with its principal place of business
in New York City. Ruth’s is a Delaware corporation with its principal place of
business in Winter Park, Florida. And Shell is a Delaware corporation with its
principal place of business in Houston, Texas.
compelling, and based on what we could find in the public record, which was likewise pretty
compelling.”).
20 DEL. CODE ANN. iii 6, § 1203(b)(2) (2012) (“Wiihin 60 days after receiving a eepy efihe
complaint, the Department of Justice shall conduct an investigation of the factual allegations and
legal contentions made in the complaint. The Department of Justice may elect to intervene and
proceed with the action within 60 days after it receives the complaint, the material evidence and
information.”).
21 See supra note 19. The very same counsel for the State backed away from this admission
later. See Mot. Hr’g Tr. at 40-45, Oct. 25, 2016. But not completely. See ia’. at 48-49 (Mr.
Black: “And as l said, all we are talking about in terms of what we missed is one Sentence in one
paragraph in a three-hundred paragraph complaint.”). And it is a fact of note that Kelmar, the
very same firm conducting the audit work at issue here also provides litigation support to the
Delaware Department of Justice’s counsel. See Shell Br. at 9, Ex. 4 (Whitaker Dep. at 47~48,
July 25, 2016). Troubling as this all may be, the Court need not resolve whether the State
violated 6 Del. C. § l203(b)(2), because grants the Defendants relief under 6 Del. C. § 1206(b).
22 See Smie ex rel. French v. Card Compliem, LLC, 2015 WL 11051006, at *8_9 (Dei.
Super. Ct. Nov. 23, 2015).
Defendants have sold countless gift cards. These cards’ holders use them to
purchase Defendants’ services or products If a holder does not use the entire
value of a card, the unused value remains available on the card for later use.
According to the State, five years after the initial issuance of Defendants’ gift
cards, Delaware is entitled to any remaining balance on the gift card under the
DAPL.23
The State alleges that Defendants intentionally failed to report and transfer
the value of the unredeemed gift card balances to Delaware.24 The State claims
they did so by organizing, or contracting with co-defendants who organized, shell
entities in Ohio and Florida to “hold” the value of unredeemed gift cards. Why?
Because those states do not include unredeemed gift card values in their definitions
of abandoned property.25 The State claims Defendants created the relationships
with various shell corporations in those states to issue the gift cards via contracts
with two common central components: (1) a Card Services Agreement, and (2) a
Trademark Licensing Agreement,26 The Card Services Agreement states that a
23 See DEL. CooE ANN. tit. 12, §§ 1157, 1198(9)(3) (2012) (“Aii tangible personal property
or intangible personal property . . . shall be presumed abandoned in this State if the last known
address of the owner of the property is in this State and the property has remained unclaimed for
5 years.”) (“‘Period of dormancy’ means the full and continuous period of 5 years . . . .”).
24 Pls.’ Compl. jj 4.
25 Pls.’ Compl. 11 5.
26 Pls.’ Compl. 11 6.
card servicer is responsible for manufacturing, marketing, and selling the gift
cards, while the Defendants receive and hold money from the gift cards sold but
not yet redeemed The Trademark Licensing Agreement outlines payment between
a card servicer and the Defendants. For the three Defendants here, the card
servicer was co-defendant CardFact, Ltd. (“CardFact”).
A. DELAWARE AUDITS RALPH LAUREN
On February 6, 2013, the State Escheator contacted Ralph Lauren via letter.
In the letter, he informed Ralph Lauren that Delaware was commencing an
examination and audit of Ralph Lauren’s books and records to see if it was
7 This examination included gift
complying with Delaware’s escheat law.2
certificates and gift cards.28 The State’s letter instructed Ralph Lauren to “issue a
litigation hold notice so that all records, including, but not limited to . . . gift
certificate issuances and redemptions, etc. will be retained. . . .”29 The letter also
noted that the audit would be conducted on the State’s behalf by Kelmar.
27 Ralph Lauren Br. at 3, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del.
Dept. of Fin., to Christopher H. Peterson, Senior Vice Pres. & Chief Fin. Officer, Ralph Lauren
Corp. (Feb. 6, 2013)).
28 DEL. CODE ANN. tit. 12, § 1198(11) (2012) (“‘Property’ means personal property,
including. . . gift certificates.”).
29 Ralph Lauren Br. at 4, Ex. l (Letter from Mark Udinski, Dir./St. Escheator, St. of Del.
Dept. of Fin., to Christopher H. Peterson, Senior Vice Pres. & Chief Fin. Officer, Ralph Lauren
Corp. (Feb. 6, 2013)).
_1()_
On March 6, 2013, Kelmar demanded a number of documents from Ralph
Lauren, including anything related to unclaimed property Voluntary Self-
Disclosure Agreements (“VDAS”) between Ralph Lauren and any state.30 Kelmar
regularly collects such information during an audit, as the terms of the VDA may
impact the type and scope of review Kelmar undertakes Ralph Lauren promptly
informed Kelmar that they had completed a VDA with Delaware in 2002. Ralph
Lauren made payments to Delaware pursuant to that VDA for unredeemed,
abandoned gift certificates and merchandise credits between 2003 and 2006.31 No
payments were made in 2006. This is because on December 31, 2006, Ralph
Lauren transferred all liabilities related to existing and prospective gift cards to
CardFact pursuant to a Card Services Agreement.32 Ralph Lauren suggested that
30 Ralph Lauren Br. at 4, Ex. 3 (Letter from Lily Bradow, Kelmar Assocs. LLC, to Tara
Donlin, Ralph Lauren Corp. (Mar. 6, 2013)).
31 Ralph Lauren Br. at 5, Ex. 6 (Memorandum from Ethan Millar, Esquire, Alston & Bird,
LLP, to Kelmar Assocs. LLC (July 19, 2013) (“The Company made a payment of $579,942.00 to
Delaware in July 2002 in settlement of the VDA.”)); Ex. 18 (Memorandum from Ethan Millar,
Esquire, Alston & Bird, LLP, to Kelmar Assocs. LLC (Nov. 13, 2013) (providing additional
information). The VDA released Ralph Lauren and its affiliates from any liability for any
property identified through reporting year 2002 in exchange for (l) a $579,942 settlement
payment, $450,450.71 of which was for gift certificates and merchandise certificates and (2) an
agreement that Ralph Lauren would remit payments to the State for unredeemed gift certificate
and merchandise credit property as it became abandoned and reportable to the extent that Ralph
Lauren was the holder of the property as of the reporting date. Ia’. at Exs. 6 & 18.
32 Ralph Lauren Br. at 6, Ex. 7 (Card Servs. Agmt. Between CardFact, Ltd. & Polo Ralph
Lauren Corp. (Dec. 31, 2006)).
_11_
the gift cards issued by, or assigned to, CardFact under the Agreement should not
be included in the audit.
On August 23, 2013, Kelmar sent an e-mail to Ralph Lauren with an agenda
and binder of materials for an opening conference to be held on August 27, 2013.33
The binder included a section entitled “Basic Abandoned and Unclaimed
Property,” stating that property subject to the escheat laws included “unredeemed
’a34
gift certificates and store credits. The property types discussed during that
opening conference were the same property types listed in the agenda materials;
this included gift cards.35 So, gift cards are a focus of Delaware’s Audit.
Delaware’s Audit of Ralph Lauren is currently ongoing. There has been no
resolution regarding any potential liability to Delaware for outstanding gift card
balances.36
Back on March 26, 2014, Delaware intervened in the current action brought
by French.37 The State alleges that Ralph Lauren’s Card Services Agreement with
33 Ralph Lauren Br. at 6, Ex. 9 (E-mail from Jason Freedman, Kelmar Assocs. LLC, to
Ethan Millar, Esquire, Alston & Bird, LLP, Robert Alexander, Jonathan Shiffman & Michelle
Meisenbach, Ralph Lauren Corp., Loredana Pfannenbecker, Sarah Massey & Matthew LeFurge,
PricewaterhouseCoopers, LLP (Aug. 23, 2013)).
34 Ralph Lauren Br. at 7, Ex. 4 (Attachment Tab C to Letter from Mark Udinski, Dir./St.
Escheator, St. of Del. Dept. of Fin., to Christopher H. Peterson, Senior Vice Pres. & Chief Fin.
Officer, Ralph Lauren Corp. (Feb. 6, 2013)).
35 Ralph Lauren Br. at 7, Ex. 12 (Freedrnon Dep. at 90_91, Jniy 29, 2013).
36 Ralph Lauren Br. at 7, Ex. 12 (Freedman Dep. at 97).
_12_
CardFact is an artifice through which the parties intended “to hide . . . revenue
from the State by creating sham contracts portraying themselves as the ‘holders’ of
unredeemed gift cards in exchange for an annual fee from the [Defendants].”38
Upon intervening, the State ordered Kelmar to suspend the Audit as to gift cards.39
This Motion to Dismiss followed on August 25, 2016.
B. RUTH’S VoLUNTARY DISCLoSURE AGREEMENT
On December 26, 2005, Ruth’s entered into a Card Services Agreement with
CardFact.40 The Agreement named CardFact “the holder of any unclaimed
property with respect to any now existing Cards or Cards issued [after 2001].”41
In 2009, Louisiana conducted an unclaimed property audit of Ruth’s. It
intended to resolve unclaimed property issues associated with “(1) any unredeemed
gift cards with no known customer address issued by any [Ruth’s] Company that
was incorporated in Louisiana and (2) any unredeemed gift cards issued to
37 St.’s Mot. to Intervene.
38 Pls.’ Compl. jj 5.
39 Mot. Hr’g Tr. at 37_39, oot. 25, 2016. See also Ralph Lauren Br. at 10, Ex. 21 (E-nraii
from Aurianna Lopatka, Managing Director, Kelmar Assocs. LLC, to various Kelmar Employees
(May 27, 2014) (“Delaware has instructed us to take no further action on any [gift card]
component . . .”).
40 Ruth’s Br. at 4, Ex. C (Card Servs. Agmt. Between CardFact, Ltd. & Ruth’s Chris Steak
House (Dec. 26, 2005) [hereinafter “Ruth’s CardFact Agmt.”]).
41 Ruth’s Br. at 5, Ex. C. (Ruth’s CardFact Agmt.).
_13_
customers located in Louisiana.”42 Ruth’s disclosed the December 2005 CardFact
agreement to Louisiana. Louisiana did not require Ruth’s to report or remit any
unclaimed property to Louisiana from the time period after entering into the
CardFact agreement, but did require it to report anything prior to that.
The Louisiana audit ended in a Uniform Release Agreement between
Louisiana and Ruth’s, whereby Ruth’s reported and remitted all qualifying
property from before 2001 to Louisiana. Louisiana then released Ruth’s from any
further 1ittbiiity.43
In November 2010, Ruth’s retained PricewaterhouseCoopers, LLC (“PwC”)
to assess any potential outstanding unclaimed property obligations in other states.44
At PwC’s advice, Ruth’s entered into the Delaware Voluntary Disclosure
Agreement (“VDA”) program on December 21, 2012.45 Under 12 Del. C. § 1177,
this VDA program authorizes Delaware “to resolve and compromise claims for
abandoned property otherwise owing to the State Escheator.”46
42 Ruth’s Br. at 5_6 (Popni Aff. 11 5, Aug. 26, 2016).
43 Ruth’s Br. at 7, Ex. 4 (Uniform Release Agmt. Between the St. of La. and Ruth’s
Hospitality Grp., Dec. 31, 2012).
44 Ruth’s Br. ot 5 (Popai Aff. ii 4, Aug. 26, 2016).
45 Ruth’s Br. at 7_8 (Popoi Aff. ij 5, Aug. 26, 2016); Ruth’s Br. at 7-8 (Rnth’s Ans. Ex. A
(Ruth’s VDA)).
46 DEL. CODE ANN. tit. 12, § 1177(a) (2012).
_14_
On January 7, 2013, Delaware authorized the required documentation
allowing Ruth’s entry into the VDA program.47 The document reflected
Delaware’s intent to examine Ruth’s books and records to find “all abandoned
property related to all transactions years beginning January 1, 1996 . . . to
present.”48 Gift certificates and cards were expressly included.49
On March 28, 2013, Ruth’s submitted a VDA memorandum to Delaware
outlining its gift card program. The memorandum explained the CardFact
Agreement and included a copy of the Agreement, lt stated that there were no
unredeemed gift cards sold by Ruth’s that were escheatable to the State due to the
Agreement,50 The State agreed with this conclusion. On May 14, 2013, a VDA
Administrator stated that the “analysis was sound” and “we agree that the gift card
liability, if any, for gift cards ‘sold’ by [Ruth’s] . . . appears to rest with CardFact
0r its successor in interest . . , not [Ruth’s].”51
47 Ruth’s Br. at 8 (Ruth’s Ans. Ex. A (Ruth’s VDA)).
48 Ruth’s Br. at 8 (Ruth’s Ans. Ex. A (Ruth’s VDA)).
49 Ruth’s Br. at 8_9, (Ruth’s Ans. Ex. A (Ruth’s VDA)); Ex. 5 (lntroductory Meeting
Requests from Del. Sec. of St. VDA Program); Popal Aff. 11 9, Aug. 26, 2016 (“[Ruth’s] and its
affiliates included gift cards within in the scope of Delaware’s voluntary disclosure program.”)).
50 Ruth’s Br. at 9~10, Ex. 3 (Memorandum from Ethan Millar, Esquire, Alston & Bird,
LLP, to Geoffrey Sawyer, Esquire, Drinker, Biddle & Reath, LLP (Mar. 27, 2013)).
51 Ruth’s Br. at 10 (citing Ruth’s Ans. Ex. D) (E-mail from Geoffrey Sawyer, Esquire,
Drinker, Biddle & Reath, LLP, to Ethan Millar, Esquire, Alston & Bird, LLP (May 14, 2013)
(emphasis added)).
_15_
On March 28, 2014, the State intervened in the instant action. The State
alleges that Ruth’s knowingly avoided escheat obligations related to gift cards and
that the CardFact agreement is a “sham.”52 After intervening, the State directed its
examiners to take no further action in any audits involving the Defendants.53 The
State believed that the same applied to any VDA proceedings54
Yet one month after the State intervened here, its VDA administrators
requested additional information regarding the CardFact Agreement and structure
along with Ruth’s gift card program. They claimed it was to expedite the VDA
process for Ruth’s. Ruth’s provided the requested information to the State. Yet
there has been no resolution regarding Ruth’s potential liability for gift card
balances under the VDA. Ruth’s has neither withdrawn from the VDA program
nor obtained a release from the State for any unclaimed property included in the
VDA.55 The VDA proceedings are suspended during the pendency of the instant
litigation.56
52 Pls.’ Compl.11 5.
55 Mot. Hr’g Tr. at 37_39, oot. 25, 2016.
54 Whitaker Dep. at 97, July 25, 2017 (testifying as the State’s designated witness that she
believed VDAs were included in this suspension).
55 Ruth’s Br. at 13_14 (Popai Aff. 11 11, Aug. 26, 2016).
56 Ruth’s Br. at ll, Ex. 7 (E-mail from Aurianna Lopatka, Managing Director, Kelmar
Assocs. LLC, to various Kelmar employees (May 27, 2014) (suspending any gift card activity));
Ex. 8 (Whitaker Dep. at 97).
_16_
C. DELAWARE AUDITS SHELL
In June 2008, the State began an Audit of Shell to determine if it was in
compliance with Delaware’s escheat laws and to see if it was the holder of any
unclaimed property.57 The Audit was to “relate to all property subject to escheat,”
including gift cards and gift certificates58 Kelmar conducted the Audit on
Delaware’s behalf, just as it did with Ralph Lauren.59
On September 16, 2011, Delaware began requesting specific documents and
information related to Shell’s gift card program and its work with CardFact.60
Shell identified CardF act as the operator of its gift card program and provided
Kelmar with its Card Services Agreement.61
57 Shell Br. at 3, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del. Dep’t of
Fin., to Peter R. Voser, Chief Fin. Officer, Royal Dutch Shell PLC (June 19, 2008), Ex. 3
(Hibbard Dep. at 26, July 27, 2016).
58 Shell Br. at 3, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del. Dep’t of
Fin., to Peter R. Voser, Chief Fin. Officer, Royal Dutch Shell PLC (June 19, 2008) (“The
examination will relate to all property subject to escheat pursuant to Subchapter IV, Title 12,
Delaware Code.”)); Ex. 2 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del. Dep’t of
Fin., to R.J. Braud, Vice President Fin. & Controller, Shell Oil Co. 1 (Sept. 16, 2008) (same));
Ex. 3 (Hibbard Dep. at 56_57).
59 Shell Br. at 3-4, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del. Dep’t of
Fin., to Peter R. Voser, Chief Fin. Officer, Royal Dutch Shell PLC (June 19, 2008) (“The review
will be conducted by Kelmar Associates on behalf of the State of Delaware . . . .”); Ex. 2 (Letter
from Mark Udinski, Director/State Escheator, St. of Del. Dep’t of Finance, to R.J. Braud, Vice
President Fin. & Controller, Shell Oil Co. l (Sept. 16, 2008) (same)).
50 shell Br. at 4, Ex. 3 (Hibbard Dep. at 70_71); Ex. 5 (Noite Dep. at 3940, Jniy 21, 2016).
61 Shell Br. at 4-5, Ex. 7 (Letter from Anthony Nolte, Controller, Shell Oil Co., to Shawn
Hibbard, Kelmar Assocs. (Nov. 30, 2011)); Ex. 3 (Hibbard Dep. at 78-80).
_17_
Mid-2012, Kelmar inquired as to whether Shell entered into any agreements
that “transferred any gift card revenue, expense, asset, or liability to any other
related or unrelated entity” and how gift card related entries appeared in Shell’s
books.62 Shell informed Kelmar that all of that information was contained in the
CardFact Agreement that it already provided. In March 2013, Shell identified for
the State that CardFact was the “Card Owner/Issuer” and again explained the
structure of its CardFact Agreement,63 Shell also provided the number and value
of gift cards activated and data for those gift cards with remaining balances.64
In November 2013, Kelmar requested detailed transactional level data from
Shell. Shell told Kelmar that it could not provide that data because it did not
maintain such records.65 But it said that CardFact would have all such records
62 Shell Br. at 5, Ex. 8 (Letter from Anthony Nolte, Controller, Shell Oil Co., to Shawn
Hibbard, Kelmar Assocs. LLC 3 (May 18, 2012) (“Indicate whether any agreements have been
entered into which results in the transfer of any gift certificate/card revenue, expense, asset, or
liability to any other related or unrelated entity, and if so, provide any such agreement.”)).
63 Shell Br. at 5, Ex. 9 (Letter from Anthony Nolte, Controller, Shell Oil. Co., to Kevin
Bruno, Kelmar Assocs. LLC (Mar. 31, 2013)).
64 Shell Br. at 6, Ex. 9 (Letter from Anthony Nolte, Controller, Shell Oil. Co., to Kevin
Bruno, Kelmar Assocs. LLC 4-5 (Mar. 31, 2013)); Ex. 3 (Hibbard Dep. at 94_101).
65 Shell Br. at 6, Ex. 10 (Letter from Anthony Nolte, Controller, Shell Oil Co., to Shawn
Hibbard, Kelmar Assocs. LLC (Nov. 8, 2013)); Ex. 3 (Hibbard Dep. at 103-106).
_18_
because it was the “sole obligor of all gift cards that were either sold or had a last
activity date after January 1, 2002.”66
While the Delaware Audit was ongoing, French filed his Complaint, and
Delaware intervened. On June 2, 2014, Kelmar informed Shell that the State
instructed it to suspend the gift card portion of the Delaware Audit during the
pendency of this litigation.67 Regardless of the suspension, Shell is still required to
retain all records pertaining to gift cards.68
III. sTANDARD oF REvIEw69
Pursuant to Delaware Superior Court Civil Rule 12(b)(1), the Court must
dismiss an action for lack of subject matter jurisdiction if it appears from the
record that the Court does not have jurisdiction over the claims.m “The burden of
establishing the Court’s subject matter jurisdiction rests with the party seeking the
66 Shell Br. at 6, Ex. 10 (Letter from Anthony Nolte, Controller, Shell Oil Co., to Shawn
Hibbard, Kelmar Assocs. 2 (Nov. 8, 2013)); Ex. 3 (Hibbard Dep. at 106).
67 Shell Br. at 8, Ex. 12 (E-mail from Shawn Hibbard, Kelmar Assocs., to Anthony Nolte,
Controller, Shell Oil Co. (June 2, 2014) (“Delaware has instructed Kelmar not to proceed with
the gift card portion of the examination at this time.”)).
68 Shell Br. at 9, Ex. 3 (Hibbard Dep. at 61).
69 Because the Court resolves this motion under Del. Super. Ct. Civ. R. 12, the Court need
not recite the standard of review for summary judgment under Rule 56(c).
70 Del. Super. Ct. Civ. R. 12(b)(1); Del. Super. Ct. Civ. R. 12(h)(3); Airbase Carpet Mart,
Inc. v. AYA Assocs., Inc., 2015 WL 9032894, at *2 (Del. Super. Ct. Dec. 15, 2015, ajf’cl 2016
WL 4938890 (Del. Sept. 16, 2016).
_19_
Court’s intervention.”71 “When reviewing a claim for lack of subject matter
jurisdiction, the Court ‘need not accept Plaintiffs factual allegations as true and is
free to consider facts not alleged in the complaint.”’72
IV. DISCUSSION
Defendants argue that the DFCRA’s Administrative Proceedings Bar
precludes the Court from exercising subject matter jurisdiction over the State’s
claims here, The State argues that its claims are not barred under the
Administrative Proceedings Bar because the Defendants have not been the subject
of any prior or ongoing “administrative proceeding.”
Defendants are correct; the Court does not have subject matter jurisdiction
over the State’s claims in this action due to the Administrative Proceedings Bar,
A. DFCRA’s AI)MINISTRATIVE PROCEEI)INGS BAR
The Superior Court has jurisdiction over all violations of the DFRCA.73
However, DFCRA § 1206(b) states that “[i]n no event may a party bring an action
under this chapter which is substantially based upon allegations or transactions
7' Ropp v. King, 2007 WL 2198771, at *2 (Del. Ch. Jniy 25, 2007).
72 Ramunno & Ramunno, P.A. v. Potter, 2016 WL 2982367, at *2 (Del. Super. Ct. May 11,
2016) (citing Appriva Shareholcler Litigation Co., LLC v. EV3, lnc., 937 A.2d 1275, 1285 n.14
(De12007».
75 DEL. CoDE ANN. tit. 6 § 1201(e) (2012).
_2()_
which are the subject of a civil suit or an administrative proceeding in which the
Government is already a party.”74
So Section 1206(b) carves from the Court’s jurisdiction any action brought
by any party if it is substantially based on allegations or transactions that are the
subject of an administrative proceeding in which the State is already a party.
Where “the Court lacks jurisdiction of the subject matter, the Court shall dismiss
the action.”75 In turn, this subject matter jurisdiction issue is a threshold one that
must be determined before the case against these three Defendants may proceed
further.76
At issue here are DFCRA § 1206(b)’s two requirements for its application to
bar litigation: first, whether there are prior or ongoing administrative proceedings
against the Defendants in which the State was a party; and, second, whether the
74 DEL. CODE ANN. tit. 6, § 1206(b) (2012). Again, § 1206(b) has been amended since this
suit was first filed. See 79 Del. Laws ch. 141, § 1 (2013) (codified at 6 Del. C. § 1206 (2013)).
But as this was the wording of the Administrative Proceedings Bar extant from June 30, 2000 to
July 23, 2013, all parties agree it is this version that applies in this case.
75 snper. Ct. Civ. R. 12(h)(3).
76 lndeed, Section 1206(b) is jurisdictional. See, e.g., Costner v. URS Consultants, Inc., 153
F.3d 667, 675-76 (8th Cir. 1998) (discussing analogue administrative proceedings bar in the
Federal False Claims Act and describing it as a “jurisdictional bar”); United States ex rel. S.
Prawer & Co v. Fleet Bank of Maine, 24 F.3d 320, 326-29 (lst Cir. 1994) (resolving “the
jurisdictional question” raised by invocation of the Federal False Claims Act’s administrative
proceedings bar); Total Assel Recovery Servs., LLC v. Metlife, 2013 WL 4586450, at *1 n.l (Fla.
Cir. Ct. Aug. 20, 2013) (noting that the administrative proceedings bar in Florida’s False Claims
Act “is jurisdictional”). See also Sierra Club v. Del. Dep’t of Nat. Res.& Envtl. Control, 2015
WL 1548851, at *6 (Del. Super. Ct. Mar. 31, 2015), ajj"a' 2015 WL 6747438 (Del. Nov. 5, 2015)
(“The question of subject matter jurisdiction is a threshold question.”).
_21_
DFCRA claims are substantially based upon transactions or allegations that are or
were the subject of the prior or ongoing administrative proceedings Accordingly,
for the bar to apply here, this Court must find: (1) that the Audits and the VDA are
administrative proceedings; and, (2) that the subject matter of the Audits and the
VDA are the same as the instant litigation. The Court has been here before in this
CaS€.
B. APPLICATION oF THE ADMINISTRATIVE PROCEEDING BAR To PANTRY,
INC.’s DISMISSAL AND PRIoR AUDIT ACTIONS
In 2015, when a different judge was assigned, this Court applied 6 Del. C.
§ 1206(b) and dismissed Pantry, Inc. from this suit.77 Pantry, Inc. had moved to
dismiss, arguing Delaware’s Audit of it to determine escheatable property was an
administrative proceeding Delaware audited Pantry, Inc. and determined that
defendant’s obligations prior to May 2011.78 The State responded, arguing “that
there was no administrative proceeding because the parties never ended-up in the
Court of Chancery,” and “even if there was, § 1206(b) only bars the transactions
Kelmar [on behalf of Delaware] examined during its audit.”79
77 store er rel. French v. Card Complinnt, LLC, 2015 WL 11051006, at *8_9 (Del. super
Ct. Nov. 23, 2015).
75 lot
79 Id._22_
The judge observed that § 1206(b) “bars not only ‘transactions,’ but also
))80
‘allegations’ that were the subject of [Delaware’s] [A]udit. Because the
Complaint and Delaware’s Audit were substantially based upon the same
allegations or transactions, he found that the questioned property _ unredeemed
gift card values - cannot be the subject of the State’s suit here.81
The Court’s analysis then must inform the Court’s interpretation of the
Administrative Proceedings Bar now.82 This is because “[a] successor judge
overruling a decision of a predecessor judge of the same Court is strongly
disfavored.”83 “Such a situation is guided by the doctrine of the law of the case so
80 Id
51 1a
82 And this is so even though Pantry, Inc.’s Audit had been completed. Ia’. The clear
language of the 2012 Administrative Proceedings Bar provides that a civil action is barred by “an
administrative proceeding in which the Government is already a party.” DEL. CODE ANN. tit. 6,
§ 1206(b) (2012) (emphasis added). The use of the present tense phrasing “is already” without
question connotes that the bar is triggered by ongoing, unresolved administrative proceedings in
which Delaware is a party.
83 New Castle Cty. v. Pike Creek Rec. Servs., LLC, 82 A.3d 731, 744 (Del. Ch. Dec. 30,
2013) (citing Frank G. W. v. Carol M W., 457 A.2d 715, 718 (Del. 1983) (“[W]e want to
emphasize that we take a dim view of a successor judge in a single case overruling a decision of
his predecessor.”)). lt is well-settled that once a decision is rendered by the same court that
decision should stand. May v. Bigmar, Inc. 838 A.2d 285, n.8 (Del. Ch. 2003) (“The ‘law of the
case’ doctrine requires that issues already decided by the same court should be adopted without
relitigation, and once a matter has been addressed in a procedurally appropriate way by a court, it
is generally held to be the law of that case and will not be disturbed by that court unless
compelling reason to do so appears.” (citation omitted) (internal quotation marks omitted)).
_23_
as to promote ‘fundamental fairness and . . . judicial efficiency.”’84 “This is to
ensure that, especially where the case is taken on by a successor judge, the parties
are not ‘entrapped by varying philosophies of different judges of the same Court in
the case.”’85 Yet unlike res judicata, the “law of the case doctrine is not inflexible
. it is not an absolute bar to reconsideration of a prior decision that is clearly
wrong, produces an injustice or should be revisited because of changed
circumstances.”86 But here there is nothing to suggest either a change in
circumstances or that injustice would ensue by applying the prior law of the case.
To the contrary, nothing has been suggested by the State that convinces the Court it
should abandon the general law-of-the-case principle: it should be applied “in all
instances except in those extraordinary circumstances where justice demands
revisiting the merits of the parties’ claims.”87 The Court finds no such
extraordinary circumstances exist.
54 Pike Creek Rec. servs., LLC, 82 A.3d, at 744-45 (quoting Zirn v. VLI Corp., 1994 wL
548938, at *2 (Del. Ch. Sept. 23, 1994)). This is especially true in Delaware where often more
than one judge will preside over an individual case during its pendency. Frank G. W., 457 A.2d
at 719 (“Considerations of courtesy and comity are particularly relevant in Delaware where it is
not unusual for our Superior Court to have various judges involved at different stages of
protracted cases.”).
85 Pike Creek Rec. Servs., LLC, 82 A.3d, at 745 (quoting Frank G. W., 457 A.2d at 719).
86 Gannett Co., Inc. v. Kanaga, 750 A.2d 1174, 1181 (Del. 2000) (emphasis in original).
87 Pike Creek Rec. Servs., LLC, 82 A.3d, at 745; Frank G.W., 457 A.2d at 719 (noting
exceptions to the general rule of restraint a successor judge follows in adhering to a prior ruling
“should be entertained only in extraordinary circumstances”).
_24_
C. WHAT’S AN “ADMINISTRATIVE PROCEEDING” WITH THE STATE “ALREADY
A PARTY” UNDER DELAWARE’s 2012 VERSIoN oF THE ADMlNISTRATIvE
PROCEEDINGS BAR?
The DFCRA does not define the term “administrative proceeding.” So the
Court must determine what was meant to bar DFCRA claims under § 1206(b). At
issue here are two Delaware-directed Audits and one VDA.
1. Delaware’s Abandoned or Unclaimed Property Audit Process
Twelve Del. C. § 1155 begins the Abandoned or Unclaimed Property Audit
process by allowing the State to gather information from a person (or organization)
who may be holding abandoned or unclaimed property “to determine whether the
person [or organization] has complied wit ” the provisions of the DUPL.88 Once
this process is complete, the Audit Manager provides a Report with the Audit’s
findings89 If Delaware decides that the information gathered by the Audit
Manager shows “that a holder has underreported abandoned or unclaimed property
due and owing,” the Auditor mails a statement of findings and requests payment
from the holder.90 After the holder receives the statement of findings and payment
request, it has 60 days to file a protest.91 The holder can submit additional
88 DEL. CODE ANN. tit. 12, § 1155(a) (2012). This provision has since been amended and
re-designated as 12 Del. C. § 1178. See 81 Del. Laws ch. 1, § 2 (2017) (codified at 12 Del. C.
§ 1178). The Court cites to those provisions in effect at the time this action was brought.
89 Whitaker Aff. at 11 9, Sept. 22, 2016; Gizzi Aff. at 11 8, Sept. 22, 2016.
99 DEL. CODE ANN. tit. 12, § 1156(n) (2010).
_25_
documentation if needed, but no later than 30 days after the protest.92 The Audit
Manager then makes a written determination on any protest within 60 days if no
additional information is filed and within 90 days if additional information is
filed.93 If the holder is not satisfied with that determination, it may appeal to the
Secretary of Finance, who will appoint an independent reviewer to the appeal of
4
the Audit Manager’s findings9 Either party may then appeal to the Court of
Chancery.95
2. Delaware’s Abandoned Property VDA Process
Twelve Del. C. § 1177 controls the Delaware Abandoned Property VDA
process96 The statute allows the Secretary of State to “resolve and compromise
claims for abandoned property otherwise owing to the State Escheator” via a
voluntary disclosure agreement process97 When doing so, the Secretary has
9' 1a § 1156(b).
99 1a § 1156(d).
95 Io'. § 115o(e).
94 lot § 1156(g).
95 lot § 1156@).
96 Ia’. § 1177. This provision has since been amended and redesignated as 12 Del. C. §
1173. See 81 Del. Laws ch. 1, § 2 (2017) (codified at 12 Del. C. § 1173). Again, this Court cites
to those provisions in effect as the time this action was brought.
97 DEL. CODE ANN. tit. 12, § 1177 (2013).
_26_
“full and complete authority to determine and resolve all such claims”98 And “any
unclaimed property disclosure agreement accepted by the Secretary of State shall
be deemed as waiving the right of [the State] to seek payment of any amounts of
property pursuant to [the audit provisions]” unless there is fraud or willful
misrepresentation by the party making the disclosure99 If the Secretary is unable
to resolve the claims, he may refer the resolution to the State Escheator at any
time.100 Thus, once the party enters into a VDA with the State, it remains engaged
in the process until a resolution is reached by either the Secretary of State or the
State Escheator.
A holder of abandoned property, as a disclosing party, initiates Delaware’s
VDA process by filing with the Secretary of State a Disclosure and Notice of
Intent to Voluntarily Comply with Delaware’s Abandoned Property Law.10l
Within about 30 days, the State’s VDA Administrator “returns a countersigned
95 lot § 1177.
99 ld. § 1177(3).
100 Id
101 .
See How it Works, DELAWARE.GOV: ABANDONED oR UNCLAIMED PROPERTY VDA
PROGRAl\/l, http://vda.delaware.gov/steps-to-vda/ (last visited Apr. 19, 2017).
_27_
[confidentiality and non-disclosure agreement],” follows-up the discloser’s prior
submissions and “prompts [the discloser] on expectations for [the] next phase.”102
Within 90 days of entering the initial document, the disclosing party self-
reviews documents and must present those review findings to the VDA
Administrator.103 The disclosing party is obliged to perform “a detailed,
transaction-level review of the available records” and “check-in with [the VDA]
Administrator on the methods used and/or all assumptions made during this
process.”104 The discloser must then present the VDA Administrator with a final
report, which the VDA Administrator reviews and follows up as needed.105 During
this process, the State’s VDA Administrator confirms and tests the disclosing
party’s conclusions Delaware and the disclosing party then execute a final report
and summary schedule and Delaware generates a demand letter to prompt the
voluntary discloser to remit payment.106 This discharges the disclosing party from
all obligations arising from the years included in the VDA.
102 Id
103 Id
104 lay
105 lai
106 Id
_28_
3. Both the Delaware Audits and VDAS Defendants Have Endured
Here are Administrative Proceedings Under the Then-Extant
§ 1206(b)
“When there is a dispute over the meaning or effect of a statutory provision,
,,lO7
a Court conducts a search for legislative intent. ln seeking such intent,
“Delaware courts utilize the plain meaning rule.”108 Because there is no specific
definition of an “administrative proceeding” in the statute, the Court looks to
09
ordinary sources to define the term.l Black’s Law Dictionary says an
“administrative proceeding” is “[a] hearing, inquiry, investigation, or trial before
an administrative agency, usually adjudicatory in nature but sometimes quasi-
legislative.”l 10
For sure, each process at issue here - a § 1155 Audit and a § 1177 VDA _ is
an “inquiry” or “investigation” directed by an administrative agency of the State.
Both have compulsory aspects Both are invasive and time-consuming And in
both the State ‘inquires’ into and ‘investigates’ the target’s books and records
'97 state v. Caphos, 637 A.2d 20, 23 (Del. 1994) (internai citations omitted).
195 rn re Adoption ofswonson, 623 A.2d 1095, 1096-97 (Del. 1993).
109 See Cephas v. State, 911 A.2d 799, 801 (Del. 2006) (“Under well-settled case law,
Delaware courts look to dictionaries for assistance in determining the plain meaning of terms
which are not defined [in a statute].”) (internal citations and quotations omitted).
110 Black’s Law Dictionary (10th ed. 2014).
_29_
The federal analogue to the DFCRA is informative when deriving the proper
definition of “administrative proceeding” under our statute.1ll Thirty-one U.S.C.
§ 3130(e)(3) states that “[i]n no event may a person bring an action under [the
Federal False Claims Act] which is based upon allegations or transactions which
are the subject of a civil suit or administrative civil money penalty proceeding in
which the Government is already a party.”1 12 This language is nearly identical the
DFCRA’s113 The federal statute was enacted “to continue the prohibition against
strictly parasitic lawsuits.”114 lt was a “congressional effort[] to walk a fine line
between encouraging whistle blowing and discouraging opportunistic behavior. . . .
[The Court] must [reject] suits which the government is capable of pursing itself,
while promoting those which the government is not equipped to bring on its
1
OWn.” 15
111 State ex rel. French, 2015 WL 11051006, at *6 (“Delaware authority interpreting the
DFCRA is scant. Since the DFCRA is modeled after the federal False Claims Act, the court will
look to federal case law for guidance.”) (internal citations omitted). See also State ex rel.
Higgins v. SourceGas, LLC, 2012 WL 1721783, at *4 (Del. Super. Ct. May 15, 2012); State
Dep’t of Labor - Div. of Unernp’t Ins. v. Pasquale, 2015 WL 5461540, at *3 (Del. Super. Ct.
Sept 17,2015)
"9 31 U.s.C. § 3730(e)(3) (2010).
"5 Compore id., with DEL. CODE ANN. tit. 6, § 1206(b) (2009).
“4 s. Prawer & Co., 24 F.3d, at 326.
"5 Unirati stores er ral. springnald Tarmi'nol Ry. Co. n Qntnn, 14 F.3d 645, 651 (D.C. Cir.
1994).
_3()_
Neither the federal nor the Delaware statutes expressly define what an
“administrative proceeding” is, for the purposes of barring litigation. Nor is
Delaware or federal law expressly helpful in doing so. But Florida has an
administrative proceedings bar in its false claims statutory scheme that almost
mirrors both the federal and Delaware laws.116 There, a circuit court found that
Florida’s Department of Financial Services’ institution of an audit to determine
compliance with unclaimed property obligations constituted an administrative
proceeding for purposes of barring qui tam litigation.117
Applying the holding of the prior judge in this matter, the federal courts’
observations regarding the bases for the federal bar, and Florida’s helpful
guidance, the Court finds an “administrative proceeding” exists _ for the purposes
of the 2012 version of § 1206’s Administrative Proceedings Bar _- if there is an
undertaking of a compulsory nature engaged by Delaware state agency actors to
inquire about, investigate, and resolve a particular state law compliance issue.
116 See FLA. STAT. § 68.087(2) (2009) (“In no event may a person bring an action under
§ 68.083(2) [Florida’s False Claims Act] based upon allegations or transactions that are the
subject of a civil action or an administrative proceeding in which the state is already a party.”).
‘17 saa Totol Asset Raeovary servs., LLC v. Metlifa, Ino., 2013 WL 4586450, at * 1 (Fla. Cir.
Ct. Aug. 20, 2013) (“Because [the plaintiffs’] complaint is based entirely upon transactions and
allegations that the State has already resolved in administrative proceedings [the audit] and does
nothing to further [Florida’s False Claims Act], this Court lacks jurisdiction . . . .”).
_31_
D. Is THIS SUIT “BASED UPoN” SIMILAR “TRANSACTIONS” UNDER THE 2012
VERSION oF THE ADMINISTRATIVE PROCEEDINGS BAR?
Six Del. C. § 1206(b) states that “[i]n no event may a party bring an action
under [the DFCRA] which is substantially based upon allegations or transactions
which are the subject of a civil suit or an administrative proceeding in which the
Government is already a party.”118 Just as interpretation of the DFCRA’s federal
analogue informed the Court’s understanding of the meaning of “administrative
proceeding,” federal law can aid the Court in interpreting the phrase “based upon”
as it appears in § 1206(b). lf the facts and circumstances (i.e., transactions) giving
rise to the instant suit are substantially based upon those subject to inquiry or
investigation during an ongoing or completed administrative proceeding, then the
suit cannot move forward. There is no doubt that the audit processes initiated by
Kelmar at the request of the State, and the VDA initiated by Ruth’s, involve
transactions that are the same as those set forth in the Complaint.
Case law interpreting the federal statute is again helpful. The federal statute
seeks to avoid “parasitic” lawsuits based upon “allegations or transactions which
are the subject of’ a government suit or civil administrative action already
119 t¢
undertaken. [A] court should first look to whether the two cases can properly
115 DEL. Coon ANN. tit. 6, § 1206(b) (2009).
119 s. Prawer & Co., 24 F.3d at 327 (oiting Qttinn, 14 F.3d at 651); 31 U.s.C. § 3730(e)(3)
(2010).
_32_
be viewed as having the qualities of a host/parasite relationship . . . .[by asking]
whether the qui tam action is receiving ‘support, advantage, or the like’ from the
‘host’ case (in which the government is a party) ‘without giving any useful or
proper return to the government. . . .”’120 A qui tam action has the potential for
“useful or proper return” to the government if “(1) it seeks recovery from the
alleged defrauders of the government for fraud that has not yet been the subject of
a claim by the government; and (2) it has the potential to restore money to the
public fisc that would not and could not have been restored [otherwise].”121
At bottom, if the government has made the same claims or seeks the same
relief in a separate proceeding, it may not be involved in a qui tam Suit with the
same underlying purpose. This suit and the administrative actions seek to recover
escheatable property (money) that the State believes the Defendants may owe.
This civil suit would not restore any money to Delaware that would not be restored
via the proper completion of the ongoing Audits and VDA. And so, the
Administrative Proceedings Bar applies here.
The Florida audit case again provides a helpful example of such an
application. ln that case, the plaintiff-relator brought claims for an alleged failure
120 Id. at 327~28 (internal citations omitted).
121 ld. at 329 (emphasis added).
_33_
to escheat death benefits under Florida’s unclaimed property laws122 Prior to the
lawsuit, Florida instituted an audit of the defendant to see if it did indeed fail to
escheat life insurance proceeds The Florida court found that the subject matter in
the two actions were essentially identical because the transactions (or alleged lack
of transactions with the state) were at issue.123 So too here.
Lastly, the dictionary definition of “transactions” _ “[s]omething performed
or carried out; a business agreement or exchange” _ supports a finding that this
suit is “substantially based upon” the same matters that are the subject of
124 Here, the gift card commerce controlled by
Delaware’s administrative actions
the Agreements between the Defendants and CardFact are the subject of both the
Audits/VDA and the instant litigation.
The bases of the Delaware Audits and VDA are potential escheatable
property stemming from dormant gift card balances that Defendants supposedly
owe Delaware. The basis of the instant litigation is the same _ that is, dormant
gift card balances The State sought through administrative action to recover _ by
compulsion or by the target’s agreement _ that specific potentially escheatable
property. The State through suit alleges that Defendants entered into the
199 sea TototAssar, 2013 WL 4586450, at *1.
123 Id
124 Black’s Law Dictionary (10th ed. 2014).
_34_
Agreements with CardFact to prevent the dormant balances from escheating to
Delaware and seeks recovery of those allegedly due balances, and a good deal
more.125 As such, this suit and the Audits and VDA are “substantially based upon”
the same “allegations or transactions.” A quick comparison of the specifics of
each Defendant’s circumstances makes this clear.
1. Ralph Lauren
ln this civil suit, the State argues Ralph Lauren failed to escheat dormant gift
card balances to Delaware. The State claims that “[b]ased on Relator’s experience
in the gift card industry and his knowledge of [Ralph Lauren’s] gift card
operations, Relator estimates that, in fact, [Ralph Lauren] presently holds $20
million to $30 million in unredeemed gift cards that are ‘abandoned or unclaimed
property’. . . .”126 Documentation relating to this claim is exactly that previously
demanded by Delaware for the Audit. The State demanded information on “all
property subject to escheat,” including anything related to Ralph Lauren’s gift
cards The notification of Delaware’s Audit required Ralph Lauren place a
litigation hold on all books and records including “gift certificate issuances and
125 Pls.’ Compl. 11 60 & Part Vlll (Prayer for Relief).
195 Pis.’Conipi.1127.
_35_
redemptions.”127 And the notification further required Ralph Lauren to “mak[e]
necessary records available for past and present years for the purpose of
determining [Ralph Lauren]’s compliance with Subchapter lV, Title 12, Delaware
Code.”128 Delaware’s Audit was initiated for the purpose of administratively
determining compliance with the specific law that the State now, in this suit,
alleges Ralph Lauren violated.
Due to the identical nature of the underlying subject matter, Ralph Lauren
meets the requirements of the 2012 Administrative Procedures Bar.
2. Ruth’s
The State alleges in this suit that Ruth’s failed to escheat dormant gift card
balances to Delaware. Prior to initiation of the suit, Ruth’s entered into a VDA
with Delaware to resolve any claims that Delaware may have had for unclaimed
property owed to it. Ruth’s says that the subject matter of the VDA with Delaware
is the same as that of the instant suit. The Court agrees
When Ruth’s entered into the VDA with Delaware, both parties intended
that Delaware would examine Ruth’s books and records to identify “all abandoned
property related to all transaction years beginning January 1, 1996 . . . to the
127 Ralph Lauren Br. at 4, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del.
Dept. of Fin., to Christopher Peterson, Senior Vice Pres. & Chief Fin. Officer, Ralph Lauren
Corp. (Feb. 6, 2013)).
128 Id
_36_
present.”129 The VDA did not exclude any types of unclaimed property. ln fact,
the VDA expressly included gift cards as property types to be examined130
Here, the State alleges that Ruth’s “presently holds almost $50 million in
unredeemed gift cards. Approximately $30 million of that amount is ‘abandoned
or unclaimed property’ that [Ruth’s] should have already reported and transferred
to Delaware.”131 ln the VDA, Ruth’s disclosed “all abandoned property,”
including gift cards Therefore, the State’s case here and the before-filed VDA
address identical transactions The VDA here meets the requirement of the 2012
Administrative Procedures Bar.
3. ShellOilCompany
The State in this suit alleges Shell failed to escheat dormant gift card
balances to Delaware. The State claims that “[b]ased on Relator’s experience in
the gift card industry and his knowledge of Shell’s gift card operations, Relator
estimates that, in fact, Shell presently holds $15 million in unredeemed gift cards
that are ‘abandoned or unclaimed property’. . . .”132 Documentation relating to this
claim is exactly what was requested for Delaware’s Audit, including information
199 Ruth’s Br. at 4 (Ruth’s Ans. Ex. A (Ruth’s vDA))
130 Id
131 Pls.’ Compl.11115.
159 Pls.’ Compl. 1 141.
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on “all property subject to escheat” and anything related to gift cards133 As part of
that Audit process, Delaware requested specific information relating to the gift
card program and Shell’s Agreement with CardFact.13 4
Due to the identical nature of the underlying activity, Shell has met the
requirements of the Administrative Procedures Bar.
V. CONCLUSION
Accordingly, for the reasons stated above, this Court does not have subject
matter jurisdiction over the action and Ralph Lauren’s, Ruth’s, and Shell’s Motions
to Dismiss are GRANTED.
IT IS SO ORDERED. @M
Paul R. Wallace, Judge
133 Shell Br. at 3, Ex. 1 (Letter from Mark Udinski, Dir./St. Escheator, St. of Del. Dept. of
Fin., to Peter Voser, Chief Fin. Officer, Royal Dutch Shell PLC 1 (June 19, 2008)); Ex. 2 (Letter
from Mark Udinski, Asst. Dir. Abandoned Prop., St. of Del. Dept. of Fin., to R.J. Braud, Vice
Pres. Fin. & Controller, Shell Oil Co. l (Sept. 16, 2008)).
154 shell Br. at 4, Ex. 3 (Hibbard Dep. at 70_71), Ex. 5 (Noite Dep. at 3940).
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