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In one of the few court decisions involving the regulation of gift cards, a federal judge has ruled that a newly drafted New Hampshire statute is pre-empted by federal laws because financial institutions issued the cards. Hidden fees and expiration dates on gift cards and certificates have triggered a number of lawsuits as dozens of states have passed laws regulating them. Originally issued by individual retailers, gift cards in recent years involve financial institutions that don’t limit purchases to a single store, complicating legal questions of regulation and jurisdiction. And the stakes are high: Sales of gift cards are expected to surpass $72 billion this year, up from $65 billion in 2005, according to the research firm TowerGroup, a Needham, Mass.-based subsidiary of MasterCard Inc. In the recent case, New Hampshire Attorney General Kelly A. Ayotte notified mall owner Simon Property Group Inc. in 2004 that its gift cards violated a state law prohibiting gift certificates from having expiration dates or fees. An affiliate of Simon Property filed suit in federal court seeking injunctive relief. SPGCC Inc. v. N.H. Attorney General, No. 04-cv-420 (D.N.H.). The ruling, by Judge Steven McAuliffe, has a direct impact on similar cases brought by attorneys general in Connecticut and Massachusetts, said Paul Shaw, a partner at Boston-based Brown Rudnick Berlack Israels who represents Simon in all three cases. “In light of Judge McAuliffe’s finding that the current programs offered by Simon through U.S. Bank and MetaBank are pre-empted because they are federal bank products, it is likely that the pending cases in Massachusetts and Connecticut will be resolved,” he said. State laws vary More than half of U.S. states passed laws in the past two years regulating the use of gift cards and certificates. Some prohibit or restrict expiration dates and fees; others require more disclosures of both items. In 2005, Simon agreed to pay $125,000 to settle a lawsuit filed by New York Attorney General Eliot Spitzer over one of its gift cards. In New Hampshire, Simon initially sold gift cards issued by Bank of America Corp. In September 2005, after amendments to the state’s consumer law became effective, Simon began selling cards issued by U.S. Bank National Association and MetaBank, a federal savings association owned by Meta Financial Group Inc. Both are plaintiffs in the case. In his ruling, McAuliffe said that the financial institutions were allowed to set their own fees and expiration dates under federal laws. He also said that federal laws applied even if the financial institutions hired a third party, such as Simon, to market and promote their cards. Shaw said that the ruling could limit future suits brought over bank-issued gift cards against Simon by state attorneys general. But other civil suits are pending against retailers, restaurants and airlines. “There have been a lot of these suits over the years,” said Seth Safier, a partner at San Francisco-based Gutride Safier who filed suit earlier this year over Southwest Airlines certificates. “The more gift cards that come around, the more suits there are or have been about this.” James McGuire, a partner in Morrison & Foerster’s San Francisco office who represents U.S. Bank, declined to comment. Christine Cesare, a partner in the New York office of Bryan Cave who represents MetaBank, issued a statement saying: “The court properly concluded that the assistance of third parties with the sale and marketing of gift cards does not alter the fact that they are still ‘bank products.’ “ Richard Head, senior assistant attorney general at the New Hampshire Attorney General’s office, said that the ruling does not apply to Simon gift cards sold before September 2005. “We’re going to continue to pursue consumer restitution for all cards sold prior to September 2005,” Head said, referring to claims in a separate suit filed in New Hampshire’s Merrimack County Superior Court. “And we are evaluating the judge’s decision to determine whether we’ll file an appeal for those cards sold after 2005.”

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