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California Gift Certificates

In Cortney Reynolds v. Philip Morris USA Inc., U.S. District Court for the Southern District of California adopted an extremely broad interpretation of California’s gift certificate law, Cal. Civil Code § 1749.5. In a class action, a consumer challenged Philip Morris’ notification of the termination of the “Marlboro Miles” incentive program (where proofs of purchase from Marlboro cigarette packages could be redeemed for award items), arguing that the Marlboro Miles were gift certificates under § 1749.5. If characterized as a gift certificate distributed by the issuer pursuant to an awards, loyalty or promotional program without any money (or other thing of value) being exchanged for them, the Marlboro Miles could only expire if they bore an expiration date in capital letters in at least 10-point font on the front. See § 1749.5(d). The Court denied Philip Morris’ motion to dismiss (as well as its subsequent motion for summary judgment), agreeing with the consumer’s argument.

The Court seemed to misapply § 1749.5(d), as one must purchase Marlboro cigarettes to obtain Marlboro Miles. How then could the Court conclude that the Marlboro Miles were given to consumers without money or other thing of value being given in exchange for them? The Court’s rationale here appears to be that persons purchased Marlboro cigarettes, not Marlboro cigarettes and Marlboro Miles; i.e., the Marlboro Miles were an “extra” or “bonus” throw in with the purchase of the cigarettes.

If the case were to stand, it would have far-reaching consequences for promotion marketers and businesses generally. To offer any frequency or loyalty program in California where points may be obtained via product purchase, legal compliance would entail inclusion of an expiration date in capital letters in at least 10-point font on the front; the only alternative being to void the program in California. Every awards program sponsored by a credit card company, airline carrier or other good/service manufacturer would, by definition, be affected. Worse yet, other states with similarly worded gift certificate laws could follow California’s example, making the Reynolds Court’s interpretation the standard rather than an exception.

A Victory for Philip Morris

Fortunately, Philip Morris appealed the lower court’s decision.  In a Memorandum Opinion issued 6/2/09, the U.S. Court of Appeals for the 9th Circuit reversed the District Court’s ruling in Cortney Reynolds v. Philip Morris USA Inc. The 9th Circuit held that the District Court erred in concluding that Marlboro Miles is a “gift certificate” under California law. Rather, it is a proof-of-purchase akin to a cereal box top. Accordingly, California Civil Code 1749.5 – in particular, the disclosure of the expiration date in 10 point font -- is inapplicable. Those offering frequency and loyalty programs in California can now breath a sigh of relief.