State of Delaware v. Card Compliant, LLC, N13C-06-289 PRW CCLD

Background

Relator William S. French filed a qui tam action under the Delaware False Claims and Reporting Act (DFCRA) in June 2013 alleging corporations (including Ralph Lauren, Ruth's Hospitality, Shell) used out-of-state "CardFact" arrangements to avoid escheating unredeemed gift card balances to Delaware.
Before and during the qui tam filing, Delaware (through its Escheator and contractor Kelmar) had opened audits of Ralph Lauren (Feb. 2013) and Shell (2008), and Ruth's entered Delaware's Voluntary Disclosure Agreement (VDA) program (Dec. 2012/Jan. 2013); all review gift cards as potentially escheatable property.
The State intervened in March 2014 but admits it did not investigate whether defendants were subject to prior or ongoing administrative proceedings before intervening.
The audits/VDA involved document demands, transactional-level inquiries into gift card issuance/redemption, and remain unresolved or were suspended pending this litigation.
Defendants moved to dismiss for lack of subject matter jurisdiction under DFCRA § 1206(b) (the Administrative Proceedings Bar), arguing the suit is "substantially based upon" transactions already subject to Delaware administrative actions; the Court granted the motions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. Whether Delaware's audits and the VDA qualify as "administrative proceedings" under § 1206(b)	French/State contended these were not administrative proceedings barring the suit	Defendants argued the Kelmar audits and the VDA are compulsory, investigatory administrative proceedings by the State	Held: Audits under 12 Del. C. §1155 and VDAs under 12 Del. C. §1177 qualify as "administrative proceedings" (inquiry/investigation) for §1206(b) purposes
2. Whether the qui tam suit is "substantially based upon" allegations/transactions subject to those administrative proceedings	State argued its pleading was independent and not based on matters already before Delaware administrators	Defendants argued the complaint targets the same gift‑card transactions and records the State's audits/VDA were investigating	Held: The suit is substantially based on the same gift-card transactions and records that the audits/VDA targeted, so §1206(b) bars the suit
3. Whether the State's admitted failure to investigate before intervening defeats Defendants' jurisdictional defense	State suggested the omission was immaterial or a narrow error in pleading	Defendants pointed to the State's statutory duty to investigate and argued the omission underscores the parasitic nature of the suit	Held: The Court did not rely primarily on the investigation lapse; dismissal was grounded on §1206(b) because administrative proceedings existed and covered the same transactions
4. Whether prior decision dismissing Pantry, Inc. under §1206(b) controls	State attempted to distinguish prior dismissal	Defendants relied on the prior Pantry decision and law-of-the-case principles	Held: Court applied the prior judge's reasoning (law of the case) and found no extraordinary reason to depart; Pantry's dismissal supports applying §1206(b) here

Key Cases Cited

Costner v. URS Consultants, Inc., 153 F.3d 667 (8th Cir. 1998) (discusses jurisdictional nature of federal FCA administrative‑proceedings bar)
United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine, 24 F.3d 320 (1st Cir. 1994) (analysis of the federal FCA bar to parasitic qui tam suits)
United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994) (description of host/parasite framework for evaluating overlap between government and relator actions)
New Castle Cnty. v. Pike Creek Rec. Servs., LLC, 82 A.3d 731 (Del. Ch. 2013) (law-of-the-case and deference to prior judge decisions within the same court)
Frank G.W. v. Carol M.W., 457 A.2d 715 (Del. 1983) (discusses restraint on successor judges overruling predecessor rulings)
Gannett Co., Inc. v. Kanaga, 750 A.2d 1174 (Del. 2000) (use of plain‑meaning rule and dictionaries for statutory interpretation)