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Newell v. Recreational Equipment Inc.

United States District Court, W.D. Washington, Seattle

September 26, 2019

JOUREY NEWELL and FELIPE MACHADO, individually and on behalf of all others similarly situated, Plaintiffs,


          Thomas S. Zilly United States District Judge

         THIS MATTER comes before the Court on Defendant Recreational Equipment Inc.’s (“REI”) Motion to Dismiss, docket no. 21. Having reviewed all papers filed in support of and in opposition to the motion, the Court enters the following order.


         REI is a sporting goods consumer cooperative owned by its members.[1] First Amended Complaint (“FAC”) ¶ 15 (docket no. 17). REI does not issue capital stock or have shareholders; rather, REI places control of the company in its “members”- members of the public that become REI members for a fee. Id. As a consumer cooperative, REI distributes its net earnings back to its members in the form of patronage dividends. Id. ¶ 16. The amount of each member’s dividend is calculated as a percentage of the amount each member spent at REI in the prior year. Id. REI’s Board of Directors retains the discretion to determine both the amount and form of patronage dividends each year, as well as whether or not they are issued at all. FAC ¶ 18; Ex. 1 to Todaro Decl. (docket no. 22-1 at 8). REI issues patronage dividends on a yearly basis either by loading them on mailed paper cards or emailed URLs. FAC ¶ 19. Members’ dividends expire the second January 3rd after issuance.[2] FAC ¶ 26; Ex. 1 to Todaro Decl. (docket no. 22-1 at 9). The dividends are associated solely with each member’s number, are non-transferrable, and are redeemable and honored only at REI for the purchase of REI items. FAC ¶¶ 20-21; Defendant’s Motion to Dismiss at 10-11 (docket no. 21).

         Plaintiffs Newell and Machado paid fees to become REI members. FAC ¶¶ 28, 33. In 2015, Newell made purchases at REI, and in 2016, REI issued Newell a dividend. Id. ¶¶ 29-30. In January 2018, Newell’s unused dividend expired. Id. ¶ 31. In 2016, Machado made purchases at REI, and he received a dividend in 2017. Id. ¶¶ 34-35. In 2019, Machado’s dividend expired. Id. ¶ 36.

         Plaintiffs now sue under two statutes regulating the use of expiration dates on gift cards: the Electronic Funds Transfer Act (“EFTA”), 15 U.S.C. §§ 1693-1693r, and Washington statute, RCW 19.240.020. The EFTA prohibits the issuance of gift cards with expiration dates less than 5 years after the date the gift card was issued, or the date the card funds were last loaded to the gift card. 15 U.S.C. § 1693l-1(c). RCW 19.86.020 prohibits the issuance of gift cards with any expiration date. Plaintiffs allege that REI’s patronage dividends violate both the EFTA and RCW 19.240.020 because they expire less than two years after issuance.


          “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The complaint must indicate more than mere speculation of a right to relief. Twombly, 550 U.S. at 555, and the pleading is not sufficient “if it tenders ‘naked assertions’ devoid of further factual enhancement.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). In ruling on a motion to dismiss, the Court must assume the truth of the plaintiff’s allegations and draw all reasonable inferences in the plaintiff’s favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). The question for the Court is whether the facts in the complaint sufficiently state a “plausible” ground for relief. Twombly, 550 U.S. at 570.

         Plaintiffs’ Amended Complaint fails to state a claim for which relief can be granted, because even assuming every fact alleged in the Amended Complaint is true, REI’s dividends are not subject to the gift card requirements in either 15 U.S.C. § 1693l-1 or RCW 19.240.020. Plaintiffs’ Amended Complaint is DISMISSED with prejudice because Plaintiffs cannot replead to correct their legal errors.

         A. Electronic Funds Transfer Act (“EFTA”) and Credit Card Accountability and Disclosure Act (“CARD”), 15 U.S.C. § 1693l-1

         The EFTA provides that “it shall be unlawful for any person to sell or issue a gift certificate, store gift card, or general-use prepaid card that is subject to an expiration date.” 15 U.S.C. § 1693l-1(c)(1). The EFTA provides, in part, as follows:

The term “store gift card” means an electronic promise, plastic card, or other payment code or device that is-
(i) redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo;
(ii) issued in a specified amount, whether or not that amount may be increased in value or reloaded at the ...

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