Monday, June 29, 2015

Unused Borders Gift Cards Spur Fight

An interesting story in the Wall Street Journal about attempts to get value out of the gift cards of Borders, the book chain that went bankrupt a few years ago:

A Chicago plaintiff’s lawyer is out to redeem some of the country’s longest languishing gift cards.

In a petition filed this month with the U.S. Supreme Court, attorney Clinton Krislov is making a last-ditch effort to recover some value for holders of gift cards sold by Borders Group, the book chain that went under four years ago.

The petition is the last chapter in a long-running fight over whether the gift-card holders waited too long to try to turn their credits into cash.

The rights of gift-card holders are being questioned in retail bankruptcies across the country, including through a recent lawsuit filed by the Texas attorney general’s office in RadioShack Corp.’s chapter 11 case.

Borders may be long dead, but there is potentially big money on the line: The defunct retailer estimates customers never redeemed 17.7 million gift cards worth $210.5 million by the time it shut its doors in September 2011.

The Borders bankruptcy estate still has nearly $8 million left for professional fees and creditors. Mr. Krislov said a ruling in his clients’ favor could tap into that money, and that he thinks he would be entitled to claw back some of the roughly $100 million already paid to unsecured creditors.

“There is money still remaining,” Mr. Krislov said. “Many assume when they see the place go bankrupt that there is no money around.”

Bruce Buechler, an attorney winding down what remains of Borders in bankruptcy, called the Supreme Court petition “meritless,” and said the estate will be objecting to it.

Mr. Buechler, a partner at Lowenstein Sandler LLP, recently wrote an article in a trade publication urging retailers to do everything they can to notify customers about gift-card claims at the beginning of a case. Doing so, he said, helps to “avoid potentially costly litigation.”

Borders filed for bankruptcy in February 2011 with plans to find a buyer to keep the once-popular chain alive. When that plan failed, the company liquidated.

Gift-card holders were given until June 1, 2011, to file a claim in the bankruptcy. Not a single card holder filed such a claim, which Mr. Krislov said is proof that not enough was done to notify them.

“The least that they should do, because it is so inexpensive, is to email all the people they’ve got emails for,” Mr. Krislov said. The three clients he represents in the case contacted him after they received a marketing email from Barnes & Noble Inc., which bought Borders’s customer data, prompting them to realize their Borders gift cards were worthless.

“There has to be due process before you cut off somebody’s rights,” Mr. Krislov said.

By the time Mr. Krislov filed a request to allow late claims, in January 2012, the court had already approved a liquidation plan laying out how Borders would divvy up its remaining cash. The district and appellate courts ruled against Mr. Krislov using the concept of “equitable mootness,” which essentially means it would be unfair to creditors benefiting from the existing plan to have it upended after the fact....

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