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By Jacqueline Palank
A bankruptcy judge said Borders doesn’t owe anything to the gift-card holders who didn’t use their cards before the retailer closed for good and who failed to file claims for the card balances by last year’s deadline.
Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan on Tuesday ruled against Borders gift-card holders who argued they were entitled to file their claims past the deadline because the retailer “did nothing” to reach out to them and “thousands” of other gift-card holders before it shut down last September. Borders opposed the request, arguing that the customers had plenty of time to use their cards or file a claim.
The judge said Borders wasn’t required to individually notify each and every gift-card holder that they were running out of time to use their cards, nor could it if it wanted to.
“Gift cards, as their name illustrates, are not intended to be used by the purchaser but are instead intended as gifts, so even if the debtors were able to identify the purchasers of the gift cards, they would have no way of tracing the ultimate recipients,” he wrote in his opinion. “And, in fact, the gift card holders, by their own admission, received their gift cards as gifts. Therefore, the debtors had no way of tracing their identities.”
Clint Krislov of Krislov & Associates in Chicago, who is representing the gift-card holders, expressed disappointment with the judge’s ruling, which he expects to appeal.
“We will pursue this further,” he told Bankruptcy Beat Wednesday.
As we reported earlier this year, gift-card holders said they tried to redeem their plastic for purchases last holiday season but, “much to their surprise,” found that the cards were no longer valid. Judge Glenn didn’t buy it; after all, Borders’ liquidation lasted months (and was in the news for months) before the last book was sold.
“The gift card holders had the opportunity to at least use their gift cards and mitigate their losses, and merely chose not to do so,” he wrote. “The claimants have provided no other credible reason for their lengthy delay in filing.”
Mr. Krislov said the delay shouldn’t be held against “ordinary consumers” whom he said Borders had the ability, through several databases filled with customer emails, to reach.
He added that it would have cost Borders no more than $25,000 to send out a blanket email notifying those customers of the claims deadline, which he said was a small price to pay on the chance that gift-card holders would be among those customers.
“We think that due process requires a reasonable effort to notify claimants whose existence was known and could have been notified,” he said.
The judge, however, ruled that the gift-card holders didn’t prove that those databases positively identified customers as gift-card holders, which he said didn’t trigger the requirement that Borders contact them.
Judge Glenn added that allowing the gift card holders to file late claims “would have a disastrous effect” on Borders’ effort to pay its creditors from the fruits of its liquidation. After all, Borders’s records indicated 17.7 million outstanding gift cards with unredeemed balances of some $210 million as of June 2011. The judge said adding these claims to the list would hurt the general unsecured creditors whose claims would rank below the gift-card claims; unsecured creditors are already slated to recover between 4% and 10% of what they’re owed.
