Consumers Take Retailers to Court Over Unused Gift Cards
By Aisha Al-Muslim
Consumer law firms are working to help shoppers recoup the value
of unused gift cards from bankrupt retail chains, hoping to revive
court claims that might otherwise be deemed worthless.
Gift-card holders filed proposed class-action claims on Friday
in the bankruptcy cases of Lord & Taylor and Sur La Table Inc.,
seeking priority status for those stuck holding potentially
unusable gift cards. At the same time, the law firms representing
them are planning to request that the U.S. Trustee, the U.S.
government's bankruptcy watchdog, appoint official consumer
committees in the same bankruptcy cases.
"As retailers are lining up to file bankruptcy because of
circumstances that really are beyond their control, ordinary
Americans are being left in the cold," said Thomas Burt, a partner
at the law firm filing the claims, Wolf Haldenstein Adler Freeman
& Herz LLP. "Their values have gone poof, because somebody
The litigation firm, along with bankruptcy law firm Sto Helit
PLLC, is also seeking class representatives who have unredeemed and
unexpired gift cards and gift certificates from Stein Mart Inc. and
Century 21 Department Stores LLC, also bankrupt. Each individual
holding gift-card claims should get up to $3,025 per person in
priority payments, according to the firm.
Bankrupt retailers that are permanently closing their stores
could collect a windfall if prepaid gift cards are never redeemed.
Roughly $2 billion to $4 billion, or up to 4%, of gift cards
typically go unused every year in the U.S., according to research
from Mercator Advisory Group Inc.
"We have a process where people have gone unrepresented. No
one's sticking up for them and the bankruptcy will erase the
value," Mr. Burt said.
Retailers that filed for bankruptcy and are shutting down stores
usually give gift-card owners about a month to use them. But
consumer advocates and lawyers argue that retailers often fail to
give proper notice to customers that they might be entitled to a
claim just by having a gift card.
Companies in bankruptcy aren't legally required to honor gift
cards, but many, even those that are liquidating, do it as a
gesture of goodwill. Others might be selling their assets to
purchasers that don't assume gift-card liabilities.
Home-goods retailer Pier 1 Imports Inc. estimated when it filed
for bankruptcy in February that it had about $59 million in gift
cards and merchandise credit outstanding. Department-store operator
Stage Stores Inc., the owner of department-store chains including
Gordmans and Bealls, had $21 million in gift cards outstanding when
it filed for bankruptcy in May, according to court records.
"Both of those cases recently confirmed plans that effectively
gave gift-card holders nothing," said Myles MacDonald, founder and
managing member at Sto Helit.
Consumers who don't redeem their gift cards before a retailer
goes out of business can try to turn their unspent balances into
cash by filing a claim in bankruptcy court. There is no guarantee
of payment since gift-card holders are unsecured creditors, near
the back of the payment line under bankruptcy law.
Last month, Sur La Table sold itself out of bankruptcy for
nearly $89 million to a joint venture between e-commerce business
CSC Generation and brand owner Marquee Brands LLC. While the deal
saved about 50 of about 120 stores from closure, the new owners
aren't obligated to accept gift cards more than 30 days after the
sale, court papers show.
Luxury department store chain Lord & Taylor had about $35.5
million in gift cards outstanding when it filed for bankruptcy in
August, saying it would liquidate all 38 of its stores if it
couldn't find a buyer.
Off-price retailer Stein Mart had about $35 million in gift
cards outstanding as of early July, court records show. Stein Mart,
which filed for bankruptcy in August, said it would permanently
close and sell all 279 of its stores.
The deadline for using gift cards at off-price retailer Century
21 is Oct. 10, after which the company said in court papers they
"will be deemed to have no value."
The claims filed Friday will test whether bankruptcy courts
believe gift card claims should be protected.
They haven't been, due in part to a 2016 ruling in the
bankruptcy of athletic-gear retailer City Sports Inc. that
gift-card balances can't be classified as priority unsecured claims
but instead must be treated as general unsecured claims, placing
them far back in the line of creditors.
"We're going to reverse" that interpretation, Mr. Burt said.
"They got it wrong."
Write to Aisha Al-Muslim at firstname.lastname@example.org
(END) Dow Jones Newswires
September 18, 2020 11:51 ET (15:51 GMT)
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