RadioShack Hits Another Hurdle In Its Bankruptcy

By Christine Kern, contributing writer

Texas AG files suit against the retailer for unused gift cards.

In the wake of the Chapter 11 bankruptcy filed in February by RadioShack, the retailer is being hit with yet another hurdle in the process, as the Texas attorney general Ken Paxton and his office Thursday filed a suit against RadioShack on the behalf of owners of unused gift cards valued at some $43 million.

In May, a  U.S. bankruptcy judge approved the sale of RadioShack's name and customer data to Standard General, the New York Times reported.  The investment firm’s winning bid was for $26.2 million, well above the $15 million it initially bid.

After the bankruptcy filing, RadioShack stopped honoring gift cards in March and now says it has no way of knowing who owns what cards. However, holders of unredeemed cards can file a claim in bankruptcy court to try to redeem their value; Paxton office wants the court to rule that Texas and other states can do that on consumers’ behalf.

According to the Wall Street Journal blog, the lawsuit argues that RadioShack hasn’t notified gift-card holders that they need to file claims in bankruptcy in order to be repaid for the cards. He wants to the right to file such claims on behalf of Texas residents, a right he says should be extended to other states’ attorneys general. He also wants the claims to be given priority status when it comes time to dole out payments.

In response to the retailer’s claim that they do not have access to the data regarding ownership and balances of outstanding gift cards, the Texas suit claims, “Texas respectfully contends that such an assertion must be viewed with some skepticism in light of the fact that the Defendants maintain extensive data regarding their customers’ purchases. The Defendants likely know the names, mailing addresses, and email addresses of at least some of the purchasers if not the holders.”

Although RadioShack’s bankruptcy attorney could not be reached for comment on the issue, this is not Paxton’s first contest with the retailer.  Earlier this year, Paxton was also among state officials who challenged RadioShack’s bid to sell off its customer data.  Ultimately, the sale was seriously curtailed by the terms of a deal reached between the retailer and the attorney general.

Tracking and redeeming outstanding gift cards is a challenge for any retailer facing bankruptcy.