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Tentative settlement reached in RadioShack gift card dispute

WILMINGTON, Del. — The old adage about looking a gift horse in the mouth may have a corollary regarding gift cards issued by retailers: Use it or lose it.

In the latest case of gift card holders caught up in the bankruptcy of a major retailer, attorneys on Wednesday outlined a plan under which some holders of RadioShack gift cards would be paid in full for their outstanding balances. Others who hold the electronic retailers’ gift cards, however, would be left with pennies on the dollar, if anything.

The plan is part of a tentative settlement between Fort Worth-based RadioShack and the Texas attorney general’s office, which filed a complaint on behalf of holders of some $46 million in unredeemed RadioShack gift cards and has been working with attorneys general in several states to protect their interests.

“We are very pleased that we were able to amicably resolve this dispute…. We think it is eminently fair to consumers,” Hal Morris, an assistant attorney general in Texas, told U.S. Bankruptcy Judge Brendan Shannon.

Under the proposed settlement, which is subject to approval by the court and the various attorneys general — and a possible challenge by attorneys representing RadioShack card holders in a separate putative class action — card holders would be divided into five categories based on the circumstances in which they obtained their cards.

RadioShack attorney Greg Gordon said people who purchased cards for themselves or someone else would be given priority status for payment of claims, along with people who “reloaded” existing cards with more money. A small subset of people who hold cards that were issued between 2000 and 2004 and have since been “deactivated” also would be allowed priority claims. But holders of other cards, including promotional giveaways, and cards given in exchange for merchandise returns or in response to customer service complaints, would be lumped in with general unsecured creditors.

All told, roughly a third of the $46 million in potential gift card claims would receive priority status and be paid in full, Gordon said.

Notification unclear

A key issue yet to be resolved is how gift card holders would be notified about how to file claims, which they would have to submit within a year. If attorneys cannot agree on a notification process, Shannon will decide one for them.

Meanwhile, Gordon said RadioShack will establish a $500,000 uncapped cash reserve for priority gift card claims, as well as a website through which gift card holders can submit their claims electronically.

The proposed settlement comes as the U.S. Supreme Court is set to consider whether to accept an appeal filed on behalf of gift card holders of Borders Group, who were left holding the bag when the book-selling chain went under several years ago.

Attorney Clint Krislov, who filed the appeal on behalf of Borders customers, also is representing RadioShack gift card holders in the purported class action.

Krislov said he’s willing to take a look at the proposed settlement between RadioShack and the attorneys general, but that “the devil is in the details.”

“I understand they plan on having it replace a class settlement,” said Krislov, who suggested that an argument could be made for giving priority claim status to holders of merchandise return gift cards.

“We can fight about that at some point,” he said.

Gordon said an individual holder of a merchandise return card could still try to seek priority status for his or her claim, but that the state attorneys general would not take that position.

Morris, the Texas assistant attorney general, said consumers have been well-represented by the attorneys general.

“I don’t know what improvement could be made on this settlement,” said Morris, who noted that the judge had previously indicated that he did not believe all gift card holders should receive priority status.

At a hearing last month, Shannon told attorneys that he believed that a 2004 ruling in which another Delaware bankruptcy judge declared that all gift card claims were entitled to priority status had been “wrongly decided.”

“We heard your honor’s concerns … loud and clear,” Morris told Shannon.