Tentative deal reached in dispute over RadioShack gift cards

The adage about looking a gift horse in the mouth may have a corollary regarding a retail gift card: Use it or lose it.

In the latest case of gift card holders caught up in the bankruptcy of a major retailer, attorneys outlined a plan Wednesday under which some holders of RadioShack gift cards would be paid in full for their outstanding balances while others would be left with pennies on the dollar.

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 gift cards and has worked with attorneys general in several other states.

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

Under the proposed settlement, which is subject to approval by the court and the attorneys general, cardholders would be divided into five categories based on the circumstances in which they obtained their cards.

RadioShack attorney Greg Gordon said people who bought cards for themselves or someone else would be given priority for payment of claims, along with people who reloaded existing cards with more money.

A small subset of people with cards issued from 2000 to 2004 that have been “deactivated” would also be allowed priority claims. But holders of other cards — including those handed out as promotions and 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.

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

Meanwhile, Gordon said RadioShack will establish a $500,000 uncapped cash reserve for priority gift card claims, as well as a website where cardholders can submit claims.

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

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

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

RadioShack filed for bankruptcy in February. This spring, the Standard General hedge fund bought more than 1,700 stores out of bankruptcy and is operating them in conjunction with Sprint. The rest have been closed.

The remainder of the RadioShack estate is still in bankruptcy.

This report includes material from the Star-Telegram archives.

This story was originally published August 26, 2015 at 1:38 PM with the headline "Tentative deal reached in dispute over RadioShack gift cards."