Borders Gift Card Holders Left With Squat

(Image credit: Mandel Ngan/AFP/Getty Images)

A judge ruled on Wednesday that customers who hold $210.5 million in gift cards from the defunct Borders chain aren't eligible for refunds.

About 17.7 million gift cards were outstanding when Borders began liquidating its stores in July 2011 after failing to attract offers for the company.

Judge Andrew Carter for the U.S. District Court in Manhattan upheld a decision from a U.S. Bankruptcy Court judge in August 2012, which said the card holders did not prove they met the requirements for an exception to Borders' liquidation.

The district court also decided the bankruptcy plan was too far along and that it would be unfair with respect to the remaining money and other general creditors.

"They are saying, 'We didn't give you notice and it's too late now anyway even for the money that remains.' We just disagree with that concept," said Clinton Krislov, attorney for the gift card holders.

Borders, which at one time had 642 stores, filed for Chapter 11 bankruptcy protection in Feb. 2011. In that year, it announced 6,000 layoffs on February 17 and 10,700 layoffs July 19.

Krislov said he and the three plaintiffs will likely appeal to the Federal Court of Appeals for the Second Circuit in New York.

The three plaintiffs sought legal representation at the end of 2011, after they discovered Barnes and Noble would not honor Borders gift cards. Barnes and Noble acquired some of Borders' assets including its brand trademarks and their customer list.

"On the first day of the bankruptcy filing, it was recognized that gift card holders existed and they were entitled to a priority in the bankruptcy. What happened then was that no one bothered to give them any reasonable notice that they could file a claim and there was a deadline to file that claim."

That deadline was June 1, 2011, which was described in a notice published by Borders in the New York Times at least 28 days prior to the deadline, as ordered by the bankruptcy court.

"The notice didn't even mention gift cards. It really was more a way to cut them off than to give them effective notice," Krislov said. No proofs of claim were filed by any of the millions of gift card holders, the court decision on Wednesday states.

Borders began its gift card program in 1998. While the company did not have a database identifying gift card holders, Krislov said the company could have notified the millions of customers in its database of customer email addresses.

Other companies have allowed for settlements for gift card holders in the event of a bankruptcy. After Sharper Image filed for bankruptcy on Feb. 19, 2008, the bankruptcy court approved a process through which gift card holders could receive a distribution from Sharper Image Corporation's estate.