Attorneys General Vow to Defend RadioShack’s 117 Million Consumers

Attorneys general around the country are leaping aboard the consumer privacy bandwagon in RadioShack ’s bankruptcy, vowing to protect the personal data of 117 million consumers as the iconic retailer goes up for grabs.

Texas Attorney General Ken Paxton started the bandwagon rolling, objecting in advance of the auction that began Monday in New York. His filing said RadioShack promised not to sell or rent its customer data and that anyone who tries will answer to the state of Texas.

In case you’re wondering how a retailer with solid data on 117 million consumers wound up in bankruptcy in the first place, it should be noted that the number was blurted out by an unidentified RadioShack representative at a deposition.

About two dozen other government officials jumped aboard, either in court filings or with letters of support. Not one to miss a campaign for the protection of consumers, New York Attorney General Eric Schneiderman told New York consumers Wednesday that he is monitoring the situation and will take action if necessary.

So far, it’s not necessary, according to a letter to the judge from Elise Frejka, the New York lawyer appointed to watch over the handling of consumer data in RadioShack’s bankruptcy. RadioShack has told her the customer data is not included in the sale, Ms. Frejka told the judge, so there’s no issue at this time. If there is an issue, the ombudsman will file a report and recommendations.

Consumer privacy will be one of many issues likely to erupt Thursday when Judge Brendan Shannon opens a hearing on the outcome of the RadioShack auction.

Big lender Standard General is duking it out with big lender Salus Capital Partners over RadioShack. Standard General wants to keep the business alive and is seeking to buy the inventory and rights to operate 1,743 stores.

Standard General’s liens don’t reach the intellectual property, like the RadioShack name, trademarks and customer data. That package of collateral anchors Salus’s loans.

Salus has teamed up with a trio of liquidators to fling down a competing bid it says is materially superior to the one from Standard General. Salus has moved to force an open court fight over RadioShack, saying it’s not getting a fair hearing in the bankruptcy auction.

Nothing in Salus’s court papers spells out its future plan for RadioShack, and the hedge fund’s lawyer did not respond to inquiries about whether the Salus and liquidator bid would keep RadioShack alive in any form.

Some bricks-and-mortar retailers that went bankrupt in recent years have, however, enjoyed a measure of success with a virtual reincarnation. Gadget seller Sharper Image is still licensing its name and selling online. Liquidators, including two of the liquidators allied with Salus, picked up the Sharper Image brand for about $49 million in bankruptcy and sold it to a licensing company for $65.6 million a few years later. Coldwater Creek shoppers are being courted by the new owners of what is now an online seller of women’s clothing.

That’s where the RadioShack customer data could come into play. A do-it-yourself kit for creating a virtual RadioShack retailing operation and licensing venture would consist largely of the customer lists, the familiar trademark and other intellectual property that is in the basket of collateral claimed by Salus. Throw in the inventory that would be acquired if the bid of Salus and the liquidators prevails, and RadioShack won’t miss a beat retailing, if only online.

A skilled and aggressive lender, Salus has not demonstrated an appetite for running companies, even virtual ones. But it could attempt to reclaim its collateral from RadioShack’s bankruptcy, including the customer data, and sell the package to a company that will keep the brand going online.

Isn’t that impossible, given RadioShack’s strict no-sale, no-rent promises to consumers?  Probably not.

A 15-year-old enforcement action by the Federal Trade Commission in the case of defunct online seller Toysmart established the standard that, privacy promise or no privacy promise, customer data can be sold in bankruptcy as part of the sale of the business to an entity in a related market as long as it expressly agrees to abide by the RadioShack privacy policy.

If the Salus vs. Standard General RadioShack death match comes to the point where it’s time to argue about whether the customer data can be sold, expect to hear about Toysmart.

Write to Peg Brickley at [email protected]