Case 15-12054-KG Doc 741 Filed 06/16/16 Page 1 of 7
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
CITY SPORTS, INC., et al., Case No. 15-12054 (KG)
Debtors. Jointly Administered
RESPONSE OF THE COMMONWEALTH OF MASSACHUSETTS TO THE DEBTORS’ SECOND OMNIBUS OBJECTION TO CLAIMS
The Commonwealth of Massachusetts, Office of the Attorney General
(“Commonwealth”), hereby files this response (“Response”) to the Debtors’ Second Omnibus
(Substantive) Objection to Certain Claims [Dkt. 712] (“Omnibus Objection”). The Debtors object to the Commonwealth’s Proof of Claim1 on behalf of Massachusetts consumers holding unredeemed gift cards on two grounds: (1) that the Proof of Claim is misclassified as a priority unsecured claim pursuant to the Bankruptcy Code, 11 U.S.C. § 507(a)(7); and (2) that it is not supported by the Debtors’ books and records. Both arguments are without merit. The Debtors fail to acknowledge published precedent of this Court holding that gift card claims are entitled to priority status pursuant to 11 U.S.C. § 507(a)(7). See In re WW Warehouse, Inc., 313 B.R. 588
(Bankr. D. Del. 2004). Further, the Debtors have acknowledged the existence of the unredeemed gift card purchases in writing to the Commonwealth. The Debtors cannot now claim the opposite, that the gift cards are “not supported by [their] books and records.” As set forth below, the Debtor’s Omnibus Objection as to the Commonwealth’s Proof of Claim should be denied.
1 A true and correct copy of the Commonwealth’s Proof of Claim is attached as Exhibit 1 to the Affidavit of Francesca L. Miceli (“Miceli Aff.), filed concurrently herewith. 1
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 2 of 7
I. Unredeemed Gift Cards are Entitled To Priority Status Pursuant to the Bankruptcy Code, 11 U.S.C. § 507(a)(7).
The Commonwealth qualifies as a priority creditor under 11 U.S.C. § 507(a)(7) for each unredeemed gift card held by a Massachusetts consumer with a value up to $2,775. Pursuant to the Bankruptcy Code, priority unsecured creditor status is reserved for those, “unsecured claims of individuals, to the extent of $2,775 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.” 11 U.S.C. § 507(a)(7). The two limitations imposed on those seeking priority distribution under Section 507(a)(7) are (1) that the claim arise from the deposit of money and (2) that the services or goods remain undelivered.
This Court has previously recognized that money paid for a gift certificate is a “deposit” for the purchase of future property or services under Section 507(a)(7). See In re WW
Warehouse, Inc., 313 B.R. 588 (Bankr. D. Del. 2004). In re WW Warehouse, Inc. is directly on point. As is the case here, the debtor in WW Warehouse, Inc., prior to the debtor’s bankruptcy, sold gift certificates to the public entitling consumers to apply, in whole or in part, the face amount of the certificate to the future purchase of merchandise offered for sale by the debtor. 31
B.R. at 590. Before the outstanding gift certificates could be redeemed, the debtor filed bankruptcy. Id. The Chapter 11 debtor-retailer objected to priority claims filed by individuals holding unredeemed gift certificates to purchase merchandise from debtor. Id. Analyzing the term “deposit” as used in the Bankruptcy Code provision granting (now) seventh-level priority to unsecured claims asserted by consumers, this Court determined that deposits should not be limited only to partial payments made for specific merchandise and, accordingly, held that the unredeemed gift certificates were entitled to priority status. Id. at 591-95.
2
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 3 of 7
Notably, “[b]ecause this Court [] observed a pattern of treating claims arising from gift
certificates in retail bankruptcies as general unsecured claims,” it set forth its detailed reasoning
in a published decision, relying upon both the plain meaning of the statutory language and its
legislative history – [m]indful…not to invade Congress’ policy-making arena.” Id. at 590, 592.
The Court found “nothing in th[e] [ordinary-meaning, dictionary] definitions [of “deposit”] “that suggests that, when applied to a consumer purchase, a deposit must only be a partial payment of a purchase price and for specific merchandise.” Id. at 592 (emphasis in original). The Court further found that, even if there had been a statutory ambiguity, “the legislative history leaves no doubt that gift certificates are indeed deposits.” Id. at 590. The legislative history states:
The [seventh] priority…has been added as a result of testimony before the subcommittee on civil and constitutional rights concerning problems that consumers have encountered with bankrupt retail businesses with whom consumers have deposited money for goods or services. The bill gives a priority in the distribution of assets of a bankruptcy debtor to consumers who have deposited or made partial payments for the purchase or lease of goods, or the purchase of services, that were not delivered or provided. The priority comes after administrative expenses and wages, but before taxes. There is no similar provision in current law. A consumer that pays money on a lay-away plan or as a deposit on merchandise, or that buys a service contract or a contract for lessons or gym membership, is a general unsecured creditor of the business to which he has given his money. Very few creditors are aware of their status as general unsecured creditors. If the merchant involved files under the bankruptcy laws, the consumer is usually left holding the bag. Though he assumed his deposit was tantamount to a trust fund, he gets nothing from the estate of the debtor, because the assets available provide little return to unsecured creditors. Because of his ignorance and his inability to bargain with a retail merchant, he is unable to do a credit investigation or obtain special terms from the merchant, as a true creditor may do. A recent example is the W.T. Grant bankruptcy. All customers who held “Grant Script” have essentially lost their deposits. In order to remedy this problem and to reorganize the position of consumer creditors as different from those of business creditors, the bill provides a priority for consumer creditors of a bankrupt business....
Id. at 594 (citing H.R. Rep. No. 595, 95th Cong., 1st Sess. 188 (1977), reprinted in 1978
U.S.Code Cong. & Admin.News 5963, 6148– 49) (emphasis added); see also In re Salazar, 430
3
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 4 of 7
F.3d 992, 996 (9th Cir. 2005) (“Merchants’ violation of consumers’ expectations and trust is
precisely what Congress responded to when it passed [11 U.S.C. § 507(a)(7)]. That Congress’s concern had bounds is shown by its express limitation of the amount of the priority. There is no reason to think that it buried a further limitation in the word ‘deposit.’”). Analyzing this history, the WW Warehouse Court stated, “To relegate gift certificate holders to the status of general unsecured creditors perpetuates the very problem Congress sought to remedy.” Id. at 595.
The Debtors Omnibus Objection fails to acknowledge this prevailing law and the extensive reasoning provided by the Court supporting its decision. Instead, the Debtors cite a partial hearing transcript containing an off-the-cuff statement made in an unrelated bankruptcy case as the sole authority for their untenable position. See Omnibus Objection at p. 4, n.2.
Indeed, In re WW Warehouse, Inc. remains good law and, even in recent decisions finding consumer creditors not entitled to priority status under 11 U.S.C. § 507(a)(7), courts have cited
In re WW Warehouse, Inc. favorably while distinguishing the facts in their cases and finding that the consumers in those cases immediately received services for their funds. See In re Palmas del
Mar Country Club, Inc., 443 B.R. 569 (Bankr. D.P.R. 2010) (up-front country club membership payments are not “deposits” for goods or services that were to be provided in the future); In re
Four Star Financial Services, LLC, 469 B.R. 30 (C.D. Cal. 2012) (same, for initiation fees to purchase campground memberships). These courts observed, “[a]ll of the courts applying section 507(a)(7) priority find that a payment was made for some services and benefits that were expected in the foreseeable future but were never delivered….In th[ose] [cases], as well as those in the legislative history, where the priority was found to apply, an element of future assurance or security existed.” Four Star Financial Services, 469 B.R. at 34 (citing In re WW Warehouse,
Inc.); Palmas, 443 B.R. at 574.
4
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 5 of 7
The same analysis applied in WW Warehouse is applicable to the gift certificates at issue
here. Consumers deposited funds with City Sports in exchange for gift cards to be applied
toward the future purchase of City Sports merchandise. As WW Warehouse found,
Consumers do not purchase gift certificates, whether they be in the form of paper or a plastic card similar to a credit card, as the ultimate purchase. Consumers expect merchants to apply some or all of the face value of the gift certificate toward the ultimate purchase. The gift certificate is really nothing more than scrip: “a document that entitles the holder to receive something of value.” BLACK'S LAW DICTIONARY (8th Ed.2004).
Id. (emphasis added). See also In re Salazar, 430 F.3d 992, 996-97 (9th Cir. 2005) (agreeing
with In re WW Warehouse, Inc.’s evaluation of “deposit” and holding that a creditor’s full up-
front pre-petition payment to debtor for the installation of a swimming pool was entitled to
priority status). Accordingly, Massachusetts consumers holding unredeemed City Sports gift
cards are entitled to priority creditor status in these bankruptcy proceedings pursuant to 11
U.S.C. § 507(a)(7).
II. The Debtors Are Liable to Massachusetts Consumers.
On March 23, 2016, the Commonwealth of Massachusetts filed a Proof of Claim on
behalf of Massachusetts consumers for unredeemed gift card claims, before the Government bar
date of April 4, 2016. See MA Proof of Claim, attached to the Miceli Aff., at Exhibit 1. The
Proof of Claim states that the Commonwealth’s Claim is entitled to priority under 11 U.S.C.
§ 507(a)(7), in an amount “up to $1,182,668.” Id. (emphasis added). Although the Omnibus
Objection states that the claimed amount is not supported the Debtor’s books and records and not
limited to gift cards sold to Massachusetts Consumers (see Omnibus Objection, Exhibit C, Item
3), the Debtors provided this figure to the Commonwealth and have acknowledged
unredeemed gift card liabilities. See E-mail Correspondence with Debtor’s Counsel, attached to the Miceli Aff., at Exhibit 2. Specifically, the Commonwealth was informed that on
5
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 6 of 7
November 5, 2015, before the commencement of Debtors’ liquidation sales, there were approximately $1.4 million in outstanding gift cards. Id. After the expiration of the thirty day gift card redemption period, there remains $1,182,668 in unredeemed consumer gift cards. Id.
These numbers are the Debtors’ “best estimate given [its] financial and other resources.” Id.
The Commonwealth requested that the Debtors disclose a specific amount relating only to gift cards sold to Massachusetts consumers at the Debtors’ Massachusetts locations, but the Debtors represented that they were unable to provide the Commonwealth with this information. Miceli
Aff., ¶ 4. For this reason, the Commonwealth qualified its Claim in an amount “up to”
$1,182,668.
The Debtors Omnibus Objection also states that they are not liable for the
Commonwealth’s Claim because it is not entitled to priority status under Section 507(a)(7). See
Omnibus Objection, Exhibit C, Item 3. This, too, misses the mark. While the parties may dispute the correct classification or amount of the Commonwealth’s claim under applicable law, the Debtors are not entitled to a finding of “no liability” if the Commonwealth misclassified its claim as a priority claim. At the very least, Massachusetts consumers are entitled to maintain their claim as general unsecured creditors.
The Debtors continued to sell gift cards to consumers until “on or about” the day they filed for bankruptcy. See Miceli Aff., Exhibit 2. If there is money left in the Debtors’ estate to be distributed, Massachusetts gift card holders should be accorded their proper priority status2 according to the Bankruptcy Code and not be left “holding the bag.” In re WW Warehouse, Inc.,
313 B.R. at 594.
2 The Commonwealth has made prior efforts to resolve its Claim with Debtors’ counsel and remains open to further settlement discussions, despite the fact that under Massachusetts law gift cards are valid in perpetuity or for “not less than 7 years after [their] date of issuance.” Mass. Gen. L. c. 200A, § 5D. To date, Debtors counsel has not been receptive to such discussions. 6
Case 15-12054-KG Doc 741 Filed 06/16/16 Page 7 of 7
III. Conclusion
For all the aforementioned reasons, the Commonwealth respectfully requests that the
Debtors’ Omnibus Objection be denied, and that the Commonwealth’s Proof of Claim be accorded priority status pursuant to 11 U.S.C. § 507(a)(7). The Commonwealth will appear telephonically at the hearing scheduled for Friday, June 17, 2016.
Respectfully Submitted,
COMMONWEALTH OF MASSACHUSETTS MAURA HEALEY, ATTORNEY GENERAL
By: /s/ Francesca L. Miceli Francesca L. Miceli, BBO# 663925 Max Weinstein, BBO# 600982 Assistant Attorney General Office of the Attorney General One Ashburton Place Boston, MA 02108 (617) 963-2565 [email protected] [email protected]
Date: June 16, 2016
7
Case 15-12054-KG Doc 741-1 Filed 06/16/16 Page 1 of 2
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
CITY SPORTS, INC., et al., Case No. 15-12054 (KG)
Debtors. Jointly Administered
AFFIDAVIT OF FRANCESCA L. MICELI IN SUPPORT OF THE COMMONWEALTH OF MASSACHUSETTS’ RESPONSE TO THE DEBTORS’ SECOND OMNIBUS OBJECTION TO CLAIMS
I, Francesca L. Miceli, hereby depose and state as follows:
1. I am presently employed as an Assistant Attorney General in the Consumer
Protection Division of the Massachusetts Office of the Attorney General, and am the attorney primarily responsible for preparing and filing the March 23, 2016 proof of claim submitted by the Commonwealth of Massachusetts in the above-captioned matter (“POC”). I have personal knowledge of the matters set forth below except where stated on information and belief and, if called upon as a witness, I could and would competently testify thereto. For all matters stated on information and belief, I believe such statements to be true based upon my own conversations
with counsel, my notes of those conversations, and upon review of the files of the Office of the
Attorney General.
2. A true and correct copy of the POC is attached hereto as Exhibit 1.
3. The facts in the POC, including the amount of the outstanding gift card balance,
are based upon the representations of Debtors’ counsel, which Debtors’ counsel confirmed in
writing via email. On or around January 7, 2016, I spoke with counsel for the Debtors to
ascertain (1) when the Debtors stopped selling gift cards to consumers, (2) the amount of
1
Case 15-12054-KG Doc 741-1 Filed 06/16/16 Page 2 of 2
unredeemed gift card balance as of January 7, 2016, including the amount thereof specific to
Massachusetts purchases, (3) the amount of unredeemed gift cards at the time of the bankruptcy filing and prior to the liquidation sale, and (4) Debtors financial position. Counsel for the
Debtors provided oral answers for each of the questions and later confirmed certain of the answers via email. I, subsequently, prepared the POC using the facts provided by Debtors' counsel. A true and correct copy of the email sent by Debtors' counsel to me on March 17 ,
2016, is attached hereto as Exhibit 2.
4. On our January call, Debtors' counsel represented to me that they were unable to asce1tain the total amount of gift cards specifically sold to Massachusetts consumers at the
Debtors' Massachusetts retail locations. For this reason, I prepared the POC noting the claimed amount "up to" the outstanding total unredeemed gift cards amount of $1 , 182,668.
5. On our January call, Debtors' counsel also represented to me that the Debtors' estate was "administratively insolvent," and that 11 U.S.C. § 503(b)(9) claimants were unlikely to be paid in full.
Signed under the pains and penalties of perjury in Boston, MA this 16th day of June, 2016.
0-l·. LJJL)LLIMC!.A. (Ji\~ Ih IU ~ . ~ CESCA L. MICELI
2 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 1 of 7
EXHIBIT 1
Omni Dynamic SiteCase > CitySporls 15-12054-KG ocf Doc 741-2 Filed 06/16/16 Page 2 of 7 Page 1 of2
• RUST Omni CONSULTING BANKRUPTCY
City Sports, lncD5 et aln Proof of Claim Filing
Confirmation Page
Your Claim Number(s):
Case Number Claim Number 15-12054 203 15-12056 25
Return to Home Page
©2014 - Rust Omni.
This website is not the website of the United States Bankruptcy Court. While Rust Omni makes every effort to ensure the acc convenience to all interested parties and should not be relied upon as a substitute for any financial, legal or other profession; Bankruptcy Court. All documents filled with the Bankruptcy Court are available for inspection at office of the Clerk of the Ban! Court's website.
t RUST Omni CONSULTING BANKRUPTCY
©2014 Rust Omni. All Rights Reserved.
https://secureweb2.rustconsulting.com/omni/Default.aspx?tabid=lll&&PageControl=Con... 3/23/2016 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 3 of 7
Fill in this information to identify the case:
Debtor 1 City Spoils, ItlC.
Debtor2 City Sports-DC, LLC (Spouse, if filing)
United States Bankruptcy Court for the: District of Delaware
Case number 15-12054
Official Form 410 Proof of Claim 12/15
Read the instructions before filling out this form. This form is for making a claim for payment in a bankruptcy case. Do not use this form to make a request for payment of an administrative expense. Make such a request according to 11 U.S.C. § 503. Filers must leave out or redact information that is entitled to privacy on this form or on any attached documents. Attach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, judgments, mortgages, and security agreements. Do not send original documents; they may be destroyed after scanning. If the documents are not available, explain in an attachment. A person who files a fraudulent claim could be fined up to $500,000, imprisoned for up to 5 years, or both. 18 U.S.C. §§ 152, 157, and 3571.
Fill in all the Information about the claim as of the date the case was filed. That date is on the notice of bankruptcy (Form 309) that you received.
Identify the Claim
1. Who Is the current Commonwealth of Massachusetts, Office of the Attorney General, on behalf of MA Residents creditor? Name of the current creditor (the person or entity to be paid for this claim)
Other names the creditor used with the debtor
2. Has this claim been ^ No acquired from someone else? • Yes. From whom? .
3. Where should notices Where should notices to the creditor be sent? Where should payments to the creditor be sent? (if and payments to the different) creditor be sent? Francesca L. Miceli, AAG Consumer Protection Federal Rule of Name Name Bankruptcy Procedure (FRBP) 2002(g) One Ashburton Place, 18th Fl. Number Street Number Street Boston MA 02108 City State ZIP Code City State ZIP Code
Contact phone.617-963-2565 Contact phone
contact email [email protected] Contact email
Uniform claim identifier for electronic payments in chapter 13 (if you use one);
4. Does this claim amend one already filed? • Yes. Claim number on court claims registry (if known) Filed on MM / DD / YYYY
5, Do you know If anyone El No else has filed a proof Q yes. Who made the earlier filing? of claim for this claim?
Official Form 410 Proof of Claim page 1 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 4 of 7
Part 2; Give Information About the Claim as of the Date the Case Was Filed
6. Do you have any number Ei No you use to identify the Q Yes, Last 4 digits of the debtor's account or any number you use to identify the debtor: debtor?
7. How much is the claim? $ up to $1,182,668 . Does this amount include interest or other charges? ^ No • Yes. Attach statement itemizing interest, fees, expenses, or other charges required by Bankruptcy Rule 3001(c)(2)(A),
8. What is the basis of the Examples: Goods sold, money loaned, lease, services performed, personal injury or wrongful death, or credit card. claim? Attach redacted copies of any documents supporting the claim required by Bankruptcy Rule 3001 (c).
Limit disclosing information that is entitled to privacy, such as health care information.
Unredeemed Gift Cards
9. Is all or part of the claim No secured? • Yes. The claim is secured by a lien on property.
Nature of property: • Real estate. If the claim is secured by the debtor's principal residence, file a Mortgage Proof of Claim Attachment (Official Form 410-A) with this Proof of Claim. • Motor vehicle • Other. Describe:
Basis for perfection: Attach redacted copies of documents, if any, that show evidence of perfection of a security interest (for example, a mortgage, lien, certificate of title, financing statement, or other document that shows the lien has been filed or recorded.)
Value of property: $
Amountof the claim that is secured: $
Amount of the claim that is unsecured: $ (The sum of the secured and unsecured amounts should match the amount in line 7.)
Amount necessary to cure any default as of the date of the petition: $
Annual Interest Rate (when case was filed) % • Fixed • Variable
10 Is this claim based on a ^ No lease? Q Yes. Amount necessary to cure any default as of the date of the petition. $
11. Is this claim subject to a ^ No right of setoff? • Yes. Identify the property:
Official Form 410 Proof of Claim page 2 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 5 of 7
12. Is all or part of the claim • No entitled to priority under 11 U.S.C. § 507(a)? Ef Yes. Check one: Amount entitled to priority
A claim may be partly • Domestic support obligations (including alimony and child support) under $ priority and partly 11 U.S.C. § 507(a)(1)(A) or (a)(1)(B). nonpriority. For example, ^ Up to $2,775* of deposits toward purchase, lease, or rental of property or services for in some categories, the $ up to $1,182 ,668 law limits the amount personal, family, or household use. 11 U.S.C. § 507(a)(7). entitled to priority. • Wages, salaries, or commissions (up to $12,475*) earned within 180 days before the bankruptcy petition is filed or the debtor's business ends, whichever is earlier. S 11 U.S.C. § 507(a)(4).
• Taxes or penalties owed to governmental units. 11 U.S.C. § 507(a)(8). $
• Contributions to an employee benefit plan. 11 U.S.C. § 507(a)(5). $
• Other. Specify subsection of 11 U.S.C. § 507(a)( ) that applies. $
* Amounts are subject to adjustment on 4/01/16 and every 3 years after that for cases begun on or after the date of adjustment.
Sign Below
The person completing Check the appropriate box: this proof of claim must sign and date it. Q i am the creditor. FRBP 9011(b). Si I am the creditor's attorney or authorized agent. If you file this claim • I am the trustee, or the debtor, or their authorized agent. Bankruptcy Rule 3004, electronically, FRBP • I am a guarantor, surety, endorser, or other codebtor. Bankruptcy Rule 3005. 5005(a)(2) authorizes courts to establish local rules specifying what a signature I understand that an authorized signature on this Proof of Claim serves as an acknowledgment that when calculating the is, amount of the claim, the creditor gave the debtor credit for any payments received toward the debt. A person who files a fraudulent claim could be I have examined the information in this Proof of Claim and have a reasonable belief that the information is true fined up to $500,000, and correct. imprisoned for up to 5 years, or both. I declare under penalty of perjury that the foregoing is true and correct. 18 U.S.C. §§ 152, 157, and 3571. Executed on date MM /f DD / flTYY
SMnature
Print the name of the person who is completing and signing this claim:
Name Francesca L. Miceli First name Middle name Last name
Title AAG, Consumer Protection Division
Company Massachusetts Attorney General's Office Identify the corporate servicer as the company if the authorized agent is a servicer.
Address One Ashburton Place, 18th Fl. Number Street Boston MA 02108 City State ZIP Code
Contact phone 617-963-2565 Email [email protected]
Official Form 410 Proof of Claim page 3 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 6 of 7
EXHIBIT A
ADDENDUM TO PROOF OF CLAIM OF THE COMMONWEALTH OF MASSACHUSETTS BY THE ATTORNEY GENERAL MAURA HEALEY
CitySports Bankr., Case No. 15-12054
1. On October 5, 2015, the City Sports Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Commonwealth of Massachusetts ("Commonwealth") is informed and believes that the Debtors stopped selling gift cards to consumers on or around the same day.
2. On November 6, 2015, the Court entered the Order Approving Sale of All or Substantially All of Debtors' Assets and Granting Related Relief (Dkt. No. 277), authorizing an agent to run going out of business and liquidation sales on behalf of the Debtors. The Order required Debtors' selling agent to accept Debtors' validly-issued gift certificates and gift cards for the first thirty (30) days after the entry of the Order - i.e., until December 6, 2015. Id. at 25. In order to provide notice to consumers, the agent was required to "post on conspicuous signs or placards that customers have thirty days from the date of the entry of this Order to redeem gift cards." Id.
3. The Commonwealth is informed and believes that on November 5, 2015, before the commencement, of Debtors' liquidation sales, there was approximately $1.4 million in outstanding gift cards. After the expiration of the thirty day gift card redemption period, there is still $1,182,668 in unredeemed consumer gift cards.
4. Under Massachusetts law, a gift certificate is "valid for not less than 7 years after its date of issuance." G.L. c. 200A, § 5D. A gift certificate not clearly marked with an expiration date is redeemable in peipetuity. Id.
5. The Commonwealth, by and through its Attorney General, has standing under the Federal Rule of Bankruptcy Procedure 2018(b) and/or the parens patriae doctrine to file a proof of claim for the balance of unredeemed gift cards on behalf of its residents. See Alfred L. Snapp & Son, Inc. v. Puerto Rico, ex rel, Barez, 458 U.S. 592 (1982). The Commonwealth further has standing to assert such claims both on its own behalf and on behalf of its residents under the Massachusetts Consumer Protection Act, G.L. c. 93A, which prohibits unfair or deceptive acts or practices in the conduct of trade or commerce. The City Sports entities' representation to Massachusetts consumers that its gift cards have no expiration date and later setting an expiration deadline with minimal notice to consumers constitutes a violation of the Act, for which the Debtors are liable for civil penalties, in addition to consumer restitution.
6. The Commonwealth qualifies as a priority creditor under 11 U.S.C. § 507(a)(7), for each unredeemed gift card held by a Massachusetts consumer with a value up to $2,775, as
1 Case 15-12054-KG Doc 741-2 Filed 06/16/16 Page 7 of 7
money paid for a gift certificate is a deposit for the purchase of future services. See In re WW Warehouse, Inc., 313 B.R. 588 (Bankr. D. Del. 2004).1
7. The Commonwealth expressly reserves, and does not waive, any and all rights it may have under the doctrine of sovereign immunity and the Eleventh Amendment of the United States Constitution.
1 Similar proofs of claim were filed by many states on behalf of their consumers in the recent RadioShack bankruptcy proceedings. See In re RadioShack Corp., Del. Bankr. Case No. 15-10197 (Shannon, J.) (adversary proceeding initiated by Texas resolved through settlement approved by the bankruptcy court and supported by 24 states, including Massachusetts, and the District of Columbia).
2 Case 15-12054-KG Doc 741-3 Filed 06/16/16 Page 1 of 2
EXHIBIT 2
Case 15-12054-KG Doc 741-3 Filed 06/16/16 Page 2 of 2
From: Corrado, Dienna [mailto:[email protected]] Sent: Thursday, March 17, 2016 11:26 AM To: Miceli, Francesca (AGO) Cc: [email protected] Subject: RE: City Sports, Inc. (Case No. 15-12054) - Order Approving Sale of All or Substantially All of Debtors' Assets and Granting Related Relief [Docket No. 277]
Francesca,
The amounts listed in your email below are our best estimate given our financial and other resources. The Debtors stopped selling gift cards on or about October 5, 2015.
Best, Dienna
Dienna Ching Corrado Associate T +1 212.335.4982 F +1 917.778.8184 M +1 631.697.6020 E [email protected]
DLA Piper LLP (US) 1251 Avenue of the Americas, 27th Floor New York, New York 10020-1104 United States www.dlapiper.com
From: Miceli, Francesca (AGO) [mailto:[email protected]] Sent: Wednesday, March 16, 2016 4:08 PM To: Corrado, Dienna Cc: [email protected] Subject: RE: City Sports, Inc. (Case No. 15-12054) - Order Approving Sale of All or Substantially All of Debtors' Assets and Granting Related Relief [Docket No. 277]
Dienna,
I am preparing a proof of claim for MA and would just like to confirm a few facts related to the Debtors’ gift cards that I recorded from our conversation on January 7th. They are as follows:
• The Debtors stopped selling gift cards to consumers on October 6, 2015. • Before the commencement of Debtors’ liquidation sales, there was approximately $1.4 million in outstanding gift cards. • There is currently $1,182,668 in unredeemed consumer gift cards.
Please confirm (or correct if appropriate) that these dates/numbers are accurate.
Many thanks, Francesca Case 15-12054-KG Doc 741-4 Filed 06/16/16 Page 1 of 5
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
CITY SPORTS, INC., et al., Case No. 15-12054 (KG)
Debtors. Jointly Administered
CERTIFICATE OF SERVICE
I, Francesca L. Miceli, hereby certify that, on June 16, 2016, I served a copy of the
Response of the Commonwealth of Massachusetts to the Debtors’ Second Omnibus Objection to
Claims and Affidavit of Francesca L. Miceli in Support of the Commonwealth of Massachusetts’
Response to the Debtors’ Second Omnibus Objection to Claims via electronic means (e-mail) to all parties who consented to receive documents by electronic means, in accordance with Local Rules
2002-1(b), (c) and 5005-4(c)(ii), listed in Exhibit A In addition, I served the parties listed on the attached Exhibit B via First Class Mail.
___/s/ Francesca L. Miceli______Francesca L. Miceli, BBO#663925 Assistant Attorney General Consumer Protection Division Office of the Attorney General One Ashburton Place Boston, Massachusetts 02108 (617) 727-2565 [email protected]
Dated: June 16, 2016
Case 15-12054-KG Doc 741-4 Filed 06/16/16 Page 2 of 5
EXHIBIT A SERVICE BY ELECTRONIC MEANS
Attn: Mark Office of the United Kenney/Hannah States Trustee McCollum
Attn: Douglas Goulston & Storrs PC Rosner/Vanessa Moody
Mersky McLaughlin and Browder, P.A Attn: Rachel B. Mersky
Attn: Matthew Ballard Spahr LLP Summers/Leslie Heilman
Ballard Spahr LLP Attn: David L. Pollack
The Rosner Law Group Attn: Frederick LLC Rosner/Julia Klein
Ellenoff Grossman & Schole LLP Attn: Howard J. Berman
Chipman Brown Cicero & Cole, LLP Attn: William E. Chipman
Attn: Christopher Polsinelli PC Ward/Jarrett Vine
Attn: Rafael X. Elliott Greenleaf, PC Zahralddin-Aravena
Pryor Cashman LLP Attn: Seth H. Lieberman
Seyfarth Shaw LLP Attn: William J. Hanlon
Sullivan Hazeltine Allinson LLC Attn: William A. Hazeltine
JPS Law PLLC Attn: JP Sherry
Attn: Jay Indyke/Jeffrey Cooley LLP Cohen Case 15-12054-KG Doc 741-4 Filed 06/16/16 Page 3 of 5
Cozen O' Connor Attn: Mark Felger
Attn: Victor Milione/Lee Nixon Peabody LLP Harrington
Attn: Brian Arban/Adam Hiller & Arban, LLC Hiller
Brown & Ruprecht Attn: Frank Wendt
Muss Development, Attn: Joseph LLC McKillop/Lori Mishali
Attn: Albert Kennedy/Ava Tonkon Torp LLP Schoen
Manion Gaynor & Manning LLP Attn: Marc J. Phillips
Ciardi Ciardi & Astin Attn: Daniel K. Astin
Attn: Kathleen Murphy & King, P.C. Cruickshank
Nouveau Elevator Industries, Inc Attn: Peter Verdirame
Attn: Neil Bayard, P.A. Glassman/Ashley Stitzer
Attn: Lawrence Leach Travell PC Katz/Kristin Burgers
Rosenthal & Rosenthal, Inc. Attn: Anthony DiTirro
Magnozzi & Kye, LLP Attn: Amish R. Doshi
Cole Schotz P.C. Attn: Marion M. Quirk Attn: Steven Curtis, Mallet-Prevost, Reisman/Cindi Eilbott Colt & Mosle LLP Giglio
Creim Macias Koenig & Frey, LLP Attn: Richard C. Macias
Wachtell, Lipton, Rosen & Katz Attn: Neil M. Snyder Case 15-12054-KG Doc 741-4 Filed 06/16/16 Page 4 of 5 Morris Nichols Arsht & Attn: Derek Tunnell LLP Abbott/Tamara Minott
Fox Rothschild LLP Attn: Dana Katz
Fox Rothschild LLP Attn: John H. Strock
Shafferman & Feldman, LLP Attn: Joel M. Shafferman
MPD Law, LLC Attn: Mark P. Daly
Buchanan Ingersoll &
Rooney PC Attn: Mary F. Caloway
Attn: Shawn M.
Buchalter Nemer, APC Christianson
Case 15-12054-KG Doc 741-4 Filed 06/16/16 Page 5 of 5
EXHIBIT B SERVICE BY FIRST CLASS MAIL
Office of the US Trustee City Sports, Inc. 844 N. King St., 77 N. Washington Street Room 2207 Boston, MA 02114 Wilmington, DE 19801 Attn: Mark Kenney, Esq. Hannah McCollum, Esq.
DLA Piper LLP Riemer & Braunstein LLP th 1251 Avenue of the Americas Three Center Plaza, 6 Floor New York, NY 10020 Boston, MA 02110 Attn: David S. Berman, Esq Attn: Gregg M. Galardi, Esq. Dienna Corrado, Esq. .
Womble Carlyle Sandridge & Rice, LLP 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801 Attn: Steven K. Kortanek, Esq.
Internal Revenue Service P.O. Box 7346 Philadelphia, PA 19101-7346
JFK Federal Building Internal Revenue Service Boston, MA 02108 15 Sudbury Street
Hilson Management 185 Madison Avenue Corporation – As Agent New York, NY 10016 Attn: James E. Schwalbe for 390 Fifth LLC 180 Maiden Lane; Stroock & Stroock & Attn: Mark Speiser/ New York, NY 10038 Lavan LLP Sherry Millman Montgomery County 255 Rockville Pike., Ste. L15 Rockville, MD 20850 Division of Treasury
DLA Piper LLP 1201 N. Market Street, Ste. 2100 Wilmington, DE 19801