Uncertainty will hang over the upcoming bankruptcy auction of RadioShack’s intellectual property, franchise infrastructure, and customer data pending resolution of an ongoing struggle between RadioShack and several states’ attorneys general concerning the proposed sale of customer data. As previously reported, RadioShack plans to auction personally identifiable information (PII) collected from more than 70 million customers. The State of Texas (joined formally or informally by 35 other states) objected to the sale citing several of RadioShack’s own privacy policies which prohibited the sale of PII. RadioShack withdrew the PII from its prior auction, but has scheduled a new auction which would include PII.
In light of the prohibitions in RadioShack’s privacy policies, Texas has argued that the sale of PII runs afoul of section 363(b)(1)(B)(ii) of the Bankruptcy Code because it “would violate applicable non-bankruptcy law” and Texas’s Deceptive Trade Practices Act. Broadcasting a clear signal that it will continue to press its objection to the sale of PII, Texas unsuccessfully asked that the bankruptcy court require bidders to allocate their proposed purchase price for the PII so that judicial disapproval of the transfer of PII will not necessarily unravel the totality of a bid for RadioShack’s other assets.
The bankruptcy court’s order establishing bid and sale procedures indicates that RadioShack will engage in post-auction mediation with Texas and any successful bidder for the PII (if the bidder is willing to mediate). The order also sets dates for depositions concerning the sale of PII telegraphing that the fight over the issue will continue should mediation fail. Objections to the sale of PII are likely to be heard at the bankruptcy court’s May 20, 2015, hearing to consider and approve a sale to the high bidder, so stay tuned.