Providing an important reminder about the intersection of privacy promises and bankruptcy, the Texas Attorney General has filed an order to halt the sale of customer information in RadioShack’s bankruptcy.  

With the hope of keeping the company alive, RadioShack offered to sell various assets in the course of its bankruptcy case. Included in the list: “customer lists and other customer-related information.” Texas Attorney General Ken Paxton took the deposition of two RadioShack witnesses and learned that the information included customer names, phone numbers, mailing addresses, e-mail addresses, and in some situations the activity data of 117 million customers—or roughly 37 percent of the country’s total population.

Paxton filed an objection with the Delaware bankruptcy court overseeing RadioShack’s proceedings, citing violations of state consumer protection laws. The company’s online policy stated: “We will not sell or rent your personally identifiable information [PII] to anyone at any time,” while in-store signage stated: “At RadioShack, we respect your privacy. We do not sell our mailing list.”

“All versions of the [RadioShack] privacy policy contain an unequivocal provision that consumer PII will not be sold,” the AG told the court. “Therefore, the Debtors have made expressed representations to consumers that consumer PII would never be sold and yet . . . the Debtors seek to do the exact opposite of what they promised.”

The proposed sale was therefore impermissible as a “false, misleading, and deceptive business practice” in violation of Texas state law, the AG argued.

A few days later the state of Tennessee joined with Texas. Paxton then supplemented his filing to inform the bankruptcy court that an additional 21 governmental entities had expressed their support for the objection, including Arkansas, Colorado, Connecticut, the District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Montana, Nebraska, Nevada, Rhode Island, South Carolina, Washington, and Wisconsin.

The bankruptcy court permitted the sale of RadioShack’s assets to move forward, albeit without the customer PII, leaving the issue to be resolved at a later date.

To read the Texas Attorney General’s objection in RadioShack’s bankruptcy case, click here.

To read the AG’s supplemental motion, click here.

Why it matters: Companies do not typically plan on filing for bankruptcy, but such an event should be a consideration when drafting a privacy policy. Approval of the sale of RadioShack’s customer information—and ability to continue operations—may now hinge on how the PII collected by the company will be dealt with. The problem is not unique to RadioShack, with similar issues plaguing the bankruptcy of Crumbs bakery and the Federal Trade Commission getting involved in the recent bankruptcy proceedings of national bookstore chain Borders over concerns about the sale of consumer data.