By Jonathan Stempel
(Reuters) - Borders owes nothing to holders of roughly $210.5 million of gift cards that had not been used by the time the bookstore chain shut down, a Manhattan federal judge ruled on Wednesday.
U.S. District Judge Andrew Carter said it would be unfair to other creditors of the former Borders Group Inc. to let gift card holders pursue recoveries from the bankruptcy estate.
To do so, Carter explained, could upset a liquidation by Borders' bankruptcy trustee that is already "substantially" completed.
He also said card holders failed to prove they met all the requirements for an exception, including that unsecured creditors whose interests might be harmed had been notified about the litigation and given a chance to object.
The decision upheld an August 2012 ruling against the card holders by U.S. Bankruptcy Judge Martin Glenn in Manhattan.
Borders had 642 stores when it filed for Chapter 11 protection from creditors in February 2011. It shut its doors seven months later.
Clinton Krislov, a lawyer for the card holders, was not immediately available on Wednesday to comment.
About 17.7 million gift cards were outstanding when Borders ceased retail operations.
While the parties agreed that much of the unredeemed balances would go unclaimed, the trustee estimated that $50 million might be needed to satisfy card holder claims if a class action were certified.
The trustee has about $61 million left to distribute to all claimants, including unsecured creditors. Carter said that to allow card holders to share in distributions would amount to a "significant alteration" of the current distribution plan.
Borders had been the second-largest U.S. bookstore chain, trailing Barnes & Noble Inc.
The case is In re: BGI Inc, f/k/a Borders Group Inc., U.S. District Court, Southern District of New York, Nos. 12-07714, 12-07715 and 13-00080.
(Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)