Trustee moves to protect consumers from company’s planned sale of customer data

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is a small business bankruptcy ?”


Most entrepreneurs don’t start a new business by planning for their bankruptcy. If they care about their customers’ privacy, perhaps they should.

Fancy cupcakes Charlotte Bankruptcy Lawyer North Carolina Chapter 11 AttorneyIn July, Crumbs Bake Shop, Inc.—a publicly held purveyor of cupcakes and other baked goods—filed a motion in its Chapter 11 bankruptcy to obtain permission from the United States Bankruptcy Court for the District of New Jersey to auction off its intellectual property. The intellectual property up for auction included the names, phone numbers and addresses of Crumbs customers.

A company named Lemonis Fischer Acquisition Company proposed to purchase the property—including the Crumbs consumer data. Before it could consummate its purchase, however, a United States Bankruptcy Trustee filed a motion aimed at protecting the consumer data.

In his motion, the trustee—Donald F. MacMaster—wrote that it appeared that Crumbs was selling its customer lists. MacMaster wrote that Crumbs had the burden of showing that the sale of customer data was consistent with its privacy policy.

Crumbs’ privacy policy provided that it would provide “individually identifiable information about consumers to third parties only if [Crumbs was] compelled to do so by order of a duly-empowered governmental authority[.]” The policy also permits Crumbs to release private information of consumers with their express permission or for the purpose of completing their order. MacMaster wrote in his motion that none of these exceptions to the company’s privacy policy were present in the Crumbs case.

MacMaster asked the bankruptcy court to appoint a privacy ombudsman. In his motion, MacMaster argued that auctioning the lists would violate Crumbs’ privacy policy and would render the policy “meaningless, leading consumers to believe their personal information is protected when in fact, it is not.”

The trustee cited a provision in the Bankruptcy Code that allows the court to appoint a consumer privacy ombudsman who can determine whether sale of the lists would violate Crumbs’ privacy policy and whether the sale might violate any laws that protect the privacy of consumers.

After a hearing, United States Bankruptcy Judge Michael B. Kaplan directed the trustee to appoint a consumer privacy ombudsman. After an investigation into Crumbs’ privacy policy and the countenanced sale to Lemonis Fischer, the court will likely hold a hearing at which the ombudsman will present information regarding the potential pros and cons of allowing the auction to proceed as well as how any release of information may impact consumers.

Issues relating to consumer privacy and the sale of business property in bankruptcies are not new, and bankruptcy courts have wrestled with the dilemmas raised by sales that include sensitive consumer data, particularly in bankruptcies in the healthcare field.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.






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