Another Case of Customers Holding Worthless Gift Cards as Restaurant Suddenly Closes

H amilton’s Canton Dockside is — or, more accurately, was — a restaurant which offered potential and current customers gift cards for sale worth $100.00 as recently as Saturday, December 24, 2016 during the height of the holiday season.

The restaurant — which was in business for approximately 12 years at its location of Boston Street near South Clinton Street in Baltimore — suddenly closed two days later. “Several former employees have sued the restaurant over wages”, according to this article written by Jessica Anderson of The Baltimore Sun. Eric Hamilton “declined to comment on the federal lawsuits filed this year by several former employees. Earl Hamilton did not respond to a request for comment Tuesday.”

Closed restaurant

Source: Hamilton’s Canton Dockside.

The official Internet web site of the seafood restaurant is still intact, with no notice anywhere to be found of the demise of the eatery; and as seen in the image at the top of this article, gift cards are still being offered for sale for $100.00 — with the incentive of receiving an instant certificate worth $25.00 — through Saturday, December 31, 2016 at the time that this article was written.

Another Case of Customers Holding Worthless Gift Cards as Restaurant Suddenly Closes

Some readers of The Gate know all too well about the pain of spending money on purchasing gift cards for restaurants — only to have them suddenly become worthless due to the sudden closure of restaurants, as was the case with Here To Serve Restaurants in Atlanta.

Here To Serve Restaurants had been in continuous operation since 1996; but their ten restaurants in the Atlanta metropolitan area suddenly closed on Tuesday, October 6, 2015.

“I am one of the unfortunate holders of un-redeemed H2S gift cards…. several thousand dollars worth!” andrew kronitz — who is a reader of The Gate — posted in the Comments section. “I plan to file as an unsecured creditor once the corporation files bankruptcy. I’m assuming most holders won’t file same, though my attorney plans to request allocation from judge based on entire amount of un-redeemed gift card balances outstanding at time of mass closures.”

People holding worthless gift cards are still feeling the pain, so to speak. “Dang, I’ve got a useless $50 gift card I planned on using tonight, but just found out that Prime in Atlanta has closed.” This is what Jipped John — who is another reader of The Gate — posted in the Comments section only earlier this month.

What Can You Do

Restaurateurs who do everything they can to attempt to continue failing businesses are not going to advertise that their establishments are in financial hardship, as that would surely be the death knell for operations — which means that you need to exercise caution if you are considering purchasing gift cards or gift certificates sold by dining companies.

As enticing as an offer might be for a gift card, remain reserved. Purchase only one or two gift cards at the most to limit your losses should a restaurant suddenly go out of business.

Better yet, do some research. Find out through news sources whether or not the restaurant or its parent company has any potentially bad news written about it: employee disputes, financial information, relationship problems between partners, closures of other restaurants by the owners, or any other information which may give clues portending the future of the restaurant.

Watch out for new restaurant openings. Tom Catherall took advantage of the opportunity of the aforementioned demise of Here To Serve Restaurants to open a new restaurant called Tom Tom — only to change the name to Taco Cowboy “due to ongoing legal battles with Here to Serve Restaurants”, according to this article written by Ligaya Figueras of The Atlanta Journal-Constitution.

Catherall founded Here To Serve Restaurants in 1996; but lost ownership and rights to the chain as the result of a bitter divorce battle with Leigh Catherall, who is currently the president and chief operating officer of the now-defunct chain of restaurants. Customers who purchased gift cards from Here To Serve Restaurants — which suddenly became worthless — have never been reimbursed or compensated for their losses.

At the time this article was written, Taco Cowboy does not sell gift cards or gift certificates.

For further information pertaining to ways you can protect yourself regarding gift cards, please read this article called Watch Out For the 5 Pitfalls of Gift Cards — They Can Cost You Serious Money.

Summary

While I can understand the attention being focused on the plight of employees who suddenly lose their jobs as the result of financial struggles of the restaurant for which they worked, there has been virtually no recourse or protection for consumers in place for customers who purchase gift cards to be used to enjoy a meal at a later date, as many restaurants do not allow for the use of gift cards at the time of purchase as a method to induce repeat business.

In this case, to sell gift cards as soon as two days prior to closing smacks of willful deception, in my opinion. Enticing customers to purchase gift cards with a discount or incentive — only to have them rendered worthless days later because the restaurant suddenly closes — leaves a bad taste in their mouths.

Gift cards are apparently a financial vehicle for a failing business to raise desperately needed funds prior to suddenly closing a business — on the backs of loyal customers — and there seems to currently be nothing illegal about this perception of an unethical practice.

Source: Hamilton’s Canton Dockside.

10 thoughts on “Another Case of Customers Holding Worthless Gift Cards as Restaurant Suddenly Closes”

  1. augias says:

    lesson: never buy any gift cards. I don’t really understand the non-churning uses of gift cards actually – isn’t it kind of a bad gift to give to someone (rather than picking something out for them or taking them to a restaurant personally)?

  2. colleen says:

    @augias – we pick them up fairly often, but only in conjuction with Amex promos. And back in the day of Amex’ “Small Biz Saturday” promo you’d get $25 back on a $25 gift card to your local favorites. Today it’s more like $10 back on $40 or similar from the named merchant. I really agree with you on gifting – we just use them for our own return business when we’re effectively getting a 25% discount.

  3. Captain Kirk says:

    I never buy gift cards to restaurants, but if I were to, I would only do so from large, well known ones that have many locations.

    1. Brian Cohen says:

      That is a good general policy to have, Captain Kirk; but even then, you have to be careful.

      For example, a location might close for various reasons, which could leave you holding gift cards for a restaurant chain where the next nearest location is not convenient to where you are based — but one thing which could be done in that situation is to request a refund from the parent company, as you are not responsible or cannot predict the closing of a location close to you.

  4. Carl P says:

    I would think you could dispute the credit card charge if you bought gift cards from them shortly before them closing, but it does open the question will the credit card issuer honor a dispute if they have no way to get their money back? I’m not sure how that works.

    I’m not a lawyer, but why it isn’t it fraud for them to sell gift cards that they pretty much know are worthless?

    1. Brian Cohen says:

      Correct me if I am wrong, Carl P; but I believe that once the merchant is paid by the credit card company — typically after 30 days or so — there is no recourse, as a dispute of a credit card charge is most effective when the holder of the credit card has not yet paid the outstanding balance on the credit card statement…

      …so if a person holds a gift card for three months prior to attempting to use it — which is not unreasonable — that person is most likely out of luck if the gift card becomes worthless due to the closing of the business which issued it.

      As for fraud — well…that a merchant knows that a gift card is worthless when selling it is difficult to prove, I would think…

      1. Carl P says:

        I did some checking and it looks like a lot of disputes are allowed for up to 60 to 120 days depending on the reason. I don’t know if you’ll be helped if the merchant has insufficient finds to cover the chargeback, which is likely in this case (unless the transaction is recent enough that the merchant hasn’t received funds). I didn’t realize that it took so long for merchants to get their funds.

        In the case of fraud I was thinking that if you’re selling gift cards on your last day open (and certainly after that) that there may be a case. Of course the law is not always reasonable.

        In any case I’d never have “several thousand dollars” in a merchant’s gift cards – not even to satisfy a credit card bonus spend requirement.

        1. Brian Cohen says:

          Disputes can indeed last that long, Carl P; but would that not be different from when the customer initiates a dispute?

          Besides, you are most likely correct: if the merchant has insufficient funds or is suddenly insolvent, this is most likely moot anyway.

          I would never carry several thousand dollars of gift cards myself — not even for the best bargain or discount…

  5. Carl P says:

    FYI. I checked at work. For us there is usually one day between a charge by a customer and availability of funds for us for MC/Visa. It more like two days for Amex.

    1. Brian Cohen says:

      I truly appreciate the research and clarifications on your part, Carl P.

      Thank you so much — and please feel free to post any additional information which you believe may be helpful to fellow readers.

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