Smith’s Warranties Still In Limbo Courts Ultimately Will Decide; Some Competitors Offer Help

Some Spokane appliance and furniture dealers are offering help to Smith’s Home Furnishings customers who wonder where they can go to seek fulfillment of warranties on merchandise purchased from Smith’s.

Fred’s Appliances Inc. and Self Service Furniture are among companies that have advertised their willingness to help Smith’s customers who are left wondering what to do following the closure of Smith’s Washington stores.

“Provided they are still into the manufacturer’s warranty, we will do the service on the appliance for them,” said John Amistoso, president of Fred’s.

“If they contact us,” says Gerry Griner, president of Self Service Furniture, “we will provide them with a customer service number for the manufacturer involved. And if they need to have a replacement part shipped, we’ll be happy to accept it for them in our warehouse.”

Both those offers only apply, though, to the manufacturer’s warranty. Like many other dealers, Smith’s also sold warranties that extended beyond the term of the manufacturer’s warranty.

“We can’t do anything about that,” says Amistoso. “That’s a tough one. Those poor people may just be stuck on that one.”

Maybe, and maybe not.

Extended warranties have been a source of confusion and consumer anxiety since Smith’s filed for Chapter 11 bankruptcy protection late last month. Some customers have been unable to get appliances repaired. Others say they purchased the warranties because of discounts Smith’s offered on future purchases if no repairs were needed. Those discounts are now worthless.

Smith’s officials would not return phone calls to offer comment for this article. But they have said previously that Spokane customers will have to pursue their claims through the bankruptcy process.

Local bankruptcy experts say that process may offer some hope.

At some point in the evolution of the case in federal bankruptcy court in Portland, the judge will rule whether Smith’s has to assume responsibility for its warranty contracts. That will be a pivotal moment for consumers.

Smith’s has the option of filing motions either asking the court to waive its responsibility for the contracts, or to allow Smith’s to honor its responsibility for the contracts despite the bankruptcy proceeding.

If the judge rules that Smith’s may do so, or denies its request to escape the contracts, then local customers have some recourse.

If not, holders of extended warranties become unsecured creditors and slip far down the priority list of who gets paid in Smith’s reorganization.

If that is the case, one local bankruptcy attorney said, it wouldn’t make economic sense for individual warranty holders to seek formal standing on the unsecured creditors list. But the warranty holders could organize their interests and demand to be represented as a group on the creditor’s committee, or ask that a separate committee be established to deal with the warranty contract issue. Smith’s would have to bear the costs of such representation.

The attorney suggested that the state attorney general’s office might be the appropriate entity to organize representation of Washington’s disenfranchised Smith’s warranty contract holders.

Smith’s business practices - including its extended warranty contracts - drew the attention of the attorney general’s office and the Better Business Bureau throughout its operational existence here.

An investigation by the attorney general’s office of a variety of Smith’s business practices culminated in a court order in July that the company pay a $450,000 fine to settle a deceptive advertising lawsuit.

Five weeks later, the Wilsonville, Ore.-based retailer made its bankruptcy filing.

Smith’s practice of offering extended warranties on products was part of the attorney general’s investigation here.

The state’s suit against Smith’s charged that it sold warranties that duplicated existing manufacturer’s warranties. And it said Smith’s told customers they would get their money back if they didn’t use the warranty during the life of the warranty.

In fact, the suit said, the store provided only a credit toward future purchases rather than cash back. The suit also said that Smith’s failed to provide customer’s with written copies of their warranty contracts.

, DataTimes MEMO: This sidebar appeared with the story: USE CAUTION IN BUYING WARRANTY Both the attorney general’s office and the Better Business Bureau warn that consumers should use caution and common sense in deciding whether to purchase an extended service warranty. Consumers first should be certain that they aren’t paying extra for something that the manufacturer has already provided. In some cases, very large nationwide chains will get a discount on bulk purchase of appliances from the manufacturer by waiving the manufacturer’s warranty coverage. That is because the huge retail chains usually have their own warranty coverage program that is very profitable for them. But John Amistoso, president of Fred’s Appliances Inc., explained that when smaller company’s like Fred’s, or Smith’s, buy a load of washers from a manufacturer, the purchase price typically includes the cost of a one-year parts and service warranty by the manufacturer. That is passed along to the consumer in the retail price of the product. Consumers should always demand to see the written warranty contract before purchasing it. The fine print sometimes excludes coverage of some parts. If the seller is offering an extension that goes several years beyond the manufacturer’s warranty, the consumer should ask how likely is it that the seller is going to be around to live up to the contract. “In that sense, it’s kind of like the lifetime memberships that health clubs used to sell,” says Owen Clarke, senior assistant attorney general. “The ‘lifetime’ was the lifetime of the company, not the lifetime of the buyer.” And Clark added, “The prices of these warranties are usually negotiable, but customers often don’t know that and end up overpaying.” -Michael Murphey