Smith’s Leaves Customers Holding The Bag State May Even Have To Pay Back $450,000 Deceptive Advertising Settlement

When Fred Young walked into Smith’s Home Furnishings last November, he spent $760 for a television and service warranty.

Now, his remote-control sensor is broken and his $140 warranty is worthless. He decided to rescue his TV from the shop and pay for the repair himself.

Young is mad, and he has a lot of company. In the wake of Smith’s bankruptcy filing Tuesday, customers are finding warranties useless, suppliers and contractors face delays before receiving money for overdue bills and Spokane employees must look for new jobs.

And while creditors line up for a chance to get a portion of the money they are owed, Smith’s may ask the state of Washington to give back $450,000 it paid to settle a deceptive advertising lawsuit.

The Washington Department of Revenue is Smith’s second-largest unsecured creditor, with $1.5 million in back taxes owed. Because it is unsecured debt, the state will be one of the last creditors to collect.

Also, bankruptcy statutes allow companies to take back any significant payments they made during the 90 days before their bankruptcy filing. The deceptive-advertising settlement with the attorney general’s office falls into that time span.

A spokesperson at the attorney general’s office said it’s not clear whether Smith’s will be able to reclaim the money.

“We’re looking at this right now and at this point we really don’t know what’s going to happen,” said Sally Gustafson, division chief for consumer protection.

Spokane customers are in a particularly weak position because Smith’s is closing both of its stores here as part of the Chapter 11 bankruptcy reorganization.

That forces customers to haul their broken appliances to the Smith’s in Boise or the Tri-Cities after the local stores close Sept. 5, or pay for repairs themselves.

And their drive may get longer. Smith’s will decide at the end of April whether to keep the Tri-Cities store open. It also may close stores in Silverdale, Lacey and Tacoma.

To stem the tide of customer discontent, Smith’s has established a toll-free hotline for consumers with warranty concerns. But consumers say the hotline is ineffective and Smith’s staffers flatly admit their warranties are useless.

Even the attorney general’s office said consumers are likely to lose.

“Anybody who has a complaint can file a lawsuit. Or they can hire an attorney or go to small claims court,” said Gustafson. She added that consumers can also file complaints with the Better Business Bureau or the attorney general’s office.

“Other than that, they’re in a difficult situation,” Gustafson said from her Seattle office. “It’s likely some may lose money on warranties.”

According to Smith’s chief executive officer, Spokane consumers with extended warranties on Smith’s products can still have merchandise serviced. Although CEO Glen Grodem did not return phone calls Friday, he said earlier in the week that contracts will be honored if consumers travel to stores in the Tri-Cities or Boise.

But Spokane resident Carol Woodward says that’s not the point.

Woodward bought a $1,700 computer at Smith’s and a $250 extended warranty for a service contract good for five years. According to her contract, Woodward could have the $250 refunded for in-store purchases if she didn’t use the warranty.

Woodward, who had two more years to go before the warranty applied to in-store purchases, was going to use the money for a couch or oven. But now that’s not practical.

“It’s 280 miles round-trip to Pasco!” she yelled. “Can you imagine the delivery charge for a couch from Pasco to Spokane?”

Woodward feels ripped off because she normally shuns service warranties as wasted money.

“When I bought the contract, the salesman pointed to the door on Division and said I could come in here and get $250 worth of purchases if I didn’t use the contract. If he had told me I had to drive to the Tri-Cities, I would never have agreed,” Woodward said.

Businesses that contracted with Smith’s to do their repair work are similarly frustrated. Many of Smith’s repair contractors, including those in Spokane, no longer honor Smith’s warranties because they haven’t been paid.

Joyce Costello, owner of Lloyd’s Appliance & TV Center, had fixed products with service contracts from Smith’s since the Wilsonville, Ore.chain opened its Northpointe Plaza store in 1991. But she said Smith’s reimbursement checks have been bouncing since July.

Since the bankruptcy, Costello has had to turn away several people each day who hoped she would honor Smith’s warranties.

“We don’t want to be the bad guys. We want to serve the customer, but we don’t want to lose money in the process,” she said.

, DataTimes MEMO: Consumers wishing to file complaints with the attorney general’s office should call (800) 551-4636 for a complaint form. Consumers can also call the Inland Northwest chapter of the Better Business Bureau at (800) 356-1007. Or call Smith’s at (800) 860-1951.