Did B&N Pull A Fast One With Borders’ Customer List?

In order to clinch its purchase of 40 million customer names from bankrupt Borders, Barnes & Noble (NYSE: BKS) made a series of promises to the court on steps it would take to protect the privacy of those customers. Now a consumer advocate claims the company broke its pledge.

In a court report, the advocate argues that a mass e-mail sent by Barnes & Noble CEO William Lynch did not inform customers about the extent of data that Barnes & Noble was obtaining, such as their purchase history. The report also claims that the e-mail’s tone suggested that Barnes & Noble was engaging in a magnanimous gesture to customers rather than complying with a court order.

The person behind the report that alleges the violation is Michael Baxter, a consumer privacy ombudsman assigned to the case when privacy issues first arose over Barnes & Noble’s purchase of the Borders’ customer list. In an earlier report to the Manhattan bankruptcy court, Baxter had said that many Borders customers were protected by an earlier privacy policy that forbid the sale or transfer of their personal information.

In response to Baxter’s concerns, the bankruptcy judge halted the sale. He eventually allowed it to go ahead on September 26 after the parties proposed a plan to notify former Borders’ customers about the sale through e-mails and a full-page ad in USA Today. The plan also required Barnes & Noble to inform the customers that they could opt out of the planned transfer but did permit the company to include promotional materials in the notice. Last Friday, the company’s CEO sent a mass e-mail to the former Borders customers.

Baxter’s court filing, first reported by Bankruptcy Beat, also includes an e-mail exchange in which Barnes & Noble executives effectively tell the privacy ombudsmen to go jump in the lake:

“I don’t find that to be acceptable, Paul. My changes were quite limited and important. We should discuss. If not I will consider bringing this to the Court’s attention,” a Sept. 28 email from the ombudsman reads.

“The transaction has closed. We disagree with your position that you have specific approval rights over the specific wording of the opt-out notice. We believe the notice complies with all applicable requirements of the sale order,” B&N’s lawyer responds on Sept 30.

It is not clear what, if anything, will come of Baxter’s report as it did not request the court to take any specific actions. As the bankruptcy judge’s order approved the sale immediately, there is little possibility of the transaction being revoked. The judge’s order did, however, include a requirement that a Barnes & Noble executive eventually submit a sworn affidavit saying the company has complied with all the privacy requirements.

Barnes & Noble bought the rights to the Borders’ customer list and other intellectual property assets for $13.9 million at an auction on September 14. The privacy aspects of the sale have also attracted scrutiny from politicians like Senator Richard Blumenthal (D-Conn.), who said the opt-out scheme was “unacceptable” and said customers’ explicit consent should be required.