Two recent lawsuits have alleged that online retailers deceive customers by charging shipping and handling fees that exceed actual shipping costs. Although several retailers have been targeted by shipping/handling claims in recent years, the evolution of these cases suggest that this will become a more popular area of litigation in 2017.
The crux of these claims is that retailers deceive consumers and act unfairly by charging inflated shipping and handling costs, which in effect, offset the price of the goods being shipped. The plaintiffs in these cases claim that by charging shipping and handling costs that exceed actual shipping costs, the retailers violate California’s consumer protection statutes. Given the number of retailers that ship products online — and the nightmare that would come with charging different shipping fees for each product, depending on that specific product’s weight — this is an area of litigation that every retailer with an online presence should at least beware of.
Overview of Recent Claims
In the last three weeks alone, plaintiff Jim Reider has filed almost identical suits against two retailers for their shipping and handling fees.
The first of these suits, Reider v. Electrolux, filed January 6, 2017 in the Central District of California, stems from the plaintiff’s online purchase of a $1.99 vacuum filter, for which he paid a $7.99 shipping and handling fee. Citing the U.S. Postal Service’s cost calculator, plaintiff alleges that the actual shipping cost for the filter was less than half of what he actually paid.
Plaintiff claims that charging excessive shipping fees violates the “unfairness” and “fraudulent” prongs of California’s Unfair Competition Law (UCL) and the California Consumers Legal Remedies Act (CLRA). He claims that the fees are unethical and that they are likely to deceive reasonable consumers who expect that delivery charges bear a reasonable relationship to a company’s costs of delivery.
The complaint quotes heavily from the Direct Marketing Association (DMA) guidance documents and press releases, which recommend that shipping and handling costs “bear a reasonable relationship to actual costs incurred.” The complaint also cites an FTC consent order from 1980, which prohibited a car dealer from charging an amount for “Freight” that “exceeded respondent’s actual outlays to third parties for the transportation of new automobiles.”
Reider’s CLRA claims are based on three sections of the CLRA, for: “(9) Advertising goods or services with intent not to sell them as advertised;” “(14) Representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law,” and “(19) Inserting an unconscionable provision in the contract.”
Reider filed an almost identical claim against Express Inc. two weeks later on January 23, 2017, in the same court. Issues With the Complaint
Although the fact that retailers are being hit by these claims is certainly cause for some concern, plaintiffs will need to overcome several hurdles in order to move forward with this type of claim.
Most notably, a large number of the online retailers that have been targeted have had arbitration provisions and class action waivers in their online terms and conditions. Although the complaints have argued that the terms are invalid and unenforceable, the U.S. Supreme Court has made clear that, in most cases, arbitration agreements should be enforced as written, including when the agreement includes clear language requiring arbitration on an individual, non-class basis. AT&T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011); Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308, 186 L. Ed. 2d 417 (2013). In Reider v. Electrolux, Reider argues that he is not bound by the arbitration clause because he was not required to agree to it before completing his purchase, given that Electrolux reserved the right to modify the terms at any time, and because the provisions require consumers to bear their own attorneys’ fees. In other contexts, courts have rejected each of these arguments. Indeed, in support of this third argument regarding requiring consumers to bear their own attorneys’ fees, plaintiff cites the California Supreme Court’s recent decision in Sanchez v. Valencia Holding Co., where the court noted that inability to pay for an action could make an arbitration clause unenforceable, but where the court ultimately upheld the arbitration agreement at issue, even though the plaintiff had not read the agreement and the terms required the plaintiff to pay her own fees.
Plaintiff will also have an uphill battle when it comes to standing. Article III standing and California’s consumer protection statutes each require that plaintiffs establish some sort of injury. Reider has likely not met this burden. He does not claim to have been deceived, nor does he allege that he would not have completed the purchase if he had had known that the shipping and handling fees exceeded the actual shipping and handling costs.
Class certification will also be an issue. In Reider, plaintiff seeks to represent a class of all California residents who have ever been charged a shipping fee, including those who purchased much larger or heavier items. But in the case of Electrolux, customers who purchase two vacuums would pay the same $7.99 shipping cost as plaintiff — these customers are putative class members, even though the actual shipping costs for such an order would certainly exceed $7.99.
Shipping/Handling for “Free” Products
The firm behind most of these suits — Pacific Trial Attorneys (previously the Newport Trial Group) — has been bringing shipping and handling cases since at least 2012. Their previous suits, however, have focused on retailers that advertise a product for free, but then allegedly charge an inflated shipping cost to offset the cost of the product.
In July 2012, for example, the Newport Trial Group filed a suit against Coastline Products LLC for charging $14.95 in shipping in handling costs to deliver a “cigarette kit” that was advertised as free. De La Rosa v. Coastline Products LLC, CIVDS1207418 (San Bernadino). The plaintiff claimed that the actual costs for shipping the kit were $3.00. The case was voluntarily dismissed a month after the suit was filed.
On February 10, 2015, the firm brought similar claims against Shutterfly, concerning a promotion for “free” labels, where the cost of the labels was allegedly “disguised” as a shipping fee. DeCastro v. Shutterfly, Inc., RIC 1501570 (Riverside). There, the plaintiff paid only $2.99 for shipping and handling — plaintiff argued that the actual shipping costs were only $1.00. As in the Coastline Products case, the parties quickly agreed to a settlement, filing a notice of settlement on April 8, 2015. On April 28, 2015, the plaintiff moved for voluntary dismissal in exchange for $2,000 plus $27,000 in attorneys’ fees. The court denied plaintiff’s first request for dismissal for failing to explain why putative class members would not be hurt by the plaintiff’s decision to dismiss his individual claims; the plaintiff addressed the court’s concerns in his second request for dismissal, which the court granted on February 1, 2016. In support of both requests for dismissal, plaintiff’s counsel recognized in a declaration that Shutterfly’s class action waiver presented a “hurdle” to the case.
The Newport Trial Group filed a similar suit against NAC Marketing on February 11, 2015, the day after filing De La Rosa. Colucci v. NAC Marketing Company, RIR1501657 (Riverside). Colucci concerns NAC’s promotion offering a “free trial” of male enhancement supplements, where the customer paid $6.99 in shipping and handling costs. This case appears to be moving forward. Defendant took the plaintiff’s deposition on May 13, 2016, and the parties attended mediation on June 20, 2016. Discovery is ongoing. In a November 10, 2016 status report, the plaintiff indicated that he might seek leave to amend to add claims under California’s Automatic Renewal Law, and that he would move for class certification after amending.
De la Rosa, DeCastro, and Colucci each involved California Business and Professions Code § 17537, which makes it unlawful to “notify any person by any means that he or she will receive a gift,” where as a condition of receiving the gift, the recipient must pay an excessive shipping or handling charge. The shipping charge should not exceed either “(A) the average cost of postage or the average charge of a delivery service in the business of delivering goods of like size, weight, and kind for shippers other than the offeror of the gift for the geographic area in which the gift is being distributed, or (B) the exact amount for shipping paid to an independent fulfillment house or an independent supplier, either of which is in the business of shipping goods for shippers other than the offeror of the gift.” Similarly, a retailer violates the statute if the handling charge “(A) is not reasonable, or (B) exceeds the actual cost of handling, or (C) exceeds the greater of three dollars ($3) in any transaction or 80 percent of the actual cost of the gift item to the offeror or its agent, or (D) in the case of a general merchandise retailer, exceeds the actual amount for handling paid to an independent fulfillment house or supplier, either of which is in the business of handling goods for businesses other than the offeror of the gift.”
In DeCastro, the plaintiff’s counsel recognized that if the case were to proceed, they would need to overcome the “hurdle” of proving that Shutterfly violated Section 17537. Similarly, in Colucci, NAC argued that the male enhancement product was not a “gift” subject to Section 17537. It seems likely that the Pacific Trial Attorneys shifted away from “free trial” offers in their more recent suits in order to avoid the “hurdles” relating to Section 17537.
Retailers that charge shipping and handling fees should consult with counsel experienced in this area to evaluate whether their practices make them vulnerable to suit. Although these cases are in their nascent stages, and will have many issues to overcome, there are several steps retailers can take to reduce the likelihood of being targeted by shipping and handling claims.