The plaintiffs’ bar is at it again, this time with a new target—the shipping and handling fees that retailers charge consumers in the course of delivering a product.
We may think in the day of Amazon Prime that when we shop on the web the product should arrive at our door for free. But there are obviously costs associated with mailing the items we buy online, costs that don’t exist when we pick up in store. E-Sellers have always understood the need to make these shipping and handling costs—as well as other terms and conditions of sale—clear and conspicuous to the customer before he buys the product. Similarly, e-Sellers understand when they advertise a product as “free” or as a “free trial” that charging additional fees such as shipping and handling, unless very clearly communicated, can pique the interest of state enforcers. The current class action attack on retailers focuses not on how clearly such charges are communicated but instead on the amounts charged and whether it is somehow unfair to charge more than the actual out-of-pocket shipping and handling cost, even if the charges are adequately disclosed.
In January, two class actions were filed in federal district court in California against companies based on their allegedly deceptive, unfair, and “unethical” shipping and handling charges. Both complaints, which were brought under the Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”), allege that the defendants charged shipping and handling fees that “were not reasonably related to [their] costs of delivering or shipping the items to consumers but instead greatly exceeded those costs.” The plaintiffs seek class certification on behalf of “[a]ll persons in the State of California who purchased products from [the retailers] and were charged a fee for shipping, handling, and/or delivery within the period of the applicable statutes of limitations.”
The facts in the cases are similar, and the plaintiff is the same in both actions. This plaintiff allegedly bought a filter from one company’s website and was charged $1.99 for the product and $7.99 for “Shipping/Handling,” and from another seller the plaintiff allegedly purchased a “small, lightweight product” from the company’s website for $17.93 (plus tax) and was charged $8.00 for “Shipping/Handling.” The complaints allege that these charges are more than twice the actual cost of shipping and delivery according to the U.S. Postal Service’s online calculator.
Perhaps most notably, the complaints in these cases assert, as a primary basis for their claims, the argument that excessive shipping and handling charges are “in contravention of established ethical principles.” These charges, say the plaintiffs, “are unfair, unethical and/or in violation of public policy because it violates business ethics to charge more for shipping or delivery than a company’s costs of shipping, postage and handling.”
Established ethical principles? Business ethics? You might be wondering—as we were—just where these principles come from.
According to the plaintiffs, they “come, in part, from established ethical principles recognized by the Direct Marketing Association.” The plaintiffs point in particular to DMA’s Guidelines for Ethical Business Practices and a companion volume called Do the Right Thing. Article 11 of the Guidelines states that “[p]ostage, shipping, or handling charges, if any, should bear a reasonable relationship to actual costs incurred,” and the companion volume, elaborating on Article 11, provides that “[w]hen figuring shipping and handling fees, it is important to reflect the costs as accurately as possible so that your customers or prospects are not likely to view these fees as a company ‘profit center.'” The plaintiffs also invoke DMA’s Guidance for Establishing and Substantiating Shipping and Handling Charges, which notes “a trend by law enforcement agencies . . . to insist that a consumer who is charged shipping and handling costs should be paying a fee reasonably based on the marketer’s cost”—a position that DMA recognizes as “consistent with existing DMA guidelines.”
Very often, self-regulation and industry codes go beyond what the law requires and set a higher aspirational bar for participating companies. In these cases, the plaintiffs seek to make the DMA guidance the minimum standard and legally binding. Against this backdrop, each complaint alleges violations of California’s UCL, arguing that the defendants’ conduct violates the UCL’s “unfairness” prong, “violates established public policy as recognized by DMA,” and “violates public policy as recognized by the Federal Trade Commission in enforcing Section 5(a) of the Federal Trade Commission Act.” The complaints make similar allegations under the CLRA, and one complaint also contains a request for declaratory relief, asserting that the mandatory arbitration provisions on the company’s website—potentially a fatal blow to the class action—are unenforceable for a number of reasons. The complaint asks the court to declare these provisions invalid and unenforceable.
Given the increasing prominence of shipping and handling class actions, and given the copycat nature of class action lawsuits more generally, now would be a good time for retailers to review their shipping and handling practices to ensure they understand any litigation risks and are taking the proper steps to minimize the threat of these lawsuits.