Based on recent federal court filings in the Central District of California, it appears that plaintiff lawyers have found a new way to threaten retailers with class action litigation. In January of this year, two class action complaints were filed on behalf of consumers who allegedly were charged shipping and handling fees “not reasonably related to Defendant’s actual costs of shipping or delivering the items to consumers but instead greatly exceeded those costs.” The complaints assert that the shipping and handling fees violate “established ethical principles” and California law.
The defendants in the two pending California cases are Electrolux Home Care Products, Inc. and Express, L.L.C., and in addition to seeking class certification on behalf of “[a]ll persons in the State of California who purchased products [from the retailer] and were charged a fee for shipping, handling, and/or delivery within the period of the applicable statutes of limitations,” the complaints assert that the amount in controversy exceeds $5 million, exclusive of interest and costs. In support of their allegations that the charged shipping and handling fees were unethical, the complaints rely on the Guidelines for Ethical Business Practices published by the Direct Marketing Association (the DMA Guidelines), which plaintiff claims establish the ethical principle that shipping and handling fees should reflect a merchant’s actual costs and not be a “profit center.”
In the Express case, the named plaintiff (Mr. Reider) purchased a “small, lightweight product” for which he was charged $17.93 plus tax; he was charged $8.00 for shipping and handling on top of that, which the complaint asserts was more than double the actual cost of shipping and delivery as calculated using the U.S. Postal Service’s online calculator. In the Electrolux case, the same named plaintiff purchased a $1.99 filter and was charged $7.99 for shipping and handling, an amount again alleged to have been more than double the actual cost derived using the USPS calculator. Notably, in the Electrolux case, the complaint asserts Mr. Reider was charged $.80 for sales tax when the highest applicable tax on his $1.99 filter should have been $.19, and that “the remaining $.61 of sales tax was attributable to the shipping charge.” Under guidance from the California State Board of Equalization, only the portion of a delivery charge that is greater than the actual delivery charge is taxable; the class action complaint asserts that Electrolux’s actions “are a de facto admission that it is making an unconscionable hidden profit from shipping and handling charges.”
Under California unfair competition law, an unfair business practice is one that either violates an established public policy or is “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” In these cases, the complaints assert that the DMA Guidelines discussed above establish a public policy against excessive delivery charges, and that the Federal Trade Commission (in enforcing Section 5(a) of the Federal Trade Commission Act), has recognized a similar public policy. In support of their Consumer Legal Remedies Act claims, the complaints assert that the defendants falsely represent that their shipping and handling costs “have the characteristics that consumers expect, namely, that they are reasonably related to Defendant’s actual costs of shipping.”
These lawsuits are sure to face a number of procedural and legal barriers. The Express complaint anticipates an obvious procedural bar, which is the fact that the Terms & Conditions of many retailer’s websites contain arbitration provisions – if those arbitration provisions are held to be enforceable, then the federal class action complaints cannot proceed. Class certification will certainly be an issue given the different products consumers purchased and the shipping costs attributable to those specific products, as well as the manner in which shipping and handling charges were described and/or explained on individual retailer websites. Moreover, plaintiffs likely will face significant standing challenges, as Article III of the U.S. Constitution and California law both require plaintiffs to establish some sort of injury and the allegations of the complaints do not appear to meet this burden (which became more difficult after the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016)). Finally, plaintiffs will have to demonstrate that they were in fact deceived (i.e., that they had an expectation regarding the relationship between the charged shipping and handling charges and the actual delivery cost to the retailer), and the factual allegations on this issue in Express and Electrolux are scant, at best.
If past is prologue -- and given the past history of prolific consumer class action complaints asserted and/or threatened by the plaintiffs’ firm involved in these cases – it is likely that many retailers may find themselves in the crosshairs for these excessive shipping and handling fee claims. It would be wise for retailers to examine their shipping and handling fee practices to determine whether they might be vulnerable, and to consult with experienced counsel on ways to mitigate risks and exposure.