Potential Liabilities Arising from Shipping & Handling Charges

I concluded a bifurcated trial this week in a consumer class action lawsuit and am gratified to have obtained a favorable result for a good client.  With my client’s permission, I share this information with my readers at Left Coast Law to highlight an area of potential exposure so that preventative action might be taken to avoid similar lawsuits. 

This class action lawsuit alleged that a shipping and handling charge for a free product offer violated a California statute, Cal. Bus. & Prof. Code Sec. 17537, the core of which provides as follows. 

17537.  (a) It is unlawful for any person to use the term “prize” or “gift” or other similar term in any manner that would be untrue or misleading, including, but not limited to, the manner made unlawful in subdivision (b) or (c).

   (b) It is unlawful to notify any person by any means, as a part of an advertising plan or program, that he or she has won a prize and that as a condition of receiving such prize he or she must pay any money or purchase or rent any goods or services.

   (c) It is unlawful to notify any person by any means that he or she will receive a gift and that as a condition of receiving the gift he or she must pay any money, or purchase or lease (including rent) any goods or services, if any one or more of the following conditions exist: . . .

The plaintiff and class representative alleged that she was deceived by the advertisement because she thought the product was truly free.  She contended that, only after calling my client to accept the offer, giving her credit card number to the operator for the shipping and handling and then receiving the club in the mail did she realize that she had been “duped” and that the product was not free because she had to pay an excessive shipping and handling charge.  She purported to represent a class of plaintiffs suing under this California statute.  We argued successfully that the law prohibits “bait and switch” marketing tactics which suggest that the recipient has won a “prize” or “gift” but then must buy a service or other product to accept the prize or gift.  The question presented was whether the statute applied to my client’s promotion. 

Shortly after the lawsuit was filed, I suggested to opposing counsel and then to the Court that the most efficient way to proceed would be to stipulate to certain facts in lieu of discovery and, following briefing, conduct a bifurcated trial on the statute’s applicability.  (Through this streamlined process, the client saved thousands of dollars in fees and avoided the disruption of numerous depositions and other discovery.)

Following a closing argument on Thursday, the Court agreed that the statute does not apply to this business practice and my client is entitled to judgment in its favor.  I would like to thank my associate, Bryan McGarry, for his excellent support including research and brief writing as well as my partner, Chris Dubia, for his great insight and advice.

A WORD TO THE WISE . . .

If your business practices involve offers to the public that utilize the term “prize” or “gift” or any similar concept such as a sweepstakes or limited giveaway notifying a customer that it’s their lucky day, it might be a prudent idea to determine whether these practices comply with Cal. Bus. & Prof. Code Sec. 17537 and other statutes.