Retailers offering online, telephone or catalog purchases may want to review the shipping fees charged to their customers in the wake of several class actions recently filed in California. Multiple retailers have been hit with consumer class actions challenging their shipping fees as exceeding the actual shipping costs incurred by retailers in fulfilling customer orders.
These cases typically rely on Article 11 of the Data and Marketing Association’s Guidelines for Ethical Business Practice, which provides that “[p]ostage, shipping, or handling charges, if any, should bear a reasonable relationship to actual costs incurred.” Plaintiffs also frequently cite a Federal Trade Commission consent judgment in which an auto dealer consented to stop charging customers “freight” charges in excess of the actual cost to the dealer to transport vehicles to its showroom. In the Matter of Bill Crouch Foreign, Inc. d/b/a Bill Crouch Imports, Inc. (Formerly Mazda of Boulder, Inc.), 96 F.T.C. 111, 1980 WL 339028 (July 31, 1980). These two sources, plaintiffs argue, establish a public policy requiring retailers to charge customers no more in shipping fees than the actual costs incurred in shipping goods to customers.
It appears that only two such putative class actions have resulted in judicial opinions; the deciding factor is whether the court believes that there is any “plausible harm.”
In Reider v. Electrolux Home Care Products, Inc., the Central District of California granted Electrolux’s motion to dismiss because the plaintiff failed to allege any plausible harm – the shipping fees were clearly disclosed to consumers prior to purchase, and if consumers feel the shipping fees are too high, they are free to make their purchases elsewhere.
Online shoppers are aware that online merchants are in the business of making money and generating profit …. How a merchant makes its profit, whether it is through the sale of products or through the delivery of those products, is of no direct concern to the customer who is simply looking for the best product at the best price, along with the convenience of having that product arrive at the front door.
Order Granting Motion to Dismiss, Doc. #27, No. 8:17-cv-26 (C.D. Cal. April 21, 2017). The court also noted that DMA guidelines are just that – guidelines and not “legislatively declared” public policy that binds DMA members.
In contrast, in Byler v. Deluxe Corp., the Southern District of California denied a motion to dismiss in a similar putative class action. The Deluxe plaintiffs made a similar argument that Deluxe’s shipping charges were excessive and did not bear a reasonable relationship to the actual shipping costs incurred by Deluxe. No. 3:16-cv-493, 2016 WL 8669404 (S.D. Cal. August 18, 2016). But the Deluxe plaintiffs included allegations that Deluxe operated multiple websites and charged different shipping fees for the same products across its multiple websites. In some cases, the same product was offered with free shipping on one website and carried an $8 fee for the most economical shipping option on another. The plaintiffs argued these differences evidenced a deceptive practice by charging shipping fees higher than Deluxe’s actual costs. The court agreed that these allegations were sufficient to raise an inference that reasonable consumers could be deceived by Deluxe’s advertised shipping charges, and declined to dismiss the plaintiffs’ claims under California’s Unfair Competition Law and the California Consumers Legal Remedies Act, as well as the Illinois Consumer Fraud Act, the Missouri Merchandising Practices Act and the Massachusetts Consumer Protection Act.
Not every retailer will have multiple websites available for shipping fee comparisons as with Deluxe, but we may see some enterprising counsel undertake pre-suit investigations into actual shipping costs incurred by retailers to bolster their claims. Such pre-suit investigations have become common in price comparison class actions (discussed here and here). Online retailers may wish to review their shipping charges to ensure that they do not represent that the shipping charges are “reasonably related to its actual shipping costs,” as well as consider adding an arbitration provision to their terms and conditions governing disputes arising from online orders if one is not already in place.
Additionally, retailers may help distance themselves from allegations of deceptive representations if the cost for delivery to customers includes both “shipping and handling” (as opposed to merely “shipping”), as noted by the Electrolux court. Finally, if faced with a class action challenging shipping fees as “excessive,” retailers and their counsel should tailor their arguments to the Electrolux decision, and be prepared to defend against the Deluxe decision.