Numerous businesses will face consumer class action claims across the U.S. related to or arising out of the worldwide coronavirus pandemic. The wave of those claims has already started.
Among the most vulnerable businesses are those that provide services to consumers based on membership or subscription agreements, and companies that sell tickets for or stage large group events. These include gyms, country clubs, and social clubs that are now closed; live entertainment companies, sports teams, and performing arts venues that may not be able to fulfill season ticket contracts if their events are canceled, or if their seasons are shortened; cable TV and streaming service providers whose normal array of program offerings, including live sporting events, have been limited; and online event ticketing platforms.
What will the class claims look like? The heart of the claims will focus on the companies’ alleged failure to perform their contractual obligations to provide the agreed upon products or services, and to provide the full value for which the consumers allegedly bargained. Plaintiffs will seek a variety of remedies, from full refunds to damages for the value of the undelivered products and services.
In response to the pandemic, many of these companies, to their credit, have already offered alternative or additional products and services to retain customers and to mitigate against the customers’ loss of products and services, or are making plans to do so. Such offerings include full refunds; partial refunds; free extension of the contractual term or period; credits for future services, such as usage credits at country clubs for food and services based on a percentage of membership fees paid; free additional products and services, such as free access to cable movie channels not otherwise included in subscriber packages; and free or reduced-price, online products and services, such as virtual fitness classes for gym and studio members. Some gyms and sports clubs have frozen member accounts during the pandemic-related closure periods; others have elected not to automatically freeze monthly dues, or are charging fees to freeze accounts.
Short of providing full refunds (and in the absence of a contractual right to provide a substitute benefit), offering alternative or additional products and services likely will not avoid class claims. Many consumers will not view these offerings as fulfilling contractual obligations, substituting full value for the lost products or services, or consistent with representations made by the provider. For instance, cable TV customers who subscribe to live sports packages likely will not view free access to movie channels as worth the value they paid, see it as a real benefit, or view it as making up the difference in value when their sports package now consists of replay programming. In short, these customers will say, “That’s not what I signed up for.”
A class action recently filed against online ticket reselling platform StubHub demonstrates that offers of alternative relief can trigger class claims. StubHub announced in March it would give customers holding tickets for events cancelled due to the pandemic the option to take either a full refund or a voucher valued at 120% of the purchase price, which can be used in the next 12 months. The company claims 70% of customers chose the voucher option. StubHub later changed course, announcing that the voucher would be the new standard policy. The new lawsuit claims that the voucher policy violates the company's prior money-back guarantee. The case is McMillan v. StubHub Inc. et al, case number 3:20-cv-00319, filed in the United States District Court for the Western District of Wisconsin.
Companies who decide to offer alternative or additional products or services to keep customers happy should deploy reliable means to track customer utilization of those products and services. Such information may help defend against class claims, including disproving allegations by customers that they did not accept or take advantage of the additional products or services, or did not receive full value under their contract. Such information also may be very useful in defeating class certification. Each customer likely will react differently to what is offered – that is, each customer’s consumption of, or value received from, contracted products and services, and alternative offerings, will be different. For instance, some customers may take full advantage of the additional offerings, while others may not. Customer usage data can be used to identify and demonstrate these nuances, and allow a defendant to argue that individualized issues regarding customers’ actions and perceived value predominate over any common issues presented by the class claims, or that named plaintiffs are atypical and cannot adequately represent the class.
Companies should also carefully consider what relief to provide to customers, and ask the following questions in making those decisions. What is the likely range of customer reactions to the relief offered? Will there be a media backlash if many customers’ reactions are negative? How will the company react to that? How will the company explain the reasons it afforded the additional relief and how it selected the additional products and services over other alternatives? Should the relief be tied to the coronavirus pandemic? Does the additional relief afforded make the customer whole? Why or why not? Does the company’s contract with its customers address this situation and, if so, what is required or permitted? The answers to these questions can be used to identify the costs, benefits and risks associated with providing - or not providing - various forms of relief to customers, and they can help prepare companies for defending potential class claims.
[View source.]
