Overview
In another sign that government enforcers are closely monitoring pricing litigation, AGs from 19 states just filed an amicus brief opposing a proposed class settlement.
The Settlement
The case, Cannon et al. v. Ashburn Corporation et al., Civil Action No. 16-1452 (RMB)(AMD), was filed in the District of New Jersey on March 15, 2016, alleging that online wine retailer Wines Til Sold Out (WTSO.com) deceives consumers by advertising inflated “Original Prices” in order to offer wine at a purported discount. Plaintiffs also alleged that defendant falsely advertised wines as being sold by other retailers at specified prices when in fact the wines were not sold at that price, and many of the wines were sold exclusively on WTSO.com.
The court granted preliminary approval of the settlement on November 16, 2017. The agreement, if granted final approval by the court, will require defendant to provide merchandise credit to class members who submit a valid verification form. These credits will range in amounts from $.20 to $2.25 per bottle of wine the class member had purchased on the site, depending on the wine and its cost. The credits can be used on any wine the first time it is offered on WTSO.com (with exceptions), or on “Redemption Wines” designated by defendant (defendant agreed to maintain at least 30 types of Redemption Wines each month). Although customers may receive more than one credit, they can only use up to $2 in credit on any given bottle. The credits are non-transferrable and will expire one year after distribution.
The settlement also notes that after the lawsuit was filed, defendant replaced the advertising term "Original Price" with the term "Comparable Price" on the WTSO.com website and included a definition of "Comparable Price" to mean "the price at which the same or a similar wine with the same primary grape varietal and appellation or sub-appellation has been offered for sale to consumers directly by a producing winery or through retailers."
The settlement also provides for $2,500 incentive awards to each of the three named plaintiffs, and $1.7 million in attorneys’ fees.
Swift Response by AGs
On February 23, 2018, Arizona Attorney General Mark Brnovich, joined by attorneys general from Alabama, Arkansas, Idaho, Indiana, Louisiana, Michigan, Missouri, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Wyoming, Mississippi, Rhode Island, and Washington, filed a motion for leave to appear as amicus curiae, and attached a proposed brief opposing final approval. The court granted the AGs’ request and accepted the proposed brief on February 26, 2018.
The amicus brief argues that the settlement is a “coupon settlement” that fails to comply with the Class Action Fairness Act’s (CAFA) strictures. The AGs repeatedly contrast the small amounts of store credit being sent to class members with the large fee award to class counsel: “The attorneys general make this submission to further these interests, speaking on behalf of consumers who will be harmed by the proposed settlement that has obtained an approximately $1.7 million cash payout and yet sends all that money to class counsel while distributing to class members only highly restrictive coupons worth at most $2 off per bottle of eligible wine from defendant’s website.” Additionally, the AGs criticized the fact that “class members are required to complete a multi-step claims process before being able to redeem the highly restrictive credits,” and note that the credits are non-transferrable, expire in one year, are only valid towards a subset of wine, and do not cover the full purchase of any item sold by WTSO.com. Because of the $2/bottle cap on credit redemption, for example, someone who received $5 in credit would need to spend $5 to redeem their full credit.
The nationwide class consists of 200,000 US residents who purchased wine from the website from March 15, 2010 to November 1, 2016. Plaintiffs’ motion for preliminary approval characterized the settlement as providing approximately $10.8 million in “value” to the class. The AGs countered that based on historical settlement claim rates, class members would redeem at most $800,000 in credits (representing 33% of the total settlement value). On February 26, 2018, Plaintiffs’ counsel submitted a letter to the court stating that over 15% of the class (34,500 class members) had submitted verification forms, claiming nearly $3 million in credits.
In light of the amicus brief, the court extended plaintiffs’ deadline to move for final approval to March 12, 2018. The final approval hearing is set for March 19, 2018.
Other Government Enforcement Actions
This is not the first time that government enforcers have become involved in the pricing arena. Instead, over the last few years, the government has shown increasing interest in this issue (listed in order of importance):
- People of California v. Overstock was brought by a group of California district attorneys in November 2010, concerning the company’s reference pricing practices, including its former practice of creating reference prices by applying a “random multiplier” to the item’s wholesale price.
- Although a portion of the Overstock decision was originally unpublished, the court on June 23, 2017 reversed its prior position and allowed publication of the entire decision after receiving letters from several state and city enforcers. The Sonoma District Attorney, California District Attorneys Association (comprised of 58 district attorneys and numerous city attorneys throughout the state), the California Attorney General’s office, and Los Angeles City Attorney’s office each submitted letters.
- In December 2016, Los Angeles City Attorney Michael Feuer filed civil actions against four of the nation’s largest retailers, based on the allegation that they perpetually offer items at a discount.
- People of California v. Groupon was filed on November 17, 2017 by the district attorneys for San Diego, Shasta, and Riverside Counties, alleging that Groupon falsely represented savings or discounts on products or services, and deceptively advertised that goods were a particular brand or make when they were not.
- In July of 2017, the FTC reportedly looked into allegations that Amazon misleads customers about its pricing discounts, as part of its review of Amazon’s agreement to buy Whole Foods for $13.7 billion. The investigation was apparently the result of a complaint brought on behalf of the advocacy group Consumer Watchdog, which concluded that 61% of the time, Amazon’s reference prices are higher than any price Amazon sold the same product in the previous 90 days. Amazon issued a public statement describing the Consumer Watchdog study as “deeply flawed.” On August 23, 2017, the FTC issued a statement that it had decided not to further pursue an investigation of Amazon.com, Inc.’s acquisition of Whole Foods.
- Amazon also settled pricing claims brought by Canada’s Competition Bureau in January of 2017, agreeing to pay a fine of Canadian $1 million (US-$756,658.60). The Bureau noted that Amazon had already made changes to the way it advertises list prices on its Canadian website to accurately represent the savings available to consumers.
Conclusion
If retailers are looking for a warning shot from the government showing their in pricing litigation, several have now been fired. Retailers should consult with counsel experienced in this area to ensure that they are protected.