Recent Lawsuits Attack Shipping and Handling Charges as Unfair, Deceptive Trade Practices
A putative class action has been filed in California federal court, claiming that the defendant (Electrolux) violated California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) by imposing shipping and handling charges on online purchases, where such charges allegedly bear no relationship to the companies’ actual costs incurred in shipping the items. (The case is Reider v. Electrolux Home Care Products, Inc., No. 8:17-cv-26 (C.D. Cal.). (The same plaintiff and attorney also recently filed—then voluntarily dismissed—a nearly identical case against Express, Reider v. Express, LLC, No. 2:17-cv-556 (C.D. Cal.))
Despite being in the very early stages of litigation, this case illustrates a novel theory under which California’s consumer protection statutes can be used to attack retailers’ business practices. As discussed in more detail below, however, retailers can help insulate themselves from such claims by (among other things) displaying conspicuous disclosures of their shipping and handling options during the online ordering process, and requiring customers to affirmatively select one of those options when checking out.
The plaintiff alleges that Electrolux’s shipping practices violate ethics guidance promulgated by the Data & Marketing Association (formerly the “Direct Marketing Association”) (DMA). Specifically, the plaintiff contends that the Electrolux violated the DMA’s recommendation that, “Postage, shipping, or handling charges, if any, should bear a reasonable relationship to actual costs incurred.” According to the plaintiff, a retailer’s failure to adhere to this recommendation constitutes “unfair” conduct in violation of the UCL.
On the UCL fraud side, the plaintiff does not claim that he was unaware of the shipping charge at the time of online checkout. Rather, the plaintiff claims that he and any other reasonable consumer would be deceived by the shipping fees charged by the defendant, because (1) consumers expect that the price charged for shipping is reasonably related to the actual cost of shipping the goods in question; and (2) the shipping prices imposed by the defendants are not in fact tied to the retailer’s actual cost of shipping.
With respect to the CLRA, the plaintiff asserted that the service he purchased (shipping) was not being sold as advertised, because the price he was being charged was more than double the defendants’ actual shipping cost (as calculated by the plaintiff on the U.S. Postal Service website, USPS.com).
The case remains in its early stages, with a motion to dismiss only recently having been filed.
Claims such as these are subject to several robust defenses. First, a UCL fraud or CLRA claim would likely founder in any case where shipping fees were disclosed to the consumer before the customer committed to making a purchase—particularly if, as is often the case, the customer is required to make an affirmative choice as to the speed (and hence price) of shipping. Indeed, the complaint studiously omits any allegations regarding the disclosures made to the plaintiff during the online process of affirmatively selecting a shipping option at the time of checkout.
Second, the plaintiff’s claims appear to rest on the faulty premise that shipping costs are unfairly high if they do not closely track the shipping estimate generated by the plaintiff on USPS.com. But as DMA itself notes, there are many different components to a shipping and handling charge, above and beyond the charge imposed by the ultimate carrier. See Data & Marketing Association, DMA Guidance for Establishing and Substantiating Shipping and Handling Charges. Such costs can include everything from labor and materials for preparing the goods for shipping, to the cost of warehousing and insurance, to the cost of sending back and processing returned merchandise. Retailers should consider which of these cost centers they want to capture in their shipping charges. Although that exact determination will vary from retailer to retailer, the central point for present purposes is that there is no basis for requiring shipping charges to mirror the delivery charges imposed by the U.S. Postal Service (or any other carrier).
Third, a UCL unfairness claim premised on the DMA’s ethics publications is inherently suspect because the DMA’s recommendation for marketers is just that—a recommendation. It does not carry the force of law or set the ethical standard for the retail industry. To the contrary, the reported cases under the UCL reject the proposition that the statute authorizes the courts to police retailer pricing or to require a specific connection between the quoted price and the retailer’s costs for providing the good or service.
In addition, a retailer can guard against a claim that its shipping charges are unfair or unethical by building robust disclosures into the online ordering process, including a conspicuous description of the cost, speed, shipping means (USPS, FedEx overnight, etc.), and any other relevant features (e.g., insurance, guaranteed delivery time, free returns) for each shipping option. Customers should also be required to affirmatively choose one of the shipping options during the online checkout process. There are extensive resources available to retailers interested in constructing robust disclosures for their e-commerce activities, including the FTC’s .com Disclosures guidance, which contains an appendix with over 20 example disclosures.
In sum, retailers need to be aware that California’s sweeping consumer protection statutes can be brought to bear not just on advertising and sales practices, but on shipping, handling, and delivery practices, too. The force of such challenges can be diminished, however, if retailers take proactive risk-management steps such as those outlined above.