In the latest action to be filed in a series of class action lawsuits against Groupon, Inc., Carlos Vasquez filed a complaint on March 8, 2011 in the U.S. District Court for the District of Columbia on behalf of himself and other similarly situated consumers alleging that Groupon places unlawful expiration dates on its gift certificates.
The action is preceded by similar class action suits pending in Illinois, Minnesota, California and Florida federal courts. In the complaint, Vasquez alleged that he purchased a $20 coupon for a one-month gym membership valued at $305, and the coupon expired two months later before he had the opportunity to use it. Because Vasquez was not aware that he could seek redress with the gym retailer, he claims that he lost the money that he invested.
The suit alleges that Groupon's sale of coupons with short-term expiration dates is deceptive and illegal under state and federal laws. Specifically, the complaint states that Groupon is in violation of the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act) and the Electronic Funds Transfer Act (EFTA), which prohibit the sale and issuance of gift certificates with expiration dates of less than five years after the date of issuance. However, under the definitions covered by the CARD Act, EFTA and the implementing rule Regulation E, a "gift certificate" and "gift card" must be issued "in a specified amount." Clarifying the meaning of "specified amount" under the rule, the official staff commentary of the Federal Reserve Board of Governors states that "the rule does not apply to gift certificates or gift cards that entitle the cardholder to a specific 'experience,' such as a hotel stay or a golf lesson," and expresses concern that sponsors of 'experience' cards would have to raise prices to adjust for anticipated cost increases over a five-year period if the five-year minimum expiration period applied. Despite the federal statutory definition of "gift card" and "gift certificate," the complaint seeks to include the defendant's gym membership coupon as falling within scope of the CARD Act and EFTA. The complaint also charges Groupon with breach of contract and violations of the District of Columbia's Consumer Protection Procedures Act.
In addition, the suit alleges that Groupon preys on unsuspecting consumers through its sales process whereby gift certificates are placed on sale and consumers feel pressured to act quickly – usually within 24 hours – to purchase the gift certificates under burdensome conditions. It further states that consumers "often cannot take advantage of and/or use the product or service they paid for before the expiration date unilaterally imposed" by Groupon. The complaint includes a sampling of internet postings by consumers who expressed frustrations about Groupon's expiration dates, and states that "thousands of consumers have lost money" because of short-term expiration dates. The suit seeks restitution, disgorgement of monies that Groupon obtained as a result of the conduct at issue, compensative and punitive damages, attorneys' fees and a court order enjoining Groupon from engaging in these practices and requiring the company to fund an advertising campaign to remedy its allegedly lawful conduct.
With similar class action suits pending against Groupon, it is unclear how courts will view the company's practice of selling gift certificates with short-term expiration dates. However, after settling a lawsuit brought in Chicago last year, Groupon changed its terms of service to allow consumers to get refunds in cases where a merchant refuses to honor a coupon that is arguably still valid under state law. Because websites offering daily deals and discount coupons have significantly increased in numbers and popularity, the Groupon suits have the potential to affect many key players utilizing this business model and may shape how existing state and federal gift card laws will applyto online coupon services.
THE BOTTOM LINE
Recent class action lawsuits brought against Groupon allege that its online discount coupons are subject to the five year federal minimum expiration period for gift cards as well as to relevant individual state expiration requirements, and may determine how these state and federal gift card legislation laws apply to online discount coupon providers.
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