Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D.N.Y.: Failure to plead intent, materially misleading conduct dooms Utah, New York consumer protection claims against Overstock.com over restocking fee, (Aug 21, 2013)

By Tobias J. Gillett, J.D., LL.M.

A purchaser of a vacuum cleaner from closeout retailer Overstock.com failed to state claims under the consumer protection statutes of Utah or New York over Overstock’s alleged failure to disclose a restocking fee charged when she returned the vacuum cleaner, the federal district court in Brooklyn, New York has ruled (Hines v. Overstock.com, Inc., August 19, 2013, Johnson, S.). The purchaser failed to allege the intent required for a Utah Consumer Protection Act claim, and did not establish the “materially misleading” conduct necessary for a claim under New York General Business Law § 349.

Cynthia Hines purchased a vacuum cleaner from Overstock’s website. She later returned the vacuum cleaner and was reimbursed the full amount she paid for it, minus a $30 restocking fee. Hines filed suit, alleging that she had been informed that she could return the vacuum without incurring any costs and that Overstock never disclosed the restocking fee. She asserted putative class action claims under the consumer protection statutes of nineteen states, among other claims. Overstock filed a motion to dismiss.

Standing. The court rejected Overstock’s argument that Hines lacked standing to pursue her claims. Hines had alleged that she was charged a restocking fee of which she was previously unaware and that Overstock’s failure to disclose the fee caused her injury, and Overstock did not dispute that the injury could be remedied by the court. Therefore, she individually had standing to proceed as a class representative, according to the court.

Moreover, the court observed that “where class certification is the source of the potential standing problems, the issue of standing may be deferred on a motion to dismiss.” Therefore, the issue before the court was whether Hines could individually establish that she had suffered an injury giving rise to her claim, and Overstock’s argument Hines lacked standing because Overstock had two different return policies in place during the proposed class period was “inconsequential” to that analysis.

Class Action Fairness Act. The court also declined to find that it lacked subject matter jurisdiction pursuant to the Class Action Fairness Act (CAFA) over the case “because the total amount collected by Overstock from September 2007 through March 2009 [was] far less than the $5 million CAFA threshold.” Overstock contended that the court lacked subject matter jurisdiction “because the total amount collected by Overstock from September 2007 through March 2009 [was] far less than the $5 million CAFA threshold,” and supported that argument with an affidavit from an Overstock Vice President that the total amount collected during that period was $1,529,799.98, but Hines argued that Overstock could not “unilaterally shorten the class period to defeat jurisdiction” by referring to a change in Overstock’s return policy not alleged in the complaint. The court found that Hines had met her burden of showing that there was a “reasonable probability” that her aggregate claims were in excess of $5 million, and that Overstock had not met its burden of demonstrating to a “legal certainty” that Hines could not recover the amount claimed.

Utah Consumer Protection Act. However, the court concluded that Hines had failed to state a claim under the Utah Consumer Protection Act because she did not allege facts that would satisfy the element of intent. The court noted that, since its analysis solely pertained to whether Hines had adequately pled her individual claims, and since Hines was a New York resident and Overstock was a Utah resident, only the consumer protection statutes of New York and Utah were at issue in the present decision.

The court found that the Utah Supreme Court had construed Federal Rule of Civil Procedure 9(b) to require “allegations of the substance of the acts constituting the alleged wrong,” and therefore that Hines had to “plead with particularity that [Overstock] knowingly and intentionally withheld its Return Fee policy from [Hines].” Since Hines’ complaint was “completely devoid of any such allegation,” she failed to state a claim under the Utah Consumer Protection Act, according to the court. The court reached the same conclusion with respect to Hines’ argument that the Utah Consumer Protection Act considers refusing to give a refund in connection with a customer transaction to be a deceptive act, because Hines failed to plead that Overstock had refused to give Hines a refund of her restocking fee.

New York deceptive practices claim. Hines also failed to state a claim under New York General Business Law § 349, because she failed to establish that Overstock’s conduct was “materially misleading.” The court explained that conduct must be “likely to mislead a reasonable consumer acting reasonably under the circumstances” to constitute a violation of Section 349. Although Hines alleged that Overstock did not disclose its return fee at any point during the ordering process, the court found that “a reasonable consumer would not have simply continued to finalizing his or her order without first reviewing the relevant website for the vendor’s return policy,” and that “[a]ny consumer who failed to do so appears to have assumed the risk of such a cost in the event that the merchandise is returned.” Hines failed to plausibly plead “that the website was absolutely devoid of any additional buttons [other than the ‘continue to checkout’ button] that would delineate Overstock’s return policy.”

The case is No. 09 CV 991 (SJ).

Attorneys: Harry I. Katz (Harry I. Katz, P.C.) and Peta Gordon (Kay Scholer LLP) for Cynthia Hines. Jonathan D. Their (Cahill Gordon & Reindel LLP) for Overstock.com, Inc.

Companies: Overstock.com, Inc.

Cases: StateUnfairTradePractices NewYorkNews