Monday, October 03, 2011

Another penny auction site faces consumer claims

Parino v. BidRack, Inc., 2011 WL 4479462 (N.D. Cal.)

Parino, putative class representation, alleged that BidRack owns and operates, a penny auction site. Allegedly, BidRack attracts consumers via "a series of sponsored advertisements and fake news stories," which "overtly misrepresent the services and products offered by BidRack." The homepage "heavily emphasizes that registration is 'completely FREE!' " and "free" is frequently repeated on the site. The site also contains fake news stories, endorsements, and consumer testimonials. During “free” registration, customers are sent to a page with "a cluttered assortment of boxes, graphs, arrows, bright colors, charts, logos, and numbers" and are directed to enter shipping and credit card information "to pay for items, shipping, or bids when they choose to buy them." Instead of requiring explicit acknowledgement of a credit card charge, the customer simply clicks a button labeled "START WINNING" to complete registration.

Parino allegedly incurred an unwanted charge to buy a “bid pack,” after she’d viewed and relied on ads on the site including videos of purported news programs and "alleged endorsements of that appeared next to logos for organizations such as the New York Times and BBC." She alleged that she did not see any statements on the website that her credit card would be charged, but she was charged $99. When she discovered this, she contacted customer service to dispute the charge, to no avail. She also contacted her credit card company, which also did not give her a refund.

She alleged violations of California’s FAL, CLRA, and UCL, as well as fraud in the inducement, breach of contract, and related claims. BidRack moved to dismiss for failure to satisfy Rule 9(b). The court noted that some of her claims were subject to 9(b) and some weren’t.

Parino pled sufficient facts to state a claim under the FAL and UCL. The allegedly false and misleading statements included that registration was free, that supposed reviews from satisfied customers were actually created by defendants, and that BidRack was affiliated with respectable news outlets such as the NYT, legitimizing the website. Parino pled knowing falsity because defendants allegedly were the ones who faked the endorsements. For 9(b) purposes, she alleged enough the who (BidRack), what ("free"), where (, when (May 20, 2011), and how ("free" repeated numerous times in tandem with the call to register).

The CLRA separately prohibits misrepresenting the “source, sponsorship, approval, or certification of goods or services” and misrepresenting the “affiliation, connection, or association with, or certification by, another,” along with advertising goods or services “with intent not to sell them as advertised.” (As a matter of TM law, I don’t think that running actual clips from the NYT suggests any affiliation etc. with the NYT, so I’d want to be careful with this claim, but at the same time I do think there can be false endorsements in this situation, and if the defendants did fake stories that suggested that the NYT had found BidRack to be a legitimate site that should be actionable, if not by the NYT then by deceived consumers.) The same allegations of false and deceptive advertising, misrepresentation of the cost of registering with BidRack, and use of false news stories and endorsements leading Parino to believe the site was safe to register with for free stated a CLRA claim.

Fraud in the inducement exists when the promisor knows what she’s signing but her consent is induced by fraud, which itself requires (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage. This too was sufficiently alleged under 9(b). BidRack knew that its claim of free registration was untrue because it was the one charging customers for registrations. Moreover, Parino’s reliance on the representations about free registration was justifiable, especially in light of the allegedly fraudulent news stories and endorsements lending BidRack credibility. Her claims for conspiracy to commit fraud in the inducement with an unknown John Doe marketer weren’t sufficient enough, though.

She did state a breach of contract claim, where the contract was that she’d get free registration. Her allegation of unjust enrichment, available only where there is no contract or where a contract was procured by fraud or is unenforceable, was properly pled in the alternative. Nor were her claims barred by the voluntary payment doctrine, which applies when a plaintiff voluntarily paid money with full knowledge of the facts. BidRack argued that Parino knew the facts once she saw her credit card statement, and that once she paid her bill she shouldn’t be able to recover. The cases BidRack cited were easily distinguishable because they involved disputes that only arose after plaintiffs made multiple payments over a long period of time.

Here, Parino disputed the charge immediately after she noticed it and requested a refund from BidRack, putting it on notice of her claim. Even if she paid her credit card bill, “payment to her credit card company so that she could stay in good standing with creditors while pursuing this action would not bar her claim.”

BidRack’s objections to the class allegations were not well taken at this point and should wait for the class certification stage.

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