This putative class action (over five million in the class) alleged claims for breach of contract, common law fraud, and violations of the consumer protection statutes of Illinois, Michigan, and California based on a free product giveaway in May 2009. Defendants moved to dismiss.
According to the complaint, KFC introduced a new product in April 2009, Kentucky Grilled Chicken, which was promoted as a healthy option. KFC’s promotion included a Kentucky Grilled Chicken giveaway announced by Oprah on her show in May. Anyone could get a free KFC meal by downloading a coupon from unthinkfc.com or Oprah’s site and redeeming it between May 5 and May 19, except for May 10 (Mother’s Day). The coupon entitled the bearer to a free 2-piece Kentucky Grilled Chicken meal, with two sides and a biscuit.
KFC then allegedly began “almost immediately” to refuse to honor the coupons, first limiting the promotion to the first 100 per restaurant per day and then on May 7 stopping the promotion altogether, while still offering Kentucky Grilled Chicken for purchase. From May 5 to May 7, at least 10.2 million coupons were downloaded from unthinkfc.com, and only 4.5 million were actually redeemed. Then, KFC offered consumers the option to apply for a “rain check,” which required filling out a form with name and address, attaching the coupon, and mailing it to KFC or giving it to a KFC “team member.” KFC told consumers these procedures were necessary to verify the coupons’ validity. KFC would then send the consumer a new coupon for a free meal along with a complimentary Pepsi product.
The complaint also alleges that Kentucky Grilled Chicken contains rendered beef fat and beef powder, though those ingredients weren’t disclosed in KFC marketing materials. You really would think fast food places would have learned from the McDonald’s debacle (note that the apology is apparently no longer on the McDonald’s website, sigh).
Breach of contract: For purposes of the motion to dismiss, KFC presumed the existence of a valid contract for a free meal in exchange for a coupon. The coupon provided for a two-week redemption period, but KFC argued that time was not an essential term of the contract. The court found that the plaintiffs had alleged sufficient facts to plausibly suggest an entitlement to relief. The materiality of a breach is generally evaluated for remedies, not for liability. A lot of the cases KFC cited were also about parties seeking to avoid contractual obligations because of the counterparty’s alleged breach of an essential timing term; here, however, KFC was trying to set aside the redemption period to excuse its own alleged breach. Anyway, whether time is of the essence is a fact-specific question not suitable for a motion to dismiss.
KFC then argued that its raincheck program adequately cured any breach, but that’s an affirmative defense, not part of stating a claim; anyway, the allegations that plaintiffs needed to submit identifying personal information to get the raincheck were sufficient to allege that it was not a cure, but a requirement for additional performance.
Common law fraud: KFC argued that the complaint failed to satisfy Rule 9(b), though it conceded that allegations of fraudulent intent aren’t subject to the particularized pleading standards of that rule. KFC contended that plaintiffs failed to allege facts plausibly giving rise to an inference that KFC “never intended to honor” the coupons. The court found that this general allegation had been supported with additional facts, such as that many of the KFC locations that refused to redeem the coupons had ample supplies of Kentucky Grilled Chicken on hand and continued to sell them.
KFC argued that it couldn’t plausibly have harbored an intention not to honor the coupons when they honored 4.5 million in the first two days of the promotion. But plaintiffs alleged that KFC began almost immediately to refuse to honor then and stopped the promotion two days after it was announced. The court found it “plausible” based on the allegations that KFC never intended to honor the coupon as represented. It was reasonable to assume that “Defendants contemplated the possibility that millions of consumers would seize the opportunity to obtain a free ‘Kentucky Grilled Chicken’ meal, and that Defendants considered what would happen if individual KFC restaurants ran out of the advertised product.” So it was plausible that KFC intended all along to offer a rain check or otherwise limit redemption beyond the terms stated on the face of the coupon. The claim survived.
As to the consumer protection law claims, KFC argued that there was nothing inherently unfair or deceptive about refusing to honor the terms of a contract, and that the claims simply restated the idea that KFC breached the terms of its original offer. The court disagreed. A classic bait and switch is actionable under the relevant consumer protection laws. KFC argued that it wasn’t alleged to have engaged in bait and switch, which requires selling the consumer a more expensive item. However, plaintiffs alleged actual damages. Also, because plaintiffs alleged that KFC never intended to honor the promotion from the outset, the allegations involve more than a mere failure to perform. Moreover, the conduct at issue implicates an inherent consumer interest on its face, inasmuch as the offer was allegedly accepted by millions of consumers nationwide.
Illinois: KFC argued that offering a free meal doesn’t fall within the scope of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), because it wasn’t an act or practice “in the conduct of any trade or commerce” and the coupon didn’t involve any sale or offer of sale. However, the statute defines “trade” and “commerce” to include, among other things, “advertising,” and this coupon was properly alleged to be such. Plaintiffs alleged that the coupon was part of an ad campaign; the reasonable inference is that the goal was to promote future sales, especially since the coupons had to be redeemed in person at KFC restaurants.
Plaintiffs also alleged that KFC violated a specific prohibition of the ICFA against offering “free” stuff without clearly and conspicuously disclosing all material terms and conditions at the outset of the offer “so as to leave no reasonable probability that the offering might be misunderstood.” KFC argued that plaintiffs weren’t “consumers” because they weren’t required to purchase anything and that they didn’t allege any unclear or inconspicuous disclosure. The first argument failed because on its face the law didn’t require a purchase from a named defendant, nor would the reading make sense in the context of a provision that clearly, and only, regulates free stuff. Nor is the problem unclear disclosure: the problem is that KFC added new conditions after the offer was made. The court stated that KFC can’t be expected to disclose up-front any after the fact conditions later made part of the offer, but that the complaint sufficiently alleges that KFC revised the terms of the offer without clearly and conspicuously disclosing these terms before plaintiffs accepted the offer.
Finally, KFC argued that it complied with Illinois’s raincheck exception. Under the Illinois Administrative Code, it’s unfair or deceptive to advertise any product when the seller doesn’t have sufficient stock to meet reasonably anticipated customer demand, except where the seller tenders a raincheck entitling prospective purchasers to buy the advertised product at the advertised price and redeems the raincheck within a reasonable time. First, the court wasn’t clear that this applied to products that aren’t sold. The allegations weren’t that KFC failed to sufficiently stock Kentucky Grilled Chicken, but that it refused to honor the coupons. The provision also appears to require the same terms as the original offer, with the exception of the redemption date, but plaintiffs here alleged that KFC required additional terms. KFC didn’t clearly establish the existence of this affirmative defense.
Michigan: Same argument about “trade or commerce” requiring an offer for sale, same result. Similar raincheck provision in the Michigan Administrative Code, same result.
KFC sought to dismiss the requested injunction under Michigan law for an order requiring clear and conspicuous disclosure of additional animal ingredients in the Kentucky Grilled Chicken product. The MCPA prohibits failure to reveal a material fact the omission of which tends to mislead or deceive a consumer when the fact could not reasonably be known by the consumer. “Whether the presence of beef in a poultry product is the type of information that affects a consumer's decision to enter into the transaction, and whether that information could reasonably be known by the consumer, are legitimate questions of fact.” The MCPA also specifically authorizes injunctive relief whether or not the plaintiff seeks damages, and plaintiffs need not suffer a “loss” before suing for injunctive relief.
California: Similar argument about whether trying to redeem a coupon for free stuff made plaintiffs “consumers.” It did. KFC argued that it offered an appropriate remedy sufficient to defeat plaintiffs’ entitlement to relief after it unforeseeably ran out of Kentucky Grilled Chicken, since California law allows defendants to offer appropriate remedies and escape liability. These contentions were “of no moment” in determining the sufficiency of the complaint.
The parent company, YUM!, also failed to get out of the case because plaintiffs sufficiently alleged its participation in the acts at issue.
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