Avis tries harder--to obscure extra fees

Schwartz v. Avis Rent A Car System, LLC, 2014 WL 4272018, No. 11–4052 (D.N.J. Aug. 28, 2014)

I’m blogging this case because of its discussion of the use of consumer perception experts in class actions, which seems to be on the upswing.  Schwartz sued on behalf of a class of Avis customers who were charged a $0.75 surcharge for earning frequent-flyer miles and other rewards through their participation in Avis’s Travel Partner Program. 

Schwartz made an online Avis reservation, and was prompted to enter his frequent flyer number to earn miles.  After his reservation was completed, he received an email confirmation containing an itemized list of estimated rental costs, which did not include any charge for earning frequent-flyer miles or rewards through the Program. It disclosed Base Rate, an Energy Recovery Fee, a Vehicle License Fee, a Customer Facility Fee, a Concession Recovery Fee, and Tax, as well as a charge for selecting GPS, and also said under the heading of Additional Fees that fees for the Gas Service Option weren’t included in the total and that “Optional equipment and coverages may be subject to taxes and fees that are not included in the estimated total.” Avis put a copy of the rental agreement in his car, which included a list of the same itemized charges, plus a $0.75 daily surcharge described as an “FTP SUR” charge. When he returned the car, Avis gave him a receipt that again listed all the charges for the rental, and a $0.75 charge described as “FTP–SR.”

Schwartz sought to certify a class bringing claims under the New Jersey Consumer Fraud Act (“NJCFA”) as well as breach of contract and breach of the covenant of good faith and fair dealing.

First, the court dealt with Avis’s motion to exclude Schwarz’s expert. This requires a preview of substance: Avis argued that Schwartz couldn’t show predominance because he couldn’t show that the disclosure of the surcharge was not knowable to a significant number of consumers or that, if the surcharge had been knowable, most class members wouldn’t have signed up for the frequent flyer program.  Schwartz attempted to satisfy both requirements by relying on Dr. Vicki Morwitz.  Avis didn’t contest her qualifications or the relevance of her opinions, but contended that those opinions were unreliable.

Dr. Morwitz concluded that during the relevant time periods, “virtually none” of Avis’s customers could have known that they were being charged a surcharge for earning frequent-flyer miles.  She examined documents containing the disclosure, data on visitors to Avis’s website, data from other airlines concerning how they distribute frequent-flyer miles, and scholarly literature.  Avis argued that she ought to have conducted a survey, but lack of a survey doesn’t automatically render an expert report inadmissible.  She used web traffic data to determine that, from January 2009 to June 2012, less than 1% of the customers who visited Avis’s website clicked on the surcharge information links.  Avis also pointed to Dr. Morwitz’s use of a study that concludes that 85% of customers do not examine supermarket receipts for accuracy. It argued that, because this study shows that 15% of supermarket customers do examine their receipts, her opinion was unreliable.  The court thought the study confirmed that only a minority examine their receipts, and didn’t see how that undermined her conclusion.

Avis also argued that Dr. Morwitz’s conclusion that most consumers would not understand that “FTP SUR” is shorthand for “Frequent Traveler Surcharge Program” was unreliable because the only way to know what consumers understood would be to look at empirical data or ask each consumer directly. But her conclusion was that this shorthand was an example of price obfuscation, “which means presenting price information in a manner that is confusing to consumers and designed not to be noticed or processed carefully,” and it was based on literature about this practice, not just on her subjective beliefs. At most, the absence of a specific survey went to weight, not admissiblity.  Avis also criticized her conclusion that documents provided after the rental had taken place were insufficient, arguing that most customers were repeat renters and therefore had numerous chances to learn about the surcharge.  But, since most consumers don’t examine their receipts, repeat renting wasn’t dispositive.

Then Avis turned to Dr. Morwitz’s critique of the website surcharge disclosures.  In one representative month, of the nearly 2.3 million visitors to Avis.com, only .007% clicked through to the page with information about the surcharge. Avis argued that some consumers might’ve visited the page already or known of the surcharge.  But this was speculation, and at best relevant to weight, not to admissibility.  Moreover, in opining that a reasonable consumer would have been confused by Avis’s labeling of the surcharge as a “tax” on its website, Dr. Morwitz relied on academic literature concerning the way consumers react to the word “tax.”  Avis argued that her opinion ignored additional means of disclosure, such as Avis ads in periodicals and disclosures on airline webpages, but that didn’t justify excluding her report.

Next, materiality: Dr. Morwitz concluded that “had Avis’s frequent-flyer surcharge been knowable to consumers, only an insignificant number of them would likely have purchased these miles and have paid Avis’s surcharge anyway.” She relied on “(i) academic literature that demonstrates that consumers enjoy receiving products that are offered for free, (ii) her independent analysis that verifies that the vast majority of frequent-flyer miles that consumers can obtain are available without a surcharge or fee, and (iii) academic literature that suggests that consumers are less likely to buy products when these products cost more than what consumers expect them to cost.”  Again, Avis said she should have conducted a specific survey, but reliance on scholarly literature and data from other airlines was acceptable.  The court specifically noted that this wasn’t a Lanham Act implicit falsity case, and thus a survey wasn’t required.

Avis relied on a survey conducted by its expert, Dr. Ravi Dhar, concluding that roughly the same number of respondents opt for frequent flyer miles whether the surcharge is disclosed (96.7% of respondents) or not (97.5% of respondents).  Disagreement doesn’t justify exclusion.

The court then granted Schwartz’s certification motion, finding commonality because Avis’s allegedly deceptive conduct was common towards all the class. “This Court is satisfied that Plaintiff will be able to prove this element using common evidence given the fact that Avis entered into a standard form contract with millions of customers over the class period and that the surcharge information was presented in similar manner to most Avis customers for that period.”  Ascertainable loss could be shown from Avis’s transaction data.

What about causation, required by the NJCFA?  When the alleged unlawful conduct is a “knowing omission,” a court must find:

[E]ither (1) that the alleged [omissions] were not knowable to a significant number of potential class members before they purchased ... [the product], or (2) that, even if the [omissions] were knowable, that class members were nonetheless relatively uniform in their decision-making, which would indicate that, at most, only an insignificant number of class members actually knew of the alleged [omissions] and purchased ... [the product] at the price they did anyway.

Avis argued that the surcharge information was knowable, citing several ways in which the surcharge was disclosed and arguing that, given all these sources, a significant number of consumers must have known.  “This is unpersuasive, especially considering that all of the rentals in question were done exclusively through Avis’s website.” Nor did Avis present expert evidence of its own.  The court concluded that the surcharge was not “knowable.” 

Avis’s links to disclosures weren’t conspicuously presented.  For example, from 2005 to January 2009, the surcharge was disclosed through a web link “that appeared on the bottom of the web page on which members of Avis’s Preferred Service Program ... would enter their profile information, information regarding their membership in any relevant frequent travel programs, and their travel preferences.” As Dr. Morwitz noted, almost no one clicked through to this link—in one month, 165 people out of nearly 2.3 million.  Plus, the link was presented “far from webpages where Avis list[ed] other rental-car-cost information[.]” Studies show that consumers have difficulty determining price when companies “make finding price information complicated, difficult, or confusing.” 

Avis then moved the link to the disclosure to “a webpage originating under the major heading ‘Cars and Services.’” To find the link, a customer would have had to click on “Cars and Services,” then “Miles & Points/Partners,” then “Airlines,” and then choose an airline. At that point, a link titled “Click here for Frequent Traveler Tax/Surcharge Information” was located near the bottom of the page.  Dr. Morwitz concluded that forcing the consumer to start the search for this information under “Cars and Services,” a fairly unrelated topic, wouldn’t work.  Again, during this period, virtually nobody clicked through.  Even if a consumer did get to the last page, the link title, “Frequent Traveler Tax,” was confusing and wouldn’t lead people to think that it discloses a surcharge for frequent flyer miles. Academic literature shows that people distinguish a “tax” from a “surcharge.”

Avis moved the link again, to he page for “step 4 of the online reservation process.” The link was titled “Help?” and was located in the section of the page where customers could enter their flight information.  (This doesn’t comply with the FTC’s advice on disclosure, which is to tell consumers what the important information is.)  If consumers did click, they’d be sent to a different page with a link titled “Frequent–Flyer Tax Recovery/Surcharge.” But again, virtually no one did click.

Defendants’ expert criticized Dr. Morwitz for not using “empirical” evidence, by which he means a survey, but he didn’t present empirical evidence of his own.  His conclusion that consumers would likely have differed in their awareness of the surcharge, because it was disclosed in different ways, was without support.  He also criticized her for failure to take into account that renters might be repeat customers who already knew of the surcharge.  But she did take this into account, and relied on studies that show that “the more often a consumer visits the same website, the less time this consumer spends on that website.” Repeat renters were thus less likely to deviate from the pages that they needed to visit in order to make a car rental, so if they missed it the first time they’d never learn.

The court concluded that the surcharge information was unknowable.  The rental documents didn’t disclose the surcharge before Schwartz finalized the rental, and anyway it was listed under the code “FTP SUR” and “FTP–SR.” Nor did print ads that mentioned the surcharge in the fine print help, especially since Avis didn’t provide evidence about where these ads were published or how broadly. While Avis argued that members of the putative class could have discovered the surcharge by visiting their Travel partners’ webpages, those pages only said that a surcharge “may” apply, not “will apply.”

Finally, Avis argued that Schwartz should’ve known about the surcharge because charging for frequent-flyer miles is common knowledge. But “consumers do not need to pay a fee to obtain frequent-flyer miles from the airlines themselves.” Based on airline data on frequent flyer miles earned from various sources, Dr. Morwitz concluded that, between 2005 and 2012, over 91% of the frequent-flyer miles made available by airlines were earned “for no additional cost.” While most credit card companies that offer miles charge a fee and other car rental companies charge similar surcharges, that doesn’t show that “charging for frequent-flyer miles is common knowledge.”  (If anything, it shows that other providers should worry some.)

Given unknowability, nothing further was required to show commonality. The court similarly agreed that the common law contract claims could be proven with common evidence because they arise out of a uniform contract.  The court had previously rejected the argument that each individual class member would have to show individual causation and damages and didn’t change its mind now.

A class action would also be superior.  Avis argued that Schwartz’s trial plan, which proposed to focus in the first stage on Avis’s conduct, conflicted with circuit precedent, and later stages improperly relied on aggregate or classwide damages models in lieu of proving individual harm.  But the Third Circuit hasn’t rejected a presumption of causation when a defendant omitted material information that plaintiffs couldn’t have known and made uniform statements.  Plus, Schwartz wasn’t attempting to use an aggregate or classwide model; he was just proposing to add up Avis’s data about how many people paid the surcharge per day. Anyway, given the difficulties of proceeding without a class action, these arguments didn’t matter.