A Close Look at the Groupon Suit

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It's possible—even easy—to read the suit accusing Groupon of illegal practices and feel no sympathy for the plaintiff, Daniel Keeler. That doesn't mean he'll lose, of course. But it may mean he's dumb or opportunistic.

According to Keeler's own suit, the limitations listed on the coupons appeared on his computer screen before he bought a thing. So he's not saying that he didn't know ahead of time about those limitations, he's saying he never agreed to them.

Keeler’s suit accuses Groupon of using “deception, fraud, false pretense, false promises, misrepresentations and/or concealment, suppressed and/or omitted material fact” to victimize himself and nameless, countless others. The transaction at hand was his purchase in mid-January of three $40 coupons each redeemable for $80 worth of flowers at the Grow Flower Shop in the NBC Tower. Keeler says the terms he clicked when he bought the coupons online were simply “three gift certificates from Defendant [Groupon] for $120 dollars.”

But he says that when the coupons were e-mailed to him they carried new restrictions: “namely, a limitation on usage and a clearly illegal expiration date.”

The expiration date was July 20. The suit cites Illinois’ Consumer Fraud and Deceptive Practices Act, which says “no person shall sell a gift certificate that is subject to . . . an expiration date earlier than 5 years after the date of issuance.” The law calls a gift certificate “a record evidencing a promise, made for consideration, by the seller or issuer of the record that goods or services will be provided to the holder of the record for the value shown in the record.” Keeler calls his coupons gift certificates. That’s what they sound like, and I asked a Groupon spokesperson to comment on the alleged infraction. She wouldn’t.

The balance of Keeler's case (PDF) can be tracked via three exhibits attached to it. Exhibit A, according to his attorney, William Gray, is the Groupon announcement e-mailed to Keeler and thousands of other e-mail subscribers alerting them to the "daily deal."

Exhibit A, shown here, clearly states, in what Gray calls fine print, that the deal "expires 07/20/2010," that "Valentine's Day orders must be placed before Feb 5. Tax not included," and that "local delivery begins at $12."

Exhibit A
  • Exhibit A

Keeler clicked "Buy!," which took him, Gray says, to "the page where you make the purchase." Exhibit B, shown here, is an example of this kind of page, though this one shows a different deal. At this point "the contract is formed," says Gray, yet the limitations aren't mentioned. So all Keeler was contractually agreeing to, says his suit, was to pay $120 for $240 worth of flowers.

Exhibit B
  • Exhibit B

Yet when the coupons appeared on his screen to be printed — Exhibit C — they listed the limitations.

Exhibit C
  • Exhibit C

Either Keeler didn't notice them or he decided to test them at the flower shop. According to the suit, Grow Flower "imposed new terms and conditions on [Keeler], including a $20.00 delivery charge and limited the selection of flowers available to Groupon users."

If the flower shop did try to cheap out on the flowers—well, Keeler appears not to have had prior warning of that. But the assertion that the other terms and conditions Grow Flower imposed were “new” is contradicted by the suit itself in exhibit A. If the suit fall short as a piece of legal craftsmanship, it does succeed in ruthlessly pricking Groupon’s gonfalon bubble.

As most readers probably know, Groupon offers consumers discount coupons by selling them online in bulk. It brings local businesses on board and sends a daily e-mail offer to subscribers for a discount on goods or services that has to be purchased that day, by a certain number of subscribers, to be valid. It’s grown amazingly fast and inspired various imitators— whom 29-year-old founder and CEO Andrew Mason dismissed in a Tribune article a few weeks ago saying that they hungered for profits while Groupon is a “labor of love.” It’s a labor of love that’s now in close to 40 cities and late last year, despite the recession, raised $30 million in investment capital.

Mason responded to Keeler’s suit with a we’re-way-cool statement on Groupon’s blog. “As a company with one of the most irrationally liberal customer satisfaction policies on the planet, the idea that we’re systematically deceiving anyone is news to us—hopefully it’s news to you as well,” said Mason. But if we are “systematically deceiving our customers,” he went on, “we would rather punish ourselves for our ‘deception’—so we’re organizing a class action against ourselves. If there are actually any Groupon customers out there that think we’ve systematically deceived them, fill out the form below and we’ll fix it fast. . . . We didn’t need to be sued to have an open refund policy. . . . I don’t know if it’s some kind of weird complex, but the idea that there’s even one customer out there that is less than thrilled with Groupon horrifies me. So while we obviously think this lawsuit is ridiculous, it’s an opportunity for us to reinforce the fact that there is nothing more important to us than making sure you guys love us.”

Just as grandly, Mason flaunts the Groupon Promise: "If Groupon ever lets you down, we’ll return your purchase—simple as that. Why? Because when we do a bad job, we want it to be easy for you to punish us. We believe that when a customer has a bad experience, companies pay for it sooner or later—so we’d rather pay fast so we can make things right before it’s too late. . . . So, couldn’t someone just have magical Groupon experience after magical Groupon experience and still demand refunds, claiming that something awful happened and exploiting our policy? Yes—and that’s probably why open policies like this are rare. But we believe it’s a mistake to force everyone to live by rules meant to control the very small percentage of bad people out there—the unintended consequence is a worse experience for the 99.9% of customers who are honest and fair."

Reading Mason, you might wonder, where love rules, who needs lawyers? It takes a little searching to find them, but the actual terms and conditionsattached to Groupon sales are pretty much as complicated and carefully drawn as at your average heartless big business. (And why shouldn’t it? The company’s other founders are entrepreneurs Eric Lefkofsky and Andrew Keywell, not exactly neophytes when it comes to corporate law.)

For instance, the terms and conditions deal with the expiration dates that Keeler claims are illegal under Illinois law. The Merchant is responsible for allowing you to redeem your Groupon for the cash value based on the money you actually paid for your Groupon (i.e. if you paid $20 for a Groupon which gives you $50 of value to the Merchant, the cash value that you paid is $20, not $50), for a period of time that may extend beyond the expiration date on the Groupon. While the expiration date on the Groupon dictates the last date that you can use your Groupon at Merchant for the promotional offer which is stated on the Groupon, state laws (which vary state-by-state, and which are generally made available by each State on the web) may provide that the Merchant is responsible for honoring the cash value that you paid for your Groupon for a period of time beyond the expiration date stated on the Groupon. If applicable, this is a statutory provision which applies to the Merchant, and it is the sole responsibility of the Merchant (and in no way the responsibility of Groupon, as Groupon is not the Merchant, has no obligations of the Merchant, and is merely selling the promotional voucher on behalf of the Merchant) to comply with such applicable laws and statutes which may govern the Merchant.

In other words, it's between you and the merchant. It's not our problem.

In other words, we're running a business here.

On the Groupon discussion page you can find visitors complaining about buying certificates that businesses don't honor. But "Katie with Groupon" reassures them: "On the original screen where you make your purchase . . . we include a 'Fine Print' box in the middle of the page just below the image. This box will always include all the conditions of a deal that you should know before you make these purchases. If you have attempted to redeem a Groupon in which the business avoids the Fine Print, won’t honor your Groupons, etc., please email us at support@groupon.com. . . . If the business has already denied your Groupon, we will be more than happy to refund you."

I asked Gray if Keeler tried to get a refund. Yes, he said, from the flower shop, and he couldn't. But not from Groupon? Gray said his client read complaints from other customers on the Groupon site and didn't bother.

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