When we shop in a store or online, it is common today for merchants to invite us to join “loyalty” programs that encourage us to become repeat customers by offering discounts or other incentives. Often these programs include “terms and conditions,” to which most of us pay little attention.
That casual attitude can be a mistake, as demonstrated by a lawsuit that was recently decided by the California Court of Appeal (Costa v Road Runner Sports).
In 2016, Michael O’Connor purchased a pair of athletic shoes and socks at a Road Runner Sports store in San Diego, one of 35 outlets the chain operated in California.
As part of the purchase, he paid less than $2 to enroll in the chain’s “VIP Family Rewards Membership” loyalty program. That membership, which he used again the following year, gave him a 10% discount plus a 5% cash-back incentive – benefits that more than covered the program’s initial cost.
O’Connor never used his membership again, but Road Runner charged him membership renewal fees ranging from $28 to $40 per year from 2017 through 2020. O’Connor allegedly never noticed the membership charges when he paid his credit card bills.
When he finally did notice the charges and realized that he’d been billed for four years, O’Connor joined a class action lawsuit, replacing another individual as the named plaintiff. The lawsuit, filed in San Diego County Superior Court, alleged the company had violated California’s Automatic Renewal Law and other consumer protection statutes.
Road Runner asked the trial court to allow the dispute to be handled by arbitration rather than litigation. It said O’Connor and all other members of its loyalty program were bound by an arbitration provision that Road Runner had added to the online terms and conditions of the program three years after O’Connor enrolled.
The company said it mailed its customers a letter each year alerting them that their memberships would be renewed and billed to their credit cards and telling them that they could cancel by phone or sending a message via its website.
In 2019, for the first time, the letter included an asterisk which linked to text in small type that said, “See complete program terms and conditions at roadrunnersports.com/viprewards.”
Road Runner didn’t have O’Connor’s postal address in his files, so it didn’t send him the letter.
But the company argued that O’Connor still should be bound by the arbitration agreement because he must have “obtained imputed knowledge” of the provision from his attorney after he filed his lawsuit and failed to cancel his membership.
Any Road Runner customers who went to the web address included in the letter would not have seen the “complete program terms and conditions.” Instead, they would have found a list of 10 questions and answers, on topics such as the chain’s “90 Day VIP Perfect Fit Promise” and “Exclusive Events and Sales.”
Below all that was the statement, “Use of the membership constitutes acceptance of the full terms and conditions of membership. Please review here,” with the word “here” underlined.
Only by clicking on “here” would those details be found – on yet another web page. Printed out, the terms and conditions were six pages long.
On the last page was a section titled “Binding Arbitration,” which said, “Any controversy or claim arising out of or relating to this Agreement” would be settled through arbitration.”
It also said all claims had to be handled individually, not consolidated into a class action.
The San Diego Superior Court rejected the company’s request to compel arbitration of the dispute because parties must consent to arbitration and O’Connor “could not accept the terms of an agreement he was not aware of.”
It said Road Runner failed to show how an attorney’s knowledge of an arbitration agreement “can somehow be imputed to the attorney’s client for the period of time predating litigation.”
Road Runner then appealed.
It conceded that O’Connor “did not have actual or constructive notice of the arbitration provision,” but continued to insist his consent to the provision was implied by his failure to cancel his membership after he had joined the lawsuit and presumably learned about the clause from his attorney.
The appellate justices disagreed. They noted that the company’s own terms and conditions stated that customers could indicate their assent to arbitration by purchasing, using, or renewing a membership. The document did not identify failing to cancel a membership as a way to signify assent to arbitration.
In addition, they noted, O’Connor did try to cancel his membership, via two letters sent from his attorneys that demanded the company cancel his and all other memberships of the loyalty program and refund their fees.
The justices affirmed the lower court’s order denying Road Runner’s request to compel arbitration and awarded O’Connor his costs on appeal.
In this case, the company got a lesson that is equally applicable to consumers: it pays to give careful attention to the details of those lengthy “terms and conditions” documents.
By Laurie Murphy