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Travel Law: Automatic monthly renewal billing – responsible business practice?

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This week we take a look at a potentially deceptive and misleading billing practice which may be used by retailers generally, and by travel sellers in particular.

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This week we take a look at a potentially deceptive and misleading billing practice which may be used by retailers generally, and by travel sellers in particular. This practice is known variously as “opt-out sales practices” or billing charges made “on an automatically-renewing continuing monthly basis without adequate notice or consent”. Judicial scrutiny of this annoying sales practice has arisen within the context of the sale of travel insurance [see Matter of Frankel v. Citicorp Insurance Services, 80 A.D. 3d 280 (N.Y.A.D. 2010)] and in-flight Wi-Fi services [see Berkson v. Gogo LLC., 2015 WL 1600755 (E.D.N.Y. 2015)]. In addition to the propriety of opt-out sales practices in the travel industry, these cases also raise issues regarding the enforceability of mandatory arbitration, forum selection and choice of law clauses and class action waivers in online travel contracts.

Travel Law Update

Extreme Sports

In our article Adventure travel: Soft, hard and extreme-disclaimers and releases, www.eturbonews.com (7/14/2014) we discussed the increasing popularity of extreme travel adventures. In two recent articles the dangers of extreme sports were highlighted. In Branch, Dean Potter, Extreme Climber, Dies in BASE-Jumping Accident at Yosemite, nytimes.com (5/17/2015) it was noted that “Dean Potter, 43, and the other man, Graham Hunt, 29, leapt near dusk off Taft Point, a promontory about 3,000 feet above the floor of Yosemite Valley, not far from the iconic granite masses of El Capitan and Half Dome. Flying in wingsuits, they tried to clear a notch in the granite cliffs but instead smashed into the rocks in quick succession. Neither of the men pulled a parachute…BASE jumping, which is essentially parachuting from a fixed structure or cliff, is illegal in the national parks…But Potter fought and flouted the rules for many years…He was a proselytizer for climbing, BASE jumping and living free”. And in Lackman, Is It Wrong to Let Children Do Extreme Sports?, nytimes.com (5/14/2015) it was noted that “kids participate in extreme sports at ever-younger ages. What were once simple pastimes, like riding bicycles and skateboards, have evolved into thrill-seeking pursuits and intense competitions”.

Lyft Gets A Big Lift

In Isaac & Stevenson, Carl Icahn Invests $100 Million in Lyft, nytimes.com (5/15/2015) it was noted that “Mr. Icahn…announced…that he had invested $100 million in Lyft, the fast-growing ride-booking start-up and single largest competitor to Uber in the United States. Along with an additional $50 million from other investors that Lyft did not disclose, the new investment is an extension of a $530 million round that the start-up raised in March, which values the company at $2.5 billion. ‘There’s room for two in this area’ Mr. Icahn said…’What I’m saying is there is a secular change going on with the way people are getting around, and with urbanization, it means more people living in urban areas’”.

Uber Legal Team Expands Rapidly

In Ruiz, Uber Legal Goes From Zero to 70 in Three Years, therecorder.com (5/8/2015) it was noted that “Expanding to more than 200 cities throughout 57 countries requires a little legal work. So does raising a couple billion dollars. To carry that load, ride-haling service Uber has built a 43-lawyer legal department almost overnight. Thirty-three of the company’s 36 U.S.-based lawyers have joined since Jan. 1, 2014, according to a Recorder analysis of bar records and LinkedIn profiles. The 70-person department includes 20 paralegals and seven admins…Uber is a defendant in 31 cases across the United States”.

Who Created The Uber Idea?

In Kendall, Suit Accuses Uber Founders of Stealing $40 Billion Idea, therecorder.com (5/14/2015) it was noted that “A California entrepreneur has accused Uber of building its entire $41 billion empire on a stolen idea. Kevin Halpern founded Celluride Wireless, Inc. in 2002 as a means to connect limo and black-car drivers to passengers through mobile technology. In a lawsuit filed Thursday in San Francisco Superior Court, Halpern claims he invented the premise that has since evolved into the booming transportation-network industry but was sidelined by Uber Technologies Inc.’s co-founders…In Halpern’s complaint against Uber, his lawyer concedes Celluride didn’t leave much of a paper trail to support Halpern’s claims”.

No Cruises For The Poor

In Garver, Welfare Crackdown: Kansas Bans Cruises for the Poor, thefiscaltimes.com (4/16/2015) it was noted that “Kansas Gov. Sam Brownback…has just signed a bill…banning welfare recipients from spending the public aid they receive through the federal Temporary Aid to Needy Families program in ways lawmakers deem wasteful or inappropriate. Now off limits are travel on cruise ships…as well as adult entertainment, tattoos, alcohol, lingerie and a long list of other products and services”

Fake Reviews Again

In Greene, Amazon sues to block fake reviews on its site, seattletimes.com (4/9/2015) it was noted that “Amazon.com sued three websites it accuses of purveying fake reviews, demanding that they stop the practice. The suit alleges that the glowing product evaluations they provide deceive consumers and harm the sellers on Amazon’s site who don’t game the system”.

Online Consumers’ Loss of Rights

In Dickerson & Berman, Consumers’ Loss of Rights in the Internet Age, New York State Bar Association Journal, October 2014, at nycourts.gov/courts/9jd/Taxcertatd.shtml it was noted that “One of the more ominous developments for e-commerce consumers…involves the increasing enforcement of onerous contractual terms and conditions (in online contracts) such as mandatory arbitration, forum selection and choice of law clauses and liability disclaimers, lurking in the hyper-links…Companies continue to seek to limit exposure and litigation expense…by requiring consumers to agree to significant terms and conditions…included on their websites through hyperlinks and scroll-throughs with consumers clicking their acceptance…New York courts, however, are grappling with a fine line. When is a hyperlink or a click through on a web-site so ‘temporally and spatially decoupled’ from a consumer’s decision to purchase a product or service as to provide inadequate ‘inquiry’ or constructive notice of such provision”.

“Voluntary Flight Insurance Program”

In Matter of Frankel “The plaintiff enrolled in a ‘Voluntary Flight Insurance Program’ which automatically billed him the sum of $13 for flight insurance whenever he purchased airplane tickets with his credit card. Thereafter, he was consistently billed for flight insurance whenever he made any type of travel-related transaction (e.g., cancelled trips, ticket upgrades and travel agent fees). The plaintiff was erroneously billed in this manner on about 10 occasions and the record indicates that Citibank continued to impose these erroneous charges despite having knowledge of their impropriety. The plaintiff commenced this putative class action on behalf of himself and all others who have been erroneously charged for flight insurance. The plaintiff alleged that this pattern of erroneous billing was calculated to elicit small sums of money from a large number of consumers, amounting to significant aggregate revenue for the defendants”. The Frankel Court decided to hold in abeyance the “substantial question as to whether the arbitration agreement is enforceable under South Dakota law pending a hearing on whether plaintiff agreed to both clauses and whether they are unconscionable. nycourts.gov/courts/9jd/taxcertata.shtml

“Opt-Out” Travel Insurance

In California and Florida issue statements against deceptive travel insurance opt-out practices, www.eturbonews.com (3/25/2015) it was noted that “The state insurance regulators for two major vacation rental markets, California and Florida, issued statements against using opt-out sales practices to sell travel insurance…Florida Office of Insurance Regulation issued an informational memorandum stating that online travel agencies that sell travel insurance by using opt-out methods are in violation of the Unfair Insurance Trade Practices Act. The memorandum advises that the practice of automatically charging consumers for ancillary travel insurance, unless consumers take action to decline coverage, does not comply with Florida’s requirement of ‘informed consent’”.

Wi-Fi On Air Flights

In Berkson, a consumer class action on behalf of airline passengers, it was noted that “There is a huge percentage of the (US) population using the internet for purchases…In many instances, these consumers are accepting important contracts of adhesion when they order a product or service through a computer. With convenience has come much widened opportunities for consumer fraud and overreaching by merchants, as claimed in the present case (which) involves purchase of internet service connection (“Wi-Fi”) on air flights. Plaintiffs…sue Gogo LLC and Gogo Inc. (and allege) that defendants improperly increased their sales and profits by misleading customers into purchasing a service that automatically charged a customer’s credit card, on an automatically-renewing continuing monthly basis, without adequate notice or consent. The graphic and text on defendants’ website, it is argued, led internet consumers during the proposed class period-between February 2008 and December 2012-to believe that they were only buying a one-month subscription when they signed up for in-flight Wi-Fi through Gogo. Gogo’s position is that the terms plaintiffs consented to not only clearly provided for automatic renewal, but that they included mandatory arbitration and waiver of venue protection. Berkson, a New York State resident, claims that he sustained unauthorized charges to his credit card (in October, November and December of 2012). Welsh, a resident of California, posits that he suffered injury when he incurred unauthorized recurring charges over a sixteen-month span
…A variety of claims are pleaded…Three causes of actions are brought on behalf of a nationwide class-common law breach of the implied covenant of good faith and fair dealing, common law unjust enrichment and violation of various consumer protection statutes”.

Defendant Gogo

“Gogo provides passengers with Wi-Fi access on many domestic airlines…Thirty-eight percent of domestic flights in the United States, 8,700 flights, offer Wi-Fi…Gogo dominates the market, making its service available on more than eighty percent of all Wi-Fi enabled flights in North America. ‘It is the ‘exclusive internet access connectivity provider along domestic airline routes flown by AirTran, Alaska Airlines, American Airlines, Delta, Frontier Airlines, United Airlines, U.S. Airways and Virgin America (citing Stewart v. Gogo, Inc., 2013 WL 1501484 (N.D. Cal. 2013); see also 2014 WL 324570 (N.D. Cal. 2014)(antitrust case)).

Monthly Service Charge

“At all times relevant to this action, Gogo’s website advertised the cost of a monthly Wi-Fi subscription and the cost of a single day pass. Monthly access cost approximately $40 and a day pass cost approximately $10…It is alleged that, when potential customers registered for the monthly service, no notice was given about a recurring monthly charge…The only representation regarding the price indicated the charge per month-i.e., ‘$34.95 per month’ in the case of Berkson and ‘$39.95 per month’ in the case of Welsh…Plaintiffs claim that they each purchased Wi-Fi from Gogo in reliance on representations they saw on the company’s website…This information, they argue, led them to believe that, when they signed up for the service, they were only agreeing to a one-month subscription. Gogo, it is alleged, obtained no signature or affirmative authorization to charge plaintiffs for recurring fees if they failed to cancel the service by phone. Nor did Gogo, it is claimed, send any communication to plaintiffs on a monthly basis, as is customary, to notify them of continuing new charges if the service was not cancelled by the subscriber. After a month-long period from the date of original sign-up ended, Gogo continued to bill each of plaintiff’s credit cards monthly…Only when the charges were recognized by plaintiffs was the unwanted service cancelled”.

The Decision

“Before the court are defendants’ three motions: (1) to transfer venue (to Illinois); (2) to compel arbitration and (3) to dismiss for lack of standing. The motions to transfer venue and compel arbitration are premised on the company’s ‘terms of use’ which defendants argue plaintiffs assented to online when they subscribed to Gogo’s in-flight Wi-Fi. Plaintiff(s) (allege)
that these terms and conditions were ‘hidden’ and never seen, or agreed to, by them…The central factual-legal question in the case is: were plaintiffs given effective notice of the need to make inquiry (‘inquiry notice’) of the ‘terms of use’ in what can be characterized as Gogo’s electronic contract of adhesion? The question is answered in the negative, compelling denial of defendants’ motions on venue and arbitration…Defendants’ motion to dismiss for lack of standing is denied (as well)”.

Conclusion

The Berkson decision is well worth reading since it is an extensive review of contract formation and assent in the Internet age. Consumers must carefully read the terms and conditions of the Internet travel contracts they enter into before purchasing goods and services online.

The author, Justice Dickerson, has been writing about Travel Law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2015) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2015), and over 350 legal articles.

This article may not be reproduced without the permission of Thomas A. Dickerson.

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editor

Editor in chief is Linda Hohnholz.