SAN DIEGO (CN) – Groupon, a social networking site for shoppers, deceptively and illegally sells sell gift certificates with short expiration terms, knowing that many purchasers will not use them in time, according to a federal class action. The class also sued Nordstrom and “similarly situated entities,” claiming that “Groupon and its retail partners reap a substantial windfall from the sale of gift certificates that are not redeemed before expiration.”
Groupon, which is just over 2 years old, recently rejected a $6 billion buyout offer from Google. The class says that Groupon’s “gift certificates, referred to and marketed as ‘groupons,’ are sold and issued with expiration dates that are deceptive and illegal under both federal and state laws.”
“Launched in November 2008, Groupon is a ‘social promotions’ website that promises consumers discounted deals on various products and services, purportedly through the power of ‘collective buying,'” according to the class action.
Groupon partners with retailers in “Daily Deal” offerings, which are good only if enough people buy it. The consumers must provide Groupon with an email address, among other information. The class says that almost “40 million people worldwide reportedly have signed up to receive offers from Groupon.”
It adds: “Groupon partners with hundreds, if not thousands, of retail businesses around the country, including large, nationwide companies such as Nordstrom.”
Groupon made $500 million from its sale of gift certificates last year, and “Groupon and its retailer partners share in revenues from ‘groupon’ sales,” according to the complaint.
“The problem with Groupon’s business model is that Groupon and its retail partners, including Nordstrom, sell and issue ‘groupon’ gift certificates with relatively short expiration dates, knowing that many consumers will not use the gift certificates prior to the expiration date,” the class claims.
It continues: “Groupon effectively creates a sense of urgency among consumers to quickly purchase ‘groupon’ gift certificates by offering ‘Daily Deals’ for a short amount of time, usually a 24-hour period. Consumers therefore feel pressured and are rushed into buying the gift certificates and unwittingly become subject to the onerous sales conditions imposed by Groupon, including illegal expiration terms, which are relatively short, often just a few months.”
The class claims Groupon also unfairly requires consumers to use a gift certificate in one transaction and does not allow them to “redeem any unused portion of the ‘groupon’ gift certificates for the cash amount. Groupon essentially places handcuffs on the manner in which consumers can redeem their gift certificates for the products and services offered, even though consumers have already paid in full for such products and services.”
Named plaintiff Anthony Ferreira says that at the end of November 2010 he paid $25 for a Groupon gift certificate redeemable for $50 in apparel and accessories at Nordstrom Rack. He says that the “fine print” on the groupon stated that it expired on Dec. 31, 2010. He was not able to use the certificate by then and “believed that the ‘groupon’ gift certificate he had purchased was no longer valid and could not be redeemed,” he says.
Groupon faced a similar class action in March 2010 in Chicago. Groupon’s CEO Andrew Mason stated on the company’s blog in April that year: “We’re pleased to report that the lawsuit that was filed against us is being dismissed and we’ve settled with the guy named in the suit.” He continued: “The confounding thing about this experience is that we give everyone refunds if they have any issues with their Groupon experience – we don’t need to get sued for it.” The blog also states that after a groupon expires, the customer can still redeem it for the purchase price based on a period defined by each state.
Ferreira demands disgorgement and damages from Groupon, Nordstrom and other retailers for violations of the Credit Card Accountability Responsibility and Disclosure Act, the Consumer Legal Remedies Act, false and misleading advertising, unfair competition and unjust enrichment.
His lead counsel is Rachel Jensen with Robbins Geller Rudman & Dowd.