Demarco v. DNVB, Inc.: Key considerations for automatic shipping protection fees

The United States District Court for the Southern District of New York has issued a class action decision in Demarco et al. v. DNVB, Inc., which challenged the company’s practice of automatically adding a $2.98 “Shipping Protection” fee to the customer’s order and requiring customers to uncheck a box to remove the fee prior to purchase. The court denied the company’s motion to dismiss, holding the Plaintiffs plausibly alleged the company misled customers by automatically adding an optional shipping protection fee and disclosing to customers who opt out of paying the fee that they are responsible for lost or damaged items.

Below, we offer a summary of the case and key takeaways for companies charging similar fees or facing similar claims.

Background

DNVB, Inc., doing business as Thursday Boot Company (Thursday Boot), sells shoes, apparel, and other goods on its website. At checkout, Thursday Boot automatically adds a shipping protection fee to the customer’s order, which requires customers to uncheck a box to opt out of the fee. If the fee is removed, the website states that Thursday Boot “is not responsible for damaged, lost, or stolen items during shipping.” However, Thursday Boot’s shipping carrier reimburses purchasers for lost or damaged packages valued at up to $100.

Plaintiffs brought claims for violations of New York General Business Law (GBL) sections 349 and 350, in addition to common law claims for breach of contract, unjust enrichment, and breach of the implied covenant of good faith and fair dealing. They claimed that automatically adding the shipping protection fee to the cart was inherently deceptive because it led customers to believe that the fee was mandatory. In addition, Plaintiffs claimed that the disclosure accompanying the fee was misleading because (1) under New York law, the risk of loss remains with Thursday Boot until delivery, and (2) Thursday Boot’s shipping carrier already insured such losses.

The court’s ruling and analysis

The court allowed Plaintiffs’ GBL 349 and 350 claims to proceed, holding that they plausibly alleged that the automatic addition of the fee and shipping protection representations were misleading. However, the court dismissed the remaining claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and Plaintiffs’ request for injunctive relief. The ruling emphasized several key points:

• Failure to disclose shipping carrier reimbursement: The court found the Plaintiffs plausibly alleged that the fee and disclosures were misleading because Thursday Boot’s partial disclosure omitted material information within the company’s exclusive possession, namely, that its shipping carrier already provided coverage for lost or damaged items. Without that information, the disclosure could falsely suggest to customers that, without paying the fee, they have no recourse for items lost or damaged during shipping.


• Conspicuous display of fee is not sufficient protection: The court acknowledged that the fee was “conspicuously displayed in the cart as a separate, additional line item in the same size font as other items.” However, this alone did not warrant dismissal because the central issue – whether the disclosure omitted material information within the company’s exclusive control – was a “question of fact that cannot be assessed on a motion to dismiss.”


• Automatic inclusion alone may be deceptive: Plaintiffs argued that automatically adding the fee to the cart was inherently deceptive because it suggested the fee was mandatory. In the report and recommendation that the court largely adopted in issuing this order, the magistrate judge held that it was “plausible that a reasonable consumer would conclude that the Fee was required, based on its automatic inclusion in the shopping cart.” However, the court did not reach or adopt this specific holding, as it found other grounds to allow the deception claim to proceed, i.e., the partial disclosure relating to responsibility for items lost or damaged during shipping.

Thursday Boot’s website terms of service included a binding arbitration agreement and class action waiver, but the company did not move to compel arbitration. This was likely because a review of the company’s checkout process suggests that it did not sufficiently obtain customers’ binding assent to the terms via a clickwrap or scrollwrap agreement under New York law.

The court dismissed the remaining claims and requests for relief with prejudice and without leave to amend:

• Injunctive relief: Plaintiffs lacked standing to pursue injunctive relief because they are now aware Thursday Boot charges the fee and therefore do not face a real or immediate threat of being misled again.


• Breach of contract: Plaintiffs cannot plausibly plead Thursday Boot breached a contract because “no valid contract existed until Plaintiffs demonstrated their acceptance by paying for their purchases, including the disclosed fee.”


• Remaining claims: Plaintiffs’ claims for breach of the implied covenant of good faith and fair dealing and unjust enrichment were dismissed as duplicative of the breach of contract claim.

Implications for companies

This decision offers several key takeaways both for companies facing consumer class action risk in general, and for companies in particular who charge similar fees and may face similar claims.

• First, conspicuous disclosure of a fee alone is not a complete defense against consumer protection claims if the disclosure suggests that the customer will be responsible for loss but omits other material information, such as existing shipping protections by the company’s carrier or under the law of the jurisdiction at issue.


• Second, automatically adding optional fees to a cart creates litigation risk, as a court may find it could mislead a reasonable customer into believing that the fee is mandatory.


• Third, companies can seek to mitigate class action risk by properly implementing a binding arbitration agreement and class action waiver. Companies selling goods or services to consumers online are encouraged to review their website terms, account registration, sign-in, and checkout flows to ensure that they clearly and conspicuously disclose terms and obtain affirmative customer assent, such as through a clickwrap agreement, to satisfy the constantly evolving law in this area.

For more information, please contact the authors.