Groupon is a service provider that created an electronic marketplace for local business. Through Groupon, merchants are able to offer promotional deals to local customers. In turn, consumers are able to access promotional deals offered by local businesses. The goal of this arrangement is to generate better prices on goods, services or experiences for consumers and enhance the scope, reach and results (hopefully) of merchants’ marketing efforts.
The Groupon system works like this. When a consumer purchases a Groupon Voucher based on a merchant’s promotional offer, the Groupon Voucher has two separate values. First, there is the amount that the consumer paid for the Groupon Voucher. Second, there is the promotional value of the Groupon Voucher. The promotional value is the spending power of the Groupon Voucher beyond what the consumer paid for the voucher. So, if a consumer pays $50 for a $80 Groupon Voucher from a merchant, the promotional value of the voucher is the additional $30 in spending power the voucher gives the consumer.
According to Groupon’s policies, the promotional value of the Groupon Voucher expires on the expiration date printed on the voucher. The amount the consumer paid for the Groupon Voucher does not expire until the voucher is used or is refunded. Therefore, Groupon’s policies suggest that you have always been able to redeem an expired Groupon Voucher with the merchant for the value you paid for the voucher. Groupon’s policies also state that if a merchant refuses to honor your Groupon Voucher, “Groupon will refund the amount paid upon request in the original form of payment, or will credit the Groupon account of the purchaser with an equivalent number of Groupon ‘Bucks’ for future purchases on the site”. It is unclear how Groupon determines which refund methodology to utilize for a refund claim.
The Class Action Lawsuit:
Last year, a group of consumers filed a class action lawsuit against Groupon alleging that Groupon violated numerous state and federal laws. The consumers alleged that Groupon illegally used expiration dates and other restrictions on Groupon Vouchers, engaged in sales or advertising practices that violated various consumer laws and failed to make adequate required disclosures concerning the promotional deals offered to consumers. Last month, Groupon settled the class action lawsuit for $8.5 million. As part of this settlement, Groupon merchants were released from any liability related to the class action allegations.
What the Settlement Means for Consumers:
If you purchased or received a Groupon Voucher that required the voucher to be redeemed in the United States between November 1, 2008 and December 1, 2011, you are a member of the class. Groupon plans to send an email about the settlement to its 34 million active subscribers relatively soon.
In order to participate in the settlement, you will have to submit a Proof of Claim Form. The Proof of Claim Form will be available once the Court approves the settlement. The deadline to submit your Proof of Claim Form will likely be set by the Court when it approves the settlement. However, you should anticipate the deadline to be sometime in July 2012. If your claim meets the criteria outlined in that Proof of Claim Form, you will receive a Settlement Voucher. The Settlement Voucher is valid for 130 days from its issue date. During that time, you will be able to take the Settlement Voucher to the applicable merchant and receive goods or services in the amount that you paid for the Groupon Voucher. If a merchant refuses to redeem a valid Settlement Voucher, you may submit a claim to the administrator of the settlement fund to receive a refund check for the purchase price you paid for the Groupon Voucher, plus 20% of the promotional value of the originally offered deal. All requests for refunds must be submitted within 185 days of issuance of the Settlement Voucher. In addition, if the merchant on your Groupon Voucher has gone out of business, you may submit a Proof of Claim Form requesting a refund of the purchase price of the Groupon Voucher from the settlement fund. Refunds made on this basis will be sent to consumers in the form of a refund check.
Commentators have already begun to speculate over the impact of this settlement for consumers. Many suggest that the settlement does nothing more than reinforce Groupon’s current valuation and refund policies (outlined above). However, there appears to be at least one important, yet subtle difference. Under Groupon’s current policies, it appears that Groupon has the choice to either refund your purchase price or credit your account with equivalent Groupon Bucks. Under the settlement, if you cannot redeem your Settlement Voucher with the merchant (the merchant refuses or is out of business), the settlement fund will send you a check for the amount you paid for the Groupon Voucher. The settlement does not allow for Groupon Bucks to be issued as part of the refund process.
What the Settlement Means for Groupon Merchants:
According to a recent correspondence from Groupon to its merchants, Groupon believes that the settlement will likely mean “nothing” for most Groupon merchants. Groupon explains that it estimates that only roughly 2% of class members are eligible and will make valid claims. The letter indicates that if you are a merchant potentially impacted by the settlement, Groupon will contact you directly if and when a valid claim is submitted for a voucher that you were paid for. Groupon advises merchants that it expects claims to begin around August 2012. If a valid claim is made against one of your Groupon Vouchers, Groupon asks you to honor the Settlement Voucher for the cash value paid by the consumer for the original voucher. You do not have to offer goods or services in the amount of the promotional value because the promotion has expired. Groupon’s letter also states that whether or not you are directly impacted by a Settlement Voucher, you are nevertheless protected by the settlement agreement and release.
Ultimately, it appears that merchants are expected to continue to treat expired Groupon Vouchers the same way they always have, i.e. honor the cash price paid for those vouchers. The interesting question is: what happens if you refuse to honor Settlement Vouchers? Although would-be customers must seek relief from the settlement fund and have no recourse against you, this does not mean that Groupon has also given up its rights to pursue claims against you. Merchants should review their Groupon contracts closely to determine their potential exposure from refusing to honor expired Groupon Vouchers for the cash value of the voucher.
© 2012 Michael P. James, J.D., M.B.A.
Michael James, a senior attorney at Fraser Trebilcock Davis & Dunlap, P.C., provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at firstname.lastname@example.org, (517) 377-0823 or www.fraserlawfirm.com.