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State Automatic Renewal Laws
Some states, like California and Oregon, further specify required
cancellation procedures and disclosures (see California and Oregon).
It is important for companies to stay apprised of and understand
these ever-changing regulations because the penalties imposed for
violations can be severe.
Companies should also consider including dispute resolution
provisions, such as mandatory arbitration to the extent permitted
by law, in their terms and conditions, including class waivers (see
Standard Clause, Class Arbitration Waiver (US) (3-518-9047); see
also Class Arbitration Waivers in the US: Case Tracker (7-525-1136)).
For more on arbitration in the US, see Practice Note, Understanding
US Arbitration Law (4-500-4468). Some companies have had
success in having automatic renewal lawsuits sent to arbitration
pursuant to such clauses (see Litigation and Settlements).
Additional general information on best practices for negative option
contracts can be found in the Practice Note, Positive Practices for
Negative Option Features (W-013-3440) relating to:
Terms and Conditions (see Practice Note, Positive Practices for
Negative Option Features: Terms and Conditions (W-013-3440)).
Consent (see Practice Note, Positive Practices for Negative Option
Features: Consent (W-013-3440)).
Confirmation (see Practice Note, Positive Practices for Negative
Option Features: Confirmation (W-013-3440)).
Cancellation (see Practice Note, Positive Practices for Negative
Option Features: Cancellation (W-013-3440)).
GOOD FAITH EXCEPTION
Several states’ automatic renewal laws contain a “good faith”
exception, which provides an affirmative defense to alleged violations
if the company can show it complied with the statute in good faith
(see, for example, State Automatic Renewal Laws Charts: California,
District of Columbia, Florida, Illinois, Louisiana, North Carolina, and
Wisconsin (W-020-5738)).
To date, in California, attempts to raise the defense at the motion to
dismiss stage have been denied as premature or improper (see, for
example, Jenkins v. j2 Global, Inc., 2014 WL 12687417, at *5 (C.D. Cal.
May 23, 2014); Lopez v. Stages of Beauty, LLC, 307 F. Supp. 3d 1058,
1073 (S.D. Cal. 2018); Price v. Synapse Group, Inc., 2017 WL 3131700,
at *7 (S.D. Cal. Jul. 24, 2017)).
A California defendant did successfully use the defense at the motion
for summary judgment stage to create a genuine issue of material fact
regarding its good faith compliance, which the court relied on (in part)
to deny plaintiff’s motion for summary judgment (Roz v. Nestle Waters
N. Am., Inc., 2017 WL 6942661 (C.D. Cal. Dec. 6, 2017) (the defendant
provided “evidence that it, in good faith communicated repeatedly
with its customers. . . regarding the nature of their relationship, how to
cancel, charges to their credit cards, and price changes”)).
Beyond these few cases, however, the good faith exception generally
has not been litigated. Therefore, it is unclear what a court would
consider exculpatory “good faith compliance.” In addition, the
exception may create privilege issues, including potential waiver, to
the extent a defendant may attempt to rely on the advice of counsel
to demonstrate good faith compliance.
At this point in time, not enough case law exists on the good faith
exception in the automatic renewal law context to provide sellers
with a clear road map to successful use of the exception.
LITIGATION AND SETTLEMENTS
Parties have most frequently litigated the newer automatic renewal
laws in California. These suits have involved both governmental
and consumer actions. The following are some of the more notable
litigations and results:
A number of companies have litigated and eventually settled
automatic renewal lawsuits brought by consumers in California,
often as class actions, including Apple, Guthy-Renker, LifeLock,
Yahoo!, and McAfee. The settlements in these actions have
typically run into the millions of dollars, often in the form of
payments or vouchers sent to class members.
Frequently led by the Santa Monica City Attorney’s office, various
California city and county prosecutors have obtained settlements
and consent judgments in automatic renewal enforcement actions
against companies such as Beachbody, eHarmony, Dropbox, J2
Global, and Guthy-Renker, with the companies agreeing to pay
millions of dollars in penalties and restitution and committing to
updating their website and sales practices.
In one California state court case, a superior court judge explicitly
held at the summary judgment stage that the defendant had fully
complied with the automatic renewal law, a rare judgment on the
merits in the automatic renewal law context (see Colucci v. Pristine
Bay LLC, 2017 WL 8940281, at *1 (Cal. Super. Aug. 30, 2017)).
The FTC brought an enforcement action for violations of the FTC
Act and ROSCA against online retailer AdoreMe, which ultimately
agreed to pay $1.38 million and revise its automatic renewal
practices. The FTC brought a similar enforcement action against
Urthbox (see In the Matter of URTHBOX, INC.) for allegedly failing
to adequately disclose key terms of its “free trial” automatic
renewal programs, and the San Francisco-based company agreed
to pay $100,000 to the Commission to compensate consumers
deceived by the trial offers. For more on FTC enforcement, see
2019 WL 967861 (F.T.C.).
In addition, a number of California courts have held that California’s
automatic renewal law:
Does not provide a private right of action (see, for example,
Johnson v. Pluralsight, LLC, 728 F. App’x 674, 676 (9th Cir. 2018);
Lopez, 307 F. Supp. 3d at 1065-69; Roz, 2017 WL 132853, at *3-5;
Mayron v. Google, 2016 WL 1059373, at *2-4 (Cal. Super. Ct. Feb.
26, 2016)).
Limits relief to California consumers (see, for example, Wahl v.
Yahoo! Inc., 2017 WL 4098884, at *1 (N.D. Cal. Sept. 15, 2017) and
Noll v. eBay Inc., 2013 WL 2384250, at *6 (N.D. Cal. May 30, 2013)).
Other states’ courts may hold similarly if their statute’s language
resembles California’s.
While California courts have seen the vast majority of automatic
renewal law litigation, other states’ courts have adjudicated cases
relating to automatically renewing contracts (for a list of cases, see
32 A.L.R.7th Art. 5). One prominent example is the 2014 Florida
class-action lawsuit against Seaworld, where plaintiffs alleged that
the automatically renewing contracts for annual park passes violated