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State v. Internet Order, LLC

United States District Court, W.D. Washington, Seattle

March 2, 2015

STATE OF WASHINGTON, Plaintiff,
v.
INTERNET ORDER, LLC, et al., Defendants.

ORDER DENYING MOTION FOR A STAY

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court is Defendants Internet Order, LLC, and Daniel Roitman's (collectively "Internet Order" or "Defendants") motion for a stay or, in the alternative, to establish a coordinated case schedule with a related case. (Mot. (Dkt. # 18).) Plaintiff State of Washington ("the State") opposes Internet Order's motion. (Resp. (Dkt. # 20).) Relevant to the present motion is a civil action pending in the First Judicial District of Pennsylvania. See Commonwealth of Pa. v. Internet Order, LLC, et al., Case No. XXXXXXXXX (Ct. of Common Pleas of Phila. Cnty. 2014) ("the Pennsylvania Action"). Internet Order asks the court to stay proceedings until final resolution of the Pennsylvania Action or, in the alternative, to establish a case schedule in coordination with that case. (Mot. at 1.) The court has considered the motion, the parties' submissions filed in support of and opposition thereto, the balance of the record, and the applicable law. Considering itself fully advised, the court DENIES Internet Order's motion.

II. BACKGROUND

Internet Order markets and sells language learning audio products through its website, www.pimsleurapproach.com. ( Id. at 2.) The company employs approximately 120 people and has no offices outside of Pennsylvania. ( Id. at 3.) Defendant Daniel Roitman is the founder, co-owner, and Chief Executive Officer ("CEO") of Internet Order. (Am. Compl. (Dkt. # 6) ¶ 3.3.) The State alleges that more than 38, 000 Washington consumers have purchased products from Internet Order, and its gross national revenue in 2013 was close to $80 million. (Am. Compl. ¶ 1.2; Resp. at 3.)

Internet Order advertises a "Quick and Simple Course" priced at $9.95. (Mot. at 2.) The State alleges that, when signing up for this offer, customers are automatically enrolled in a negative option plan called the Pimsleur Rapid Fluency Program. (Am. Compl. ¶ 1.1.) According to the State, this program consists of four levels ("Gold Levels 1-4") that cost $256.00 each. ( Id. ) Internet Order sends Gold Level 1 to a customer 20 days after the customer's purchase of the Quick and Simple Course. ( Id. ¶ 4.2.) The customer then has 30 days to return the Gold Level 1 program. (Mot. at 2.) If the customer does not return the program, Internet Order charges four monthly payments of $64.00 to the customer's credit card. (Am. Compl. ¶ 4.3.) Internet Order sends the next Gold Level program to the customer, with the same payment terms, sixty days after the first. ( Id. ¶ 4.1.) The customer's obligation may rise as high as $1, 024.00 after Internet Order sends four Gold Level programs to the customer. ( Id. ¶ 1.1.)

The State further alleges that if the customer attempts to return the product and cancel the charges, Internet Order subjects the customer to various "save" techniques and forces the customer to pay a 25% restocking fee and shipping costs. ( Id. ¶ 1.2.) Such "save" techniques include representing that the next advanced course is ready to be shipped and would be difficult to stop, as well as claiming that Internet Order has already paid "royalties" on the product and is thus incapable of issuing a refund. ( Id. ¶ 10.2(e).) According to the State, Internet Order also requires the customer to acquire a Return Merchandise Authorization Number ("RMA Number") in order to return a shipment. ( Id. ¶ 10.2(b).) If the customer fails to do so, Internet Order rejects the customer's return. ( Id. ) If the customer returns the product after the 30 days, but before all four of the monthly payments have been made, Internet Order still charges for the remaining monthly payments up to $256.00. ( Id. ¶ 4.3.) The State alleges that, if the customer simply refuses to make monthly payments, Internet Order sends "threatening collection letters" warning that it will send the delinquent accounts to a collection agency, though it has no intention of doing so. ( Id. ¶ 1.2.)

The State alleges that Internet Order presents the customer with an "official receipt" on the summary page when the customer concludes ordering the Quick and Simple Course. ( Id. ¶ 4.23.) The only charges Internet Order lists on the receipt are the $9.95 initial cost and shipping costs. ( Id. ) Additionally, the confirmation email received by the customer lists only the $9.95 price. ( Id. ¶ 4.25.) When the Gold Level package arrives, it includes what appears to be an invoice that lists the order total as $0.00. ( Id. ¶ 4.27.) The State alleges that there is no mention on the summary page, the confirmation email, or the Gold Level invoice of the $256.00 charge that will be imposed if the product is not returned within 30 days. ( See id. ¶¶ 4.23, 4.25, 4.27.)

The State further alleges that Internet Order has used and continues to use deceptive tactics to prevent customers from noticing their negative option commitment. ( Id. ¶ 4.6.) From May 2008 to May 2010, Internet Order used a pre-checked box on the Quick and Simple Course order form. ( Id. ¶ 4.7.) The box was shaded a light gray and, if left checked, would sign the customer up for the Pimsleur Rapid Fluency Program. ( Id. ¶ 4.9.) In 2010, Internet Order removed the pre-checked box and began to automatically sign up all customers who purchased the Quick and Simple Course. ( Id. ¶ 4.13.) The State alleges that in order to find the additional terms relating to the Rapid Fluency Program the customer must go through a multi-step process by following inconspicuous links on a variety of different pages. ( Id. ¶¶ 4.18-4.22.)

From 2012 to 2013, the Attorneys General in New York, Pennsylvania, and Washington commenced investigations into Internet Order's online marketing and sales. (Mot. at 2.) The State of Washington filed this action on September 22, 2014. ( See Compl. (Dkt. # 1).) The State of Washington asserts eight claims: seven violations of the Washington Consumer Protection Act ("CPA"), RCW ch. 19.86, and one violation of the Restore Online Shoppers' Confidence Act ("ROSCA"), 15 U.S.C. § 8403. (Am. Compl. ¶¶ 5.1-12.3.) The fifth cause of action is a violation of the Unsolicited Goods Act ("UGA"), RCW 19.56.20, but the State notes that this particular violation of the UGA also constitutes a violation of the CPA. (Am. Compl. ¶¶ 8.1-8.5.) The State brings each of these claims on behalf of Washington residents. ( See id. ¶¶ 3.1, 5.4.)

ROSCA makes it "unlawful for any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature, " unless the person or company meets certain requirements. 15 U.S.C. § 8403. The requirements are as follows: "[T]he person (1) provides text that clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer's billing information; (2) obtains a consumer's express informed consent before charging the consumer's credit card, debit card, bank account, or other financial account for products or services through such transaction; and (3) provides simple mechanisms for a consumer to stop recurring charges from being placed on the consumer's credit card, debit card, bank account, or other financial account." 15 U.S.C. § 8403(1)-(3).

The bases for the State's causes of action under the CPA are: (1) failure to disclose material terms of the offer (Am. Compl. ¶¶ 6.1-6.3); (2) misrepresentations ( id. ¶¶ 7.1-7.3); (3) a statutory violation of the UGA ( id. ¶¶ 8.1-8.6); (4) imposing an unlawful penalty ( id. ¶¶ 9.1-9.4); (5) unfair and deceptive cancellation practices ( id. ¶¶ 10.1-10.3); (6) unfair and deceptive representation of a trial period ( id. ¶¶ 11.1-11.4); and (7) unfair and deceptive collection practices ( id. ¶¶ 12.1-12.3).

In its complaint, the State requests that the court grant the following relief: (1) a permanent injunction against Defendants from continuing or engaging in the unlawful conduct complained of; (2) civil penalties, pursuant to RCW 19.86.140, against Defendants for each and every violation of the CPA caused by the conduct complained of; (3) restitution to consumers of money or property acquired by Defendants as a result of the conduct complained of; and (4) the attorneys' fees and costs of bringing this action, as well as such other and additional relief as the court may determine to be just and proper. (Am. Compl. ¶ 14.1(e)-(h).)

The Pennsylvania Action was filed on the same date as this suit. ( See Hibberd Decl. (Dkt. # 19) Ex. A ("Pa. Compl.").) The Attorney General of Pennsylvania alleges seven violations of the Pennsylvania Consumer Protection Law ("CPL"), 73 P.S. § 201, including: (1) Defendants misrepresented and failed to clearly and conspicuously disclose the terms and conditions of purchase (Pa. Compl. ¶¶ 60-79); (2) Defendants misrepresented and failed to clearly and conspicuously disclose the terms and conditions of purchase through correspondence with consumers and/or order confirmations ( id. ¶¶ 82-94); (3) Defendants misrepresented and failed to clearly and conspicuously disclose the terms and conditions of purchase in Defendants' invoices ( id. ¶¶ 97-108); (4) Defendants misrepresented the urgency of the program offer ( id. ¶¶ 111-118); (5) Defendants misrepresented that the offer was risk free when it was not ( id. ¶¶ 121-129); (6) Defendants failed to have ...


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