Minnesota lawsuit alleges deception in Groupon business model
Since it launched in 2008, deal-a-day provider Groupon has attracted more than 70 million subscribers. But now, the service is the subject of multiple lawsuits, including at least one here in Minnesota, alleging the company's business model is deceptive.
The way the service works is you sign up to receive online discounts for local products services. If enough people sign up for the same discount on the same day, the deal kicks in — and the discounts can be steep.
Even if you've never used Groupon, you've likely heard about it. The Chicago-based Internet startup is best known for two things: daily online deals and skyrocketing popularity.
Hyedi Cribben, 25, of South Minneapolis signed up for Groupon after hearing about it on Twitter. She said it saves her a lot of money on going out.
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"I can just look at my list of Groupons and it kind of helps me make a decision, since there are so many things to do in the Twin Cities, and then to also know that I'm going to get a good deal," Cribben said. "And I've already spent the money, so it's kind of like out of sight out of mind."
Cribben likes that she can buy Groupons in advance so they're on hand when she's ready to use them. But the deals come with expiration dates, and since customers pay in full up front for the discounts they're not actually coupons.
"Groupon sounds like a coupon but it's not one. It is a true gift certificate under the law," said attorney Shawn Wanta.
Wanta's Minneapolis firm is handling three lawsuits against Groupon over this distinction — including one in Minnesota — seeking unspecified damages and class action status.
Federal and state laws have clear rules about gift cards and gift certificates.
"In Minnesota, it is illegal to sell a gift certificate with any expiration date at all," Wanta said.
On its website, Groupon pledges to "return your purchase" if "you ever feel like Groupon let you down." The company also sends out emails reminding people when their deals are about to expire.
Wanta said his Minnesota client attempted to get a refund when she realized her deal would expire before she could use it. He said Groupon and the merchant whose services she bought both declined to give her money back. But Wanta said whether a customer is able to get a refund before the expiration date is irrelevant — he said the deals are illegal to begin with because they expire at all.
"A lot of people like to get discounted gift certificates and the lawsuit isn't trying to say you can't do it," he said. "The purpose is to say you can sell a discounted gift certificate but you still have to comply with the law at the same time."
Groupon declined to comment on the allegations. Company spokesperson Julie Mossler released a written statement saying: "If a merchant refuses to redeem the voucher for the amount paid within the time frame stated by local law, we will return their purchase."
"I mean, it looks like a new company that really didn't do its homework," said University of Minnesota Law Professor Prentiss Cox.
Cox said if these lawsuits and others like it are successful it could cost Groupon money, but he said the company could still stay in business offering daily discounts without specifying a deadline.
"The reason federal and state law prohibit expiration dates is that we don't want companies relying on people's failure to use cards by a certain date in order to make money," Cox said. "The principle is that people should get value for what they paid for."
Groupon has until March 25 to respond to the Minnesota lawsuit. But attorneys say they expect the case to drag on for months as attorneys in other states look to consolidate their similar cases into one.
