Automatically renewing contracts have become increasingly popular with both businesses and consumers due to their convenient, consistent delivery of a wide range of goods and services. But concerns about allegedly unexpected renewals or inconvenient cancellation procedures have inspired legislation and lawsuits in a number of states. The last few months have been no exception to this national trend, with Colorado as the most recent state to enact an entirely new automatic renewal law (ARL) plus significant settlements and rulings under California’s ARL — one of the most onerous ARLs in the country.
Colorado’s New ARL
While some ARLs govern only particular industries, Colorado — which already has an ARL governing health club contracts — now joins the ranks of more than a dozen states with ARLs that apply to broad categories of contracts. On July 2, 2021, Colorado Gov. Jared Polis signed into law H.B. 1239, which includes provisions that apply broadly to automatically renewing consumer contracts, as well as other provisions that apply only to online dating service contracts. The law will go into effect on January 1, 2022. Its requirements are similar to those of some other broad ARLs: clear and conspicuous disclosures; written acknowledgments; simple cancellations; and notices of material changes and renewals. But it does have some notable differences from other ARLs, including unique rules for the timing of renewal reminders and a provision that requires express written consent from the consumer for any renewal term lasting longer than a year.
The new Colorado law comes on the heels of several other broadly applicable ARLs passed in recent years, including a New York law that took effect earlier this year. As we recently discussed, multiple state legislatures introduced ARL bills earlier this year. Although many failed to make it out of committee, it is likely only a matter of time before another state passes a new ARL. This activity underscores the need to monitor ARL legislation in any states where one does business.
California ARL Settlements
July also brought news of two sizeable settlements under California’s ARL. These settlements serve as a reminder that those with customers in states with ARLs — and especially California, which has been a hotspot for ARL litigation — should assess ARL applicability and compliance.
After a July 7 hearing, Judge William H. Orrick of the U.S. District Court for the Northern District of California granted preliminary approval to a $6.7 million settlement in Jordan v. WP Company LLC. That putative class action alleged that the Washington Post’s online subscription registration and cancellation procedures failed to satisfy several requirements of California’s ARL. The New York Times previously reached a separate multimillion dollar settlement of similar allegations — again under the California ARL — in March 2021.
Also on July 7, the Los Angeles County District Attorney announced a $2 million settlement of a suit alleging that Match Group, Inc., had violated California’s ARL in its operation of online dating services. The suit was brought by the California Auto Renewal Task Force, or “CART,” a coalition of district and city attorneys that seeks to enforce California’s ARL. Although the Post settlement may have the higher dollar value, the Match settlement is a noteworthy example of the risk of not only private suits, but also public enforcement actions for companies with California customers.
California ARL Decisions
Finally, two recent decisions are notable for (among other things) interpreting the California ARL’s requirement that consumers receive a written “acknowledgment” with the automatic renewal terms and other information.
The first is Gershfeld v. Teamviewer U.S., Inc. in the U.S. District Court for the Central District of California. In granting Teamviewer’s motion to dismiss, the Gershfeld court held that an email sent two months before the renewal of the plaintiff’s year-long subscription satisfied the “acknowledgement” requirement, as the plain language of the California statute does not specify when an acknowledgment must be sent. Gershfeld follows a May opinion by the Ninth Circuit in Hall v. Time, which similarly held that an end-of-term reminder sent about a month before a renewal could satisfy the acknowledgment requirement of the ARL. Although these federal decisions may not be binding on California courts, they represent sound interpretations of the plain language of the state’s ARL and are strong persuasive authority. But it remains to be seen whether other courts — or enforcement authorities like CART — will agree with their interpretation.
The second is Morrell v. WW International in the U.S. District Court for the Southern District of New York, which concerns whether WW’s enrollment process violated the disclosure and acknowledgment provisions of the California ARL. The court held that the allegations showed that WW’s pre-purchase disclosures complied with the ARL, but its post-purchase acknowledgment did not. As to the disclosures, the court held that they: (i) contained all of the necessary information; (ii) were clear and conspicuous, because they included bolded and colored text; (iii) were sufficiently proximate to the “Submit” button; and (iv) obtained the necessary affirmative consent, in the form of a checkbox for the terms and conditions and the “Submit” button. As to the acknowledgment, however, the court held that, though it complied in several aspects, it still fell short because (i) it did not adequately describe WW’s cancellation policy, and (ii) its reference to WW’s “Help” page, without a link, did not provide a “timely and easy-to-use cancellation method.” In making both determinations, the court cited the fact that the information and link that were missing from the acknowledgment had been provided in the initial disclosure, suggesting that the result might have been different had WW repeated the initial disclosure’s information verbatim in the acknowledgment. Finally, the court turned aside WW’s attempt to invoke the ARL’s “safe harbor” provision; although nothing in the statute prevents a court from doing so, the court found that in this particular case it could not resolve the issue at the pleading stage.
For More Information
Faegre Drinker’s consumer contracts team continuously monitors developments relating to ARLs. Questions about complying with ARLs can be directed to the authors listed below or to your usual Faegre Drinker contact. Additional information can also be found in “Automatic Renewal State Laws: Updated 2021 Editions.”