— Johnson Fistel, LLP (@JF_LLP) April 29, 2020
The COVID-19 pandemic has resulted in a massive number of unforeseen cancellations of events and the inability to use paid subscriptions, memberships, and season passes. These range from gym and amusement park closings, to postponed sports seasons, to concert and vacation travel/accommodation cancellations, to daycare center shutdowns, to ski resort closures. Consumers often pay for these services and activities in advance and often in the form of a direct monthly charge to their credit or debit cards, or third-party payment accounts.
Are consumers entitled to refunds? Common sense suggests the answer is a resounding “Yes,” but under the letter of the law and the language in the contracts, this question may be far more difficult and complicated to answer.
Consumer advocates argue that it is unfair, and likely unlawful, for businesses to charge for services they cannot provide and that these businesses are unjustly enriching themselves while not providing the promised services. Yet they are doing it, nonetheless. Businesses argue that parties are free to contract however they choose. Class action lawsuits are being filed across the country addressing these very issues.
It’s time to analyze the contract language. Consumer advocates suggest that consumers who have been charged for services that are not being provided should first reach out to the service provider to inquire about a refund. If no refund is forthcoming, then consumers should carefully review their contracts (and request a copy from the service provider if they do not have one). Many consumer contracts contain any number of provisions which can make it difficult, if not impossible, for consumers to obtain refunds, individually and/or on a classwide basis. These include arbitration and class action waiver provisions and force majeure clauses.
Many membership and subscription agreements contain provisions mandating that disputes be resolved solely through arbitration—with individuals waiving their rights to bring an action in a court of law, individually, and on a classwide basis. The costs of an individual arbitration (filing fees, attorneys’ fees, and time) will often far exceed any recovery on an individual basis. Consumer contracts may also include unilateral change and force majeure clauses. These clauses, while they may not be as common as arbitration and class action waiver clauses, may enable a company to make and enforce a unilateral change to the contract—such as choosing to extend the customer membership period rather than refunding membership fees. While frustration of purpose or force majeure provisions may allow contract termination, they may also allow delayed or different performance, including membership extensions—without refunds—for facility closures and event postponements/cancellations. The current and forthcoming class action litigation will likely test the interpretation and enforceability of such force majeure provisions.
If consumers are not getting a refund after paying for services that are not being provided, they should first review their contracts to confirm whether there are arbitration and/or class action waiver provisions that would prevent the filing of a class action lawsuit, and then contact an experienced law firm that has a track record for success in class actions. Similarly, if businesses are receiving requests for refunds, they should look at their contracts to determine whether they may be required to issue refunds and whether they may have exposure to class actions seeking refunds.