Zipcar Skates Out of Federal Class Action
Who knew that not everyone loved Zipcar? Since the company burst onto the scene about a decade ago, it has spawned a group of almost cult-like devotees who seemingly can't shut up about the company.
For those of you who don't live in urban areas and have no idea what I'm talking about, here's the deal. Lots of city dwellers spend years -- even decades -- of their lives not owning a car. (Even I did. Although now I have 2. Go figure.) Generally, these carless city folk get around just fine on subways, buses, taxis and bicycles. But there are some errands -- like going to Costco to stock up for the party you are throwing, or picking up that sofa you bought on Craig's list, or a trip to Ikea -- that just cry out for a car. But renting a car in the city can be a real pain in the tucchus. First of all, it's expensive. Car rental can be $200 or more in Manhattan. And you have to rent the car for an entire day. And then there's the fact that the car rental places are not conveniently located.
Enter Zipcar. By paying an annual fee to join Zipcar, you "co-own" cars that are sprinkled in parking garages throughout the city. You can schedule use of a Zipcar in increments as small as an hour, which makes taking a car on an errand very affordable. Zipcar relies on its members to keep the cars clean and gassed for subsequent users. And, as you can imagine for a company that schedules car use by the hour, it is very concerned about the timely return of a Zipcar.
People who use Zipcars tend to speak glowingly about them. They throw around terms like "convenient," "affordable," and "environmentally responsible." Try not to get trapped by one of them at a cocktail party.
Imagine my surprise to find a class action opinion in a case against Zip Car! See Blay v. ZipCar, Inc., 2010 WL 2292467 (D. Mass. June 7, 2010). It seems that for at least one two-year member of Zipcar, the luster is off the pearl. He alleged that under Zipcar's membership contract, there were five types of charges added onto the hourly charges that were unfair and unlawful. Those five charges were:
1. If members make or alter reservations by speaking to a live operator rather than using the Internet or an automated phone system, they are charged $3.50.
2. If Zipcar must process a parking or traffic ticket, it charges the member an automatic fee.
3. If a Zipcar is returned late, there are escalating fees (starting at $50) that are charged regardless of whether someone else is waiting for the vehicle.
4. If a member forgets property in the car, he must retrieve it within 3 hours, attempt recovery through an online lost and found, or reserve the car for an hour to retrieve it.
5. If a member's account is inactive, he is charged $20 per month if he has money on account; if he has no money on account, his membership may be terminated.
The plaintiff alleged that these fees were penalties not associated to any actual costs to Zipcar, and he sought to recover them for a nationwide class on causes of action for unjust enrichment, money had and received, and declaratory judgment.
Not surprisingly, Zipcar moved to dismiss. The district court -- applying Twombly and Iqbal -- granted the motion without prejudice.
First, the court held that it could properly consider the membership agreement and terms on the website, both of which were referenced in plaintiff's complaint. It also allowed into evidence on the motion to dismiss an e-mail from plaintiff and Zipcar's standard operating procedures.
The defendant argued that these charges were not in the nature of liquidated damages at all, but were instead alternative ways in which plaintiffs could perform their obligations under the membership agreement. The court generally seemed somewhat dubious of the alternative performance argument, observing that "[t]he concept of an alternative performance contract has been largely absent from Massachusetts case law for over the past century and Zipcar's memorandum contains numerous citations to other jurisdictions and to Massachusetts cases from the 1920s or earlier." Id. at *3.
Nevertheless, when the court looked at the $3.50 fee to speak to a live operator, it held that "it represents a clear alternative performance term" that is based in the cost to Zipcar of providing a live representative to speak to. The court thus dismissed the challenge to this fee without prejudice.
As for the late fees, the court reasoned that plaintiff had not met his burden of pleading that they were unenforceable penalties grossly disproportionate to Zipcar's costs. Id. at 5. It observed that Zipcar had a legitimate reason for encouraging members to return cars on time, and it noted that members could avoid the penalties simply by extending their reservation by a half hour or more at the normal hourly rates. The court thus dismissed the challenge to this fee without prejudice.
The court next analyzed the fee for Zipcar to process traffic tickets. The court noted that plaintiff failed to provide any evidence -- other than threadbare allegations -- that the fee is grossly disproportionate to Zipcar's cost. Moreover, Zipcar established that it must pay people to process the traffic tickets. Accordingly, the court dismissed the challenge to this fee without prejudice.
Similarly, the court held that plaintiff failed to plead how the fee for lost items was unfair and disproportionate. Moreover, Zipcar allowed less costly means of obtaining the goods. The court thus dismissed the challenge to this fee, too, without prejudice.
The court refused, however, to dismiss the challenge to the "inactivity fee," at least initially, reasoning:
With respect to these fees, Blay's argument is colorable. In particular, the Court is unpersuaded that an inactive member costs Zipcar anything at all, let alone $20 per month, and Blay is correct that the clear motive seems to be to induce customers to maintain active memberships. Although it is still unclear whether the charges might prove to be enforceable penalties and plaintiff's pleading is again cursory, the Court finds that the allegations related to inactivity fees are sufficient to state a cause of action and survive a motion to dismiss.
Id. at *7.
But not so fast! The defendant argued that plaintiff did not actually pay an inactivity fee, and thus did not have standing to bring such a claim. The court agreed: "Because he does not explicitly allege that he incurred such a fee, he cannot represent a putative class based only upon that claim. His claim based upon the inactivity fee will, therefore, be dismissed as well." Id. at *8.
The defendant had raised other strong arguments against plaintiff's causes of action. For example, it argued that plaintiff could not seek recovery in "quasi contract" for unjust enrichment where the claims were governed by written, explicit contracts. Similarly, the defendant asserted the voluntary payment doctrine as a bar to recovery. (Regular readers remember the voluntary payment doctrine holds that a consumer's voluntary payment of a disclosed fee that was made without fraud, concealment or compulsion cannot form the basis of a subsequent claim to recover those payments. Because the court could decide the case without reaching these arguments, it did not rule on them. But they provide additional support for the result in this case, and they should tend to discourage plaintiff from attempting to amend his complaint to re-assert the causes of action that he had pled.
