Consumer Advertising Law Blog

Madness! Over Final Four Tickets

The Court of Appeals for the Seventh Circuit, in George v. National Collegiate Athletic Ass'n., No. 09-C-3667, 2010 WL 2788452 (7th Cir. July 16, 2010) , determined that a class action lawsuit against the NCAA over a contest involving the distribution of tickets to its wildly popular NCAA Basketball Tournament can proceed  — reversing the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case.

The Complaint, filed in May 2008, alleged that the NCAA was operating an illegal lottery by giving applicants who submitted a $6-$10 handling fee along with the face value of the tickets the chance to win NCAA Basketball Tournament tickets.  If the applicant was selected, he or she would receive the tickets in the mail.  If the applicant was not selected, he or she would be reimbursed for the face value of the tickets, but the handling fee would not be refunded.

The NCAA moved to dismiss the suit claiming that the contest was not an illegal lottery and that, in any event, dismissal was appropriate because plaintiffs participated in any “illegal” conduct that took place.  The District Court agreed and dismissed the Complaint with prejudice.  The class action plaintiffs appealed to the Seventh Circuit.

In its decision, the Court of Appeals determined that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter.  In so holding, the Court noted that it was troubled by the fact that the NCAA retained the handling fee it received from individuals who were not selected to receive tickets.  The Court also found that the District Court had erred in ruling that the plaintiffs were equally at fault for their participation in the NCAA’s contest.

This case underscores the need for companies to proceed with caution when structuring their contests, especially when the contest involves any monetary payment to enter.  As the Court of Appeals noted in its decision, if the NCAA had simply set up its contest so that the handling fee was repaid to those participants who did not receive tickets, the contest would have been legal.

Alan Veronick

New Media Giveaways Still Must Follow Old School Laws

You may have wondered why there was a mob scene surrounding Jet Blue personnel in Lower Manhattan earlier this month, or why people were chasing JetBlue employees through the streets of New York City. Well, as it turns out, it was all part of JetBlue’s moving target promotional giveaway — part of its 10th anniversary celebration — in which JetBlue gave away one thousand free airline tickets at three undisclosed locations in Manhattan for a round-trip flight between any destination that JetBlue flies. JetBlue announced the locations at which the tickets would be given away on its Twitter account, notifying those seeking the free tickets that they had to bring something with them to each of the giveaway locations, including, at the first stop, a birthday card for JetBlue; at the second, an item of blue clothing and something related to planes; at the third, a postcard depicting the tenth city out of which JetBlue started operating flights (i.e., West Palm Beach). The free tickets — with about 300 available at each location — were gone within about 20 minutes of each Twitter posting.

Moving target giveaway promotions — like JetBlue’s — have been used by other companies, including the Los Angeles based Kogi BBQ, with resounding success. But are these promotions legal? Well, it might just depend on how the promotional giveaway is structured.

Just about every state has enacted laws regulating games of chance used to promote a business or its products. These states are uniform in defining an illegal game of chance as one that involves the elements of chance, a prize, and consideration. There are, however, considerable differences in how state courts have interpreted these elements, and in particular the consideration component. The majority of state courts have found that consideration must involve a direct payment to participate in the promotional game. On the other hand, a few state courts have viewed consideration more broadly, some going so far as to find consideration in the act of visiting a store to pick up a free entry blank.

Given the uncertainty in the laws governing games of chance in many jurisdictions, companies who are contemplating promotional giveaways, including moving target promotions, should assess state law carefully to make sure the giveaway does not create potential legal issues in a state with an undefined or broad view of consideration. After all, the media buzz which often surrounds these promotions can make them an enticing target for an enterprising district attorney.

- Alan Veronick

Is Lawsuit Over Beer Sponsored Football Sweepstakes All Wet?

A class action lawsuit was recently filed in the United States District Court in Chicago against the makers of Coors Light for allegedly printing invalid official entry codes in connection with its “Coors Light Silver Ticket Sweepstakes.”

The “Coors Light Silver Ticket Sweepstakes” promotes the opportunity for 256 grand prize winners to receive two tickets to a 2009 NFL regular season game and 125 first place winners to receive a $100 NFLShop.com gift certificate. According to the contest rules, a contestant must obtain an official entry code — either from purchasing a Coors Light product or by receiving a code by mail free of charge from Coors — and enter the code via text message or on the Internet to see if he or she is a winner.

According to the Complaint, plaintiff purchased a Coors Light product “for the sole purpose of entering into the sweepstakes.” When plaintiff attempted to enter his official code, however, he was informed that the code was invalid. The Complaint alleges this was not an isolated problem but instead claims that defendants received several hundred complaints of invalid codes but continued operating the contest without disclosing the fact that invalid entry codes had been printed.

The official rules for the “Coors Light Silver Ticket Sweepstakes” contain a limitation of liability clause that covers printing errors. It could be an interesting question as to whether this would cover the fact pattern alleged by plaintiff — that up to 5 million official entry codes were invalid. More interesting questions in the case will likely include whether there was any injury, as the defendants provided a means of obtaining entry codes free of charge. Are there any other putative class members like plaintiff who allegedly only bought beer for the chance to enter the sweepstakes (sounds like something we might have said to our parents when we were 18) and if so, how do you identify those consumers as distinct from those who enjoy the Silver Bullet with or without a valid contest entry code? 

- Alan Veronick and Amy Mudge 

Federal Court Refuses To Redeem Gift Card Complaint

In an important win for companies that issue gift cards in California, a United States District Court recently threw out a class action complaint alleging that it was a violation of California law to refuse to redeem a gift card for cash. The plaintiff had sued under California’s notorious Unfair Competition Law, which allows a plaintiff to sue for any “unlawful” business practice by “borrowing” violations of other laws, even if the underlying law does not provide for a private right of action. The law that plaintiff “borrowed” to try to support his claim was California Civil Code section 1749.5(b)(1), which provides that “any gift certificate…is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.”

 

The Defendant, a consumer product company that issues gift cards, filed a motion to dismiss, and the court granted it for two reasons. First, the court rejected plaintiff’s argument that the consumer had the option of either getting cash back or a replacement card, and instead held that the issuer had this option. Second, the court held that even if plaintiff could establish a violation of the statute, he lacked the injury necessary to maintain a claim under the UCL. The court held that plaintiff did not lose any money or property due to the claimed violation, because he still had a gift card with which he could buy merchandise in an amount equal to the full value of his gift card.

 

The court’s ruling, while not binding on other courts, should nevertheless be helpful to other consumer companies. It resolves in defendants’ favor the previously unresolved question of whether section 1749.5(b)(1) requires companies to essentially act as ATM machines for anyone holding a gift card. And it provides a federal court’s view on an important UCL issue: Whether a person suffers a loss of money or property sufficient to bring a claim under the UCL whenever he parts with money due to a UCL violation, or whether he must also establish what plaintiff could not prove here, which is that he did not receive a product of equal value in return for his money. This issue is currently before the California Supreme Court in Kwikset.

- James Speyer