Suit Challenging Discount Club Marketing Practices Not Time Barred

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Claims that the marketing firm Vertrue, Inc. and its affiliates violated the federal Electronic Funds Transfer Act (EFTA) by enrolling consumers in a discount club and imposing unauthorized monthly charges in billing statements were not barred by the law’s one-year statute of limitations, the U.S. Court of Appeals in Cincinnati has ruled.

Margaret Wike, who in March 2006 asserted class action claims on behalf of other consumers, successfully appealed a ruling that her EFTA claims were time-barred.

The court also held that the federal district court in Nashville should reconsider the question of whether Wike should be allowed to add claims under the federal Racketeer Influenced and Corrupt Organizations (RICO) Act alleging that Vertrue had ensnared hundreds of thousands of consumers in a deceptive marketing scheme.

Telemarketing Preauthorization of Funds Transfer

The court set out the facts underlying Wike’s complaint as follows. In February 2005, Wike called America Online (AOL) to set up an Internet service account for a friend. An AOL representative told Wike that she was eligible to claim a free $50 Wal-Mart gift card. With Wike’s permission, the AOL rep transferred Wike’s call to another operator who would provide more details. That operator turned out to be a telemarketer for Influent, which sold memberships in discount clubs and other programs for Vertrue.

The telemarketer confirmed Wike’s name, address and telephone number and told her that, as a Galleria member, she would receive a “membership kit” explaining how to claim her Wal-Mart gift card. Galleria membership, the telemarketer explained, was not free: Wike would be billed $1 that day and, after a 30-day trial period, $19.95 each month thereafter, unless and until Wike cancelled her membership. Wike agreed, provided her Visa debit-card number, and declined an offer for a second discount club the telemarketer pitched.

Wike claims she never received the promised membership kit (which Vertrue insists it sent), though she acknowledges she might have disregarded it as junk mail. Nor did Wike question the first $19.95 charge for “galleriausa” on her March 2005 bank-account statement, mistakenly believing that it pertained to an unrelated purchase.

A second monthly charge, which showed up in April, got Wike’s attention. She called Galleria’s support number several times over the ensuing months, asking that her membership be canceled and the monthly charges refunded. None of this worked—she received no refunds, and the monthly charges continued—until October 2005, when Wike canceled her account and received a partial refund.

EFTA Statute of Limitations Trigger

Wike claimed that Vertrue violated the EFTA’s restriction on “preauthorized electronic fund transfer[s],” which may be permitted by consumers “only in writing,” a copy of which must be given “to the consumer when made.”

The question presented was whether EFTA’s one-year statute of limitations was triggered in February 2006 when the telemarketer arranged the funds transfer (in which case Wike’s March 2006 EFTA claim was time-barred) or when the first of the recurring transfers of funds from Wike’s bank account occurred less than a year before the lawsuit (in which case Wike’s EFTA claim was timely).

The district court, confronting a difficult question that no federal court of appeals had yet faced, held that the EFTA claim was time-barred because the statute imposed obligations on Vertrue before the first recurring transfer took place.

The better view, according to the appellate court, was to pin accrual on an identifiable date when the plaintiff has been injured and an EFTA duty necessarily has been violated—the date of the first funds transfer.

Remanding the case to the district court for further proceedings on the EFTA claim, the appellate court directed consideration of the question of whether Wike should be allowed to amend her complaint to add a RICO claim.

The June 2 decision in Wike v. Vetrue, Inc. will be reported at CCH Advertising Law Guide ¶63,431.