Monday, July 26, 2010

Consumer Class Action for KFC’s Refusal to Honor Coupons Can Proceed

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

KFC’s refusal to honor coupons offered on its website could constitute violation of the Illinois, Michigan, and California unfair trade practice laws, according to the federal district court in Chicago. Thus, a consumer class action—alleging breach of contract, fraud, and violation of the state unfair trade practice laws—was allowed to proceed.

In connection with its debut of a new grilled chicken product, KFC offered coupons on its website for a free grilled chicken mea. Oprah Winfrey agreed to promote the giveaway on her nationally-televised daytime program.

After more than 10 million coupons were downloaded, local KFC outlets began refusing to accept the coupons two days into the promotion. About 5.7 million customers across the country were denied the free meals and were instead offered a rain check for a free meal in the future.

Consumers filed Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), Michigan Consumer Protection Act (MCPA), and California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA) based on their alleged reliance on the restaurant’s unfair conduct.

Illinois Consumer Fraud Statute

The consumers stated an ICFA claim against KFC, according to the court. KFC argued that the offering of a free meal did not fall within the scope of the ICFA because it was not within the definition of trade or commerce and the consumer claim was merely a breach of contract. However, “trade or commerce” is defined as the advertising, offering for sale, sale, or distribution of any services, property, or commodity. Because the goal of the advertising campaign was to promote future sales of the new meal, the coupons could be considered advertisements for the purposes of the ICFA.

Furthermore, KFC argued that the plaintiffs were not “consumers” under the ICFA because they did not purchase anything. However, the ICFA’s prohibition on advertising free prizes, gifts, or gratuities to any consumer would be rendered moot whether “consumers” were required to make a purchase.

The consumers’ ICFA claim was not barred because the restaurant complied with the rain-check exception defined by the Illinois Administrative Code. While it is a violation of the ICFA to advertise a product and then not meet customer demand, the raincheck exception negates the liability of a retailer that offers a rain check to purchase the advertised product within a reasonable time. The rain check offered by the restaurant was not identical to the original coupon and required additional terms.

Michigan Consumer Protection Act

Claims under Michigan law could also proceed. KFC argued that the complaining consumers did not show that the alleged unfair or deceptive practices occurred in “trade or commerce,” as required by the MCPA, because they did not actually purchase goods or services. However, it was sufficient for the consumers to show that KFC was in the business of providing consumer goods or services, according to the court. There was no requirement that the consumers actually purchase any KFC products.

California Statutes

Finally, KFC argued that certain plaintiffs were not “consumers” because they did not seek to purchase the new meal, and that a “transaction” did not take place. However, the CLRA protects any consumer from unfair or deceptive acts and does not define what goods a consumer must seek to acquire. Because the coupons were meant to induce consumers to buy the new meal, there was a transaction between the parties. Contrary to KFC’s claim, the rain check did not negate liability under the UCL or FAL, according to the court.

The decision is In re Kentucky Grilled Chicken Coupon Marketing & Sales Practices Litigation, CCH State Unfair Trade Practices Law ¶32,088.

Further information about CCH State Unfair Trade Practices Law appears here on the CCH Online Store.

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