Groupon Expiration Suit Settled For $8.5 Million

* Groupon accused of setting illegal expiration dates

* Settlement covers nationwide litigation

* Groupon denies allegations in agreeing to settle

* Shares tumble 16.9 pct after revision to results (Adds details from settlement, background, byline)

By Jonathan Stempel

April 2 (Reuters) - Groupon Inc, which runs the world's largest online coupon site, has agreed to an $8.5 million settlement of nationwide litigation alleging the expiration dates on its coupons are illegal.

The settlement resolves 17 lawsuits that had been combined in a federal court in San Diego and which accused the Chicago-based company and retailers it works with of violating federal and state consumer protection laws.

News of the settlement surfaced after Groupon unexpectedly revised on Friday its results for the fourth quarter, its first as a public company, and said it had a "material weakness" in its internal controls because of a failure to set aside enough money for customer refunds.

Groupon shares closed down $3.10, or 16.9 percent, at $15.28 on the Nasdaq on Monday.

In the lawsuits, the plaintiffs said Groupon violated laws such as the federal Credit Card Accountability Responsibility and Disclosure Act, which prohibits the sale of gift cards that expire in fewer than five years.

The plaintiffs said Groupon "effectively creates a sense of urgency" among consumers to buy its vouchers by offering "daily deals" for a short amount of time, usually 24 hours.

"Consumers therefore feel pressured and are rushed into buying the gift certificates and unwittingly become subject to the onerous sales conditions imposed," including a ban on cash refunds and a requirement that gift certificates be used in a single transaction, court papers show.

Groupon denied liability in agreeing to settle, according to the settlement papers. Spokeswoman Julie Mossler said the company does not discuss pending litigation.

John Stoia, a lawyer at Robbins Geller Rudman & Dowd representing the plaintiffs, did not immediately respond to a request for comment.

The settlement requires approval by U.S. District Judge Dana Sabraw in San Diego.

It covers consumers who received Groupon vouchers between November 2008 and Dec. 1, 2011. These people may redeem the vouchers past the expiration dates, or recover from the $8.5 million settlement fund.

The company also agreed over the next three years not to sell more than 10 percent of its daily deals with expiration dates of fewer than 30 days.

Groupon went public last November in one of the most highly anticipated initial public offerings of an Internet company.

However, some analysts and investors criticized its accounting and Groupon changed how it reports results under pressure from regulators. The company's rivals include Amazon.com Inc and LivingSocial.

The case is In re: Groupon Marketing and Sales Practices Litigation, U.S. District Court, Southern District of California, No. 11-md-02238. (Reporting By Jonathan Stempel in New York; editing by Gary Hill and Andre Grenon)

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Comments

[SoxFan1]

10:37 AM on 04/03/2012

I was shocked that Google offered to buy this pig two years ago for 6 billion. Groupon will be a penny stock in about 2 years as they will always find willing suckers who think this is a workable financial model.

[abcaid]

08:20 AM on 04/03/2012

I've quit groupon after their 60% off butt cleansing campain

[cryptblade]

04:34 PM on 05/22/2012

one of the latest ones I saw was a finger nail fungus thing. like dood, come on....

[kinogod]

05:53 AM on 04/03/2012

Keep your eye on the shell. Which prize is hidden under which shell? Shuffle.

[lifehub]

04:33 AM on 04/03/2012

How anyone fell for this Groupon scam game is beyond me.

[ajwriter]

03:42 AM on 04/03/2012

The whole marketing concept is based on the idea that people are more likely to pay attention to something that is time dependent.

I'm not sure I understand this complaint, since the vouchers are still worth what was paid for them after expiration dates. Or is that only in states where that's the law?

I'm not sure how sustainable this business model is, but I'm also not sure all of these charges are justified. All of the coupon sites operate on a similar model, and the restrictions are usually pretty clear and simple. I haven't had much experience with Groupon, but I've gotten some large things from Living Social that the merchant couldn't fulfill and LS gave me my money back without question. I've saved money and found new businesses I'd never have otherwise tried, which I think is the idea.

[janthewordnerd]

07:23 AM on 04/03/2012

They're worth what was paid to them because of this complaint.

Hello?

[ajwriter]

03:24 PM on 04/03/2012

In many states like California that have laws about gift cards not ever being able to expire, the discount site vouchers have always been worth the amount paid after expiration. That long pre-dated this complaint.

I asked because I had no idea what's going on in other states that don't have such anti-fleecing laws.

Is that what this complaint is about?

[susanherna121377]

02:33 AM on 04/03/2012

I always though Groupon sucked. I prefer BargainBee!

[dealproject]

11:34 PM on 04/02/2012

not only that but "alledgedly" the groupon site piggybacks on other sites and will claim you ordered their services. i had a time with them. took getting the FTC on them to get them to remove charges. beware!!!!

[missyinSoCal]

10:57 PM on 04/02/2012

Oh yeah, sue the company that gets you amazing deals of 50% or more... What a novel idea, now we can all pay full price again. :-/

[janthewordnerd]

07:23 AM on 04/03/2012

Did you read the story?

[cryptblade]

04:36 PM on 05/22/2012

you're so stupid

[Learical]

08:19 PM on 04/02/2012

I've had no problem w/ them.

[janthewordnerd]

07:23 AM on 04/03/2012

So therefore, there is no problem.

head/desk.

[Learical]

09:50 AM on 04/03/2012

You presume too much from a single comment.

[jmbltt]

07:10 PM on 04/02/2012

Gropupon may not sell "coupons". They may sell "gift certificates". Under many state laws the latter cannot expire

They may have played fast and loose with the distinction , including not booking the deferred income liability for unused certificates, taking unused certificates into revenue at expiration while still having the liability for their use, and not remitting back to the states the value of unused certificates as is legally required.

This is just the tip of the iceberg

[jmmailin]

06:36 PM on 04/02/2012

What "onerous conditions" - except perhaps on the merchants? You pay a small amount upfront for a usually pretty spectacular deal with a time limit. The time limit is a decent amount of time and is clearly shown on the web page where you make the purchase - before you make the purchase, and printed clearly on the printed coupon. The only thing I think unfair is expecting the merchant to honor the face value for an unlimited amount of time after, and from what I've been told receiving no compensation for the late redemptions. I've had plenty expire and cut back on my buying, but the merchant has either still honored the face value for every cent I paid for the thing, or Groupon has given me credit for the full purchase price. It it deception, customer illiteracy, or class-action lawyer greed to blame?

[Tsvi1]

07:44 PM on 04/02/2012

If Groupon believed that they were doing nothing wrong, they would have went to court rather than suffer investor wrath as is going on right now.

[jmmailin]

03:57 AM on 04/03/2012

It's rarely wise for a company to take a chance with a jury when you can settle for a sure amount.

[m66]

03:34 AM on 04/03/2012

Why do you think those laws exist? Not every business is honest, your personal anecdotes notwithstanding. In arguing against basic consumer protections, your comment comes off as AstroTurf. If GroupOn's business model can't obey the law and make a profit at the same time, it should and will fail.

[jmmailin]

04:06 AM on 04/03/2012

What laws? You may be right but the story doesn't state any basis other than "illegal expiration dates". I'm highly in favor of "basic consumer protections" but having plenty of experience with Groupon (and its ilk) I think the company probably deserves some protection from the evident illiteracy and/or greed of some of it's customers and the class-action bar. That said, there's so little said in the story that there are evidently damaging details that weren't revealed here.

[jmmailin]

04:14 AM on 04/03/2012

Not in any way, shape or form arguing against "basic consumer protections" but people have to take some responsibility for failing to read what's plainly put in front of them - but also "What laws?" The story only mentions "illegal expiration dates" - a little detail on what makes plainly stated expiration dates allegedly illegal would have been welcome.

[post it girl63]

06:29 PM on 04/02/2012

Groupon sucks!.....Thankfully the restuarant where I work declined to renew their agreement with them and we no longer accept their coupons......and 99% of their customers never tipped on the full amount.... :(

[golfinkatiekat77]

06:11 PM on 04/02/2012

greed, Greed, GREED! That's what makes the world spin crazy!!

[JAF54]

06:09 PM on 04/02/2012

Hard to believe they lost. I guess there are some limits these con artists can cross...maybe a little "honesty" might work...but I'm so old fashioned....