Advertising Law Blog

Companies charging their customers annual membership fees should take notice of a recent lawsuit that cost retail giant Costco quite a bit of money. If you are reading this, and you charge customers an annual membership fee, you should immediately examine your renewal procedures to make sure your customers actually receive memberships for the length of time that you are charging them for.

Costco customers are required to become members to shop at Costco stores, with annual memberships going for $45- $100. The plaintiffs alleged that whenever customers paid to renew their expired memberships, that Costco backdated the membership to the date that the previous membership expired. The lawsuit charged that by backdating the renewals, Costco was effectively depriving its members of benefits for the time between expiration and renewal. In other words, many members were paying for a year's membership but were receiving less than what they paid for.

After the case was certified as a class action, Costco was able to reach a settlement with the plaintiffs, but the deal will be a costly one. Under the terms of the settlement, all members whose renewals were backdated by 22 days or more will receive one- to three-month extensions to their memberships depending on how long their renewals were backdated. Going forward, Costco agreed to provide greater disclosure of its membership policy and may not backdate renewals by more than sixty days. Perhaps the worse aspect of the settlement is that the plaintiffs' attorneys will receive up to $5.3 million dollars from Costco in fees. According to the published decision, the settlement would benefit 4.8 million of Costco's members at a combined retail value of $38.8 million in free membership fees. On April 15, 2010, federal Judge Joseph Bianco of the Eastern District of New York announced his approval of the settlement. The case was formally titled Dupler v. Costco Wholesale Corp., No. 06-cv-3141.