Hanover Subsidiary Did Not Deceive: Appeals Court

Oct 20, 2005 5:10 AM  By

Hanover Direct subsidiary Brawn of California did not engage in a deceptive business practice by charging customers a $1.48 “insurance fee” with every order, a California appeals court has ruled.

The decision, handed down last month, has potential legal ramifications for what catalogers and online retailers should and should not disclose as charges on their order forms. It also has ramifications for what types of financial arrangements distance sellers should make concerning goods in transit.

Justice William Stein, writing for Division One of the First Appellate District Court in San Francisco, said Superior Court Judge Diane Elan Wick erred in awarding the plaintiff, Jacq Wilson, more than $24,000 in litigation expenses and more than $420,000 in attorneys’ fees. Stein reversed Wick’s ruling for damages and dismissed the case.

Wilson contended the $1.48 fee Brawn charged to insure goods sold in case they were lost or damaged in transit was deceptive. Because the goods could be returned for a full refund, he said, Brawn was providing nothing of value and already bore the risk of losses during shipping under California law.

The central legal question of the case was whether the merchant or the customer bears the risk for goods in transit if they are damaged or lost, says Chuck Berger, principal, Grippo & Elden, Chicago, one of the law firms that represented Brawn.

“It was surprising how little case law there was on this,” Bergen says. “Once Brawn ships it [the product], Brawn no longer has risk of loss. That passes to the common carrier.”

Wilson had also argued that because the charge was itemized rather than included in shipping and handling charges, potential customers would compare Brawn’s shipping and handling charges to other merchants’ and mistakenly think Brawn’s terms were more favorable.

The appeals court disagreed.

So what does this decision mean for other remote sellers?

“In terms of disclosures to your customers, you probably want to have an expressed disclosure as to what your insurance charge is and what it covers,” Bergen says, rather than burying it in shipping and handling charges. That Brawn explicitly said what the charge was for was very helpful to its case, he adds.

“What this says is ‘Make a clean disclosure.’ If part of your fee is for a particular service, disclose that service,” Bergen says. “It’s impossible to give definitive legal advice, but that [disclosure] is something one must consider.”

The time for Wilson to appeal has run out, Bergen says. Wilson was not immediately reachable.