Bidcactus LLC, a company that owns and operates a penny auction website, is facing a class action lawsuit filed by an individual that allegedly paid more than $15,000 due to poorly disclosed terms and conditions. Recently, the court decided that the suit based on deceptive trade practices and violations of Connecticut gambling laws could proceed, thereby denying the defendant’s motion to dismiss.

Bidcactus operates an online “penny auction” website that permits consumers to bid for popular consumer goods. To bid, consumers pay 75 cents per bid. Each bid raises the purchase price of the product by one cent. In the end, the final bidder pays the final purchase price of the product, the total amount of all bids that that bidder placed during the course of the auction, plus the shipping costs. At times, the total amount paid may end up being more than the retail price for the item. Additionally, those bidders that do not win the item must still pay the 75 cents per bid placed. On his first day on the site, Mendelsohn, the named plaintiff, alleges that he spent $705.51 for $392.49 worth of merchandise even though Bidcactus stated that the total price of his items equaled $14.41. In response to this loss, the plaintiff filed this suit on his own behalf and on behalf of similarly situated individuals alleging that Bidcactus engaged in unfair trade practices and deception as well as offered illegal gambling in violation of Connecticut law. The plaintiff also asserts claims for unjust enrichment.

To demonstrate deception, the plaintiff must prove that the defendant made a material misrepresentation and that the plaintiff interpreted the representation reasonably under the circumstances. According to the complaint, Bidcactus did not require customers to review the Terms & Conditions or the FAQs of the website when registering. Therefore, the pricing structure was not properly disclosed. Further, advertisements for the auction website repeatedly referred to savings (e.g., “savings up to 90 percent”) despite the fact that most bidders lose money. Using these acts and omissions, the complaint alleges that Bidcactus deceived consumers regarding the price of the items and the potential to save.

The plaintiff also claims that the website provided illegal gambling. While the defendant attempted to argue that the site did not amount to gambling because the money was paid and not risked, this argument eventually backed the defendant into the definition of a lottery, which is covered under the Connecticut statute’s definition of “professional gambling.” A lottery includes three elements: prize, chance, consideration. Based on the evidence presented, the court did not find enough evidence to state that the bidding site did not constitute a lottery under the definition of professional gambling and determined that the claims could proceed in the litigation.

The court also refused to dismiss the plaintiff’s claim for unjust enrichment. The defendant argued that the Terms & Conditions constituted a contract and that unjust enrichment is not an available remedy where there is a valid contract. However, if the website is found to constitute illegal gambling, any Terms & Conditions would be void as against public policy and would not, therefore, restrain the agreement. Additionally, the plaintiff argues that bidders were never forced to agree to the Terms & Conditions when registering for the website and are not, therefore, bound by them. Based on the plaintiff’s allegations, the court is permitting the claim for unjust enrichment to proceed as well.

This case is relevant to any entity engaged in online marketing and sales. Relevant statutes must be reviewed to ensure that business practices do not violate state or federal law. Additionally, Terms & Conditions should be prominent and customers should be required to acknowledge them when signing up for services.

Arent Fox is continuing to monitor this case as well as other cases involving advertising, gambling, and proper disclosures. Please contact Anthony Lupo, Sarah Bruno, or Eva Pulliam with questions.