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LivingSocial sued for allegedly misleading consumers

LivingSocial is being sued by two Seattle residents that claim its mobile and online offers violate federal and state gift card laws and Washington?s Consumer Protection Act.  

The plaintiffs allege that LivingSocial is violating laws by printing expiration dates on its certificates and conning consumers. The class action lawsuit was filed in the U.S. District Court of Seattle.

?This lawsuit is very similar to another class action lawsuit that was filed against Groupon in California last month,? said Gonzalo E. Mon, partner at Kelley Drye & Warren LLP, Washington.

?Approximately half the states have laws that restrict or prohibit expiration dates,? he said. ?In addition, a recent federal law requires gift certificates to be valid for at least five years. 

?The plaintiffs in the suit against LivingSocial, like the plaintiffs in the suit against Groupon, argue that the deals offered by LivingSocial constitute gift certificates and that the expiration dates on the deals violate Washington?s ban on expiration dates, as well as the five-year requirement under federal law.? 

Effects on mobile
Mr. Mon said that services like those offered by LivingSocial and Groupon lend themselves to mobile marketing because users can search for, purchase and even redeem deals using their mobile phones.

If a court were to side with the plaintiffs in this case, that could adversely affect the mobile ecosystem by making these types of offers ? and other location-based offers harder to implement. 

Retailers would be less likely to implement these types of deals.

?Although it?s too early to predict how these lawsuits will turn out, the lawsuits demonstrate that plaintiff?s lawyers are attempting to stretch gift certificate laws to cover various types of offers that don?t fit the traditional mold of gift certificates,? Mr. Mon said.

?Companies should take a close look at any offers that combine pre-payment with an expiration date in order to evaluate their risk of being a target of these types of suits,? he said.

"The Attorney General's Office has not taken a position on how the sites relate to Washington's Gift Card Law. We wouldn't comment during pending litigation."
 
The plaintiff's attorneys said they plan to ask the federal court to certify the lawsuit as a class action, which would allow Washington resident who weren't able to obtain the full value of their LivingSocial gift certificates to join the suit. 

 
Further allegations
Mr. Mon explained that the plaintiffs allege that LivingSocial?s requirement that the entire value of a deal be used in one visit and that consumers cannot get cash back also violates Washington?s gift card law. 

That law states that if a purchase is made with a gift certificate for an amount that is less than the value of the certificate, the issuer must make the remaining value available. 

Additionally, if the remaining value of the gift certificate is less than $5, the gift certificate must be redeemable in cash.

LivingSocial addresses some of these issues in its terms, Mr. Mon said.  

For example, the company states if a state law prohibits expiration, ?the promotional portion of the Voucher will expire on the date printed on the voucher, and the paid portion of the Voucher will expire five years from the date the voucher is issued, except to the extent applicable law requires that the Merchant extend the period in which the Voucher may be redeemed.? 

The company also has provisions to deal with cases in which merchants refuse to honor vouchers.

?LivingSocial?s deceptive business practices violate the Washington consumer Protection Act by unlawfully printing expiration dates and other limitations on the face of the certificates that its customers have purchased, and by falsely informing customers they are not entitled to retain surplus value or use the certificates in multiple transactions,? the filing against LivingSocial says.

?During the process of purchasing a gift certificate, LivingSocial does not fully disclose all of these stated restrictions to consumers,? it says. ?These stated restrictions in some cases confucingly conflict with statements within the LivingSocial terms of use.

?This is a misleading marketing practice."

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