“Rounding Up” Liabilities for California Retailers

Chipotle Mexican Grill, Inc. has been in the news recently with three major cases: 

1. a significant wage and hour class action victory (Hernandez v. Chipotle Mexican Grill, Inc., (Cal. Ct. of App. 2dApp.Dist., Div. 8 Case No. B216004);
2. a Los Angeles lawsuit filed in April 2012 concerning the claim that the beans used in the vegetarian burritos contain bacon which is offensive to those practicing Islam (Mohammadi v. Chipotle Mexican Grill, Inc. (Los Angeles County Superior Court Case No. BC482593); and 
3. the most recently-filed class action relating to the practice of “rounding up” (Overton v. Chipotle Mexican Grill, Inc.U.S.D.C.Cen.Dist. Cal. Case No. SACV12-1430 MMM (AGRx)). 

I was intrigued by the last of these cases which is a new “rounding up” lawsuit and so I obtained a copy of the Complaint for a review and analysis.  

This lawsuit, filed in the U.S. District Court for the Central District of California, alleges that it has been Chipotle’s practice to round up its individual sales to the nearest five-cent increment.  While the company defends its practice as a way to keep lines moving by saving time of counting pennies, the plaintiff alleges that the real purpose of this practice is to deceive customers and obtain a few extra pennies on each transaction.

The lawsuit alleges (1) breach of contract; (2) violation of Consumer Legal Remedies Act (“CLRA”) (Cal. Civ. Code Sec. 1750); (3) violation of the Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code Sec. 17200); (4) violation of the False Advertising Law (“FAL”) (Cal. Bus. &Prof.Code 17500); (5) unjust enrichment; and (6) breach of contract. 

The three statutory claims—CLRA, UCL and FAL—are often found together in class action lawsuits.  Generally, the CLRA prohibits any unfair or deceptive sales practice, while the UCL prohibits business practices that are unfair, fraudulent or unlawful; and the FAL prohibits the party from making any statement or omissions which is untrue, misleading of deceptive.   Not surprisingly, the plaintiff alleges all three of these statutes are violated by Chipotle’s rounding up business practices. 

There is no doubt that counting pennies in a cash drawer is time-consuming and some retailers have concluded that the time involved is not worth cost of paying the employee to do so.  I found a recent story of one retailer that rounds all cash transactins down to the nearest five-cent increment and takes the loss.  In contrast, Chipotle allegedly always rounds up, and never rounds down. Chipotle allegedly applies rounding to not only cash transactions but credit card sales as well. 

This will be an interesting lawsuit to follow over the next few months.  I have looked around to see if other retailers engage in similar practices but have not found anything indicating that this is widespread practice. 

A WORD TO THE WISE . . .

It is unclear from the Complaint whether Chipotle provides any notice of its rounding practices at the point of sale.  One wonders whether the presence of a simple sign near the cash register would knock out several of these statutory theories by informing the customer that the final tab may be rounded up.  Perhaps the preferred practice would be to apply the rounding only to cash transaction, not credit card sales, and when rounding to always round down rather than up. 

The lawsuit is a reminder that a simple and sensible business practices that would not be offensive to many consumers may serve as the predicate for a costly class action lawsuit.  Even if you do not engage in rounding, consider whether any similar business practices create a potential claim that a charge is increased or inflated prior to the consummation of a transaction without adequate notice to the consumer.

One other notable thing stands out from my review of the Complaint. The allegations are based on a news story in the New Jersey Star-Ledger by a Karen Price Mueller.  This fact reminds us that a media outlet’s consumer-oriented news reports of a business practice frequently spawns a class action lawsuit. (Just like a regulatory investigation may result in follow-on class action lawsuit.)  Pay careful attention to current news reports by local and national media outlets when they address allegedly unfair  business practices in your industry or sector and consider what modifications might be prudent to avoid being named in a wafe of lawsuits that might follow.