Supply chain disruptions and accompanying inflation for raw materials have challenged many businesses. A recent case involving paint retailer Sherwin-Williams shows how not to deal with these challenges. In a putative class action, plaintiffs accused Sherwin-Williams of surreptitiously adding a hidden “Supply Chain Charge” to every sales transaction. On October 24, the U.S. District Court for the Northern District of New York said the claims may proceed.
The plaintiffs allege they suffered economic injury as a result of a “deceptive bait-and-switch scheme” perpetrated by Sherwin-Williams. They asserted claims of deceptive acts or practices under New York General Business Law § 349, breach of contract, and unjust enrichment. On Sherwin-Williams’ motion to dismiss, the Northern District of New York tossed the unjust enrichment claim, but held that the Section 349 claim and breach of contract claim were plausibly alleged.
Sherwin-Williams began imposing a 4% surcharge on all consumer purchases last year in response to rising supply chain costs stemming from the COVID-19 pandemic. However, the plaintiffs assert that the surcharges are added “covertly” because they are not included in the listed product prices, but are nevertheless tacked on at the register after consumers have already decided to purchase the items. Customers are “often entirely unaware of the Surcharge until after paying and checking out,” the plaintiffs contend.
According to the plaintiffs’ own alleged experiences, they did not view any sign or disclosure while shopping that would have informed them a 4% surcharge would be added to their purchases. Furthermore, they claim they did not become aware of the surcharge until checking their receipts after leaving the store and, had they known about the surcharge, they would not have purchased their paint from Sherwin-Williams.
The court found that the plaintiffs adequately alleged that Sherwin-Williams’ conduct was “materially misleading.” According to the court’s order, allegations that (1) Sherwin-Williams omitted material information by failing to disclose the surcharge, and (2) the plaintiffs were injured as a result because they were overcharged and would have shopped elsewhere had they known of the surcharge were sufficient to state a claim under Section 349. Additionally, the court found the plaintiffs’ assertion that Sherwin-Williams breached the terms of their agreement “by charging an additional 4% more for each item purchased” was sufficient to state a breach of contract claim.
Arguably, adding certain “late in process” fees at the register may surprise reasonable consumers and be considered by a court as a deceptive practice, when challenged by a regulator or by aggressive class action plaintiffs. Simply put, retailers should avoid such a practice. As costs continue to rise because of supply chain disruptions, retailers should consider how to adjust prices accordingly in a consumer-friendly way that allows customers to know that fact while they are shopping, and not afterward.
This may be as easy as accounting for such additional costs to retailers and building them into a retail price that is clearly and conspicuously displayed in stores for consumers. The Federal Trade Commission (FTC) has repeatedly announced its intention to go after companies involved in “drip pricing” or hidden fees. Providing additional pricing or fee information in a more transparent way, earlier in the transaction, can help retailers avoid investigations or lawsuits.