Legal Beagles

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Facts: Best Buy placed on its website an offer to pre-sell a nVidia Ti4600 for $129.99. nVidia has indicated the MSRP of
such a card is $399.

In its February 9 circular, Best Buy offered to take $10 deposits at its stores for this card, indicating that the total cost of the card was $399.
that this offer also made a reference to “saving $200,” though I have not seen any documentary evidence of this.

The mechanisms of the pre-sell was that a hold was placed for the amount of a card on either a debit account or on the credit
card. Funds were not actually withdrawn, nor would have been until the card actually shipped.

Best Buy has a Terms of Service & Legal Notices page, which can be accessed at the bottom of the sales offering page.

It says in part, “Prices and availability are subject to change without notice. Errors will be corrected where discovered, and Best Buy reserves the right to revoke any stated offer and to correct any errors, inaccuracies or omissions (including after an order has been submitted).”

There is no requirement to read or indicate agreement with the Terms of Service in order to buy the product.

This offer was placed on the website sometime late February 5 or early February 6. During that time, apparently
some customer service representatives verified the price.

The website pricing was changed sometime later on February 6, and
Best Buy sent order cancellations beginning February 7. Individuals were informed in the cancellation notice that if they
still wished to buy the card, they could reorder.

It has been reported that Best Buy also had an in-store sticker in at least a few stores indicating a $180 sticker price.

Issue: Is Best Buy legally required to provide the cards at the $129.99 price?

Legal Arguments Presented In Favor of the Affirmative

A contract was made, and contracts are inviolable without mutual consent.

Best Buy’s disclaimers are not legally enforceable.

Best Buy’s actions constitute an illegal bait-and-switch scheme

There is legal precedent for receiving compensation for injury (i.e., Buy.com, Kodak).

Best Buy is required to provide some form of compensation to those who ordered.

Email Ed

Contract Law

One of the essential elements of a contract is that there must be an exchange of items of value. In this
particular case, neither party exchanged anything with one another. A hold on your debit or credit card is not an
exchange. It’s still your money, not Best Buy’s. You just can’t use it on something else.

Update 2/12/02: At most, there was a promise to pay sometime in the future in return for a future delivery. Even if that were held to be a valid
contract, breach of such a contract yields no damages. You didn’t pay anything, so you’re not owed that. There’s no financial loss
involved in not getting the video card, and punitive damages aren’t available for breach of contract, you would need to prove fraud to
get that.

Companies are not generally required to honor pricing errors, provided they give reasonable notice to the customers that such
an error occurred. You see stores printing corrections in newspapers and putting up notices in the stores all the time. While
stores may as a private policy honor pricing errors, they are not legally required to do so provided they provide reasonable notice.

Even after cash changes hands, it is still legally possible to correct a pricing error (though it’s a lot rougher, and isn’t normally done
in this area simply because the legal fees would exceed any amount recovered). If a supplier can show a court that a “bona fide error” occurred (and that just doesn’t mean a mistake; it’s a specific legal term), the transaction can be voided.

In all likelihood, Best Buy will first argue that no contract existed since no money exchanged hands. If that doesn’t work, the next argument is that they made a bona fide error which they corrected within a reasonable period of time.

Email Ed

Disclaimers and Conditions

The third argument Best Buy has is that its Terms of Service states that they reserve the right to correct pricing errors.

To say that such terms cannot by definition be enforceable is simply incorrect. Provided the terms are not flat-out illegal, you can make any terms you like in a contract. There is no law that makes contract terms modifiable illegal; that happens all the time.

However, the other party must be reasonably made aware that such terms exist. Whether this in fact occurred in the case of Best Buy is arguable, and I will go into this in greater detail in my next article.

Please note, though, that the Terms of Service is the third layer of defense.

If a court rules that Best Buy is right with Argument #1 or #2, it doesn’t matter if Argument #3 doesn’t hold water. The court doesn’t even need to address it if they find Arguments #1 or #2 persuasive.

Argument #3 is probably more applicable to other websites than to this particular situation.

Email Ed

Bait-and-Switch

The most popular argument presented is that Best Buy is attempting a bait-and-switch. Some have cited these FTC guidelines (which most states have included in their consumer law regulations).

It is very difficult to have a bait-and-switch when there’s no switch. Best Buy did not offer a different, more expensive product; they instead cancelled the order and just pointed out that if you still wanted the same product, you could reorder it.

Determining whether or not a bait-and-switch scheme is in fact occurring is a facts-and-circumstances determination. No one factor solely determines it. If you look at the factors listed by the FTC, most of them are inapplicable to Best Buy.

It’s not impossible to present an arguable bait-and-switch case in the case of pricing error. If, for instance, Best Buy had a long, persistent pattern of making such “errors” and made little or no effort to correct such errors publicly within a reasonable period of time, most consumer agencies would find a bait-and-switch argument far more appealing.

The preponderance of evidence indicates that this was a pricing error by Best Buy rather than some deliberate attempt to bait-and-switch. I can’t say it’s a slamdunk, though, there’s a couple questionable items and events. I can say a bait-and-switch argument looks pretty weak, though, and it is certainly not a slamdunk on the other side.

Email Ed

Buy.com and Kodak are legal precedents

People have been citing Buy.com and Kodak as proof that they are legally entitled to some form of compensation. Wrong.

In the case of Buy.com, the company settled the class action suit out-of-court. Such an action sets no legal precedent at all. It should be also pointed out that since Buy.com in at least some cases actually charged at least some individuals for the monitor, their case, had it gone to court, would have been weaker than Best Buy’s.

There wasn’t even a court case ready for trial in the case of Kodak; they just decided to sell the cameras.

In both cases, no court ruled on the merits or demerits of the case. Legally, this is virgin ground, and if I were a class-action lawyer, Best Buy is not the kind of case I would want to make a test case to set precedent (since money didn’t change hands).

Email Ed

They have to give me SOMETHING!!

We have two types of argument here.

The extreme position says Best Buy at least should give them the card as that price as an expression of goodwill to keep them a happy customer.

It’s probably safe to say Best Buy will be paying at least $300 for the card. Sell the card for $130 and Best Buy suffers a $170 loss.

Best Buy’s net profit margin (that means after paying for the goods, the employees, and mortgages and rents and electricity and taxes) is about 3%. That means Best Buy would have to sell you about $5,000 worth of goods just to make up the loss. It is pretty safe to say that the vast majority of those who jumped on this will not be spending $5,000 or anything remotely close to it at Best Buy within any reasonable period of time.

Believe it or not, Best Buy’s first priority is to make money, not make you in particular happy. If they decide you aren’t a good enough customer to eat a $170 loss, they are under no obligation to do so under these circumstances. None. Zero. Zilch. They have the perfect right to do so.

In return, you as a consumer have the perfect right to not shop there anymore and tell all your friends and neighbors not to do so, either. Just don’t be too surprised if your threats don’t exactly paralyze the company or manager with sheer terror, and their reaction is more like, “Nice knowing you and don’t let the door hit you on the butt on the way out.”

Let me put it this way, if I were a Best Buy manager, and I was looking at me threatening like that (not that I would, but if I did), I’d tell myself not to let the door hit me in the butt on the way out.

The more moderate position says, “OK, I don’t expect to get the card for $130, but the company is required to offer me some form of compensation.” They certainly are not.

There is a big difference between practices a company voluntarily adopts and those that they have to adopt. The fact that Best Buy may honor an employee’s price misquote does not mean they have to give you a $400 for $130, or give everybody who jumped on the gravy train a discount or some other goody.

Indeed, I would argue that offering some sort of consolation prize isn’t even a good idea in the long-run for Best Buy (and others). We are not talking about a store manager dealing with one-on-one situation and maybe handing out a handful of gift cards. We are talking about thousands of people jumping in for a freebie, and as long as people get something for nothing, that line will get longer and longer and longer.

Eventually, somebody will say no, and the folks trying to get on the gravy train will find out it’s truly over. Jumping on the gravy train is a sort of bluff. What happens if somebody calls it?

Email Ed

Why Are You Writing This?

For the conspiracy theorist out there, no, I don’t work for, get paid by, own stock in, am closely associated with, or even really know anyone associated with Best Buy. I’ve gotten a few emails in the past from people who have identified themselves as Best Buy employees, but not on this issue.

The point of the article is that there are a lot of people out there who think they have a slam-dunk legal case, and they don’t. This is even a weaker legal case than those before it due to the peculiarities of the circumstances here.

That doesn’t mean Best Buy might not settle out-of-court, but if they do, this will be for public relations or legal expense reasons, not because they’re legally dead meat.

Anybody who tells you otherwise either simply doesn’t know or is not telling you the truth.

I’m sure for some I’m saying things they don’t want to hear? So? I’m not here to tell you what you want to hear, I’m here to tell you what you need to hear.

None of this is going to be any news to any lawyers or judges involved in this, so I’m hardly spilling the beans.

It’s just that I’ve seen some of the emails and seen forum posts, and they remind me of some of the defendants before Judge Judy. They think they’re going to kick ass on some legal point they’ve convinced themselves is important, and just get blown away in seconds.

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