Mail Order Merchandise Rule: Are Your Business Processes up to Snuff?

This is the first in a series of blog posts highlighting the major legal and regulatory issues that are specific to the multichannel merchant. The Mail Order Merchandise Rule, promulgated by the Federal Trade Commission, is intended to ensure that mail order customers actually receive the items that they order from catalog or online merchants. The Rule requires that when a seller advertises merchandise, it must have a reasonable basis for stating or implying that it can ship the merchandise within a certain time. If the business makes no shipment statement, it must have a reasonable basis for believing that it can ship within 30 days. That is why direct marketers sometimes call this the "30-day Rule." Surprisingly, though, many well-established mail order companies have only a loose grip on the operational steps necessary to comply with this rule.

It is usually the case in the highly competitive, technologically advanced environment of mail order and internet sales, that merchants are easily able to comply with the Rule by providing a stated shipment representation. If a website says the product will be shipped in two days, it almost always is, and often it is shipped even sooner. But when products are not timely shipped, things sometimes go a little sideways. The most common reason for failure to ship within the stated time frame is the lack of a product–the back order issue.

The rule provides that, if after taking the customer’s order, a seller learn that it cannot ship within the time stated, it must seek the customer’s consent to the delayed shipment. If it is the first such delay, and if the seller can provide a revised shipment date, it must notify the customer of his or her right to cancel the order; sellers are permitted to treat the client’s silence in response as an expression of assent.  But, if there is a second delay, or if the seller cannot provide a revised shipment date, then the seller MUST get the client to consent affirmatively to the continued delay. If a seller cannot obtain the customer’s consent to the delay – or if the customer refuses to consent -- the seller must, without being asked, promptly refund all the money the customer paid for the unshipped merchandise.

There are at least two safe harbors from which many catalog companies may benefit. First, the clock does not begin ticking on any shipment representations until there is a “properly completed order.” An order is properly completed when the seller receives the correct full or partial payment, accompanied by all the information needed to fill the order. In many instances, merchants do not collect payment on backordered items as a matter of routine-though they are permitted to do so. This prevents the shipping representation clock for beginning.

Second, a shipment representation made at the time of order trumps shipment representations contained on a product page or in a catalog. So if customer service representatives explain to a customer that an item is backordered for 6 weeks, then that becomes the new shipment representation.

Like many legal issues, the Mail Order Merchandise Rule need not present a business risk, provided that you are aware of its requirements and plan accordingly. It is important for catalog and web merchants to have business processes in place to track shipment representations, and to ensure that the proper notifications are sent to customers.

In my next blog post, we will touch on some unusual and unexpected California-specific regulations that can impact multichannel merchants.

Direct Marketing Association Re-files Challenge to Colorado Notice and Reporting Law in State Court

We have been updating readers on developments regarding the court challenge brought by the Direct Marketing Association (“DMA”) to a 2010 Colorado law that purported to require Internet retailers and other remote sellers that do not collect Colorado sales tax to: (1) give certain notices to their Colorado customers regarding the purchaser’s obligation to self-report Colorado use tax; and (2) file reports with the Colorado Department of Revenue detailing the private purchasing information of their Colorado customers. The DMA won a preliminary injunction in January 2011 in federal District Court suspending the law on the grounds that it violated the Commerce Clause. The Court later made the injunction permanent when it awarded the DMA summary judgment in March 2012. The State appealed.

In August 2013, the Court of Appeals for the Tenth Circuit ruled on its own initiative that the Tax Injunction Act (“TIA”) barred federal court jurisdiction over the DMA’s claims. The Court of Appeals did not reach the merits of the DMA’s Commerce Clause claims, but rather ordered that the claims be dismissed on procedural grounds. The Court held that the DMA was required under the TIA to bring its claims in Colorado state court. The DMA requested rehearing on the jurisdictional issue, but the Tenth Circuit declined in early October to rehear the matter. The Court of Appeals then issued a mandate to the District Court on October 9, directing the lower court to dissolve the injunction and dismiss the claims. (The District Court has not yet implemented the mandate, so for now the federal injunction remains in place.)

On November 5, 2013, the DMA re-filed its challenge to the Colorado notice and reporting law in state District Court in Denver. At the same time, the DMA moved for a preliminary injunction, in order to continue the suspension of the law after the federal court injunction is lifted. Briefing on the motion for a preliminary injunction is expected to conclude in December, with a hearing on the motion likely to be scheduled for early January 2014. The DMA will request that the state court rule on the injunction request prior to January 31, the deadline under the law for retailers to send certain annual notices to customers who purchased at least $500 in goods from the retailers in the prior year.

Brann & Isaacson partners George Isaacson and Matthew Schaefer are co-counsel to the DMA in connection with the appeal.

We will keep you apprised of further developments in the state court proceeding.

Upcoming International Contracts Conference at St. Thomas University School of Law

I just wanted to encourage those who are considering proposals for presentation at  the 9^th International Conference on Contracts to be held at St. Thomas University in Miami February 21-22, 2014 to send them on to me in the coming weeks.  The Call for Papers is already out and the Conference website is at http://www.contractsconference.com/kcon/KCON9__Miami.html.  Our Law Review is doing a Symposium around the Conference and still has a few spots for papers that it will consider for publication no later than January 15, 2012.  Please let me know if you're interested in the symposium issue and I will put you in contact with the symposium editors. If you are not interested in presenting, but would like to moderate a panel, please let me know as I am in need of moderators as well.

This is going to be a really wonderful conference this year all-conference honoree is Linda Rusch. Prof. Robin West (Georgetown) will be giving the planetary speech on Saturday and Kingsley Martin (KM standards) will be giving the talk at Friday's luncheon. 

Confirmed Participants include:

Kristen  Adams – Stetson University

Bader Almaskari - University of Leicester, England

Reza  Baheshti - University of Leicester, England

Wayne Barnes –  Texas A&M University

Daniel  Barnhizer – Michigan State University

Thomas Barton  – California Western School of Law

Shawn Bayern –  Florida State University

Amy Boss – Drexel University

Steve   Callandryllo – University of Washington

Miriam Cherry –  University of Missouri

Kenneth Ching – Regent University

Neil Cohen      –  Brooklyn Law

Gerrit   De Geest  – Washington University School of Law

Sidney Delong –  Seattle University

Scott Devito  –  Florida Coastal School of Law

Zev Eigen –  Northwestern University School of Law

Larry   Garvin –  Ohio State University

 Katie Gianasi –  Husch Blackwell L.L.P.

Jim Gibson –  University of Richmond

Ariela  Gross   –  USC Gould

Nancy  Kim     –  Cal Western University

Christina Kunz –  William Mitchell College of Law

Lenora  Ledwon – St. Thomas University

Joasia   Luzak  –  University of Amsterdam

Kingsley Martin  –  KM Standards

Jennifer Martin –  St. Thomas University

John Mayer     –  CALI

Murat  Mungan –  Florida State University

Dr. John Murray – Duquense University

Marcia Narine –  St. Thomas University

Wendy Netter Epstein – DePaul University

Karl Okamoto – Drexel University

Joe Perillo –  Fordham University

Amir    Pichhadze – University of Michigan (SJD Student)

Michael Pinsof - Attorney

Lucille Ponte   – Florida A&M University, College of Law,

Deborah Post –  Touro Law Center

Michael Pratt –  Queens University, Canada

Cheryl Preston  –  Brigham Young University

Val Ricks  –  South Texas College of Law

Roni Rosenberg –  Carmel Academic Center, Law School, Israel

Linda Rusch    –  Gonzaga University

Mark Seidenfeld – Florida State University

Gregory Shill – University of Denver

Frank   Snyder –  Texas A&M University

Jeremy Telman –  Valparaiso University

David  Tollen  – Adili & Tollen, L.L.P.

Manuel Usted – Florida State University

Robin  West    –  Georgetown University

Robert Whitman – University of Connecticut

Eric Zacks – Wayne State University

Deborah Zalesne  – CUNY School of Law

Candace Zierdt  –  Stetson University

I look forward to seeing many of you in February.  Please direct any paper proposals or questions to me at JMartin@STU.edu.

 

-JSM

MFA Update: Rep. Goodlatte’s Seven Principles and an Interview with George Isaacson

Although the Marketplace Fairness Act (S. 743) ("MFA") has not yet progressed out of a House committee since its Senate passage last spring, it continues to make headlines. In late September, the House Judiciary Committee, chaired by Rep. Bob Goodlatte (R-Va.), released seven “Principles on Internet Sales Tax.” Brann & Isaacson senior partner George Isaacson was recently profiled by State Tax Notes discussing both the MFA and Goodlatte’s Seven Principles.

The Seven Principles outlined by Representative Goodlatte provide for:

1. Tax Relief – “no new or discriminatory taxes not faced in the offline world”
2. Tech Neutrality – brick and mortar and online businesses “should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less…than that on similarly situated offline businesses”
3. No Regulation Without Representation – taxpayers “should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement”
4. Simplicity – no “onerous compliance requirements,” “laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary”
5. Tax Competition – “Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-à-vis their foreign competitors”
6. States’ Rights – “States should be sovereign” and “the federal government should not mandate that States impose any sales tax compliance burdens” and
7. Privacy Rights – “Sensitive customer data must be protected.”

As Isaacson notes, “The keystone and common thread of these principles is the need for true simplification of the existing sales and use tax system and an assurance of fair treatment of remote sellers when compared with in-state retailers.” Isaacson goes on to describe several steps that could be taken to simplify sales tax collection, including setting a single rate (combined state and local) for remote sales into a state, creating uniform tax menus or bases, and establishing uniform sourcing rules for remote sellers.

Isaacson also calls for providing access to federal courts to address violations of remote sellers’ rights. As the MFA now stands, remote sellers must protest tax assessments made in violation of federal statutory or constitutional law through appeals before state administrative agencies and state courts that may, as Isaacson points out, “tilt in favor or state revenue departments.” Providing for federal court jurisdiction “is the only meaningful way to protect those companies’ constitutional rights and enforce statutory limitations on the scope of state taxing power.” To that end, Isaacson argues for repeal or limitation of the Tax Injunction Act (“TIA”).

We will continue to keep our readers apprised of any developments regarding the Marketplace Fairness Act.

Local Real Estate Agency Launches National Business with Commemorative Wine Label for Charity

Townsville's own national real estate agency, Rapid Realty Australia, launched a smart and innovative wine label on Melbourne Cup..."the day that stops a nation", in aid of local charity organisation Cootharinga North Queensland.

The launch of Rapid Realty Australia's wine label also commemorates a Townsville founded real estate business with both a North Queensland and national growth strategy. Rapid Realty Australia is seeking to grow its national foot print with a network of affiliates, partnerships and franchise offices starting in Cairns, Townsville and Mackay.

Managing Director of Rapid Realty Pty Ltd and Principal of Rapid Realty Townsville, Aaron McLeod said; "we are proud to launch our new limited edition wine collection in support of a well deserving local North Queensland Charity. The launch also coincides with Rapid Realty Australia's launch of its national real estate business on the Australian real estate scene."

Founded by two brothers in Townsville in 2007, Rapid Realty Townsville has grown to over 200 residential and commercial properties under management and over $20M in sales last financial year alone. The business has grown nearly 40 percent in the past 12 months. The office headquarters is located on Boundary Street, South Townsville. From this office, Rapid Realty Townsville services Townsville including rural areas and parts of the broader North Queensland market.

The business was established in Townsville and grown successfully because of our passionate and skilled staff and the welcome support of our "locally grown" business. Our clients have said how excited they are to support a national real estate brand created in Townsville.", Mr McLeod said.

Each of Rapid Realty Australia offices will be modelled on the Townsville one-stop-shop model to service real estate buyers, investors and sellers from the "cradle to the grave"; Mr McLeod said. Property owners and clients alike trust the professional approach and "real service, rapid results" customer service commitment.

Rapid Realty is seeking the support of the Townsville and North Queensland community as they search more good employees and contractors and leaders and investors to join the company as affiliates, partners or franchisees. Critical to the continued growth of the company is skilled salesperson's, property managers and marketing administrators.

Expressions of interest to join the Rapid Realty Australia business can be done by contacting Mr McLeod at www.rapidrealty.com.au