Class-action lawsuit filed against Groupon, Groupon founder responds

Jay Edelson and Bill Gray of Edelson McGuire, LLC, have filed a class-action lawsuit against Groupon.com, the Chicago-based coupon website that has quickly become a Chicago essential, offering discounts on many restaurants (ranging from Hannah's Bretzel to Naha) and other services. The lawsuit, which was filed in Cook County, alleges that Groupon “systematically deceives its customers" by enticing people to purchase the gift certificate, then imposing "post-contractual terms on the consumer containing illegal expiration dates." According to the press release issued by Edelson McGuire, "Groupon expressly advertises itself as a company that does not impose, in its own words, 'gotchas,' on the consumer. In clear violation of the law, Groupon imposes illegal terms or 'gotchas,' post-agreement, on the very consumers it prides itself on helping.”

In a copy of the complaint obtained by TOC, the plaintiff, whose name is alternately spelled Daniel Keeller and Daniel Keeler throughout the document, alleges that he purchased three Groupons for Grow Flower Shop on July 7, 2009, without being informed that the coupons carried an expiration date of July 20, 2010. The lawsuit makes a broader claim that any non-food gift certificate with an expiration date of fewer than five years is illegal according to Illinois law.

Groupon founder Andrew Mason replied to the lawsuit on the Groupon blog, in a post titled, "Groupon Organizes Class Action Against Itself." He describes the company as having "one of the most irrationally liberal customer-satisfaction policies on the planet," and suggests that Edelson is bringing the lawsuit either because: "1. The law firm sees an opportunity to exploit our success and make a bunch of money" or "2: We are indeed systematically deceiving our customers, but instead of taking advantage of our 100% open refund policy or telling us about their problems or sharing them in a public forum, our customers are secretly gossiping about them to each other and Edelson McGuire, kind of like Emily Johnson did against me in 9th grade (Emily if you are reading this I want my cabbage patch doll back)." The post is signed "Andrew Mason, Groupon Corporate Overlord," and is followed by a form that Mason encourages anyone dissatisfied with Groupon to fill out. It's nice to know they're having fun over there.

Whether or not this lawsuit is bullshit, it raises an itchy question: Is Groupon too good to be true? Back in September, Restaurant Intelligence Agency owner Ellen Malloy wrote a blog post directed at her clients (which include restaurants like Blackbird and the Bristol) titled, "Hey, Ellen, Should we do a Groupon?" While Malloy did not give a straight "No," her scenario of what might happen when a restaurant does a Groupon ended with: "Groupon period is over, restaurant goes back to desperately empty and has a bunch of new bad gossip on the street and online about just how rude and bad the service was." Not exactly a rousing endorsement. Still, RIA client Naha recently offered a Groupon ($40 for $80 worth of food)—and sold 5,772 of them.

But for others, doing a Groupon is out of the question. "We would never, ever, ever do a Groupon," says Ina Pinkney, chef-owner of Ina's. For her, it's about image ("People of my generation think that a restaurant is desperate if they put out a Groupon"), and it's about the basic finances of it. "The total revenue Groupon keeps is about half," according to Julie Mossler, Groupon PR manager, which means that if you buy a Groupon for, say $40 for $80 worth of food, the restaurant is actually getting about $20—for that same $80 worth of food. Still, according to an e-mail from Groupon founder and CEO Andrew Mason, "If Groupon didn't work for restaurants, they wouldn't use us (We're not the cable company.). 98% of the businesses we feature want to be featured again, and we have a waiting list in Chicago over 100 businesses long—mostly restaurants." Moreover, according to Mason, "Specifically at restaurants, Groupon customers spend on average 60% over the value of the Groupon."

Ultimately, though, Pinkney feels that offering a Groupon—and using a Groupon at a restaurant—devalues her work and the hard work of her peers: She tells me a story about a friend in the industry who bought ten Groupons for his favorite restaurant. "There's a moral obligation we have here to support each other, not abuse each other," she says. "So go support them; don't rip them off."