Angie’s List, the website allowing members to post and access reviews of businesses they patronize, is accused of taking its own customers to the cleaners.
A lawsuit seeking class-action status in U.S. District Court for the Southern District of Indiana alleges that Angie’s List automatically renews membership fees at a higher rate than customers are led to believe, calling the practice a “systematic and repeated breach of its membership agreement.”
The complaint was brought by Marie Fritzinger, a Philadelphia resident who said she’s been a paying member of Angie’s List since 2007.
Fritzinger is represented by Irwin Levin, managing partner at Indianapolis law firm Cohen & Malad, who has earned a national reputation for class-action lawsuits.
Indianapolis-based Angie’s List has more than 1.2 million paid members in about 200 local markets. In 2011, it collected membership fees of $33.8 million and total revenue of $90 million.
The complaint alleges that Angie’s List, while reserving the right to modify membership fees and billing methods, is not authorized by contract to charge members who are renewing their subscription more than the stated membership fee. Members provide a credit or debit card that Angie’s List keeps on file to allow for automatic renewal later.
“In breach of the plain language of its membership agreement, Angie’s List instead automatically renews its members pursuant to a distinct–and more costly–'membership renewal fee,'” according to the suit.
Fritzinger alleges the company does not disclose the renewal fee anywhere in its materials.
The complaint also alleges that longer-tenured members are hurt by a 2010 change in the Angie’s List business model in 30 of its most-mature city markets. That change gave members the option of limiting memberships to one of three categories–auto service providers, home contractors and health care providers–or purchase a bundled premium membership for all three categories.
The suit, filed in August, says Angie’s List renewed more-tenured members at the premium rate without notification.
Angie’s List has not yet filed a response to the lawsuit. It sought and received an extension from the court to respond by Nov. 2.
“We don’t comment on litigation,” said spokeswoman Cheryl Reed. “We’re vigorously defending against this suit.”
The suit alleges breach of contract, deception and unjust enrichment. It seeks an unspecified award of three-times the financial damages incurred under a count alleging deception for allegedly mis-applying credit and debit cards to collect the unauthorized bundled membership fees.
Angie’s List has not posted a profit since founded in 1995 and last year lost $49 million.
Company management and analysts nevertheless have said Angie's List is on track to be profitable by 2014 as it builds critical mass in national markets.
The company is pouring massive amounts of money into television advertising, fueled by $72 million in proceeds from an initial public stock offering last November.
Older markets, such as Indianapolis, tend to generate the most revenue for Angie’s List. Generally the older the market, the higher the membership fee–roughly $63 a year in Indianapolis versus around $30 a year in a newer market like New York City.