Severson Wins Victory on Appeal in Mail-Order Catalog Case of First Impression

(Last updated September 15, 2005)

On September 2, 2005, Severson & Werson helped win the reversal on appeal in the First District (California) Court of Appeal of a judgment against Brawn of California, a mail-order clothing retailer and a subsidiary of catalog company Hanover Direct.

The trial court had ruled that Brawn had engaged in unfair business practices and false advertising under California Business and Professions Code sections 17200 and 17500 by charging its customers a $1.48 insurance fee per order to replace goods lost or damaged in transit. The trial court had based its ruling on the erroneous premise advocated by the 17200 plaintiff that because Brawn allowed buyers to return goods for a full refund if dissatisfied, Brawn’s contracts were “sales on approval,” Brawn therefore retained the risk of loss to shipped goods until its customers received and accepted them: therefore the insurance fee was illusory and deceptive because it charged customers to insure a risk Brawn bore.

The Court of Appeal reversed in full. Despite a dearth of legal precedent specifically addressing the risk of loss to goods in transit sold by mail order, the First District held in a published decision that, under the UCC, Brawn’s contracts were not “sales on approval” (UCC 2326) but “shipment contracts,” under which risk of loss to the goods transfers to the buyer when the seller delivers the goods to a common carrier for shipment (UCC 2509(1)(a)), and therefore charging an insurance fee was not unfair or deceptive, because it gave customers something of real value, namely protection against the risk of loss, which they bore as buyers under the shipment contracts.

Because there was therefore nothing illusory or deceptive about Brawn’s insurance fee, there was no violation of sections 17200 or 17500. Contrary to the trial court’s ruling, the fact that Brawn allowed buyers to return goods for a full refund if dissatisfied did not convert the shipment contracts into sales on approval, under which the seller would have retained the risk of loss. The appellate decision reversed an award of $447,682 in attorney fees and costs, plus the requirement to find, make restitution to, and pay individually calculated interest to hundreds of thousands of customers nationwide.

Katherine A. Wadley (formerly Katherine A. Knopoff), appellate counsel at Severson & Werson, assisted co-counsel Grippo & Elden, Chicago, in writing the appellate briefs. Wilson v. Brawn of California, Inc., 05 CDOS 8087, 2005 WL 2108694, http://www.courtinfo.ca.gov/opinions/documents/A105461.PDF.