Santa Clara Settles Subscription Suit Against HelloFresh for $7.5 Million

Santa Clara County just recently announced that it has obtained a $7.5 million settlement in a consumer protection lawsuit against HelloFresh over its subscription and advertising practices.

The case was filed as a civil matter in Santa Clara County and was led by the Santa Clara County and Los Angeles County district attorney’s offices for the California Automatic Renewal Task Force, which also includes the district attorney’s offices of San Diego, Santa Barbara, and Santa Cruz counties, as well as the Santa Monica City’s Attorney’s.

While HelloFresh is a meal kit delivery company rather than a software or SaaS company, it operates on a subscription model, which makes the recent action noteworthy to the software and SaaS communities.

According to Santa Clara County’s published press release, the complaint alleged that HelloFresh did not clearly and conspicuously disclose the required subscription terms before enrolling consumers in automatic renewal product subscriptions, obtain consumer’s affirmative consent, provide consumers with the proper post-purchase acknowledgement, or offer an easy-to-use-mechanism for cancellation, all of which were violations of California’s Automatic Renewal Law as well as its False Advertising Law.

The settlement requires HelloFresh to pay $6.38 million in civil penalties, $120,000 in investigative costs, and $1 million in restitution to eligible California consumers. The DA’s office will receive $1,063,334 of the $6.38 million in civil penalties.

What are the lessons to be learned by software and SaaS companies from the HelloFresh case?

First and foremost, software and SaaS companies need to know that California counties are actively enforcing California laws on subscriptions–not just the California state government. There is a California Automatic Renewal Task Force comprised of multiple counties that is selecting subscription cases to pursue.

Second, the key issues flagged by Santa Clara County in prompting them to purse this case was “misleading consumers” and “making it difficult for them to cancel their subscriptions.”  In particular, Santa Clara County cited failure to disclose the material terms and conditions for “advertised free meals”, “surprise gifts,” and “free shipping offers.”  In other words, not being completely transparent about the terms of items consumers were offered, and then the subsequent trouble those consumers encountered with cancelling subscriptions were the issues prompting Santa Clara County to pursue litigation against HelloFresh.

Third and finally, the specific compliance obligations that were not met in this case, in violation of California law were as follows:

• clear and conspicuous disclosure of subscription terms before enrolling consumers in automatic renewal subscriptions;
• procuring consumers’ affirmative consent to the subscriptions;
• providing consumers with the required post-purchase acknowledgement containing the material terms of the subscription; and
• providing an easy-to-use mechanism to cancel the subscription.

If your company utilizes a subscription model in its business and has not recently updated your subscription to comply with the updated California regulations on subscriptions, it may be worthwhile to have your terms or contract reviewed by a lawyer with expertise in this field.  To schedule a initial consultation with an attorney, please make an appointment at this link.