Zipcar Late Fees Are OK Under Massachusetts Law, Says 1st Circuit

A Zipcar customer lost her late-fee lawsuit against the car-sharing company. Again.

The First Circuit Court of Appeals affirmed U.S. District Judge Nathaniel M. Gorton’s decision that Naomi Reed could not assert a claim that Zipcar’s automatic late-fee charge constituted an unlawful penalty under Massachusetts law.

Former U.S. Supreme Court Justice David Souter penned the opinion.

Reed alleged that Zipcar's fees exceed those of four comparable firms, which charged late fees of $25 or less. Based on these competitors' benchmarks, Reed argued Zipcar's fee was unlawful under equitable claims related to unjust enrichment, and was a violation of the Massachusetts Consumer Protection Act (MCPA).

No Massachusetts Consumer Protection Act Violation

The MCPA prohibits unfair or deceptive business practices. Here, Reed alleges that Zipcar violated the act by having a late fee that is an unlawful penalty. To have a successful "unlawful penalty" argument, Reed needed to plausibly allege that damages were easy to ascertain at the time of contract formation

The fact that Zipcar clusters cars close together, and has in place "protocols" "to systematically impose" the late fees, doesn't create an inference that damages were easy to ascertain at the time of contract formation, the court said.

To the contrary, the court showed deference to a Massachusetts appeals court that previously ruled that when a value at issue varies depending on the demand at the time of breach, that shows a difficulty to ascertain damages at the time of contract formation.

Here, the cost to Zipcar of a late return will fluctuate depending on when the car is ultimately returned, whether another customer with an immediately subsequent reservation is waiting, and whether alternative accommodations for the unlucky customer would have been ready to hand.

The real death knell to Reed's argument, however, was that she couldn't provide a reasonable estimate of damages.

Simply put, you can't argue "that [a] late fee is 'grossly disproportionate' to the expected harm caused by late returns without coming up with a reasonable approximation of that harm."

No Equitable Relief, Either

Reed lost out on her equitable claims for unjust enrichment and for money had and received. The First Circuit has previously held that under Massachusetts law, litigants may not override an express contract by arguing unjust enrichment.

The court also rejected the claim of money had and received on the grounds that it's just a narrower form of an unjust enrichment. The take-away point here is that these equitable claims can't trump the plain terms of a contract willingly entered by both parties.

Because Reed "neither alleged that the contract is invalid generally or that its provisions are unclear, Reed cannot escape its terms by resort to equity," the judge said.

To all Bostonians: You may be notoriously bad drivers, but you best return your Zipcars on time, because those late fees aren't going anywhere.

Related Resources:

• Reed v. Zipcar, Inc. (First Circuit Court of Appeals)
• First Circuit Remands Attorney's Fees for Recalculation (FindLaw's First Circuit Blog)
• Consumer Claims Survive in First Circuit Data Breach Lawsuit (FindLaw's First Circuit Blog)