July 8, 2011
Old Chicago is being sued for changing the terms of its loyalty program.
Old Chicago’s loyalty program is actually its “World Beer Tour” (WBT); one “tour” consists of purchasing 110 different beers.
There are various rewards earned at different milestones throughout the tour, in addition to a prize for completing ten tours.
Specifically, a WBT stein.
Such was the prize on which plaintiff Dennis Palm had his eye.
In 2001, Palm first visited an Old Chicago, and became a WBT member.
He then noticed several large aluminum mugs behind the bar.
Palm asked about the mugs, and was then told that they were 32 ounce beer mugs awarded to WBT members who become VIP Members by completing 10 full tours, and that they could be filled for the price of a pint (16 ounces).
In January 2007, Palm completed his tenth tour.
To save you from the math, for Palm to have consumed the 1100 beers needed to complete ten tours in six years, he would have had to have purchased around 183 beers a year from Old Chicago.
For the next four years, Palm enjoyed the fruits of his labor – cheaper beer (he, in fact, completed six additional world tours).
However, in fall of 2010, Palm was handed a letter from the restaurant while at his regular Old Chicago location.
The letter said that it had “great news:” the old VIP Member mug would be replaced by a new, improved mug.
What it didn’t say was that the new mugs were going to be smaller – ten ounces smaller.
When Palm received his new mug on February 6, 2011, he, like anyone else, wasn’t happy with the mug’s new size.
Now here we are with the lawsuit.
And its implications are more far-reaching than pertaining to simply beer.
As mentioned above, Old Chicago’s WBT is a loyalty program, that is, a system designed for consumers to receive rewards for repeat and/or frequent patronage.
Retailers, restaurants, and hotels are increasingly using such programs to grow their business, and the widespread use of them is a relatively recent phenomenon.
Thus, there isn’t a lot of case law on the issue, leaving the complaint to rely on existing legal remedies, namely breach of contract and fraud.
Whether Old Chicago was deceptive would probably end up being a question for a jury (since it’s so heavily reliant on facts), but that isn’t the case for the breach of contract issue.
The complaint claims the WBT arrangement was a unilateral contract.
For those who can’t remember back to their first-year Contracts class, a unilateral contract is an action in exchange for a promise (i.e. “I promise to pay you $50 if you find my cat”).
So are loyalty programs unilateral contracts?
In the case of WBT, at least, they are: Old Chicago promises discounted drinks for an indefinite amount of time in exchange for a customer buying a lot of beer.
Does that mean Old Chicago doesn’t have the right to change the reward?
Probably, at least after the customer has fully completed his end of the bargain.
This lawsuit should serve as warning to any other merchants with loyalty programs, even if they aren’t similarly structured to Old Chicago’s.
No matter how trivial your program is, there are almost certainly legal implications attached to it.